dLocal Ltd Q3 FY2021 Earnings Call

Thank you for standing by, and welcome to dLocal Limited's Third Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today’s conference may be recorded. I would now like to hand the conference over to the Company.

Thank you. Good afternoon and welcome to dLocal’s earnings conference call for the third quarter of 2021. 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 dLocal’s website at investor.dlocal.com. The replay will be available shortly after the event concludes. Before proceeding, let me mention that any forward statements included in the presentation or mentioned in this conference call are based on currently available information and dLocal’s current assumptions, expectations, and projections about future events. While the Company believes that the assumptions, expectations, and projections are reasonable in view of 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 various reasons, including those described in the forward-looking statements and Risk Factors section of dLocal’s registration statements on Form F-1 and other filings with the Securities and Exchange Commission, which are available on dLocal’s Investor Relations website. Now, I will turn the conference over to Sebastián Kanovich, our Chief Executive Officer.

Hello, everyone, and thanks for joining us today. On the call today, I’m joined by Sumita Pandit, our Chief Operating Officer; and Diego Cabrera Canay, our Chief Financial Officer. We are excited to present an update on our business, and we thank you for your interest in our company. On slide 3. dLocal enables global merchants to connect seamlessly with billions of emerging market consumers. Our platform, One dLocal presents a single API, single integration, and single contract solution to our merchants. We are entirely B2B-focused, and we are proud to count some of the largest global merchants as our customers, such as Microsoft, Rappi, Kuaishou, Mailchimp, Wikimedia, inDriver, and Wix. Today, our infrastructure supports our merchants across 32 emerging markets in Latin America, Africa, and Asia. Now, to the results. The third quarter has been another outstanding quarter. Total processed volume, TPV, grew 217% year-over-year when compared to the third quarter of 2020, reaching $1.8 billion during the quarter. Revenue for the quarter at $69 million represents 123% growth year-over-year when compared to the third quarter of 2020. Adjusted EBITDA for the third quarter of 2021 grew 110% year-over-year as compared to the third quarter of 2020. On slide 4. Let us briefly compare our Q3 2021 performance vis-à-vis Q2 2021 as well as the full year 2020. Our Q3 2021 revenue growth of 123% compares to 186% year-over-year in Q2 and 88% year-over-year growth in the full year 2020. We have previously highlighted the net retention rate metric as a key KPI we manage our business on. We achieved 185% NRR in Q3 2021 versus 196% in Q2 2021 and 159% in the full year 2020. Our adjusted EBITDA margin in Q3 2021 was 38% in comparison to 44% in Q2 2021 and 40% for the full year 2020 as we continue to invest in our people, platform, and technology to pursue a path of growth. We expect our full year 2021 adjusted EBITDA margin to be in line with our full year 2020 adjusted EBITDA margin. During this quarter, we have seen continued growth in our business from both existing and new merchants using our product. We are seeing more digitalization, less cash, and wider adoption of alternative payment methods. We have continued our efforts on the expansion front, growing our presence in Africa and Southeast Asia. We’ve launched two new countries in the last quarter, Thailand and El Salvador. For the year-to-date 2021, we have added six new countries to our network infrastructure. We have added over 10 new merchants with material volumes in the third quarter of 2021. We continue to benefit from the diversification of our business across verticals. We have maintained our strong adjusted EBITDA margin even with continued investment in our infrastructure and people. We have continued to hire and strengthen our employee count in key functions. The headcount in dLocal grew 105% year-over-year in the third quarter 2021. On slide 5. There are three primary challenges that we are solving for our merchants. One, payment methods are local by nature and very diverse in the 32 countries where we serve. The trend of fragmentation continues as consumers adopt newly available payment methods. Merchants are keen to access its rapidly growing end market without building the payment rails themselves. Two, achieving healthy conversion rates while keeping fraud under control is a challenge in emerging markets. And three, we make the complex simple for our merchants by enabling them to keep up with the changing regulatory and tax framework in emerging markets. On slide 6. The complexity of the markets we serve makes our solution powerful. Slide 6 provides a breakdown of payment methods in Latin America, the Middle East, Africa, and Asia Pacific to showcase the complexity that our merchants face when doing business in this market. Each market is evolving differently. For example, the proportion of digital mobile wallets is much higher in Asia Pacific. Bank transfers and cash on delivery are much more dominant in the Middle East and Africa region. There are also differences by country in each of the continents. Merchants are seeking choice and agility in this end market to keep up with consumer preferences. Slide 7. On our website, we have made available a market study completed by AMI on the key markets we serve. Our TPV for the third quarter 2021 was $1.8 billion, a 217% year-over-year growth. Our TPV for the last 12 months at $4.9 billion was 2.4 times our TPV for the full year 2020. Our TPV is a very small portion of our addressable market that is expected to continue to grow at a 27% CAGR in the next few years. Slide 8. On slide 8, we present a case study of a representative merchant on our platform. As shown, we typically take 3 to 6 quarters to ramp up volume. For this particular merchant, we started with a local-to-local payment flow. We’ve added payment methods, we’ve added new countries, and we then added cross-border flow for a few markets. We went from 18 to 109 payment methods for this particular merchant. We’ve expanded to nine countries. The merchant has seen growth of 30 times volume over approximately three years. Every merchant is, of course, unique, and the example provided is representative of how we grow as our merchants organically grow on our platform. I will now hand it over to Sumita to go through our vectors of future growth.

Thanks, Seba. We are now on slide 9, vectors of future growth. We have three primary vectors of growth: commercial efforts; product expansion; and geographic expansion. Our commercial efforts are focused on the land-and-expand strategy. Our growth is driven by the organic growth of our merchants, our ability to cross-sell through account management, and our ability to add new clients. Our NRR for the third quarter was an impressive 185% in comparison with 159% in 2020. We calculate NRR by measuring the dollar revenues we earn from existing merchants we had on our platform on a year-over-year basis. Therefore, $100 of revenues in Q3 2020 from the same set of merchants became $185 in Q3 2021. Revenues from new clients were $12 million in the third quarter 2021 in comparison with $9 million for the full year 2020 and $3 million in the third quarter of 2020. We continue to enhance our product portfolio with improvements in our features for pay-ins and pay-outs together with the development and launch of new product lines such as Issuing-as-a-Service. On the geographic expansion vector, we are constantly deepening our presence in the countries where we currently operate and adding new countries. We’ve added Thailand and El Salvador to our platform in the third quarter. Our revenue growth plus EBITDA margin, the Rule of 40, was 161% in the third quarter of 2021 versus 129% in the full year 2020. We believe that the strong cash flow generation of our business supports an inorganic strategy that will activate our time to market. Slide 10. Existing clients drive our growth. Our account management team is solely focused on harvesting our existing client relationships. This team works closely with our clients to solve their existing needs and cross-sells new payment methods, new countries, and new product use cases. At any given time, we have over 50 pricing proposals extended to our existing clients, about 30-plus in the testing stage, and about 20-plus waiting to go live. On slide 11. New clients continue to feed our industry-agnostic sales funnels. The rapid expansion and ramp-up of merchants online, the growth of the theater economy, the emphasis on merchant place and digital marketing that, in many cases, have no geographic boundaries. The viral growth of users at some of our highest growth merchant experience has continued to expand our sales funnel. We expect this trend to continue as we see new companies emerge and become dominant online much more quickly today than even a few years back. The new age company is global and is growing across national and regional boundaries, and we enable them to access consumers anywhere in the world. As shown on slide 11, at a given time, we have about 175-plus merchants in the early stages of our funnel and over 75-plus waiting to go live. Once live, we typically take 3 to 6 quarters to ramp up volume with a merchant. We’ve onboarded 10-plus new merchants this quarter. Slide 12, comprehensive and differentiated solution suite. Our product team is constantly working on optimization of our features and solutions. Slide 12 provides a snapshot of our platform. The back end supports our merchants for regulation, compliance, tax collection, fraud and security, smart routing, and settlement. The front end provides our merchant consumers with support for refunds, reminders for alternative payment methods, subscriptions, and installments for mobile or desktop support at checkout. Slide 13. We have added six countries to our network year-to-date. Our expansion strategy is both merchant-led, meaning we go where our merchants ask us for the solution, as well as dLocal-led. We have a pipeline of merchants working to launch in the new markets we have expanded into more recently. We are not dependent on any single country for our performance. We also don’t forecast our performance by country. Slide 14. We see strong growth across verticals with a 217% year-over-year TPV growth as our business benefits from diversification. Our business model is not dependent on the performance and outlook of any single industry vertical. We are also exploring additional opportunities with merchants, including providing payment solutions in connection with cryptocurrencies. We will continue to evaluate the risk framework around cryptocurrency to provide our merchants with the appropriate solution.

Slide 15. As I mentioned at the beginning of this call, we continue to invest in our business. Our people are our biggest competitive advantage. At the end of Q3, we had 532 employees from 30-plus nationalities. The headcount in dLocal grew 105% year-over-year in the third quarter 2021. Slide 16. Diego will now review our financial highlights.

Thanks, Seba. Let’s start with slide 17. We have another quarter with a record TPV of $1.8 billion and record revenues of $69 million. In the third quarter of 2021, TPV has grown 217% year-over-year and 24% quarter-over-quarter. We continue benefiting from secular trends in e-commerce and digital payments as things return to normal as well as from our merchants’ performance and our success in bringing them to more countries and payment methods. This growth is benefiting from the performance of our merchants in specific verticals, such as ride-hailing, streaming, and advertising as well as the sequential recovery of travel. Revenues have grown 123% year-over-year and 16% quarter-over-quarter, both very similar to what we grew in the first quarter of 2021. Our revenue-over-TPV ratio or take rate was 3.8% versus 4.1% in Q2 2021. This ratio varies as a result of changes in the business mix of products, countries, and payment methods. Particularly this quarter, some large and high-potential merchants with a take rate lower than average or reaching better pricing tiers have grown significantly. Higher volumes with our largest merchants typically decrease the take rate, but they are great for our business as they bring incremental EBITDA. It is also important to note that our revenues exposure to our top 10 merchants continues decreasing from 62% in the second quarter of 2021 to 57% in the third quarter of 2021. Slide 18. Our adjusted EBITDA for the third quarter of 2021 was $26 million or 38.3% of our revenues, which compares to 40.6% in the third quarter of 2020. This margin decrease is the result of our commitment to continue investing in building the foundations for long-term growth, as well as the combination of outstanding work in our large and high-potential merchants with lower take rate. Our cost of services in Q3 2020 was 2.4% of TPV. In comparison, our cost of services for the third quarter this year was 1.9%. This increase year-over-year is the result of efficiencies and changes in the business mix. If we look at operating expenses, excluding one-time and non-cash items, in line with our adjusted EBITDA calculation, we see that they have grown 92% year-over-year, more or less in line with our headcount increase of 105%. We intend to continue investing in growth, and therefore, our margins may continue decreasing in the coming quarters while maintaining our discipline to drive profitable growth with every additional dollar that we process. Slide 19. We continue delivering strong revenue growth both from our existing and from our new customers. Revenues from existing merchants are those revenues that are driven by merchants that we were already processing in the same quarter of last year. Revenues from new merchants are those revenues that are driven by merchants that started operating with us after the same quarter of last year. As our merchants typically have a 3 to 6 quarters ramp-up period, we believe that revenues from new merchants are just an initial indication of the potential of our customers. During this third quarter, our revenue from existing merchants was $57 million, more than double the revenues of $28 million in the same period of 2020. Revenue from new merchants was $12 million, four times the $3 million in the same period of 2020. As some fast-growing merchants onboarded in Q3 2020 moved this quarter into the existing merchants bucket, they contributed to a sustained high net revenue retention this quarter, which was 185%, and reduced the quarter-over-quarter contribution of the new merchants bucket, which was an all-time high last quarter. In the medium term, we expect our net revenue retention to be in the 150% to 160% range. Slide 20. Of the 123% year-over-year revenue growth in Q3 2021, 85% or $26 million came from existing merchants, and 38% or $12 million came from new merchants. Our net revenue retention remains at an outstanding level of 185%, significantly above our historical average and our performance of 159% in 2020. Also, revenue from new merchants remained higher than what we achieved last year. As a recap, our net revenue retention is driven by having minimum levels of churn of less than 1%, by the growth of our merchants, which are typically growing from 20% to 30% annually in emerging markets, and the result of our performance in terms of gaining share of their wallet within the same payment methods and bringing them to more countries, products, and payment methods. With that, I will turn the call to Seba to conclude.

Thanks, Diego. On Slide 20. We are very excited about the future ahead of us. We remain focused on our large and expanding TAM, our direct integrations with our merchants, our scalable infrastructure, and our exposure to a diverse mix of verticals and our focus on growth and profitability. We thank our merchants, employees, and investors for your continued support. I request the operator to open it up for questions.

Our first question comes from Jorge Kuri of Morgan Stanley. Your line is open.

Hi, good evening everyone. I hope you’re all well. Congratulations on the results. I have two questions. The first is about your gross profit take rate, which I believe is a good indicator of profitability on a revenue basis. It was 1.9% this quarter, down 40 basis points from 2.3% last quarter. That decline seems significant compared to the revenue yield, which decreased by about half that amount. I understand you mentioned the revenue yield decline was due to volume growth among large clients that required lower pricing. However, with your volumes increasing by 217% year-on-year, shouldn’t you also be seeing reduced transaction costs from acquirers? Shouldn't this help maintain a steady relationship between revenue yield and gross profit yield? It seems to be deteriorating. Can you explain why this is happening and your expectations for the next few quarters? My second question pertains to your comments on lower EBITDA margins. Could you clarify what that means? It would be very helpful for us to understand the magnitude, duration of this decline, and when you expect it to improve. Any insights you can provide to contextualize this would be appreciated. Thank you.

Hi, Jorge. Thank you very much for the questions. Seba here. So, on the first part of the question around gross profit, there are two sides to it. First, there’s the fact of the business mix. Our business continues to evolve. And keep in mind, we are offering multiple products across multiple geographies, and those will have different take rates. That’s why we continue to insist on the fact that we don’t optimize for a take rate, because we know that number will move around. I do agree with you in terms of us getting better rates from acquirers and payment methods. You can see that our transaction costs have continuously declined. But again, you might see them going up because it might also be a function of us processing payments in countries or in payment methods that are more expensive. So, we continue to optimize for NRR, making sure that we are bringing in more additional dollars that come at a profit. Yes, definitely, we are constantly getting better rates from acquirers, from payment methods, from banks. But that’s something that we are optimizing for. We want to make sure that more dollars are coming through and they always contribute to our margins. That’s how we think of it. Sumita, I’ll let you take the second part of the question around the EBITDA margin.

Yes. Thanks, Jorge, for the question. So I think, Jorge, as we mentioned even in our second quarter earnings call, if you look at our margin performance for this quarter, it’s very comparable to our margin performance in the same quarter last year. What I think we are planning towards is that our overall margin for the full year 2021 will be within the range of where we were for the full year 2020. That guidance hasn’t changed. It’s a soft guidance that we are giving you as to what we are planning towards as a management team. We expect the margin to be in and around that level. Having said that, I think that we are not tying ourselves to a specific number. It’s a range because we do feel that we have to continue to invest in the business.

I just wanted to follow up on this last point, Sumita. So, looking back at 2021, right? The margin for the fourth quarter isn't really the focus anymore; it's more about 2022. When you mention lower margins, are you referring to the entire year of 2022? Could you clarify what that lower level will look like? How much lower are we talking about?

Yes. I believe our margins will be close to our 2020 figures. If you examine our margin from 2020, that's what we expect to maintain in the short term. I don't want to commit to a specific 40% figure, but it will be within that range and not too different from our 2020 performance.

Great. Thank you very much. That’s very helpful.

We believe the potential ahead is significant. We want to ensure we have sufficient opportunities to invest in the ventures we find valuable. Therefore, we aim to avoid being restrained from pursuing those opportunities. We have established a strong history of achieving profitability at scale. We take our capital allocation seriously, but we also want to maintain the flexibility to invest in the future. This is why we prefer not to specify a particular figure.

Thank you. Our next question comes from Jason Kupferberg of Bank of America. Your line is open.

Thanks, guys. Good afternoon. Really nice top-line momentum here. So, in the third quarter, you delivered mid-teens quarter-over-quarter revenue growth, despite having a really tough comparison there. So, I’m wondering, based on your expectations for growth at both new and existing merchants, can we see double-digit quarter-over-quarter growth again in the fourth quarter?

I can start. Diego and Seba, jump in with additional thoughts. Jason, thanks for that question. I think that we are focused on year-over-year metrics. We want to continue to build the business in the long run. We are not as focused on quarter-over-quarter trends because we think that that can be misleading in terms of how we think about our business in the long run. If you look at our current quarter, our TPV in this quarter grew at 217%. If you look at Q3 2020, because I think it’s helpful to think about where we were last year, for Q3 2020, our year-over-year growth was 65%. So, we made that 65% grow to 217% in this quarter. For the next quarter, we continue to remain focused on what would that number look like versus Q4 of last year. Keep in mind that Q4 of last year was a reasonably strong quarter. A lot of the impact of COVID had gone away, and Q4 was already looking very strong. We will see dollar growth from our Q4 2020 numbers, but it may not be the same positive increase that we were seeing in Q3 versus Q3 of last year.

Okay. Yes, I see that. I mean, the comp on TPV gets tougher. The comp on revenue is pretty similar, but obviously, you’ve got the large merchant mix. So, the take rate is going to be lower in Q4 '21 than Q4 '20. So, maybe double-digit quarter-over-quarter growth is a little bit too much to ask. I got it. Okay. Still great year-over-year growth. And then just...

Yes. Sorry, just one thing on that. If you can go back and also just take a look at our revenue growth numbers, we have that in our press release. It was not in the presentation. But again, that will give you some sense of where we were on our revenue growth numbers in Q3 of last year, which was 96% versus where we are right now, which is 123%, again, gives you a little bit of insight into how we have continued to accelerate our overall growth for the business.

Right, right. Okay. Yes. No, thanks for that. Just as a follow-up, I’m curious to get your latest views on the competitive landscape. I mean, we’ve heard some players talking about potentially planning a bigger move into Latin America, and wondering if that’s something you’re watching as well and whether or not you think that could have implications for pricing.

Sure, hi Jason, thanks for the question. Regarding the competitive landscape, there are several important points to consider. First, this market is vast, and we anticipate that existing players will scale up their operations. We remain focused on differentiation, which is why we are expanding our geographic presence. We continuously introduce new product lines to increase our engagement with merchants. When you limit yourself to a single market or region, it's easier for competitors to replicate your approach. The more challenges you address for a merchant, the more difficult it becomes for others to compete. While we acknowledge that we will face competition in specific payment methods and regions, we have yet to observe companies in emerging markets that are attempting to develop comprehensive solutions across various areas like pay-ins, pay-outs, issuing, and fraud prevention. This is our strategy for differentiation.

Our next question comes from the line of Neha Agarwala of HSBC. Your question, please?

I wanted to follow up on Jorge’s earlier question. The cost of services has increased significantly, going from around 43% of revenues in the last quarter to 50% this quarter. I recognize there is some volatility, but should we expect this percentage to remain at that level or around that in the upcoming quarters due to the changes in our revenue mix? A bit more clarity on this would be appreciated. My second question is about the merchant base. You mentioned adding over 10 more merchants this quarter. I understand that most of these merchants are from the U.S. and Europe, with a few from China. Is expanding our services to more Chinese merchants a priority for you, or is it not a focus area? If it isn't, could you explain why? Lastly, regarding competition, you stated that your geographic presence sets you apart. Are you experiencing more pricing competition? You mentioned earlier that pricing is not the main concern for merchants when partnering with you. Do you still believe that it makes sense for merchants to collaborate with two or three providers instead of just one? This isn't a zero-sum game, and it’s possible for merchants to engage with multiple key players. I’d appreciate any insights on this. Thank you.

Hi, Neha. I will respond to the first part and let Sumita and Seba handle the rest. Essentially, as we indicated earlier, the second quarter was exceptional for us regarding profitability. The differences between the two quarters relate to merchant activity and business mix. As we mentioned, the profitability in the third quarter aligns more closely with what we experienced in the last year’s fourth or third quarter. This is consistent with your expectations moving forward. The figures you see reflect a 1.9% cost of TPV. However, we won’t guarantee a specific number as it may vary. Over time, we expect this figure to decrease as we move to new pricing tiers and negotiate better rates with payment options, but it should remain within similar ranges as it currently is.

Hi Neha, thanks for the questions. So, in terms of your question around what merchants we target, first of all, we want to target any company in the world that wants to do business across more than two geographies. That means that we today onboard merchants that are coming from the U.S., from Europe, and definitely from China. If you look at our customer base and some of the names we’ve been able to disclose, you’ll see that there are some of the Chinese leaders. I want to make this clarification because I think it’s really important one. We are not processing payments inside China. So, we are helping Chinese companies go into the emerging markets, the same way we do for American companies and for European companies and more and more through local leaders that are coming out of Africa, Asia, and for Lat Am, who also are becoming relevant across more than one geography. So China is a big focus for us, and it’s going to continue to be, again, helping Chinese companies process payment internationally. And in terms of competition, so we don’t compete on price. Keep in mind, we are serving some of the biggest companies on earth. They have a lot of bargaining power. So, we wouldn’t be able to charge much more than the alternative if we wouldn’t be differentiating. So, we don’t compete on price. We compete on making sure who has the better conversion rate, making sure that our merchants get a higher access. We are revenue-enablers. Merchants come to us because they want to drive their business in the emerging markets where they operate. Regarding redundancy, we have been very consistent in our stance. We are rarely the only provider for a merchant. It's important to remember that we do not process payments in Western Europe and the U.S., so it's common for our merchants to have another provider. The decision to have redundancy in our markets varies; sometimes one country has redundancy while others do not. This situation continues to change. However, we do not think it's sustainable, and we do not anticipate being the sole provider for any of these global companies, as this would not be a best practice for them either.

Our next question comes from Tito Labarta of Goldman Sachs. Your line is open.

I want to follow up on the net revenue retention rate, which still looks quite strong. Regarding the guidance of 150% to 160%, is that still your expectation for the next 12 to 18 months? How do you see that evolving in the upcoming quarters? Also, looking at the long-term perspective, how sustainable do you think that range is? My second question is about competition, specifically regarding how you perceive competition in relation to wallet share and your investments. Are these investments aimed at protecting against competitors potentially taking existing clients, attracting new clients, or increasing your share with current clients? I’d like to understand the competitive threats you face with both existing and new clients, and how your investments might address those challenges. Thank you.

Tito, thanks for the question. I’ll take the first part. So, on your question on net retention rate and what we think we should be achieving in the more medium term, as we have mentioned to you in the last quarter results also, we still think that in the near term, which is 12 to 18 months, 150% to 160% net retention rates are achievable, and that’s what we are planning for. We’ve also mentioned to you that the reason why the NRR was so high right now is we are benefiting from some of the clients that were in our new client bucket moving into our existing client bucket. As a result, in the absolute near term, you’re seeing these very high NRRs of 180-plus. It was 196% in Q2 and 185% in this quarter. In the medium term, it will be around 150% to 160%. Regarding your question on how long will that sustain, that’s a more difficult question for us to answer. But we have guided you to believe that in the longer term, it will probably come down to 120% to 130%. We are a B2B-focused enterprise business, and we think 120% to 130% NRRs are achieved by some of the best software companies in the world. And we think that we will trend to that level, which would also be very close to the organic growth rate of our merchants in these end markets.

Yes, sure. Tito, thanks for the question. Around our investments, we invest in two key things. Number one is to continue to have the best platform in the markets where we operate, making sure we have the best conversion rate, that our merchants get the best results, and stay under control. We’re working with that and having the team to support them. We are serving some of the most demanding companies on earth, which makes it really important for us to have the right team on the other side. At the same time, we continue to invest in expanding. We’ve announced our Issuing-as-a-Service product. We’ve announced some of the new markets where we are starting to process payments. The reality is that those are always to differentiate. Those apply to both our existing customers and our newer customers to come. Whenever we open a new geography, or a new payment method, or a new product, we have a new set of opportunities we will discuss with our current customer base. Obviously, we also expect that those new payment methods, those new geographies, and those new products are going to allow us to bring new merchants into the platform. But then those new merchants will one day go into that NRR bucket, and we’re going to be discussing all the other opportunities. So, we think those two things go hand in hand. They continue to complement each other. We think continuing to invest is the right thing because that’s a way for us to differentiate in the long run.

Our next question comes from Domingos Falavina of JP Morgan. Your line is open.

Thank you. Congrats on the results, again. Just a quick question around cost of funding, specifically in Brazil. So, I understand you guys usually pay around 7 days to 10. We all know the credit cycle is a bit longer than that. We’re seeing some funding pressures taking place in the acquirers, which I’m assuming they’re passing on to you. So, I’m basically assuming these flows in the cost of service lines, $34 million, if I’m mistaken. So, question is, how much did that impact rising cost of funds in Brazil impact your cost of service lines? And I’m assuming this should be an ongoing pressure in future quarters.

Yes, of course. It's important to remember that Brazil is a significant market for us, but about one-third of our volume comes from credit cards. We believe that not much of this volume is in installments. We have a policy of discounting everything, especially cross-border transactions, to reduce any foreign exchange risk. As interest rates may rise, we factor that into the pricing we offer our merchants. Therefore, our pricing reflects the discounts we've implemented in Brazil regarding installments.

And if I may complement a little bit more here, Dom, thanks for the question. Keep in mind that Brazil is one of five countries just in Lat Am for us. As we mentioned to you, we don’t have necessarily a big concentration on Brazil. Therefore, you’re looking at a very, very small portion of our business. Even within that context, we don’t think of this as a big factor in how we think about our cost of services in the country.

Yes. Sumita, but like 30% of volumes, if we applied even 30 days anticipation, 50 bps, 100 bps makes a difference, right? So, just trying to carve out, from the $34 million, what’s kind of recurring and should continue to increase from what’s not financially related.

Dom, we haven’t observed an increase in our cost per dollar. We’ve always provided all of our funds. As we’ve mentioned before, this is not a revenue source for us. We consistently pay the acquirers their fees. We know that many of them generate their margins in Brazil, but this hasn’t contributed to our cost of service. Additionally, there is the local-to-local component, which is 30%. However, when it’s local-to-local, we don’t need to advance funds since we don't face foreign exchange risk. This hasn’t significantly influenced the rise in costs, and we don’t anticipate it will in the future.

As there appear to be no further questions in the queue at this time, I’d like to turn the call back over to Sebastián Kanovich for closing remarks. Sir?

Thanks, everyone, for taking the time and for your attention. We really appreciate the questions. Have a great day.

And this concludes today’s conference call. Thank you for participating. You may now disconnect.