Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- DLocal Ltd (DLO, Financial) achieved a quarterly record of $6 billion in TPV during Q2 2024, representing a 38% year-on-year growth.
- The company continues to gain share of wallet from its global merchant base and add new merchants, indicating strong business momentum.
- DLocal Ltd (DLO) reported 11% quarter-on-quarter gross profit growth, showcasing stable sequential pricing and growing TPV.
- The company has maintained a high margin financial model with adjusted EBITDA to gross profit at 60%-plus.
- DLocal Ltd (DLO) has a strong liquidity position with $306 million, including $106 million of available cash for general corporate purposes.
Negative Points
- Year-over-year gross profit performance was flat, driven by a 13% decline in Latin America due to Argentine FX devaluation and repricing by the largest merchant in Brazil and Mexico.
- Despite healthy TPV growth, revenues declined by 7% quarter-over-quarter, impacted by currency devaluation in Nigeria and Egypt.
- Operating expenses reached $40 million for the quarter, an increase of 72% year-over-year, driven by investments in product development and IT capabilities.
- The company faces challenges in maintaining gross profit growth due to unfavorable events like repricing by its largest merchant and material currency devaluations in key markets.
- DLocal Ltd (DLO) has revised its TPV and gross profit expectations for 2024, indicating a cautious outlook due to lower probability of volume ramp-ups and weaker emerging market currency expectations.
Q & A Highlights
Q: In your first-quarter conference call, you were confident about delivering the lower end of the guidance. What changed from then to now?
A: Pedro Arnt, CEO: The evolution of guidance has shown revisions towards the downside due to the complexity of projecting volumes across 40-plus markets and 700-plus merchants. We continue to see strong adoption of our products and services, reflected in TPV growth. However, the mix shift towards Tier 0 merchants and local-to-local business has modestly impacted take rates.
Q: Do you expect the shift towards more local-to-local processing to continue, and how will it affect take rates?
A: Pedro Arnt, CEO: We expect a moderate decline in take rates due to the shift towards local-to-local processing and greater concentration in Tier 0 merchants. However, the decline is controlled, and we are working on offsetting it with more value-added services in the mid-term.
Q: How much visibility do you have on merchant repricing, and what about the concentration of merchants?
A: Pedro Arnt, CEO: Pricing is not stipulated in long-term contracts, so merchants can approach us anytime for repricing. Most contracts have tier-driven pricing, which provides some visibility. We are not seeing other merchants lining up for repricing like our largest merchant did earlier this year.
Q: Can you provide an update on the remittance vertical and its impact on liquidity?
A: Pedro Arnt, CEO: The remittance vertical grew over 80% year-on-year, driven by onboarding more global remittance companies. It allows us to have efficient liquidity in markets where netting is permissible, which is the case in most markets we operate in.
Q: What are your assumptions regarding foreign exchange rates, and which markets are of particular concern?
A: Pedro Arnt, CEO: We use bank and market data for currency projections, which generally show a weaker emerging market currency outlook. Specific currencies of concern include the Argentine peso and Egyptian pound, but we believe the risks are significantly de-risked compared to last year.
Q: How should we think about the third quarter versus the fourth quarter in terms of TPV and gross profit trends?
A: Pedro Arnt, CEO: July was a strong month with TPV above $2 billion. We expect Q3 to be softer than Q4 due to seasonality in e-commerce, but it's still early to tell. We focus on TPV growth as the core of our investment thesis.
Q: What is your moat against competitors like Stripe and Adyen, especially given your higher take rates?
A: Pedro Arnt, CEO: Our moat lies in our sole focus on the global South, a single API layer that abstracts complexity across 40-plus markets, and the FX overlay. These factors differentiate us from developed market competitors and make us well-positioned for success in emerging markets.
Q: Can you provide more details on the investment phase and its duration?
A: Pedro Arnt, CEO: The investment phase is focused on product development and technology, and strengthening mid-office and back-office functions. We expect this to be a multi-quarter cycle rather than multi-year, with gradual sequential improvement in margins.
Q: How do you view the long-term growth prospects of dLocal?
A: Pedro Arnt, CEO: We remain optimistic about our long-term growth prospects. Our addressable market is large, and we continue to see strong interest from global merchants. Execution will be key, but we believe we are uniquely positioned to capture value over the long term.
Q: Is there anything operationally you know now that you didn't when you took the job?
A: Pedro Arnt, CEO: No, the fundamentals remain strong. The addressable market, merchant base, and financial model continue to be attractive. While 2024 has been challenging from a profitability perspective, we remain optimistic about our long-term growth and ability to generate shareholder value.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
