DLocal Limited

Hello, and thank you for standing by. Welcome to the local third quarter, 2024, results conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. I will now like to hand the conference over to D-local. You may begin.

Good afternoon, everyone, and thank you for joining the third 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 Aragão, 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 the presentation may be accessed through D-local's website at .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 the currently available information and D-local's current assumptions, expectations, and projections about future events. Whilst 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 D-local's presentation or discussed in this conference call for a variety of reasons, including those described in the forward-looking statements and risk factors section of D-local's filing with the Securities and Exchange Commission, which are available on D-local's investor relation website. I will now turn the conference over to D-local. Thank you.

Thanks everyone for joining us today. Let me begin with a quick overview of our main highlights for the quarter. We're encouraged by how we see the business evolving. After an admittedly soft first quarter, we see ourselves consistently gaining momentum. Despite a tough 2023 comparison, driven by extraordinary gains in Argentina, we've once again returned to delivering a quarter of record results in both TPV and gross profit. Our margins, cash position, and cash conversion have all improved quarter after quarter throughout 2024. A year that started off admittedly weak has gained positive momentum. Let me go into greater detail now, starting off with our top line results. We continue to deliver significant growth with total payment volume re-accelerating to over 40% year over year, driven by our continued ability to expand our share of wallet of our existing global merchant base, as well as onboard new merchants. Both things underscoring our position as a trusted partner for global companies seeking to do business across emerging markets. Our performance this quarter was strong across diverse verticals, countries, and products. Notably, we ramped up operations in more countries, offered more payment methods, and gained share of wallet across important logos in the financial services, software as a service, on-demand delivery, advertising, ride hailing, and commercial verticals. We increased payment volume in Argentina, Mexico, Egypt, and other Latin America, mainly in Colombia and Peru, as well as in other Africa and Asia, with very strong performance in South Africa. We reported record volume in our higher take rate cross-border business, surpassing the three billion quarterly mark in cross-border flows for the first time ever. Our pipeline remains robust, including both growth opportunities with existing merchants, as well as new merchants. During the period, we successfully integrated major players, including Moneygram, one of the largest global providers of money transfer and payment services, and other significance remittance companies to serve them across Latin America, Africa, and Asia. We also continued to ramp up volumes with one of the main Asian commerce players, expanding the regions in which we serve them, and have now gone live in Brazil with one of the largest global fintech companies, also out of Asia. Moving on to profitability, this quarter's results showcase the resilience of our business model. We reached record gross profit of $78 million, with net take rates stable at .2% since Q1 2024. This is a consequence of our differentiated value proposition, continuous pursuit of cost efficiencies, such as renegotiating with processors, and the real value in solving complexities across emerging markets for our global merchants, which grants us pricing power and differentiates from more commoditized payments offerings that we see in the developed world. We achieved those results, despite weaknesses in most emerging market currencies. From a currency perspective, applying constant currency growth rates across our main markets, Brazil, Mexico, Argentina, Egypt, and Nigeria, our gross profit would have been approximately 6% higher during the third quarter 2024, or over 18% Q1Q growth, and TPV growth would have been 14% quarter over quarter. Our adjusted EBITDA reached 52 million, despite continued investments in our engineering team, back office capabilities, and our license portfolio, all crucial for our long-term success. Although adjusted EBITDA was down year over year, this represents the second consecutive quarter of increased operational leverage, with adjusted EBITDA over gross profit margin now at 67%. This demonstrates the operational leverage inherent in our business model, general philosophy of expense control, and disciplined investment to deliver our long-term growth ambitions. Cash generation, another strength in our financial model, was also solid. During the past three months, we had net cash from operating activities, excluding merchant funds, minus capex, accounting to $26 million, a cash conversion of practically 100% to net income. I'd now like to cover some technology and product development deployments during the quarter that shed further light on what our core offering is and how we differentiate from competitors. Some context, always remember that the backdrop of where we operate is an emerging market landscape where payments are still characterized by three main factors. They're fragmented, they're costly, and they have lower performance. During the quarter, we launched our smart requests functionality, boosting our transaction performance and therefore improving conversion rates by an average of 1.22 percentage points across the board. It may sound minor, but it isn't. It actually represents, in practical terms, .2% additional revenue to our merchants. Smart requests rely on per country machine learning models that optimize routing and chaining so as to maximize authorization rates for our merchants. We've also continued to develop increasingly advanced real-time cost calculation models to optimize processing costs, which also contributed to our gross profit achievement and stable net take rate. A third area of innovation has been our launch of new and promising alternative payment methods. As part of our ongoing efforts to deepen our infrastructure in various countries and add more value to our merchants, we've successfully deployed integrations with NuPay in Brazil for global merchants. This represents an expansion of our payment method footprint with this widely adopted and advanced feature set, APM. Finally, we launched a new product to our suite of offerings, a standalone payment orchestration option, which allows merchants to retain our smart routing, fraud detection and unified reporting while obtaining their own licenses and contracting directly with processors in each market. Although this model may result in a lower take rate net of acquiring costs, it enhances our ability to capture share of wallet with relevant clients and continues to add value to merchants through our single API connection and product functionalities while delivering optimized conversion and cost results. All of these improvements to the platform, as well as the development of new solutions serve to deepen our competitive advantages throughout the markets we operate in, enhance the stickiness of our products and potentially bring future revenue streams. Lastly, we continue to invest in expanding our license portfolio, obtaining an international money transfer operators license in Nigeria, financial system auxiliary services license in Ecuador and a payment service provider and payment system operator license in Uganda. We still see this growing portfolio across complex and volatile emerging markets as very valuable intellectual property and adding to it every quarter is a deepening of our competitive advantages. Wrapping up, we're delivering on the outline plan for sequential performance after Q1. Consistently hitting record TPV, holding the line on take rate declines, showing best gross profit ever for a quarter and improving our margins through reduced absolute dollar OPEX. In short, things are trending in the right direction. With that, I'll hand it over to Maria to take you through a more detailed overview of our third quarter results and then to Mark to walk us through key financials.

Thank you, Pedro. Good afternoon, everyone. As Pedro mentioned, despite some softness in Brazil, our third quarter results show healthy growth and momentum. We achieved TPV of $6.5 billion, up 41% year over year and 8% quarter over quarter. From a business line perspective, our cross border flows grew 12% quarter over quarter and 35% year over year, reaching $3 billion in TPV, mainly driven by commerce, financial service, on demand deliver and SaaS verticals. Our local to local TPV increased by 4% quarter over quarter and 47% year over year, with strong performance in Mexico and Argentina. We experienced sequential slowdown in growth in Brazil, driven by a loss of share of wallet in credit card payments with a top commerce merchant. As they were granted a payment license and were required to connect directly for acquirers in order to remain compliant. On a positive note, we see potential to reignite growth with that specific merchant through a pipeline that includes alternative payment methods and onboard them to our new standalone payment orchestration option that Pedro described earlier. Excluding the impact of this merchant, TPV in Brazil would have been up 8% quarter over quarter, driven by advertising and commerce verticals. Our payments business grew 8% quarter over quarter and 35% year over year, with strong performance in Mexico, Colombia, Argentina, South Africa and Egypt across various verticals. Our payouts business grew 7% quarter over quarter and nearly 60% year over year, driven by financial services and remittances. Moving to revenue, we achieved $186 million in Q3, representing a 13% year over year growth. This is mainly driven by Egypt, with volume growing over 90% year over year, Mexico with positive performance in commerce and financial services and other markets, particularly Colombia and South Africa, with strong growth across commerce and ride the hailing verticals. These positive results compensated for the lower revenue in Nigeria due to the Naira devaluation in February 2024 and in Brazil as previously discussed. On a quarter over quarter basis, revenue followed the TPV trend, growing 8% driven by the performance in Argentina and Egypt, with volumes increasing by over 30% in the period, as well as the positive results in other Latam and other African Asia. Now moving to gross profit dynamics. During the quarter, gross profit reached a record of $78 million, up 5% year over year, despite the hard comparison with Q3 2023. Starting with Latam, gross profit was $56 million, down 6% year over year, driven by Argentina due to the low effect spreads following the currency devaluation in December 2023 and Brazil, given the repricing for our largest merchant, which occurred in Q1 2024 and share losses in credit card payments. This was partially offset by Mexico, where gross profit grew over 60% year over year, due to the volume growth and lower processing costs from the renegotiation with processors in Q1 2024. In African Asia, gross profit was also stellar with almost 50% growth year over year, mainly driven by our overall TPV growth in Egypt, as discussed previously, and TPV ramp up of our commerce merchant, combined with cost optimization in South Africa. On a quarter over quarter basis, gross profit increased by 12%. In Latam, gross profit increased by 4% quarter over quarter, driven by Mexico and other Latam markets, where we experienced 2 million growth from widening effect spreads that may eventually fade away in case of currency devaluation. These positive factors were partially offset by Brazil, given the share losses on credit card payments of a top merchant, and Argentina, where we had higher expatriation costs. In African Asia, gross profit increased by 39% quarter over quarter, due to the same factors just discussed in the year on year comparison. As you can see by these results, Q3 continued to build on the growth of Q2 and delivered record gross profit despite the softness in Brazil, demonstrating increased diversification on a geographic and merchant basis. As we continue to scale our business, we expect to reduce volatility on our top and bottom line. In addition, please note that we provide detailed country by country information to help you better understand the drivers of our results. That said, it is important to emphasize that our business is ultimately driven by the volume of merchants interest to us and the unique dynamics of each of the markets. We encourage you to view our performance holistically as this perspective best reflects the quality and resilience of our business as a whole. Let me now hand it over to Mark to continue discussing our financials.

Thank you, Maria. Hi everyone. As discussed in previous quarters, we continue to invest in our capabilities and innovations to drive efficiencies across various areas of our business. We have maintained investments in key areas critical to our future growth while balancing out other expenditures given our top line path. With this, our 4Q3, our total operating expenses reached $37 million, a 6% decrease quarter over quarter and a 61% increase year over year. Most of the OPEC's growth continues to be mainly allocated to product development and IT capabilities with these expenses increasing by 88% year over year while combined sales and marketing and G&A expenses grew by 35%. Pedro highlighted in his opening remarks, some of the projects our tech and product teams have been working on during the past few months. We expect this allocation tilt toward product and IT to continue in the future. The 6% decrease quarter over quarter is a reflection of our continued disciplined approach to expense management after a weaker than expected result in the first semester. Through reignited growth and cost management, we delivered an operating profit of $41 million for the quarter, up 36% quarter over quarter and adjusted EBITDA of $52 million, up 23% quarter over quarter, representing an adjusted EBITDA margin of 28%. This marks the second consecutive quarter of increasing adjusted EBITDA and adjusted EBITDA margin. The ratio of adjusted EBITDA to gross profit followed in a similar trend, reaching 67% for the quarter, up six percentage points quarter over quarter. Turning now to net income. Net income was $27 million for the quarter, down 42% quarter over quarter and 34% year over year. The earnings presentation provides a detail of the quarter over quarter evolution of net income, which was mostly impacted by lower finance results. More specifically, the positive $23 million non-cash mark to market effect related to the Argentine bond investments in Q2-24, as mentioned last quarter, and higher finance costs this quarter, mainly driven by exchange differences and higher cost of hedges. Adjusted net income, which excludes the impact of the Argentine bonds and inter-company loan, was $43 million for the quarter, down 5% quarter over quarter. Our effective income tax rate decreased to 8% from 18% last quarter, primarily driven by lower pre-tax income in Argentina On a year to date basis, our effective tax rate stands at 18%. Moving on to cash flow for the quarter. Net cash from operating activities, excluding merchant funds, less capex, amounted to $26 million, up from $19 million in Q2-24, representing a 37% increase. With that, we continue to hold a strong liquidity position of $320 million, including $208 million of available cash for general corporate purposes, and $112 million of short-term investments, even after the $100 million share buyback executed this year. With this, let me hand it over back to Pedro for closing remarks.

Thanks, Mark. Before we conclude our presentation, I'd like to state that our guidance remains unchanged in light of our Q3-2024 results, and what we've seen through Q4. However, it's important to reinforce that Q4 results are heavily weighted towards the next three to four weeks, given the expected seasonal lift in commerce volumes and Black Friday. Now, let me wrap up our earnings call by emphasizing our long-term optimism, driven by the strength and resilience of our business model. D-Local is a young and dynamic company, less than eight years old, and yet, during this period, it's delivered extraordinary growth. We've expanded our roster of sophisticated enterprise merchants, increased our share of wallet with them, and built operations across the most relevant emerging markets globally, adding products, new alternative payment methods, and licenses over these years. This growth underscores our success in serving and supporting these most demanding digital merchants with tailored solutions that meet their evolving needs. We navigate the highly complex and changing payment landscape and regulatory environments across EM with one of the most complete emerging market processing ecosystems. Our -in-class orchestration layer, competitive Forex liquidity and rates, robust fallback and redundancy features, efficient prod prevention engines, and KYC regulatory and compliance layers are built to suit each market we serve. The comprehensiveness of our one D-Local solution allows our merchants to add new markets and payment methods at a marginal incremental implementation cost, providing cost-effective and speedy geographic -to-market strategies. This value supports the resilience of our business despite operating in the volatile global South. The quarter we've just closed exemplifies both the volatility I just mentioned, and more importantly, the increasing resilience of our business. Despite softness in our largest market, we've delivered record levels of TPV and gross profit. We have rebounded from weakness in one queue to deliver two consecutive quarters of consistent growth in metrics, as well as in adjusted EBITDA. This type of sequential growth, when compounded over many quarters, shows the extraordinary potential of D-Local. Secular trends also favor us. We have a huge and growing TAM underpinned by shifts towards payment digitalization, the growing importance of emerging and frontier markets, and surging demand for cross-border and instant payment methods. Industry forecasts predict the cross-border payment market can reach $65 trillion by 2030, and we see ourselves as well positioned to be capturing a reasonable portion of that growth in this immense opportunity. Our ability to innovate and capitalize on these trends, coupled with our financial model, characterized by operational leverage and good cash conversion, will fuel long-term value creation for both our shareholders and merchants. We're just beginning to realize the compounding nature of all this, and we remain steadfast in our mission to deliver on this promise, in all the relevant geographies that our merchants need us to be. Thanks to those who have shown us continued support and confidence, and I look forward to updating you on our progress in the upcoming quarters. With that, we can now take questions.

Thank you. Ladies and gentlemen, as a reminder to ask a question, please press star 1-1 on your telephone and then wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from Alana Beaches of Roo with Goldman Sachs. Your line is open.

Hi, everyone. Thank you for the call and for taking my question. My first question is on the gross profit loss in Brazil. So you showed in the presentation, I think, Maria, alluded in the prepared remarks of loss in share of wallet in one top merchant in Brazil. Could you maybe give us some more color on that if you expect other merchants to follow suit, what specifically happened there? And my second question is regarding the decrease in G&A in the quarter, right? It fell 16% sequentially. And I think Mark mentioned that it's due to, you know, additional cost controls, but Pedro mentioned that you still intend to continue with the plan on investing in your engineering team, back office capabilities, et cetera. So just wondering if that expense line, if that level still makes sense going forward, given your investment plans, how should we think about expenses going forward? Does it increase from here and especially, you know, going forward into next year also? Thank you.

Thank you. Just some context before I answer the specifics on Brazil. I think it's important to not forget that we run the company based on merchants and increasingly global and diversified contracts with those merchants. We don't really decide where our merchants are going to ask us for support, what markets to open, or what specific countries' volumes will be up or down. We do trust that in general, merchant relationships will grow consistently given the quality of the service we offer. And when we look at the second quarter, one of the things that I'm the proudest of is how, despite weakness in a market that is very relevant like Brazil, we were still able to deliver record gross profit. And that's a testament that what we have been saying, and that is that as we scale and diversify the business, the fluctuations that are inherent in emerging markets will become easier to manage through diversification. And Q3 is definitely a case in point where, again, despite weakness across a few key markets, strength across a growing number of relevant markets allowed us to deliver record gross profit nonetheless. And I think this is very, very important when we think of the delocal opportunity and investment thesis going forward. On Brazil specifically, Brazil has a very particular regulatory environment. This specific merchant was granted a payment institution license, and the regulatory environment in Brazil does not allow a subacquirer or a payment institution to process through another subacquirer, leading them to have to go direct to acquirers. And that's just the way it played out. You really should not extrapolate that to other markets, and I would not extrapolate that to other merchants either. I think this is somewhat of a particular situation. More importantly, the orchestration product we launched is a product that has both an offensive nature and a defensive nature. The defensive nature is that it allows us to address exactly this type of situation, where the merchant can now run on their own licenses, have their own direct contracts with acquirers, yet continue to use our 1D local solution and benefit from our technology stack. We've already migrated this specific merchant over to the orchestration product. We're off to a strong start in Q4, beginning to recoup volumes, beginning to increase again share of wallet on credit cards, and we hope to be able to continue to execute, perform, and regain as much, if not all, of that volume going forward. I'll let Mark take the one

on costs. Thanks, Pedro. In terms of cost, I think it's important to note that we still continue to invest in our future and in our folks here. I think it's interesting to see the fact that even though the G&A came down, it was really an action that we took around after the first quarter. It was a bit of a weaker quarter for us. We decided to take some actions, and we did redo some costs around third parties and some other areas that we thought were prudent to do this in the shorter term. We continued to invest in our product and IT folks. If you look at quarter over quarter, the IT and product costs have gone up by about 8%. The other cost came down by 6%, and that's part of where the G&A cost comes down as well. Looking forward here, we expect that cost to slightly rise. Again, we're going to continue to invest in our infrastructure. We're going to continue to invest in our IT. So we see those costs slightly going up here, but we're going to continue to be measuring in terms of how we look at each of those costs and those investments for the future.

Very clear. Thank you. Thank you. Please stand by for our next question. Our next question comes from the line of Gil Hermann Grespan with JP Morgan. Your line is open.

Hi. Good morning, everyone. Thank you for the presentation. Congrats on the results. Very strong operational performance. Just on the country base, Pedro, we noticed very strong gross profit growth specifically on the other geographies, which is not sure if we can say non-core because, as you said, you're a global company, but it's outside the names you usually put in the breakdown of gross profit. Other, Latam and other Africa was very strong. So just to confirm, if there is any new geography that you are seeing that is ramping up very fast, and what is the nature of the business if it's more cross-border or more -to-local in those geographies? Thank you.

Thanks. Great question. I think another one of the strengths in the quarter was the performance in the cross-border business. As Maria noted, it crossed $3 billion for the first time in a quarter of TPV, and part of that strength is aided by this increasing diversification in more and more markets. So the answer is many of these newer markets are indeed cross-border. They tend to be more frontierish markets in some cases where infrastructure for payments is somehow less developed and merchants are less inclined to have to incur in costs of setting up local operations, dealing with local payments. And so the fact that they're already integrated into our 1D local solution makes it very easy for them to add these markets. And this is exactly what we're very good at. We did give specifics around some of the markets that we're most excited about and where we've seen significant strength. It's a good combination of Latam and also Africa and Asia. So in addition to continued strength in Mexico, which is a core market, and Egypt, which we've been strong in for a while, we've now began to see the emergence of a really strong franchise in South Africa. Colombia performed incredibly well this quarter, as did Peru. So really interesting to see a growing number of countries that are delivering strong results in TPV and gross profit. And it's exactly that type of global diversification that drives what we believe is very long-term sustained growth opportunities, but also increased diversification to be able to manage the inherent fluctuations that exist in emerging markets.

That's clear. Thank you and congratulations again.

Thank you. Please stand by for our next question. Our next question comes from the line of Matt and Lejeux with South Dakota International Group. Your line is open.

Oh, hi. It's Jamie Freeman. So I want to ask, is it fair to think of the fourth quarter guidance as a run rate for 2025? I realize you're not giving guidance yet for next year, but any context about how to think about the relationship between the fourth quarter and 2025 would be helpful.

Hey, Jamie. Thanks. Difficult question. So first of all, let me just try to parse that out a little bit. This is still a high growth company. When we look at our pipeline, we see significant opportunities that as we convert them should lead to definitely a consistently growing book of business into 25 and beyond. Part of that success is also driven by continued strength in the commerce category, which also means that we'll be exposed to increased seasonality as e-commerce. Everyone knows is much more backloaded, particularly in the fourth quarter. And so the balance between the strength of seasonality and the inherent sustained long term growth of the book beyond the seasonal effect is one that I think it's probably too soon for us to go on record on. When we revise midterm guidance, which is an annual process for us, we'll be able to give you greater clarity on what 2025 looks like. I think the key messages here is we're optimistic about the pipeline. We're seeing a consistent improvement quarter on quarter since the beginning of the year. So certainly we feel like we're exiting the year on a very different cadence than the way we entered the year, which is for us very positive when we start looking into 2025.

Okay, thanks. And then that's clear. I wanted to ask about remittances. So you had some real nice traction on the growth number in front of me, but it was like 80 percent of that memory. When you go into the MoneyGrams of the world or others with a remittance narrative, what do you what does that conversation look like and what do you feel like is your competitive advantage with your remittance offering?

Yep. So at the end of the day, what most remittance companies are looking for when they're looking for infrastructure is speed of the payout and its FX competitiveness and availability of liquidity, which ties to speed. What's somewhat unique about the local is that with the phenomenal execution that the payout team has been delivering, we kind of combine a very strong franchise and payouts with a very strong franchise and pay ins, which is somewhat unusual. I don't want to say entirely unique, but is definitely its strength. That ability of having both the flows that are going southbound, so the remittance flows and the pay inflows that are going northbound is what allows us in markets where netting is regulatorially permissible to have extremely fast payout capacity at very competitive FX pricing and strong liquidity. Because we have money in the markets that needs to leave the markets and money that's trying to come into the markets. On top of that, it's about the quality of the technology stack that they integrate into and our service model where we have feet on the ground and a long standing relationship with banks, with wallets, with all the endpoints for remittances across these markets that not many people have built that kind of local operations. And then the final thing is again through one integration layer, many times we're able to offer you multiple markets across the global south rather than having to pursue specific partnerships for specific regions or for specific countries. So it's a pretty potent bundle and I think that's really what's driving the success we've seen in that business over the last year. Got

it. Thank you, Pedro. I'll drop back in the queue.

Thank you. Please stand by for our next question. Our next question comes from the line of Neha Agrawala with HSBC. Your line is open.

Hi, thank you for taking my question. Just a quick one on the gross profit margin. When we look at that of America, we are at a margin of around 38 percent. Whereas in the other geos, we're at 56 percent. Where should we expect this to normalize? What is a good level of gross profit margin to expect? Because we think over time you should be gaining more leverage in terms of reducing costs with your partners and that should reduce the cost of doing business. We can elaborate on that. It's a more medium term question, but it would be helpful to understand.

Sure. I think you're understanding the building blocks accurately. There's always inherent, I think, cost negotiation power as we grow our business and gain scale. A big part of what we do is aggregation theory in that rather than have global merchants have to negotiate with local processors on a case by case basis, we aggregate all of that volume. We negotiate based on that aggregate volume. And even by keeping our spread, we're still able to continuously lower costs. Right. And if you look at year over year, there have been, I think, circa 20 basis points, I believe it is already of cost improvements in terms of processing costs. And that's something that we think we can continue to improve going forward. The cross border, as we mentioned before, some of these newer markets tend to in general terms be higher margin markets because they have a combination of a higher mix of cross border, but also tend to be currency pairs because they are more exotic currencies that have higher margins. So that's also, I think, an ad when you're trying to project margins into the midterm. On the flip side of that country mix and then also payment mix, because margins do vary by payment mix, whether it's cards, whether it's debit, whether it's APM, whether it's account to account, is what is a little bit harder to predict. At the end of the day, we're not shooting for a margin. We're receiving merchant specific solves for as many payment methods, as many markets as possible. And we're trying to optimize the gross profit dollars that we're generating off of that. So hard to give very specific guidance on where it lands. But those are the building blocks to think through how the financial model scales into the future.

Last question, Pedro, on the cost. For this year, you had mentioned investments leading to higher OPEC. How should we think about the investments going forward? Do you think you'll be done with these enhancements in the business in 2024 or should we continue to expect more investments coming through in 2025? Or should you again go back to gaining operational leverage? How should we think about the OPEC going forward? Thank you so much.

Yeah, so if you look at the last sequential quarters, we have been delivering consistent operational leverage quarter on quarter. If you look at where we were last year, where we were already at the midterm guidance point when we look at Q3, which was somewhere in the mid 70s, to the best of our current thinking, that's still very much the midterm level we'd like to achieve. And I think the answer to your specific question on investment versus leverage, what we're trying to show is that we're still in a phase. I don't know if it's for another two quarters, three quarters, four quarters, where we have to combine both continuing to lean into the business to build the right capabilities with the right directionality of progressing towards those midterm targets. I think after we get through this phase, which is not now, and it's not in the beginning of 25, but it's not in the very distant future either, you see the business potentially kicking in to a whole entire gear of operational leverage, which is typical of a payments product, right? In the meantime, we will have to deal with other moving pieces, like what happens with take rates, what happens with country mix, but from a cost perspective, I think the answer is there's still a few more quarters of disciplined investment. Ideally, that investment is not such that it offsets leverage, but it doesn't foresee the full operational leverage built into the financial model until a few more quarters out.

Thank you, Pedro. Thank you so much. Thank you. Will you stand by for our next question? Our next question comes from a line of John Coffey with Barclays. Your line is open.

Great. Thank you very much for taking my question. I guess the first is, I was wondering, you mentioned some investments that you recently made in Nigeria, Ecuador, and Uganda. If these start to pay off, where do you see them? Is it just with more volume and TPD, or do you see with lower cogs? I just want to try to get a better understanding of how that shows up in the income statement. And the second question, which I can just ask now, is on your payments orchestration solution. Is this something that your merchants have to opt into? Are they auto-enrolled? I was wondering if you could provide a little bit more information about who you're approaching with this solution. Is it new customers existing and how the financials might be a little bit different from the solutions they may have been using in the past? Thanks.

Yep. So the question on licenses is actually a good question. Unfortunately, licenses do not come with improved cost structures. As we all know, they come with regulatory cost. They also, we increasingly believe, are a differentiating factor when you're offering solutions to global north merchants for emerging and frontier markets. So what we hear from our merchants is that from a perspective of compliance alignment and trust, it's always better for them if they're able to flow their payments through a regulated partner than an unregulated one. And so where we should see this over the long run is on greater volumes and winning more deals because we have this license portfolio that aligns and gives our merchant comfort on how we're approaching these complex markets. But I don't think it's that easy to model short term. This is more just a commercial advantage that we believe we have as we grow that license portfolio. On orchestration, at the end of the day, what we're trying to do is to give our merchants the broadest array of solutions that we can while at the same time maintaining the simplicity and the ease of integration of the 1D local solution. So orchestration essentially is merchants can choose to keep it very simple and we have the contract and we have the merchant of record model with the processors. Or for merchants who would rather keep our service operations reporting fraud models, technological integrations, but want to have direct contracts with processors and therefore not use the merchant of record model, we can also offer it to them. And we actually see this product more as a way of pursuing incremental business and incremental merchants who potentially already have relationships with processors or who want to enter a market under that model. And we can now offer them that solution as well. So really at the end of the day, the end game is to be able to solve whatever the merchant needs are under different contractual models based on whatever the merchants want.

Great. Thank you very much.

Thank you. Please stand by for our next question. Our next question comes from the line of Cassie Chan with Bank of America. Your line is open.

Hey guys, thanks for taking my question. So I guess just wanted to go back to fourth quarter. I know you guys mentioned typical seasonality given the ramp up of commerce and the holiday shopping. And obviously the full year guide was reiterated, which kind of implies stable quarter over quarter growth, both on GPN and margins, but mainly focusing on the top line for the fourth quarter. I guess, like, is there anything that you guys have seen in the data quarter to date as a reason to believe why the four Q seasonality that you typically expect wouldn't materialize? Or is it just, you know, trying to be a little bit more conservative given obviously volatility in the emerging markets and then and then I have a follow up. Thank you.

Hey Cassie, thanks for that. The answer is, obviously, we haven't had a stellar management of guidance so far this year. And the fourth quarter is very particular because as you know, the real quarter plays out over the next four weeks. So mid November to mid December, right before the holidays. And so it's a quarter where I think a certain level of caution is necessary given that we don't really know how the full quarter plays out until we see the next four weeks. I think quarter today, TPV trends are coming in very solid. We're seeing a rebound in Brazil, like I mentioned before. But again, unfortunately, I think we still need to err on the side of being crystal clear that despite the strong start to the quarter, the next four weeks is where it all plays out.

Okay, understood. And I guess just wanted to ask about the top 10 clients, you know, that was up nicely, I think about 16% and then non top 10 clients of about 8%, I think in terms of revenue growth. How should we think about ongoing revenue concentration? It's obviously still above 60% of your total revenues and diversification as well, both within top and non top 10 clients going forward. Thank you.

Yeah. So as you've seen from my remarks, I think I'm very encouraged and very optimistic by our diversification from a region perspective and market perspective. We're seeing merchants who try us in a few markets really trust what we're how we're performing for them and asking us for a growing number of emerging and frontier markets. And we're seeing that play out in the numbers in terms of diversifying our business based on a growing number of markets that are performing well. From a merchant perspective, again, the midterm vision is also to be able to reduce diversive to reduce reliance on the top 10 and top 25 merchants. However, that might be a little bit more of a midterm play. When I look at this emerging world footprint. The reality is that the merchants that are really focused on these markets have a tendency to be the larger really global players that have large enough businesses across the global south that they're optimizing across the markets that we offer. The tier two or tier three merchants today, I think, are still more about beginning to wade into the water of global go to market and emerging markets. So I see that as a second wave of growth. The good thing there is that that's exactly why I'm so optimistic as to why the local can sustain growth for a very prolonged period of time going forward, because there's a whole bunch of merchants in the digital world that are emerging and that aren't really focused on their global south footprint and will be in a few years. For now, where I see most of that interest is in the really, really large global digital players. And so I think that we will still have concentration in line with what you're seeing today with slight improvements into the next few quarters. I don't anticipate that de-concentrating very quickly.

That's very helpful. Thanks so much,

guys. Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back to the local for closing remarks.

Thanks, everyone, for the interest. I think things continue to progressively get more and more encouraging. As we've said, this is our second consecutive quarter of very consistent improvement on a sequential basis. If we continue to deliver like this, the power of compounding sequential growth and the high single digit, low double digits is phenomenal when you look at that over a multi-year period. And so that's what the entire team at the local is laser focused on executing and delivering on. And I look forward to updating you on how the fourth quarter played out in a few months. Thank you. And until then,

ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.