Ladies and gentlemen, thank you for standing by and welcome to the MercadoLibre First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program Federico Sandler, Investor Relations Officer. Please go ahead.

Hello everyone and welcome to the MercadoLibre earnings conference call for the quarter ended March 31, 2020. I am Federico Sandler, Investor Relations Officer for MercadoLibre. Our senior manager presenting today is Pedro Arnt, Chief Financial Officer. Additionally, Osvaldo Giménez, CEO of Mercado Pago will be available during today’s Q&A session. I remind you that management may make forward-looking statements relating to such matters as continued growth prospects for the company, industry trends and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations, and projections about future events. While we believe that our assumptions, expectations, and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on these forward-looking statements. Our actual results may differ materially from those discussed in this call for a variety of reasons including those described in the forward-looking statements and risk factors sections of our 10-K for the year ended December 31, 2019, Item 1A Risk Factors in Part two of our Form 10-Q for the quarter ended March 31, 2020 and on any of MercadoLibre Inc.'s other applicable filings with the Securities and Exchange Commission, which are available on our Investor Relations website. Finally, I would like to remind you that during the course of this conference call, we may discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found on our first quarter 2020 earnings press release available on our Investor Relations website. Now, let me turn the call over to Pedro.

Thank you, Federico and hello everyone, and thank you for your interest in joining MercadoLibre's first quarter 2020 earnings conference call. Given the unique circumstances the world is facing due to the coronavirus outbreak, I'd like to first address recent trends and developments followed by our standard quarterly review. Starting in March, towards the back end of a successful first quarter in 2020, we began to observe near-term headwinds generated by the coronavirus outbreak. Although less affected than others, our business did register this impact particularly in Brazil and Argentina and primarily during the first weeks of the imposed lockdowns, with a rebound throughout April. From the onset, we have taken swift and decisive action to safeguard our employees and offer our platforms as solutions to the challenges being faced by our communities. We pride ourselves on being an agile and adaptable company, whose business, people, and community have played a role alongside many others in facing up to the COVID-19 crisis. Consequently, our focus has mainly been on three fronts: the wellbeing of our teams, the uninterrupted operation of our commerce and FinTech solutions which are uniquely suited to help society face the current pandemic, and the coordination of our efforts with authorities in the countries we operate in to guarantee timely and well-allocated resource allocation. As early as March 16, we determined that over 9,000 MercadoLibre employees in eight countries and across 20 offices would start working remotely to ensure and promote social distancing norms, while maintaining on-site only the operational staff that was required to continue providing our services without disruptions. Precautions were taken to safeguard the health and safety of those staff members on site, who are primarily members of our logistics network. Precautions were maximized to guarantee their health and safety. For those who had moved to remote work overnight, all technological training and emotional support necessary to guarantee efficiency, productivity, and well-being was also made available. With our remote and secure on-site work plans in place, we activated our second area of focus: committing to support consumers and merchants through multiple initiatives which promote preventive actions and financially support their businesses or households. To that effect, we've put forth 10 critical initiatives. We've leveraged our platform's broad reach to launch a COVID-19 readiness campaign by temporarily changing our MercadoLibre and MercadoPago logos from a handshake to an elbow-to-elbow logo. We used this elbow-to-elbow campaign to amplify official recommendations from leading health organizations on how to prevent and minimize the spread of the coronavirus. Secondly, we launched our new branding campaign whose narrative is centered around stay-at-home; we are still delivering. We also deployed the necessary measures to ensure the continued operation of our logistics network and that our transportation partners for all product categories across all geographies could continue to operate. We tweaked our user interfaces to facilitate discovery of products of greatest demand and most reliable delivery times. We eliminated commissions on roughly 1,000 SKUs of essential products for nearly 100,000 merchants, understanding that purchases of these items will be essential for our buyers over the next few months. We reduced listing fees for new sellers to facilitate their transition from offline to omnichannel while stimulating depth of assortment on our marketplaces. We extended a 30-day grace period to repay loans for more than 2 million consumers and eliminated late fees for more than 150,000 merchants to alleviate some of the financial burden our users are facing as they seek to stabilize their finances. We launched fundraising campaigns with the international Red Cross to deliver safety and hygiene kits to health workers and with regional NGOs to aid in the distribution of food to the most vulnerable. We launched a supermarket purchasing experience in Argentina and Brazil to facilitate access to consumer packaged goods purchasing in cost-effective cards and quantities. And lastly, to facilitate trade and mitigate economic hardship during periods of quarantine, governments throughout Latin America declared e-commerce an essential activity exempted from the lockdowns. To achieve this, we engaged and coordinated with governments in the region to keep our logistics operations functioning, helping to ease the negative impact of shelter-in-place lockdowns. Our hearts go out to those individuals and families affected by COVID-19, and our gratitude and appreciation go out to all those brave individuals who are on the front lines working through this unprecedented global health crisis. At MercadoLibre, we will continue to leverage our platforms to support our communities during this important time, allowing continued access to commerce and financial services as our users try to get back on their feet. Let me now take just a few minutes before getting into our traditional quarterly review to update you on recent key performance indicators of the initiatives that I've just outlined. Regionally, we saw variation in how imposed total or partial lockdowns impacted merchants' businesses, with important improvements as time elapsed. Argentine merchants were initially more impacted than in Brazil, but they also rebounded more rapidly, whereas in Mexico, Colombia, Chile, and Uruguay, merchants faced less disruption during March and nonetheless saw increased activity during April. Marketplace key performance indicators hit a low point during the week of the 18th to the 24th of March. The year-on-year growth rate for items sold during that week troughed at 3.3%, with FX-neutral GMV declining by 1.4%. From then onwards, we have seen a strong rebound with growth rates accelerating in April to 76% year-on-year in items sold and 73% FX-neutral year-on-year in GMV for that full month. More broadly, changes in demand trends have led to a mix shift in sales as consumers prioritize essential items. Categories such as health, consumer packaged goods, and toys and games showed strong volume growth, exceeding 100% year-on-year on an FX-neutral basis in some markets. Conversely, higher-ticket non-essential categories, such as auto parts and consumer electronics, saw marked declines in growth rates. Moving on to recent trends in the FinTech business. In mid-March, we also observed a deceleration in the number and volume of payments processed, primarily as a result of lower foot traffic in brick-and-mortar retail that use our MPOS and QR solutions. This negative impact was partially offset by strength in areas such as online payment merchant services; online wallet use cases and convenience store merchants. Just like in the commerce business, the magnitude of negative impact was greater in the initial weeks following government-mandated lockdowns with gradual improvements since then. Consolidated April growth rates are above pre-COVID levels, driven by Argentina, Chile, Colombia, and Mexico, with Brazil still lagging somewhat. Consequently, off-marketplace total payment volume growth during the second half of March was 95.4% year-on-year on an FX-neutral basis, and total payment in number was 87.3% year-on-year growth. And for April, these growth rates have been 155.6% and 119.8%, respectively. So summing up where we stand, we've seen three phases: a strong start to the first quarter that got derailed during the back half of March and rebounded by April. Given these recent trends, we remain optimistic that despite everything that has been occurring, we will still be able to make progress towards our annual objectives without having to delay or materially modify our investments or strategic initiatives. We recognize that in these times, the services rendered by both our commerce and payment platforms are essential for many people across the region, and we will do our best to not let them down. We also remain attentive to any change in demand or supply patterns that might again modify our capital allocation strategy. Now that I've covered COVID-19 key related trends and updates, let's move on to our progress report for the quarter, starting with the marketplace business. Consolidated marketplace GMV grew 34.2% year-on-year on an FX-neutral basis, reaching $3.4 billion, while items sold grew 27.6% year-on-year reaching $105.7 million, also on a consolidated basis. On a country-by-country basis, during the first quarter of 2020, Argentina, Brazil, and Mexico GMV grew at 81.5%, 15%, and 54.5% year-on-year on an FX-neutral basis, respectively. Late-quarter mix shift towards lower ASP categories and temporary demand pullback negatively affected these results. Items growth accelerated in Brazil and Mexico to 25.9% year-on-year and 66.5% year-on-year, respectively, showing the positive impact of mix shift. In Argentina, items sold during the quarter decreased 2.4% from the same period last year as we transitioned through the implementation of flat fee pricing last year during the second quarter. Chile and Colombia delivered robust rates of growth during the quarter, accelerating to 57% and 44.8% year-on-year, respectively, on an FX-neutral basis. In terms of supply, live listings offered on MercadoLibre's marketplaces reached $267.4 million during the quarter, registering a 29.8% year-on-year growth. This deceleration was mainly driven by Brazil and Argentina, where certain sellers were unable to operate under the current lockdown regimes. On average, sellers paused roughly one-third of listings during late March. Cross-border trade has also been negatively impacted by COVID-19 as Chinese merchants listed around 40% fewer products in January and 15% fewer products in March. Moving on to logistics. Fulfillment penetration continued improving across the board, reaching 11.3% in Argentina, 14.1% in Brazil, and 43.1% in Mexico, yielding 19.9% fulfillment penetration on a consolidated basis. Meanwhile, cross-docking reached 51.1% in Argentina and 28.1% in Brazil, getting us to 23.4% adoption on a consolidated basis. All in all, we are rapidly approaching having half of our shipments already running on our own logistics network, quite a feat given where we were only a few quarters ago. These positive results are in large part a consequence of the continued expansion of our network. As we launched new hybrid cross-docking centers in Curitiba and Bell Horizonte in Brazil and added service center nodes and over 700 drop-off points. Additionally, we also launched our Flex logistics solution in Chile and Colombia to complement our existing drop shipping offerings, enabling us to reduce reliance on any single carrier. Let me now take on a quarterly update for FinTech. Off-platform total payment volume decelerated during the quarter, growing 139.5% year-on-year on an FX-neutral basis, with Brazil growing 101.8%, Mexico 114.6%, and Argentina, 221.2%. Total payments in number grew 102% year-on-year for the quarter on a consolidated basis. The deceleration in the number and volume of payments processed, as already mentioned earlier, was primarily driven by lower foot traffic in physical retail during March, which had a direct impact on lower mobile point-of-sale and QR total payment volume growth, partially offset by the relative strength in our merchant services business, where we process online, away from our marketplaces. The mobile point-of-sale business was still strong, driven by January and February momentum, growing total payment volume 103.3% year-on-year on an FX-neutral basis for the full quarter. Brazil, Argentina and Mexico grew 82.7%, 173.6%, and 234.5% year-on-year on an FX-neutral basis, respectively. The pace of mPOS sales remained solid with over 900,000 devices sold during the quarter. In addition, we are encouraged by the launch of our new plus device, which is geared towards catering to larger merchants and will allow us to continue driving higher average revenue per user within this business line. Our online payments merchant services solutions grew 81.7% year-on-year on an FX-neutral basis. The greatest deceleration in this business was in Mexico, which grew at 62.4% year-on-year on an FX-neutral basis. This was partially offset by the growth in the other countries segment with 109.5% year-on-year growth, also on an FX-neutral basis. The deceleration in Mexico can mostly be explained by higher exposure to cross-border businesses, specifically our merchants in China that began to see the impact of COVID-19 early on in the quarter. During the first quarter, MercadoPago's mobile wallet delivered $1.3 billion in payment volume on a consolidated basis, growing 299% year-on-year on an FX-neutral basis. The slowdown in in-store QR payments and wallet transportation payments were due to seasonality plus obviously, the total or partial lockdowns that occurred by mid-March as well as the rationalization in marketing expenditures on our part. Monetization of QR payments in Brazil, where we started to charge a 100 basis points merchant discount rate earlier in the year also slowed down growth. But perhaps, more importantly, it lends increasing proof-of-concept to the QR network as we took this important step towards building a sustainable business model. Unique wallet payers reached a milestone, as during the quarter, we surpassed the $8 million mark, growing over 155% year-on-year on a consolidated basis. Mexico led growth with 252.8% growth and surpassed the 1 million mark in payers for a quarter for the first time. We're also pleased to announce that during the quarter, we launched Mercado Fondo in Mexico in partnership with Grupo Bursátil Mexicano, who has over 35 years of experience in the Mexican financial sector. The gradual rollout of asset management in Mexico began in mid-January and was finished by February 28. The first month of operations was in line with the results in Argentina and Brazil, in terms of user acquisition over a similar period of time since launch, capturing 5% of users with balances being transferred to asset management products. Mercado Crédito's total outstanding credit portfolio reached $177.6 million during the first quarter, decreasing by 16.5% Q-on-Q as a result of the devaluation of the region's currencies. In local currency, Argentina's portfolio grew by 15.4% and was flat in Brazil and grew in Mexico by 13.1%. By the end of the quarter, the NPL ratios had not shown a deterioration due to the COVID-19 crisis. Nonetheless, to manage our exposure to merchant and consumer credits, amongst the global pandemic, we slowed credit origination to both merchants and consumers significantly. As a consequence, as well as the devaluation impact of the country's currencies, we shrunk our merchant credit portfolio by 21.1%, our consumer credit portfolio by 5.2%, and our mobile point-of-sale credit portfolio by 20.4% Q-on-Q in U.S. dollars. These defensive measures led to non-performing loans that were 30 days past due that represented 10.8% of total loans during the first quarter of 2020. We also recorded an $8.7 million increase in bad debt provisions versus Q4. This increase is explained for the most part due to a change in U.S. GAAP accounting norms effective January 1, where we adopted the model of current expected credit losses to account for our allowances for loan losses. Previously to the change, we accounted for loan losses using an incurred loss model, where we recognized loan losses as they were incurred. Going forward, we will book loan loss provisions at the moment the credit is originated based on actuarial calculations and subsequently adjust those provisions as credits are repaid. With that, let me now move on to our financials for the quarter. Consolidated net revenues for the first quarter were $652.1 million, a year-on-year increase of 37.6% in U.S. dollars and 70.5% on an FX-neutral basis as we continue to optimize shipping subsidies and costs that minimize contra revenues from free shipping programs. Commerce now represents 58.4% of our total net revenues compared to 41.6% for FinTech. Gross profit was $312.8 million, with a margin of 48% compared to 50% in the first quarter of 2019. This 205 basis points margin compression was driven for the most part by warehousing costs from our fulfillment operations, partially offset by collection fee improvements and salary and wages leverage in our customer services operations. On a sequential basis, 224 basis points of margin improvement are mostly explained by declining MPOS sales costs. In the slides accompanying the presentation, we've included, as every quarter, a detailed breakdown of these, as well as the OpEx margin evolution that I'll cover quickly now. Operating expenses were $342.5 million, an increase of 51% year-on-year in U.S. dollars. As a percentage of revenues, operating expenses were 52.5% compared to 47.9% during the first quarter of 2019. These 251 basis points of margin compression are attributable primarily to increases in sales force-related costs, bad debt provisions I just covered and increased marketing spend. Sequentially, there was $34.7 million of Q-on-Q improvement in operating leverage that was mostly driven by a decrease of $60.2 million in marketing expenditures, partially offset by the same bad debt charges. Loss from operations was $29.7 million compared to a loss of $68.9 million during the prior quarter. As a percentage of revenues, the loss from operations reached 4.6%, improving by 567 basis points sequentially. Moving down the P&L, the company incurred $23.6 million in financial expenses this quarter, mainly attributable to secured financial loans and interest expenses related to our payments business in Argentina. Interest income was $36.8 million, a 50.5% increase year-on-year as a result of the equity offering during March 2019, which generated more invested volume and interest gain and also a higher float in Argentina. In delivering these results, we've sought to maintain a sustainable balance between growth and investments, which for the quarter led to a net loss of $21.1 million. As I wrap up the prepared remarks, I don't want to lose sight of the extraordinary time we are living in. We thank everyone in our communities who are doing everything they can to get us through, whether it is by staying home to remain safe or by making it to work to keep our health systems and economies running. We remain committed to doing our part by empowering our merchants to continue operating, by securing deliveries of goods needed by households, and by supporting the normal operation of payments and financial value chains. MercadoLibre will emerge from this situation stronger and with an even greater sense of purpose. We trust the dedication and commitment being demonstrated by our entire organization will allow us to continue executing our strategy with no significant interruptions. And in doing so, play our part in contributing to making things less difficult during these trying times. We look forward, as always, to keeping you updated on our progress next quarter, and we'd like to take your questions now.

Our first question comes from Stephen Ju from Credit Suisse. Please go ahead with your question.

Thank you. Hi, Pedro, I hope you and the management team are doing well and staying safe during this crisis. From a broader perspective, while the reasons for the acceleration in April are unfortunate, this could lead to quicker changes in consumer behavior regarding e-commerce and payments in all the regions you operate. Can you share what steps you may be taking to maintain as much of the momentum as possible? Historically, MercadoLibre has underperformed in certain product categories. Shouldn’t it be easier now to engage in discussions with brands and sellers in those categories? Additionally, you mentioned eight million users now using the mobile wallet. Should we assume that the cost associated with acquiring these users is effectively zero at this point? Are these users existing MercadoLibre customers that you converted? Consequently, is there still a significant overlap between your commerce and FinTech platforms, or are you starting to see a clearer distinction in the user bases? Thank you.

Great. So thanks, Stephen. I think, fortunately, we're all doing very well on this end, and we wish the same to everyone on the line. So look, I think that there is the potential we still need to wait and see a few more months that to a certain degree, what's happening around us will generate some sort of fast forward in a shift from physical to digital. And so, I think we're very focused primarily on three levers here to see if we can hold that momentum going forward. The first one is to deliver on the user experience and the promise. That's very closely tied to logistics, but it also means that we need to keep operating the entire machinery, which is being obviously strained, while continuing to deliver the service that's expected of us, because we don't want is to have new users or users onboard new categories and facing that negative user experience. So, we're tremendously proud of the work that's been done by the logistics team. Our MercadoLibre's operation has continued to operate and to deliver within the standard service levels. We are seeing considerable mix shift, same story as for other players similar to us globally. And so we're trying to very quickly accelerate plans that we already have in place for certain categories within consumer packaged goods and other areas. And related to that, and you did mention this also is, how do we continue to onboard more and more merchants, both for financial services and also for our commerce businesses because, obviously, there's increased desire to pursue digital channels, and we are a critical partner for anyone trying to move into the digital world. So there is a re-ramping up of sales forces to be able to engage and to deliver those incremental conversations. So I would say the biggest focus is to make sure that we can deliver on the incremental volume that we're seeing so users have a good first experience. In terms of TAC, just one comment. The $8 million was the full quarter. We still had our marketing running during Q1, obviously, much more efficiently than previous quarters, especially for the wallet. We mentioned that in some of the prepared remarks, but we were still investing, and so those TAC were not zero, but there is greater efficiency in the overall marketing spend behind driving those 8 million wallet users, which is a good sign. I would say, April is where given the enormous organic demand that exists, marketing spend has been low, and so have come down. Marketing spend has not been zero, and we also need to see what happens as the world normalizes and offline offerings once again emerged, and what happens to TAC at those points. But April, obviously, there's much less investment in marketing, just because there's so much organic demand, especially on the commerce side. And on the payment side, there's probably a lot less of an impetus to invest in a lot of the discounts because a big part of what it was in-store and foot traffic. Obviously, there isn't too much sense in investing behind that, but we have been to behind online use cases and other use cases that have picked up demand.

Thank you.

Thank you. Our next question comes from the line of Edward Yruma from KeyBanc. Your question please. Edward your phone might be on mute.

Sorry about that. Again, my best thoughts for you and your teams, and their continued health. Interesting commentary on the pullback in credit, I guess, what proof points will you look for in terms of re-establishing accessibility to credit? And in the short-term, how do you expect this will impact the P&L?

Hi, Edward. Regarding credit, we have started to provide it. We have two major segments. First, we are offering working capital to merchants. Initially, we slowed down credit origination to assess how they were performing in the marketplace. While the overall marketplace has accelerated, merchant performance varies. Some are experiencing significantly faster growth due to their offerings, while others are seeing a slowdown. We wanted to ensure we had the right approach before resuming loans to them, and we are already moving forward with this country by country. On the consumer side, we've never stopped originating loans, but we did cut back on the volume. We continued to offer new loans to customers who have repaid us previously, aiming to avoid adverse selection by not lending to those potentially facing difficulties with their existing obligations. As we gain more confidence in the situation, we plan to scale up our lending again.

Great. And one follow-up, if I may. It sounds like the Brazilian business is maybe re-ramping a little bit slower than your other businesses. Is that a macro issue? Or are there other factors at play? Thank you very much.

So, I think if you look at the commerce business, the Brazilian business, even if you look at Q1 results, was growing somewhat slower than the other businesses and it began to accelerate in April. When we look at relative growth rates, April to pre-COVID, they look pretty good for Brazil. I'll let Osi give you some more color on payments, but I think for payments, that's probably a fair assessment.

Thank you, Pedro. I'll add to that, that in the case of Brazil, on the online payment side of the business, we did have a few large clients who were either related to the tourism industry or to entertainment, or even to cross-border trade. And for those, the volumes are obviously significantly down. And then, in the mPOS business, I think on the case of Argentina, a larger proportion of those mPOS came from supermarkets and small mom-and-pop stores who sold food and these ones are thriving. However, in Brazil, this percentage is lower, and therefore, the recovery is taking a little bit longer than in the case of Argentina.

Thank you.

Thank you. Our next question comes from the line of Bob Ford from Bank of America. Your question, please.

Thank you. Hi, Pedro, Federico, Osvaldo. Thanks for taking my question. Can you talk a little bit about your decision to pull forward the consumables launches? How that's scaling, how you're thinking about the value proposition in terms of price, assortment, service levels, and geographic availability? And how did that decision to pull the consumables forward impact, as well as this wave in the take rates, how did that impact profitability in the quarter?

Sure, Bob. To start, I want to clarify the scale of these categories. Even in our strongest markets like Mexico, where we're ahead of the curve, these categories likely represent only mid-single digits of GMV. The smaller countries are even further behind. Therefore, their overall impact on profitability is not very significant at this point. Our primary focus now is enhancing the user interfaces. We have introduced the supermarket interface from Mexico into Brazil and Argentina, and we’re working quickly to improve the variety of products available. Timing is important as we integrate consumer packaged goods with our logistics network. This involves not only our fulfillment but also engaging with direct vendors to sell to us or fulfill through us. Looking at our value proposition, there’s still ample opportunity to expand our SKU offerings. Much of the notable growth in GMV is driven by essential products, which makes sourcing a small number of SKUs relatively straightforward. The real challenge moving forward is ensuring we have the right incremental assortment to remain relevant as the market stabilizes. In response to your question, we've made significant progress in launching the supermarket experience. We've been flexible in sourcing high-demand inventory, and we are actively preparing to increase SKU variety for the future as conditions normalize. Right now, profitability is not a major concern due to the low volume. However, we believe that as we utilize our fulfillment centers more and increase volume, our unit costs will decrease, which should help in the consumer packaged goods segment. The final goal is to increase the average number of items per order, which is crucial for making this work.

And Pedro, if I understand correctly, quarters placed in the morning in São Paulo fulfilled the same-day afternoon, next day, next day in Rio. How are you thinking about making that value proposition more broadly available in Brazil?

Yes. So this doesn't apply just for consumer packaged goods. I think what you're highlighting is simply a reflection of the tremendous work that's being done by the logistics team in terms of being able to service large urban areas that are relatively close to our warehouses as we grow the footprint of our own network in what we consider to be best-in-class times. So it's certainly new. This is recent, and then really the improvements have been phenomenal. We're communicating it as we make sure that we can scale that efficiently. And we do think that will be a very strong part of the value prop, but not just for those categories, but rather across the board for all of our service offerings.

Thank you. Our next question comes from the line of Andrew Ruben from Morgan Stanley. Your question please.

Thanks for taking the question and very helpful call. So I was just hoping that you could talk through some of the drivers of TPV off marketplace. This seemed more resilient, really, particularly in April than we would have expected based on the physical exposure. So maybe just some puts and takes on MPOS and QR versus merchant services? And maybe color on the proportion of your MPOS base that's shuttered for the moment and would have went to zero, would be very helpful? Thank you.

Sure, Andrew. In April, we observed that various businesses have developed differently. Starting with online payments, there are some sectors, like tourism and entertainment, where volume has decreased, particularly in cross-border trade. However, in general, there's been an acceleration as many businesses migrate online, especially among small businesses that are beginning to sell online for the first time. We've noticed positive trends, particularly in Argentina, along with improvements in Brazil and Mexico, while Chile and Colombia are performing very well. For MPOS, the performance by sector varies significantly by country. Brazil is our largest market, but its volumes are still approximately 25% lower than pre-lockdown levels, mainly due to significant impacts on sectors like automobiles and transportation. Retail, which previously made up 16% of MPOS providers, and restaurants at 11%, have also been heavily affected. Conversely, supermarkets, which made up only 2% of total payment volume (TPV) before, have remained stable. This has contributed to the overall decline in volumes in Brazil since the lockdown began. In Argentina, supermarkets were already a substantial portion of TPV, accounting for 38%, and they've seen significant growth to over 55%. As a result, the overall volume in Argentina is nearly flat, just 3% below pre-COVID levels. In Mexico, the decline has been even sharper than in Brazil, with a 35% drop in volume, which is largely because many merchants don't offer essential items, and supermarkets only make up 3.5% of total volume. Overall, retail, particularly in closures and services, is down significantly, while supermarkets and essential goods are seeing an increase, with Argentina experiencing the least volume decline. Regarding wallets, we're witnessing two simultaneous trends. On the one hand, total payment volume exists alongside utilities and peer-to-peer (P2P) payments. In terms of QR payments, the long-tail segment is performing reasonably well, but larger merchants in fast food and gas stations are not seeing any volume due to closures. However, we've seen a significant increase in online wallet users, especially for utility payments and mobile top-ups, particularly in Argentina. Additionally, we've revamped P2P payments and are noticing an acceleration in that area.

Thank you very much. That was very helpful.

Our next question comes from the line of Marcelo Santos from JPMorgan. Your question please.

Hi. Good evening. Thanks for taking my questions. I hope you're all doing well and remain doing well. The question would be on the cost side of the business. What are the main impacts that we should see in the coming months, given this change in the business, understanding lower marketing expenses, perhaps higher bad debt? Could you discuss a bit how the cost changes? Thank you.

Yes, thank you, Marcelo. I hope everyone on your side is safe as well. I want to emphasize that this situation is very dynamic and still unfolding. We'll provide more details about the quarter when we announce it. In terms of trends and drivers, we're observing strong volume in commerce. On the FinTech side, as Osvaldo highlighted, we're seeing significant resilience compared to the surrounding environment. There has been an initial reduction in marketing spend and expenses related to our sales force, as we've limited in-person meetings and reduced the use of third-party sales forces, resulting in primarily organic demand. This is favorable for our spending. We're experiencing less discounting and couponing to stimulate usage, particularly in FinTech, with a lesser extent in commerce. There are adjustments to our expenses, which are somewhat offset by COVID-related logistics costs. Additionally, there has been a shift in product categories that might have slightly tighter margins. We also need to observe how macro demand unfolds as we approach May, June, and the remainder of the year. Looking at April and this initial phase, marketing has been a significant aspect of our expenditures, which has decreased. Logistics costs per unit are decreasing as we handle more volume through our network. While logistics costs from increased adoption are now more aligned with dropshipping, they have not necessarily gone down across the board. There has been an increase in bad debt on the credit side, but it appears to be managed well unless we see a spike in underperforming loans. Overall, we have solid top-line performance with some reductions in expenses. However, we won't remain entirely defensive. We see a substantial opportunity due to the rapid shift online. Now that we feel confident about our business's performance, we plan to increase spending gradually, but not to previous levels.

Perfect. Thanks for this one. I have another one. Could you please comment, there were some news in the Brazilian media discussing the states potentially wanting the marketplaces to collect taxes. So there was some noise in the media. Could you discuss this if possible?

Yes. So last I had checked, we had not received any formal notification. Obviously, we're aware both of the media coverage. And that in general and especially with potential macro conditions going forward. There are conversations from different states and in some cases, with different states regarding state taxes. I think the way we're approaching this is through the federations and the trade associations. I think this is fairly early on in the conversation to try to drive any conclusions as to how this might potentially play out. Our understanding is that some of these initiatives won't be able to prosper. But again, following it closely, we haven't been officially notified, so that gives you an indication of how early on this is. And we'll have to see how all of this plays out.

Great. Thank you very much.

Thank you. Our next question comes from the line of Deepak Mathivanan from Barclays. Your question, please.

Great. Thanks for taking the question. Glad to know everybody is safe. Two questions from us. First, Pedro, can you help understand the impact of reduced commissions and listing fees for certain offline to online categories? And types of merchants in response to COVID-19 on the take rate side, we talked about it in the prepared remarks. Do these merchants represent a sizable portion of the volume at this time? And then second question, a little bit bigger picture question. You had a lot of long-term priorities like loyalty integration and then also a good build-out of the first-party business in various geographies. Obviously, now there are a lot more urgent pressing situations that you have to prioritize, how do we think about some of these things as we go into the back half and some of the initial shocks from COVID-19 sort of mitigates? Thanks.

First of all, the discounts we've been offering should not significantly impact monetization. We targeted a limited number of users that we identify as needing assistance the most, while also being careful in our approach. It's important to note that not all GMV growth translates directly into additional profit. These discounts are not widespread or applicable to a large number of SKUs or merchants and are not expected to continue indefinitely. Additionally, we believe we haven't had to compromise on our strategic goals despite the current evolving situation. Our emphasis on building a strong logistics network has proven beneficial. One of our key objectives this year was to increase the volume on our own logistics network. The focus on first-party sales fits well with the current needs arising from COVID-19, as we have always considered first-party sales essential for consumer packaged goods growth. Although the category is facing challenges, we have adjusted our focus within the first-party organization to prioritize different products and categories, allowing us to continue expanding by modifying our inventory focus. As for loyalty initiatives, we do not see these as derailed. While there may be some adjustments in the broader context, we have not postponed any loyalty initiatives or developments. We are committed to enhancing our loyalty program and rolling out new benefits and features as the year progresses.

This is very helpful. Thanks, Pedro.

Thank you. Our next question comes from the line of Ravi Jain from HSBC. Your question please.

Hi Pedro, thank you for your time and for addressing our questions. I have two quick inquiries. First, regarding product categories, are there any initiatives to potentially increase your market share in electronics appliances, particularly in Brazil? Additionally, is there a future plan to possibly expand consumer packaged goods to groceries and perishables? Are you considering partnerships or acquisitions in that area? My second question is about the apparent improvement in fulfillment. However, when I examine the managed network and the number of wallet users on a sequential basis, I'm seeing relatively flat growth for both. Could COVID-19 have influenced this, leading to a stagnation in sequential growth? How should we interpret this situation? Thank you very much.

Okay. So let me take those in reverse order. So when you look at the managed network, the answer is yes, and it's related to the category mix shift. When you look at some of these CPG categories, especially when COVID initially hit because those were not high-priority categories, they were not necessarily on fulfillment by many or cross-stocking. A lot of the gel, alcohol, face masks, and whatnot were being sold and continue to be sold in large degree by merchants on the dropship network. So in some markets, we actually even saw a bit of a decline in fulfillment as a percentage of volume as a consequence of COVID-driven mix shift in categories. Now, obviously, we're working quickly on the background as we identify those merchants to bring them on board to fulfillment because as we mentioned earlier, that's what really guarantees the quickest delivery times, the most reliable delivery times and going forward, the lowest cost. But on the fulfillment side, sequentially, yes, that is driven by COVID-related mix shift. And wallet, I think, was also covered this, absolutely a big part of wallet volume and by strategic design were in-store purchases, a lot of that was in the restaurant category, which obviously is one of the most hit categories. So if we look at a lot of the high-level business development deals we had with anchor clients, McDonald's, Burger King, Starbucks, that I think exemplifies how imposed quarantine and shutdown of in-store traffic obviously affects the wallet business. In terms of consumer packaged goods and CE, I think we addressed this earlier a little bit, CPG. I think this will accelerate our plans to move into this category. Obviously, we're starting from the kind of things that our current fulfillment centers can handle. So it doesn't include fresh, and it doesn't include certain chilled temperatures or frozen check temperatures. I think we've begun to do work in understanding the overall impact of that and how, if and when we should move into those spaces. But I wouldn't anticipate anything soon. I think the focus right now and there's plenty of us room for us to grow is on CPG that does not include groceries or chilled and frozen, that's probably a Phase II or a Phase III in the future. And then, consumer electronics, obviously, a category that demand has come down somewhat, although we're beginning to see signs of life again in April. And that's, I think, a plan that we had from before, which is continue to expand our 1P for consumer electronics, hopefully, this will accelerate onboarding of certain OEMs through flagship stores, as they look more and more for digital solutions. So we are ramping up our commercial efforts there and trying to close deals with consumer electronics, OEMs and brands. And then we continue to work on what we identified as the other area, which is how do we continue to improve pricing in consumer electronics, through our buy box, through discount central, and rebates, and then obviously, category-specific pricing that we did roll out in Colombia. And that's worked well. And so we're thinking about rolling out category-specific pricing potentially to other markets, which hopefully allows us to in a well-managed revenue transition, lower take rates in categories where merchants have smaller margins, increase categories where merchants have better margins all in, become more competitive in terms of pricing in those lower-margin categories by having a lower take rate for merchants. So that's something that had started pre-COVID. And we're not really sidetracking any of those efforts, despite the slowdown in demand.

That's very helpful. Thank you.

Thank you. Our next question comes from the line of Marvin Fong from BTIG. Your question, please.

Thank you for taking my questions. I'm glad to hear everyone is doing well. Most of my questions have been addressed, but I have one remaining. Could you share some insights about the new users you are acquiring? Are you noticing any variations in the demographics of users added during the pandemic, such as urban versus rural distribution, age, or income levels? Additionally, is this influencing your perspective on the coverage potential of your managed logistics network in countries like Brazil, Argentina, or Mexico?

Yes, there are two main factors contributing to the increased demand. One is the new users we are adding, which has been on the rise even compared to pre-COVID times. Additionally, existing users are also more engaged, as evidenced by their increasing purchase activity. While there are variations in category preferences, these trends are consistent across the board, and I will need to look into geographical specifics later. Regarding our network design, it is structured to cover most regions already, so nothing has fundamentally changed. Our priority remains to provide a top-notch service in major urban areas where demand is concentrated. However, we are also expanding our service center and last-mile center footprint significantly, including locations in Manaus and the Northeast of Brazil. Our aim is to transition volume from the dropship network to our own network, allowing us to efficiently serve all states in various regions, similar to the dropship capabilities. Our overall ambition is to operate efficiently nationwide, and this remains true as we plan additional warehouses, including those announced for Brazil. In Mexico, our focus includes achieving faster and more cost-effective delivery to both the south and north of Brazil, while currently, most of our warehouses are located in São Paulo.

Great. Thank you.

Thank you. Our next question comes from the line of Rodrigo Nistor from Itau. Your question, please.

Good evening. Thank you for taking my questions. So, during April, fulfillment penetration surged in Brazil and other markets. So, do you think that that acceleration could lead you to increase your managed penetration targets or maybe reduce the timeframe in which you were previously pretending to achieve those objectives? And also, if you perceive a shift in the way merchants view a fulfillment proposal due to the current context? Thank you.

I got stuck in, my apologies. I think the focus on fulfillment and the managed network has been with the increase in volume to make sure that's able to continue to take on that incremental demand and that incremental volume on short notice. And that's what we've been, I think, the most pleased with is that we have been able to manage that surge in demand without having to significantly erode our delivery promises or the quality of the delivery, not just for essential categories, but across the board. And if you look at marketplaces globally, that hasn't necessarily been the case for everyone. So, I don't think we're changing objectives or getting more aggressive quite yet. The focus right now is to make sure that we can continue to deliver satisfactory and hopefully, best-in-class or close to best-in-class user experiences as demand continues to surge. I think potentially once we get through the next few months and we have a better sense, we can reset and see whether we get more aggressive or not. And then in terms of merchant adoption, I don't know if this is necessarily COVID-related. I think our plan all along was always to be able to show merchants that as our network gets cheaper and faster in terms of delivery that, that generates better conversion and more sales and so the ultimate sales pitch behind getting merchants to onboard fulfillment and the managed network is that. Now, obviously, if this accelerates that, then better for us, but I don't see that as a departure in what the vision had been on the long as a consequence of what's happening. So, the most important takeaway, and again, this is very dynamic and very fluid is we're extremely proud of how we've been able to take on the incremental volume across all product categories and continue to offer service levels that are in line with what we had pre-COVID and in certain large metro areas, primarily in Brazil, actually improved delivery times and service levels. And we don't think that's a small at all. And that's what we're most focused on sustaining at least for the remainder of this quarter before we start resetting expectations going forward.

Thank you so much.

Thank you. Our next question comes from the line of John Coffey from Susquehanna. Your question please.

Great. Thank you very much for walking me in. From a macro point of view, is there any slowdown labor in the ports in your markets or any reduced import levels from Asia that could potentially put a bottleneck in supply of any of the verticals in the marketplace has strengthened? And just one another and then I can hop off. How do you rate the likelihood of a pullback on the co-hail service due to COVID? Is that a realistic scenario? Thank you.

Thank you for your question on supply chains and inventory. We have conducted some assessments and found that while certain merchants and product categories are experiencing some strain in their supply chains, there are also areas where inventory levels have increased. This could lead to opportunities for liquidation or an interest in expanding digital channels. Overall, we have not observed significant disruptions in key areas of our supply chain. While there have been some challenges, they have largely been minor and focused on specific products. The situation in Brazil related to COVID remains fluid, but thus far, we have not encountered any negative effects. In the early stages of the pandemic, there were some issues with our Correios service in Brazil, but those conditions improved quickly, providing us with some reassurance. As for MPOS supply, that pertains more to our own merchants.

Yes. So far, we have had no problems. Regarding the MPOS supply going forward, we are aware of part of the supply issues, but the majority of MPOS we sell in Brazil are produced in a factory in Manaus, which is located in an area with a high number of COVID cases. Up to this point, we have experienced no issues, but it's a region where there is a risk that we are monitoring closely.

Thank you.

Thank you. Our next question comes from the line of John Colantuoni from Jefferies. Your question please.

Thanks for squeezing me in. Can you talk about how your growth in April compares to other e-commerce players in your key markets? And second, have you started to develop a timeline for when you'll start pulling back on the concessions you provided sellers during the pandemic? Thanks.

Sure. So first of all, market share data for April is not something that we've seen a lot of. I think it's fair to say that this is not necessarily an exclusive issue. Obviously, I think commerce, in general, is accelerating. So, what we're seeing is a more rapid shift from offline to online. And so again, we always stress this. We don't see this as a zero-sum game for a very long time. I don't know specific market share data the competitors will have to look at it, but I do believe that there is plenty of room for everyone to grow. And we also think that there are certain elements of our value proposition. We've talked a lot about the logistics piece that are important differentiators going forward. The second question, I don't remember it. What was it?

Have you started to develop a timeline for when to begin reducing concessions?

Yes. Thank you. We have started to gradually reduce concessions. As we move into April, we are pulling back on certain pre-final value fees in specific categories. Our approach will be more targeted; instead of eliminating commissions entirely for a category, we will identify merchants with substantial inventory fulfilling through us. This will help us ensure a continuous supply of low-cost essential products to consumers in a financially smarter and more focused manner. Additionally, to counterbalance this, we will start to incrementally and intelligently increase marketing spending in certain channels that had been previously restricted in April. On one hand, we may return take rates for our merchants to normal levels, while at the same time, the increased marketing spend should boost demand to help offset some of the take rate compression. This process has already begun.

Great. Thank you so much.

Thank you. Our next question comes from the line of Irma Sgarz from Goldman Sachs. Your question please.

Good morning. I appreciate the details provided in the prepared remarks. I have a question regarding the comments made in your opening statement about pausing operations in Brazil and Argentina, where you indicated that hotels were responsible for about one-third of the uplift due to operational limitations. What do you identify as the major sources of interruption in these markets? Additionally, what actions can you take to lessen the impact? How quickly do you anticipate that portion of the listings or the sellers will be able to recover? Thank you.

Yes, thank you, Irma. Clearly, the biggest disruption was the stringent nationwide quarantines in Argentina, and in Brazil, the restrictions were more state-specific but also quite strict. Merchants who did not use our fulfillment services were significantly impacted because of movement restrictions that prevented them from accessing their stores, preparing packages, and delivering them, whether through our milk runs or dropship networks. We've worked closely with regulators and authorities in both countries to ensure that e-commerce was included in the exemptions for quarantine measures as March transitioned to April. In Argentina, for example, this explains the noticeable slowdown during two weeks in March, but business began to recover afterwards. By May, we believe the majority of those merchants who faced restrictions and inventory limitations are now back in operation, which accounts for the strong business results in April.

And that last comment was related to Argentina, specifically in terms of the business picking up?

No. I think, again, with different levels, but I think the way we've tried to characterize this is almost there were three phases to this. There was an initial phase. Q1 was coming along fairly well. You can see that in the numbers. Very strong pullback, primarily in Argentina and Brazil during the back half of March, as we said. Mexico, Chile, and Colombia, much less pronounced slowdown during March. And then overall, in most markets, a rebound in April. Now the rebound is, yes, stronger in Argentina, Mexico, Chile, and Colombia, but it is pronounced in Brazil as well.

Great. Thank you.

Thank you. Our next question comes from the line of Richard Cathcart from Bradesco. Your question please.

Hi, everyone. Good evening. I have a question regarding Brazil. We've noticed that the penetration of fulfillment has increased to about 14% for the quarter, 15% by the end of the quarter, and you mentioned it reaching 20% in April. I'm curious if the April figure reflects a higher number of sellers entering fulfillment, or if it is influenced by the mix shift we've observed due to COVID-19.

No. It is about merchant migration and increased adoption of the product. I previously mentioned that the initial shift due to COVID-19 negatively impacted fulfillment adoption. I would describe this as a true sustainable increase in the usage of our fulfillment solution in these markets. March was already strong, so it’s not just about that specific metric. The number of shipments handled by our fulfillment centers has increased significantly as GMV and units have risen even more than GMV. However, regarding penetration levels, I would say it was already trending positively leading into Q1, and April has shown improvement in some markets like Brazil, matching March's performance and showing a slight increase across the board. This metric reflects the efforts we've been undertaking over the last few quarters and is not solely explained by COVID.

Okay. Great. Thanks very much. And just a follow-up, if I may. So you mentioned in the answer to Irma's question that Brazil is showing strong growth in April, but it is kind of lagging a little bit behind the other markets. GMV growth did show some slowdown quarter-on-quarter. What's your reading of those trends? Is it primarily just around COVID-19? Or are there some other things that perhaps are having an impact?

No. I think Brazil, even if you look at Q4 numbers, there were certain things that we were trying to address in our Brazilian market. I think we covered some of those in the previous quarter, and they were very much driven by certain categories. There were some questions on consumer electronics, where we had seen a slowdown that was more marked in that category than others. We had also identified that certain categories that were fast growers within the online world were categories that we were coming into from a smaller overall base. And I think that continued to explain what was happening in the first quarter. So I think the recipes to remedy that are the same ones we identified, which was accelerated category expansion, and move into first-party, and to a whole series of initiatives that we had for consumer electronics that I just covered a few questions ago to reignite the growth in that category. I think if anything, COVID has accelerated some of those and so that, to a certain degree, I think the better results in April are a consequence obviously, of incremental online demand. But also hopefully, are also the results of some of the initiatives that we have been working on since Q4 that are beginning to ideally impact and drive some of that acceleration.

Perfect. Great. Thanks, everyone. Thank you very much for the update.

Thank you. This does conclude the question-and-answer session of today's program as well as the program. Thank you for your participation. You may now disconnect. Great day.