DLocal Limited

Good day. Thank you for standing by. Welcome to the D-LOCAL First Quarter 2025 results call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear automated message revising your hand of phrase. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I will now like to hand the conference over to D-LOCAL. Please go ahead.

Good afternoon, everyone, and thank you for joining the First Quarter 2025 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, Jeffrey Brown, Interim Chief Financial Officer, 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 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 currently available information and D-LOCAL's 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 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 sections of D-LOCAL's filings with the Securities and Exchange Commission, which are available on D-LOCAL's Investor Relations website. Now I will turn the conference over to D-LOCAL. Thank you.

Thanks everyone for joining us today. Despite a more volatile global macroeconomic backdrop in 2025, the year has started broadly in line with our expectations. Building on the momentum of previous quarters, D-LOCAL continues to demonstrate strong execution and to prove the resilience of our business model, once again achieving record highs across key financial and operational metrics, despite Q1 not benefiting from seasonal strength in e-commerce. We believe that consistent sequential growth is a confirmation of our company's ability to compound growth over extended periods of time, consequently delivering shareholder returns. Net retention rate of TPV reached an impressive 144%. This figure demonstrates the defensibility of our business with our merchant base. Additionally, we're encouraged by TPV that grew north of 50% for a second consecutive quarter, underscoring the success of our strategy and the increasing demand for our services. These results reflect our continued commitment to innovation, customer satisfaction, and expanding our footprint throughout emerging markets. Furthermore, we continue to carry out strategic investments in technology and operations that are directly fueling the strong results of the quarter and building a robust foundation for sustained financial performance by strengthening our infrastructure, optimizing efficiency, expanding our service offerings, and elevating the quality of our service. Key accomplishments highlighted during the quarter include our TPV that reached the milestone of $8 billion, reflecting a 53% -over-year growth, or 72% in constant currency, and 5% -over-quarter increase in this volume. This performance has been driven by sustained expansion in cross-border payment volumes, supported by Chile, Pakistan, Nigeria, Turkey, and Brazil, as well as robust growth across multiple verticals with nodal contributions from sectors such as remittances, commerce, financial services, and streaming. Revenue and gross profit hit record highs of $217 million and $85 million respectively. And as in previous quarters, we continue to see the strength of continued geographic diversification with notable contribution from other Latam markets during this quarter. While we do continue to invest in OPEX to support and accelerate our future growth trajectory, we are still driving operational efficiencies across the organization. The adjusted EBITDA to gross profit ratio for the quarter reached 68%, a slight improvement, even when compared to the previous quarter, reflecting our ability to scale effectively. Despite ongoing investments, we've also continued to improve our revenue per headcount over the last four quarters. Finally, we've generated strong cashflow with free cashflow to net income conversion at 85%, reinforcing our commitment to a high growth, expanding margin, and cash generating financial model. Now, moving on to our commercial update, I'd like to share some of the highlights from the quarter. You'll find additional detail in the accompanying slides. These results highlight our ability to maintain and strengthen these relationships over time, ultimately increasing our share of wallet with merchants. We continue to strengthen our partnership with Temu, enabling their customers to transact seamlessly across over 15 emerging markets in Africa, Asia, and Latin America. Our partnership with Zepes is ramping up across key markets, demonstrating strong growth in Latin America, as well as in several African and Asian countries. We remain committed to supporting the merchants global expansion efforts, launching operations in further markets in Africa, which further strengthen their global footprint. And another noteworthy partnerships has been Rappi, which has been achieving significant growth in both Columbia and Argentina, after a latest round of new feature deployments on their behalf. On the technology front, our advancements were centered on leveraging automation and AI to drive operational efficiency and optimize performance across key areas. On the artificial intelligence front, the implementation of AI improved efficiency in customer experience and compliance monitoring by automating tasks and decisions previously handled manually. On the process automation front, automations have enhanced handling of chargebacks and refunds, substantially augmenting merchant win rate on chargebacks and accelerating refund flows. On integration efficiencies, a redesigned integration system has accelerated the setup process for new integrations, cutting down the time required to fully integrate with Delocal from days to just a few hours. We've also made interesting advances in our MCP server and LLM friendly API documentation for integration to Delocal, aiming for a near future where simple prompts will allow our merchants engineers to complete -to-end integration with our systems through AI agents. And on the merchant settlement front, the implementation of improved settlement system streamlined operations and greatly reduced the need for manual intervention in merchant settlements. These automation initiatives are beginning to deliver results. More importantly, this is not a side project. It's a core strategic imperative that will shape our future. Over the midterm, these results should deliver operational leverage and enhanced capabilities as we progressively integrate these technologies across the entire organization over the coming years. We anticipate these efforts will lead to a noticeable slowdown in midterm hiring growth, improved operational leverage, and ultimately a more robust and scalable business. Another key area of investment focuses on continuously optimizing performance to maximize conversion rates and TPV while delivering trusted and agile services to our merchants. During the first quarter, we enhanced our smart request strategies further. These are machine learning models that optimize conversion rates by dynamically changing the API message to the acquirer during authorization, which resulted in a 1.2 percentage point increase in conversion rates. On another front, in some African markets, we deployed smart 3DS, strengthening payment security protocols for higher risk transactions and driving a six percentage point improvement in conversion rates in those markets. We've also continued to be a driving force behind network tokenization readiness and support across networks in Argentina, Colombia, Uruguay, and Peru, boosting system-wide conversion rates in those countries, with notable gains in Colombia at 1.6 percentage points and Argentina at nearly 1.5 percentage points. Finally, it's important to highlight our continuous efforts in growing our licensed portfolio, which increase our competitive advantage as our global merchants seek to navigate the complex regulatory environments we serve them in. During the first quarter, we added three new registrations to our portfolio, two in Argentina as aggregator and payment facilitator and one in Chile as a sub-acquirer cross-border system operator. This first quarter of 2025 demonstrated strong execution across many of the levers of our strategic plan. Our commercial team effectively leveraged existing merchant relationships and established new partnerships. Financially, we executed our investment plan in a responsible and efficient manner. In addition, our operations and technology teams delivered improved effectiveness to our merchants and our legal and regulatory teams focused on expanding our licensed portfolios. With that intro, let me hand it over to Jeff to take you through a more detailed overview of these first quarter results.

Thank you, Pedro. Good afternoon, everyone. I am pleased to be with you today for my first earnings call as interim CFO. I want to thank the board and the leadership team for their trust and support. And I look forward to working with all of you. Let's now turn to the results for the quarter. As mentioned by Pedro, our first quarter has progressed as expected, continuing the trends observed since the second quarter of 2024. We have consistently executed our strategy, demonstrating strong operational performance by once again delivering record levels of revenue and gross profit, along with disciplined cost management and ongoing geographic diversification. As a result, in the first quarter of 2025, TPV reached $8.1 billion, representing a growth of 53% year over year and 5% quarter over quarter. In constant currency, TPV would have grown 72% year over year. From a business line perspective, our cross-border flows grew 14% quarter over quarter and 76% year over year, reaching the milestone of $4 billion for the first time,

mainly driven by remittances, commerce, financial services,

and streaming across different markets. Our local to local TPV decreased by 3% quarter over quarter and increased 33% year over year. The quarter over quarter comparison is explained by the commerce performance in Mexico, given the seasonality effect in the fourth quarter and partial loss of share of wallet with a large merchant. Our pay-ins business grew 2% quarter over quarter and 49% year over year, with strong performance in on-demand delivery, commerce, and streaming, partially offset by weakness in the advertising vertical. Our pay-outs business grew 12% quarter over quarter and 61% year over year, driven by remittances and financial services. Moving on to revenue, revenue reached $217 million in the first quarter, up 18% year over year or up 36% on a constant currency basis, driven by the volume growth in Argentina and the performance in other markets in Latin America and Africa and Asia, with strong growth across commerce remittances and on-demand delivery verticals. These results were partially offset by Brazil, despite experiencing year over year volume growth, reported a decline in revenue, primarily due to the migration to the payment orchestration model, which brings lower take rates, and a shift in the payment mix from a large merchant. Furthermore, Egypt demonstrated strong year over year volume growth. However, its revenue performance faced tough comps due to a wider gap between the official and market exchange rates during the first two months of Q1 2024. On a quarter over quarter basis, revenue grew 6% above TPV growth, positively impacted by higher cross-border share in the mix. The positive result was partially offset by Mexico, as I explained earlier. Turning to gross profit dynamics, we continue to benefit from the increasing geographic diversification of our operations. This diversification, as highlighted in previous quarters, enables the company to sustain

strong growth momentum. Even in the face of short-term challenges

in certain markets. During the quarter, gross profit reached a record level of $85 million, up 35% year over year, or close to 60% on a constant currency basis, driven by the volume growth in Argentina, performance in Egypt, and growth in other markets, particularly Chile and Turkey. These results were partially offset by Brazil, which, in addition to the revenue effects previously explained, was also impacted by one-off incremental processing costs. On a quarter over quarter basis, gross profit increased by 1%, driven by Argentina with gross profit following revenue trends, in addition to increasing advancement volumes, which have higher take rates, and a wider gap between official and parallel effects in Q1 2025 versus Q4 2024, and two other Latam markets, with highlights being the positive performance in Chile. This result was offset by drivers in Brazil and Mexico, as explained previously. In addition, despite volume growth across various countries, other Africa and Asia was adversely affected by increased

processing costs in South Africa. South Africa and Nigeria. Net take rate was down four basis points. Quarter over quarter, driven mostly

by one weakness in a key merchant in the advertising sector, and two, the one-off increase in costs in Brazil, as I just explained. Those effects were partially