Good morning, everyone, and thank you for joining us for the DLocal second quarter 2023 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, Sebastian Kanovich, Chief Executive Officer; Sergio Fogel, Co-President and Chief Strategy Officer; Diego Cabrera Canay, Chief Financial Officer; Maria Oldham, SVP of Corporate Development, Investor relations, and Strategic Finance; and Soledad Nager, 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 DLocal's website at investor.dlocal.com. The recording will be made 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 DLocal’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 the DLocal’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 DLocal’s filings with the Securities and Exchange Commission, which are available on DLocal’s Investor Relations website. Now, I will turn the conference over to Sebastian Kanovich. Thank you.

Good morning, everyone. Thanks for joining the call today. Before we start the call, let me thank all of you who joined the Investor Day back in June. For those who couldn't make it, the material is available on our Investor Relations website. Let me also add that we have in the call, Pedro Arnt, who will be joining me as Co-CEO. We are extremely excited to have Pedro joining the team. We are proud of the great talent that we have at DLocal, and bringing Pedro is the ultimate example of this. Pedro will bring new energy and leadership and a highly complementary set of skills to the company, helping us to continue scaling the business at pace and to realize the enormous opportunity that we have ahead of us. I would now like to invite Pedro to introduce himself.

Thanks, Seba, and greetings, everyone. We thought it would be useful for me to introduce myself today and share with you what's led me to join Seba, Sergio, Jacobo, and the rest of the great team here at DLocal. They will then walk us through DLocal’s strong business performance as they expertly do every quarter. Having worked in Latin American tech over the last 25 years, I've obviously been aware of DLocal since its inception merely seven years ago. However, upon being approached by the Board and undertaking my diligence, what I found was a set of business success drivers even more remarkable than I had initially anticipated. I'd like to spell some of those out for you today. First of all, a vast untapped total addressable market of $1.4 trillion within the rapidly expanding markets that we currently serve. Second, an exceptional opportunity for growth alongside these markets as well as the potential to extend our reach to numerous additional markets. And this allows us to increase our TAM by over 2.5 times over the next five years. Third, the product and technology stack is fantastic as it serves many of the world's leading and most demanding mega-cap tech companies. And fourth, this is an entirely customer-centric organization that's obsessively dedicated to our customer success and continues to pile up client win over client win, growing clients by 41% CAGR and TPV by a phenomenal 126% CAGR over the past three years. And last, but certainly equally important, an extremely attractive financial model characterized by a revenue CAGR of 101%, adjusted EBITDA over gross profit surpassing 70% and an annual conversion of free cash flow to net income exceeding 90%. So in essence, large TAM, great product and tech stack, a winning customer-focused organization, and a free cash flow machine, an investor's ideal vision realized. Right? Absolutely. But like with any young successful company, there is always more work that can be done so as to further and fully realize the extraordinary value inherent in the exceptional business I've just described to you. That work is already underway, and it's also where I hope to contribute the most in Phase 1 of my journey here. I'm confident we will find ways to accelerate even further the pace at which we are rolling out additional processes, deploying more and even better systems, and adapting our organizational design to prepare DLocal for the future. I'm excited to see how all this will complement the extraordinary product and customer success work that’s already being done on behalf of clients to further build a formidable company at scale. And as all this happens, I firmly believe that as we undertake these measures, we will propel DLocal's trajectory and further unlock returns for all stakeholders involved. I look forward to engaging with you as we carry out this journey. Let me now turn the floor over to Seba again to go deeper into the results of the quarter that already show the positive direction things are headed in.

Thank you, Pedro. And once again, welcome to the team. I am pleased to share that we've had another quarter of outstanding results. Our performance once again proves the instinctive strength of our business, which we continue to build focused on long-term profitable growth. These trends combine, one, superior technology that is driven by our commitment to make the complex simple for our merchants with our one API and one integration, what we call One DLocal. Two, a well-diversified business across verticals products and geographies, with vast geographic coverage of over 40 countries. And three, relentless execution of our merchants growth and cross-sell strategy across products and geographies. Last but not least, our lean and disciplined culture. We deliver all the previous strengths with a lean team, continuously striving for excellence. Our culture is key to continue delivering on our long-term ambitions. These factors underpin our continued success in building the best payments ecosystem across emerging markets. Based on our One DLocal, navigating the complexity of payments in these markets on behalf of our merchants, so they can remain focused on their core business. We have a proven track record in leveraging these factors to deliver robust dollar growth of TPV, revenue, gross profit, adjusted EBITDA and net income. Moving to our financial highlights of the quarter. This success was reflected across all metrics. TPV grew 80% year-over-year, and a strong 22% quarter-over-quarter, surpassing for the first time the $4 billion mark. To put this in perspective, this quarterly TPV is more than double our TPV for the whole year of 2020, the year before we went public. We continue to focus on growing our business in absolute dollar terms. Revenue, gross profit and adjusted EBITDA, all increased at double-digit rates, both year-over-year and quarter-over-quarter. We recorded the highest contribution in gross profit and adjusted EBITDA of the past eight quarters, increasing $9 million in gross profit and $7 million in adjusted EBITDA quarter-over-quarter. We remain firmly committed to profitable growth at scale. In Q2 2023, our ratio of adjusted EBITDA to gross profit remained stable quarter-over-quarter at 74%, which again is best in class. Moving to the next slide, we continue to invest thoughtfully in expanding our global team. We have hired new talent to pursue the opportunities we see in the market, also strengthening our foundations to face our long-term ambitions. We grew our team to 806 employees. This is an increase of 174 full-time employees compared to the second quarter of 2022 or by 28% year-over-year. We continue to recruit talent globally, combining specific experience and skillsets as well an on-the-ground knowledge. We reached 202 full-time employees in Africa and Asia by the end of Q2 2023. This now represents 25% of our workforce. We will continue to invest in talent in a disciplined way, staying lean and always ensuring that we onboard talent that has a strong cultural fit. We are proud of our team and believe it is stronger than ever. Now I will pass on to Maria to discuss our execution on our growth strategy.

Thank you, Seba. Hi everyone. Let me remind you how we view our growth engine. We have three axes of growth, one, product; two, merchants; and three, geographies. On product, during this quarter, we continued to focus our efforts on deepening our presence in the countries in which we operate, with a particular focus on Africa and Asia, by establishing more direct connections with payment methods and acquirers and also continuing to enhance our solution. During the second quarter of 2023, we saw strong traction on our platform solution, in particular, from commerce marketplaces. On merchants, we delivered strong revenue growth, both from existing and new customers. Net retention rate continues to be best-in-class at a 148% in Q2 2023. New merchants revenue reached $11 million in Q2 2023. We have very close relationships with our merchants, which enables us to grow together with them. Our top 10 merchants continue to show very high growth, totaling $94 million revenue in the quarter. Our three axes of growth compound to deliver rapid growth. All of our merchants' products, payment methods and markets are linked to one API. This means that merchants can access all of our products and payment methods without any additional work, generating high value to our customers while growing our business. Now let's deep dive into one of the dimensions, geographies. In Latin America, where we have our largest scale, we continued to experience strong growth across the region in Q2 2023. This proves that we still have ample room for growth in LatAm, both with existing and new merchants. In the last 12 months through Q2 2023, revenues in Mexico increased by 85% year-on-year, and in Brazil by 50% year-on-year. Growth in both countries has been driven mostly by merchants from commerce, advertising, streaming, and ride-hailing verticals. We have been operating in both countries since 2016. So the sustained growth rates are true indicators of the hyper-growth potential that it will still have in Latin America, even in our most mature markets. As you know, Brazil is where we started seven years ago. It is also a highly developed market in terms of digital payments penetration and technology, but this market is far from mature from a growth opportunity standpoint. This high growth in a large and competitive geography, such as Brazil, underscores the quality of our solution as we continue to gain share in the market. We continue to see strong growth opportunities in Brazil going forward. In Q2 2023, TPV and revenue in Brazil doubled year-over-year and increased by around 80% quarter-on-quarter. Recent growth has been mainly led by merchants in the commerce, advertising, and streaming verticals. In Brazil, we also proved the success and robustness of our local-to-local solution. Brazil is a market with a higher local-to-local share, and we have seen favorable trends in both cross-border and local-to-local flows. Moving on to Africa and Asia. Our merchants continue to signal strong demand for our solution in the region. Egypt, Morocco, Indonesia, and the Philippines are growing triple digits year-on-year and have the potential to become a significant part of our business. Our business in Africa and Asia continues to grow very fast. In the last 12 months to Q2 2023, revenues in Africa and Asia increased more than three times year-on-year. Excluding Nigeria, this region grew 78% year-on-year in the last 12 months through Q2 2023. In Q2 2023, Nigeria revenues increased by more than four times year-on-year. The quarter-on-quarter deceleration was driven by the naira devaluation in the last 15 days of the quarter. Nevertheless, Nigeria continues to present similar net take rates as other markets, and it is a key geography for DLocal. We continue to see great growth opportunities in the market. Excluding this effect, revenues would have been in line with Q1 2023. Sergio will shed more light on the recent market changes later on in the presentation.

Thank you, Maria. Good morning, everyone. As you know, I have co-founded the company and have been serving as a Board member. Since June this year, I have been part of the executive team. I am delighted to join this earnings call today and look forward to continuing to meet many of you. DLocal has been fully devoted to emerging markets since its inception. Where others see complexities, we see underserved markets with high growth potential. Buyers and sellers cannot transact due to the lack of infrastructure, and the magnitude of lost opportunities is overwhelming. We are going after a very large market, and after seven years of strong growth, we are still only scratching the surface of this opportunity. Our markets enjoy structural tailwinds, a young growing population, an urban connected middle class eager to consume, and merchants that are only starting to customize their products for their needs and tastes. Emerging markets are complex. Our mission is to solve payment complexities for our merchants, including technological, operational, and regulatory complexities. Our ability to adapt to changes in circumstances is one of our key operational strengths and underlines our value proposition of taking the complex and making it simple. Now, I'd like to update you on recent developments in three specific markets. One such change in market conditions occurred in Argentina, as we stated in the filing in late April. The government and the central bank established new procedures to obtain foreign currency for the settlement of certain services. We have been operating in Argentina for many years now, and we have seen many changes in regulations. This is only the latest change and will probably not be the last. We will adapt to the new rules just as we have adapted to the previous ones. Our ability to do so is a competitive differentiator and an example of the value we add to our merchants. Given the magnitude of our business in Argentina, as we announced in our press release in June, we committed to show additional economic substance in the country. On June 14, we acquired with our own funds $48 million worth of Argentine dollar-linked treasury bonds. We acquired an additional $49 million by the end of July. We plan to use these funds in the following years to fund our local operations and investment opportunities in the market. We continue to collaborate with local authorities in Argentina to ensure that despite the macroeconomic situation, Argentinian customers are able to access international services. Moving to Nigeria, in mid-June, the central bank implemented a free-floating policy of the naira, leading to the devaluation of the local currency as Maria mentioned. I would like to highlight that we see the unification of the exchange rates as positive for the country and for our business as it promotes transparency and efficiency, and it increases liquidity. This removes a lot of the friction that some of our customers see when expanding to Nigeria. We continue to operate normally in the country where we serve some of the world's largest technology merchants. We do not expect the depreciation of the naira to have an impact on our gross profit. The negative impact on gross revenues will be offset by lower expatriation costs. We continue to have a bullish outlook on the operations in Nigeria for the long run and continue to onboard and grow with merchants in the country. Last but not least, Brazil. Shortly after the end of Q2, we reached another milestone in our evolution. At our Investor Day, we shared that we applied for a Payment Institution license in Brazil. I am thrilled to share that we were granted this license in July. We can now offer more payment methods and solutions in Brazil and participate directly in Brazil's payment systems. We expect this to increase the efficiency of our operations in the country. Becoming a Payments Institution carries with it a higher level of scrutiny by Brazil Central Bank. We welcome such scrutiny in Brazil and in other countries, as it helps boost the level of confidence of global merchants doing business in emerging markets and also increases our competitive advantage. This is a clear example of our ongoing efforts to further strengthen our compliance infrastructure across emerging markets. Being well diversified in over 40 emerging markets allows us to continue benefiting from very high growth regardless of the specific circumstances in any given geography. This is a key strength of our business.

Thank you, Sergio, and hi everyone. We had another quarter of strong growth across our products and services. In terms of products, during Q2 2023, pay-ins increased by 70% year-over-year and by 27% quarter-over-quarter and pay-outs increased by 114% year-over-year and 10% quarter-over-quarter. The contribution from pay-outs has increased year-over-year, as we have been successful in providing last mile payment services to financial services companies in emerging markets. Moreover, we continue to position ourselves as the payment service provider of choice in emerging markets for global payroll, social media, ride-hailing, and on-demand delivery companies. During this quarter, we also saw strong traction both in pay-ins and pay-outs through our platform solution for marketplaces, particularly in e-commerce in Brazil and Mexico. In terms of services, our cross-border and local-to-local volumes show solid growth year-over-year and quarter-over-quarter. In Q2 2023, we increased by 33% our local-to-local volume quarter-over-quarter, mainly driven by merchants from commerce, advertising, and ride-hailing verticals. This resulted in growth in our local-to-local share reaching 49% in Q2 2023. We are product and vertical agnostic. All our products and services bring incremental profit, and when we combine them, they bring synergies both for our merchants and for us. Depending on which merchants we onboard in a given quarter, as well as the relative growth rates of each merchant, there are many fluctuations in the share of pay-ins versus pay-outs and cross-border versus local-to-local. Overall, we see a positive growth outlook across all our products and services and see the diversification as a key strength. Revenues also reached a record high of $161 million in Q2 2023, growing 59% year-over-year and 17% quarter-over-quarter. During this quarter, we saw strong quarter-over-quarter revenue growth, particularly in online commerce, ride-hailing, and on-demand delivery. And from a geographical standpoint, revenue grew quarter-over-quarter mainly from processing payments in Brazil, Mexico, South Africa, Egypt, Colombia, Peru, and Costa Rica. We remain focused on growing absolute gross profit dollars which is the key success metric of our business. Our gross profits reached $71 million in Q2, up 43% year-over-year and 14% quarter-over-quarter, with net take rate at 1.6%. Processing cost over TPV remains stable at 2% quarter-over-quarter. Gross profit margin and net take rate remained almost unchanged quarter-over-quarter, even with a high increase in the share of local-to-local volume. The waterfall chart on the left shows the main changes in our gross profit margin quarter-over-quarter. Gross profit margin was positively impacted by changes in merchant mix, particularly in Brazil. This was offset by the higher share of pay-ins and local-to-local volume and lower share of revenues in Argentina. Moving to the right-hand side of the slide. The slight decrease in the net take rate from 1.7% in Q1 2023 to 1.6% in Q2 2023 was driven by similar factors, particularly by a higher share of local-to-local volume and by country mix, with a higher share of revenues in Brazil and Mexico and lower in Argentina. Profitability remains a top priority. During the quarter, we were able to grow our adjusted EBITDA to $52 million, up 36% year-over-year and 14% quarter-over-quarter. Adjusted EBITDA margin was 32% in Q2. Our adjusted EBITDA over gross profit remained stable quarter-over-quarter at 74% as we continued investing in our people, both in terms of compensation and expanding the team. Net income totaled $45 million during the quarter, growing by 46% year-over-year. Sequentially, it increased by 26% quarter-over-quarter. Net income for the quarter includes $7.5 million of net financial gains. These results were driven by our funds held in interest-bearing accounts and money markets, partially offset by the financial cost of hedges across the market. We also saw an increase in our effective income tax rate from 11% in Q1 to 16% in Q2, driven by a higher share of profits in local markets as a result of higher local-to-local TPV and financial gains. Let's move to cash generation. During the first six months of the year, we observed strong cash flow generation. The main drivers of our cash increase were our net income, we substantially converted to cash, and an increase in net trade payables, particularly as a result of the growth of our business with negative working capital, and a higher average settlement period to our merchants. This resulted in an increase of $141 million. We invested $61 million in completing our share repurchase program and $48 million in Argentine dollar-linked treasury bonds as part of our commitment to increase our economic substance in the country. We believe our strong cash position remains a competitive advantage as this allows us to continue investing in the business.

Thanks, Diego. We are very proud of the strong set of results we delivered during the first half of the year and we are even more excited about the runway ahead of us. We see continuous growth of our business in the second half of the year. Given the outstanding first six months performance, we would be on track to over-deliver on our guidance of revenue while being in line on EBITDA. However, due to the currency depreciation in Nigeria, which will reduce revenues with neutral impact on gross profit, in other words, it won't affect our gross profit dollar amount, we expect to end the year in line with guidance in terms of both revenue and EBITDA. Revenues between $620 million and $640 million, and adjusted EBITDA in the range of $200 million to $220 million. We have a truly diversified business that can deliver on our goals under changing specific circumstances in certain markets and we are very, very pleased to be in such a position. We remain dedicated to building the best financial infrastructure for global merchants in emerging markets. The value proposition of our One DLocal platform is clear to help our merchants navigate local complexities in receiving and sending payments in emerging markets. Everything that we do is focused on further improving this value proposition. I want to send a big thank you to our global team, our customers and our investors for their continued support. I'll now hand back to the operator to open up for the Q&A, which Pedro will also be joining.

Our first question comes from Tito Labarta with Goldman Sachs. Your line is open.

Hi, good morning. Thank you for the call and for taking my questions. Congratulations on the strong results and on your new role, Pedro. I have a couple of questions. To start with you, Pedro, I appreciate your comments about the opportunities you see in joining DLocal, but we've received several inquiries and would love to hear your perspective coming from MELI, a well-respected company. Can you share your reasoning for transitioning to DLocal? You mentioned the opportunity in the Co-CEO role, but I would like to hear more about what personally excited you to make that change. For my second question regarding revenues, you highlighted a strong performance, Seb, and noted that you're maintaining the guidance. I’d like to gain a bit more insight. Do you believe Brazil can sustain its growth as we observed this quarter? Is the growth driven by a specific merchant or multiple merchants contributing to local-to-local volumes? Furthermore, do you anticipate any challenges stemming from the depreciation in Argentina next quarter? I’m looking to understand the revenue dynamics and how they will evolve on a full-year basis from this point forward. Thank you.

Hi, Tito. Hi, everyone. It’s great to be here. Thanks for the question. I think I laid it out in the prepared remarks. This is a phenomenal business with a large expanding addressable market, great technology and product, the right customer focus, a winning sales organization, and an attractive financial model. So DLocal is a gem. What I've learned over the last 24 years is how to build scale. My experience in Latin American tech is unique, having worked at the largest Latin American tech company from its very beginnings to its current status. I've seen that generating value in technology comes from building scale and achieving compounding results over the long term. I believe DLocal is the perfect place for the next phase of my career, where I can help generate scale and compound results over a long time in a business that operates in a growing addressable market and has an excellent financial model. This decision makes a lot of sense for me, and I believe I can significantly contribute to the great work being done at DLocal.

Thank you, Pedro, and Tito, for the question. There's a lot to discuss. Please let me know if we are addressing everything. Regarding our guidance, we are quite pleased with our results from the first half of the year. We are leaning towards the higher end of our revenue guidance but are opting for a conservative approach due to the macroeconomic situation. Changes in circumstances, like the devaluation in Nigeria, impact our revenue figures but not our gross profit. We would prefer to wait for one more quarter before updating our annual guidance as a precaution. As you know, we have consistently exceeded all metrics we have set since we went public over two years ago. Additionally, the yearly guidance we provided indicates close to 50% year-on-year growth with best-in-class margins. This is an excellent outcome for 2023 and speaks to the resilience and diversification of our business. We also reaffirm our midterm guidance of 35% compound annual growth rate at the gross profit level and a 75% gross profit to EBITDA margin, which are among the best in the industry. Looking at qualitative aspects, Brazil performed exceptionally well, growing over 100% year-over-year and 80% quarter-over-quarter. Mexico also saw nearly 80% year-over-year growth. I highlight these two regions because they are among our most established markets. The underlying message is that our regions continue to grow and contribute to our merchants' growth. There will be quarters where one market outpaces others in growth, which is expected. Our growth relies on the growth of our merchants, some of whom may expand faster in one market than another, which is beyond our control and not something we wish to manage. We want to emphasize that we have multiple growth drivers operating simultaneously, and this quarter exemplified that. Several merchants are contributing to this growth, and we are not dependent on any single merchant in any particular market. Overall, it was a strong quarter for us. You also asked about Argentina's devaluation. Sergio, I know you have insights on this worth mentioning. However, I want to point out that we serve global merchants who think in dollar amounts. Historically, during devaluations, our merchants tend to adjust their pricing quickly. In other words, a major streaming service doesn’t view its product in pesos; it values it in dollars. When devaluation occurs, they typically respond with swift repricing.

Thank you. Our next question comes from Guilherme Grespan with JPMorgan. Your line is open.

I'm not sure if it's me, but I can't hear. Thank you. Can we move to the next question, please?

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

Hi, good morning. Thank you for taking the question. I just wanted to start on the new management arrangement. Just maybe if Seb and Pedro, maybe just want to comment a little bit on how do you foresee kind of splitting day-to-day duties going forward, especially once Pedro has the opportunity to ramp up on the business?

Hi, Jason, sure. Pedro, feel free to complement this. So Jason, first of all, Pedro and me have extremely complementary backgrounds. Ours is an opportunity that has plenty, plenty of challenges that we need to tackle. And whenever you have the ability of finding a talent like Pedro and getting him to join, it's an absolute no-brainer for us. We are still in the workings of the exact path that each one of us is going to be undertaking. But fundamentally, from a trend perspective, we are very complementary, and this couldn't be better news for us.

Okay. My second question is about the slide that showed the bridge on the gross margins. As you consider the second half and the unpredictability from a mix perspective, what kind of base case assumption do you have for second half gross margins, especially since you are reiterating the guidance on adjusted EBITDA for the year? Thank you.

Jason, on your question on guidance, again, we are known to be a very conservative company in this front. We are taking an extremely conservative approach given the market environment. We are clearly trading towards the higher end of that revenue guidance that we provided. We don't provide shorter-term guidance. And I want to emphasize that we are building this for the long run. We believe over 50% year-on-year growth. And again, the midterm guidance of 35% CAGR, it's best-in-class. And that's what we're focusing on. We want to retain flexibility to continue to invest in the opportunity we have. This is the time for us to differentiate. The emerging markets opportunity is bigger than ever, and we want to retain the flexibility to invest as much as we see fit while maintaining the disciplined approach we've always had.

If I may, if you look at gross margin and take rate in the second quarter, it was very similar to the first quarter, 1% decrease in gross margin from 25% to 24%, 0.1% decrease in the CAGR, that was part of your question. It's basically the result of business mix. As you see in this quarter, we had a higher share of local-to-local. And we have different country mix, particularly some countries which contributed to higher share of gross margin. We don't solve for that. As we mentioned, our merchant decides when and how to grow. So the behavior of those measures in the second half would be unpredictable.

Okay. Thank you for the comments.

Thank you. Our next question comes from Guilherme Grespan with JPMorgan. Your line is open.

Hello, can you hear me?

Yes, we do.

Thank you, Seba, and the team for the presentation. I have two questions. The first concerns Nigeria. You mentioned that you anticipate a significant impact from the devaluation, estimating it to be around 40% to 50%, and we've noticed a decline in revenue from Nigeria's contribution to the total top line. However, you also indicated that there will be no impact on gross profit, which seems contradictory to me. The only explanation I can come up with is that the gross profit margin in Nigeria is nearly zero. I would like to confirm if we are indeed operating in the country with very slim margins. The second question pertains to financial income. There was a substantial contribution from gross financial income this quarter, likely related to Argentinian bonds. Could you provide an overview of the returns on those bonds? Also, did we experience any non-recurring financial gains, such as depreciation of the bond during the quarter, or should we expect the gross income of $19 million per quarter to be the new normal now that we are invested in those bonds? Thank you.

Guilherme, thank you very much for the question. So we've spoken about Nigeria in the past. Actually, in our Q1 call, we called this out, how Nigeria had a higher than average gross take rate and much, much worse margin structure, given the gap between the market rate and the official rate. That was a drag on our margin structure, and that's why you saw it eroding. We broke that down in previous quarters. What has happened is that the Nigerian government has unified those two markets, and therefore, the gap that was existing before between market rates and official rates doesn't exist anymore. We never process payments in any country at zero margin. That's not the business variant. Every dollar we process contributes to our profit. What we said is that at a gross profit level, which is the key metric we keep track of internally, this will be neutral if not positive. Let me explain why. The gap in the FX in Nigeria made it very hard for merchants to understand why there was an official market rate and there was the market rate and why they had to navigate a lot of that complexity; some of that complexity is now solved. So for our global merchants, it's now easier to navigate this country, and we expect that to be one, neutral to positive from a gross profit standpoint, but two, obviously accretive to our margin structure. We spoke about our margin being punished before, given our Nigeria business. Now we probably get some upside from it. Maria, feel free to complement on this point, please.

Yeah, the only thing I would add is that not only it's not zero, it's actually a profitability higher than average net margin rates in the country.

In the quarter, we recorded approximately $7.4 million in financial profits, primarily due to increased cash levels in local markets, particularly in countries like Brazil and Argentina. Part of this is from bonds, contributing around $2 million to $3 million, but the majority comes from money markets and interest-bearing accounts in those regions. We reinvest a portion of these profits into hedges for full coverage, which reflects as a financial cost in the P&L. The net effect of these two factors has been very favorable for the quarter. Looking ahead, we anticipate a return to lower numbers in the medium term. However, this quarter, we have capitalized on significant cash investments at the operating company level benefiting from higher interest rates.

Just a follow-up if I may, how much those bonds, Argentinian bonds are paying?

They are marked to market. The nominal interest rate on the bond is minimal at 0.4% because they are dollar-linked, but this is mainly due to the mark-to-market of that bond. However, out of the financial income for the quarter, only a small portion comes from the bond. Most of the financial income is generated from cash held in money market and interest-bearing accounts, particularly in Brazil, Argentina, and at the operating company level.

Guilherme, I would like to complement on the Nigeria question just to make sure this is clear. When there's a devaluation, two things happen; our gross take rate goes down, but our cost of processing goes down. So that's why you see this being neutral at a gross profit level. Our cost of expatriation will decline heavily in the same amount as our gross revenue will decline because those are a function of the spread between the official market rate and the market risk. So that's why you see this being echoed. I hope that's clear. I know it's complex, but I want to make sure this is properly understood.

Yeah, sure. It was clear. Thank you for the answers.

Appreciate it.

Thank you. Our next question comes from Ashwin Shirvaikar with Citi. Your line is open.

Hi, can you hear me?

Yes.

Good to hear from you all. I want to start by congratulating Pedro and also ask a question. The local issue has never really been about growth, which you mentioned. One of the key reasons you're coming is the growth in the TAM opportunity. However, the main issue, as you pointed out, is scalability over time, specifically the scalability of technology where you can apply your expertise, governance, and other factors. Could you elaborate on the challenges that you think need to be addressed? Also, based on your initial assessment and the diligence you've conducted, do you think the necessary investments might impact the long-term margin structure? I understand it's early days, but just based on the diligence you've completed so far.

Thank you. That's a fantastic question. So conceptually, first of all, and I think this is important. Like any company that's grown as much and as fast as DLocal has, there are growing pains in scaling up. I think that's evident, and I agree with your diagnostic. There's already prior to my arrival, a lot of focus as with any company that's growing and work being done to strengthen whatever is needed to strengthen and prepare for scale. But that is a big part of what I've liked about the challenge is I feel that, that's what I've done and what I like doing and what I know how to do. So we really need to set this up so that this company can grow 5x, 10x, 50x once the opportunity arises. It's a bit early. I think I will get back to you guys with a better diagnostic. I am not a big believer in throwing money at these kinds of problems. I think we throw passion for problem-solving and systems at these problems, but I still need to complete my diagnostic. This is literally day two for me. So stay tuned, and I think we'll come back to you guys with clarity on whether this is a matter of simply continuing to build everything that's being built or if there might be a ramp-up in investments needed. Give me a little more time, give Seba, Jacob, and myself some time to take a look at this.

I truly appreciate that answer. Seba, maybe something we have discussed before sort of on an in-country basis, the objective perhaps of achieving a reasonable balance between pay-ins and pay-outs. As you look at your forward opportunity the next five, six countries that you feel should ramp up, how do you feel you're situated as far as that in-country balance is concerned?

Sorry, just one thing I wanted to add, that is relevant. If the challenge to scale is investing a little margin, and I'm not saying that's the case, we've reiterated our midterm guidance. But if that's the challenge, then this is a company with best-in-class margin structure, and there's room to do so. So I really think it's a double positive here.

Thank you, Pedro. Ashwin, regarding your question about pay-ins and pay-outs, we believe both products are highly complementary, and we do not have an internal target for one versus the other. Our product offerings are determined by our customers' preferences, not by our internal decisions. We have structured our operations to be completely independent. To clarify, we never subsidize pay-ins with pay-outs; every dollar processed on our platform generates profit, regardless of whether it is a pay-in or a pay-out. We are witnessing strong growth for both products, but this is not an internal goal. In newer markets, we may see one product gain traction faster than the other, but over time, we expect things to balance out. We do not impose restrictions on growth; if our pay-ins product grows rapidly while pay-outs lag slightly, that is acceptable to us. Ultimately, we believe that these metrics will even out over time, and even if they don't, we are confident in our long-term prospects.

Understood.

Is that clear?

Yeah, yeah, understood. Thanks.

Our next question comes from Jitender Singh with HSBC. Your line is open.

Hi. This is Neha Agarwala with HSBC. I guess I used the long link. Firstly, I'd like to welcome Pedro. Very nice to have you here at DLocal. My question during this quarter is related to the revenues in Brazil, which saw a big jump quarter-on-quarter. I believe this is driven by stronger volumes in Brazil which led to stronger revenues. So if you could just elaborate on that and give any color what drove that? Also, the TPV growth this quarter was almost 22% quarter-on-quarter, which is significantly higher than an average of about 10%, 12%, that we've seen in the previous quarters. So I believe we should expect this to normalize in the coming quarters and see a more normal level of sequential TPV evolution? Thank you so much.

Hi, Neha. Good morning. Thank you for your questions. Yes, our total payment volume grew in Brazil, which in turn boosted our revenues. As we've mentioned previously, we have a strong solution in Brazil, and the market there is enormous, with plenty of opportunities for us to pursue. This quarter confirmed the trends we anticipated and discussed in earlier quarters. It's important to recognize that our business operates across various geographies, which collectively enhance our performance in different regions consistently. Winning in Brazil this quarter is not solely about our Brazil solution; it reflects the strength of our overall platform. It wasn't just a win for Brazil; it was a victory for DLocal that showed itself in Brazil and Mexico this quarter, and in Nigeria last quarter. We expect growth to continue in these markets. While we have reiterated our guidance for future growth rates, it's crucial to understand our business from a global perspective rather than isolating it by geography. We focus on accommodating our merchant base, tracking our progress, expanding our customer relationships, addressing more pain points, and offering additional products, as that’s where the true value lies.

And regarding the sequential growth in TPV.

Neha, we are seeing our business performing exceptionally well. We have previously mentioned that our pipeline is stronger than ever, and I can confirm that we are still experiencing a very robust pipeline. During this quarter, we managed to sign two of the top 10 global merchants, which has not yet impacted our current results, but indicates that there is significant growth ahead. While we can't always control the timing of this growth, our focus remains on the mid to long term as we develop our business. We are achieving great logo wins and generating substantial opportunities. It is essential for us to continue building our product and ensuring we are best-in-class in all 40 emerging markets where we operate.

Great. Thank you so much, Seba, and thank you so much, entire DLocal team. Congratulations.

Thank you. Our next question comes from Jamie Friedman with Equity Research. Your line is open.

Hi, good morning. And, let me echo the congratulations to Pedro. So my first one is for Pedro. I was just wondering, and it may be early, but a question that investors ask a lot is with regard to the DLocal compliance and I was wondering, since you incubated a great payments company as well in Mercado Pago, what's your perspective on the compliance infrastructure at DLO? That's one question. I'll just ask my second one as well. Sergio, we appreciated your comments about Argentina, and this is part of a continuum. But I was wondering, at a very high level, is this the same, worse, or better in terms of regulatory scrutiny at Argentina now than what you have seen in the past? So the first one is for Pedro, the second one for Sergio. Thank you.

Hi, Jamie, and thank you, Neha. Before I respond, I want to remind everyone that today marks the beginning. I have conducted thorough research throughout our discussions. It's crucial to recognize that we provide significant value to our customers by addressing complex markets that function very differently from one another. I joked with the press yesterday that if all emerging markets resembled Switzerland, we wouldn’t achieve the margins, take rates, and value that we currently do. I see our compliance team as being effective, and as a publicly traded company in the US, compliance is essential. We will encounter local challenges regardless of how much infrastructure, processes, and systems we establish. This is part of our value proposition. I am not concerned about this, and I want to emphasize that we will continue to build on it. It's important to understand that we have made progress; there is a great team here led by excellent individuals. My role is to ensure that we invest in and strengthen all our internal functions.

I will address the second question. The current situation in Argentina is very volatile, with frequent regulatory changes occurring almost daily. We believe in the long-term potential of the country. For now, like the rest of the market, we are in a wait-and-see mode to understand how things will unfold with the upcoming election. I can assure you that we have been present in the country for a long time and possess great flexibility. We are well-acquainted with the market and are adjusting our strategies accordingly. We have an advantage through our extensive knowledge and flexibility, which we will leverage to our benefit.

Thank you, both.

Thank you. Our next question comes from Matt Coad with Autonomous Research. Your line is open.

Hey, guys. Thanks for taking the question. I wanted to just ask a couple more on Argentina. Based on the press release and your opening statement, it seems like the investigation there is going well. Just hoping you could double-click on that. And then interested in how the incremental hiring in Argentina could impact your margins over the long term? And then last one, and this kind of might be a similar answer to the one you guys just gave, but if we do see dollarization ultimately in Argentina, how does that impact your business?

Sure, I'll address that. Regarding the investigation, we've shared a lot of information about the situation and will continue to provide updates if there are any significant developments. When it comes to hiring, we are expanding our workforce, with a focus on Argentina more than ever, as we believe it has excellent talent. Currently, we have over 150 full-time employees there, and while hiring takes time to ensure we find the right people and get them onboard, we are on track to grow our team. We do not expect this to negatively affect our profit and loss. The talent pool in Argentina is quite strong and, in the short term, it tends to be more cost-effective than in other regions. However, over the mid to long term, we anticipate wage levels will align more closely with those in international or emerging markets. As for dollarization, it's difficult to predict whether it will occur. Should it happen, it would certainly simplify our processes for handling cross-border payments, which we would welcome.

Thank you. Super helpful. And then I just had like one quick follow-up. The tax rate was a bit higher this quarter at 16%, 11% last quarter, and you noted like the mix to local-to-local and more financial income driving that. Could you provide any guidance for like how we should think about modeling the tax rate going forward?

So again, it will be the result of the mix of profits we have in the different countries that we operate. There are very different tax rates within the different jurisdictions. And as you know, we currently have operations in 40 countries, another five countries we have holding at an operating company level. So it is really complex to provide a specific number. As long as we continue having a higher local-to-local profit as we did this quarter, and we also have financial income, particularly in countries like Brazil and Argentina, that would trigger a higher income tax rate, because those countries did carry a tax rate of 30-plus percent. So as long as that situation continues, we expect to have a similar tax rate as what you have seen in Q2. But again, we don't guide for that because it will be basically the outcome of the changes in the mix by country and the different type of transactions that we eventually have.

Awesome. Thanks, guys.

Thank you. Our next question comes from Kaio Prato with UBS. Your line is open.

Hey, hello, everyone. Hi, Seba and team. Thank you very much for the opportunity, and welcome, Pedro. I have two quick questions on my side, please. The first is following the management change, just would like to have your view about the strategy going forward if there will be any change given the recent movements or if there are any other initiatives beyond payments and your current products that you could pursue in the medium term, and if so, if you can give us an example that would be really helpful, please. And the second one, if I may, is just another quick follow-up in Argentina. I'm not sure if I completely understood, but I think in one of your answers, you mentioned that you do not expect any impact from the additional devaluation in the peso as you reprice your clients; otherwise, you will have a negative impact, is that right? Just would like to confirm. And if so, have you already repriced your client this week after the devaluation or not? That’s it. Thank you.

Pedro, I'll take the second part and let you take the first one, which is the fastest. It's not that we reprice; Kaio, it's that our merchants reprice. So they reprice our services and therefore, we are indexed to their dollar amounts and as such, our own revenues reprice. It's not that we increase our take rate. It's not our merchants have higher amounts or charge higher amounts, and therefore, we are, in fact, repricing ourselves.

So I learned a long time ago, you don't fix something that isn't broken. Look at the first half that we've just delivered. Our Brazilian business, our largest business, grew revenues nearly doubled year-on-year. Our newer markets, which are a huge opportunity, Africa and Asia, I think grew over two times, nearly 2.5 times. We've had some one-offs. We had a devaluation in Nigeria and the currencies in Argentina. But if I look at the long-term prospects for this business, that's a big reason why I'm here; this does not need a change in strategy at all. The addressable market, the global reach of this company presents significant opportunities for us. So again, reiterate the local strategy is clear. The vision is clear. It's incredibly compelling. And what we need to do is execute on behalf of our global merchants behind their needs in fintech and emerging markets.

Okay. Thank you very much, Pedro and Seba.

Thank you. That's all the time we have for questions. I'd like to turn the call back over to Seb for closing remarks.

Pedro, I think closing remarks are yours today.

Yep. Thanks for that, Seba. So first of all, thank you, everyone. Just to reiterate how excited I am to be here and the opportunity. And I do want to leave everyone with a final thought. Companies tend to get lost if they start placing excessive focus on the short term. And so we want to continue to reiterate and reemphasize to everyone that we're building this business for the long term. And that's where we're making our decisions. I'm convinced that, that is how value is created in technology as I said earlier, when you compound the kind of results we're delivering over longer periods of time. So our job as leaders of this organization is to find the best way for DLocal to be able to compound those results over a long period of time. That's why you see us investing in geographies, in product and systems. We're super, super excited about this opportunity. We have a huge market to attack globally to turn to a multi-billion dollar revenue business over the coming years, and that's where our focus is. I look forward to updating everyone on our progress on that journey over the course of the next few quarters. And thank you very much.

Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.