DLOCAL Third Quarter 2026 Results - DLOCAL LTD

Explicit Guidance:

• FY2026 Gross Profit Growth: Reiterated expectation to land around the midpoint (27.5%) of the previously stated 25%–30% range, down from the upper end, driven by unanticipated FX headwinds in Brazil, Mexico, and Argentina estimated to weigh 6 percentage points on YoY growth in Q4.
• FY2026 Operating Profit Growth: Expectation moderated toward the lower end (27.5%) of the 27.5%–32.5% YoY range due to the aforementioned FX headwinds.
• FY2026 TPV Growth: Guidance remains at the upper end (70%) of the 60%–70% YoY range, supported by continued strong volume momentum despite moderating growth rates against prior year comparisons.
• Q4 2026 Sensitivity: Management notes Q4 results will be highly sensitive to the seasonal peak shopping period, which could cause expectations to swing in either direction.
• Q4 2026 FX Headwinds: Specifically estimates a 6 percentage point drag on YoY gross profit growth for Q4 from Brazil, Mexico, and Argentina.

Business-Segment Outlook:

• Mexico Market: Expected to revert to normalized take rates and improve profitability "next year or maybe even as we exit this year," contingent on leveraging scale to reduce COGS and addressing lower pricing tiers on large merchant volumes.
• Argentina Market: Anticipated recovery from Q2's high-volume seasonal peak; sequential volatility expected but underlying trends remain positive.
• Other LATAM & Ex-Brazil/Mexico/Argentina: Potential for sequential acceleration in remaining LATAM regions as the year progresses.
• Africa & Asia (APAC): Expects "somewhat softer performance" in small, high-take-rate markets currently, but maintains strong long-term growth thesis.
• Vertical Growth:
  • Travel: Continues to scale based on product-market fit and commercial efforts.
  • E-commerce: Stable QoQ; "social commerce" growing strongly (local-to-local), offsetting softer cross-border volumes.
  • Crypto/Stablecoins: Delivering "solid growth" in remittance and repatriation flows; growing merchant adoption at checkout.
  • BNPL: Platform growing with 15+ merchants; expanding integration into multiple BNPL offerings across the Global South.
  • Ride-hailing & On-demand: Strong sequential growth across Mexico, Brazil, Colombia, and South Africa (mostly local-to-local).
• Share Repurchases: Continuation of buyback program viewed as integral to capital allocation to drive EPS; previously cancelled 9 million Class A shares ($120M YTD).

Market and Competitive Outlook:

• Share of Wallet: Continued strategy to deepen existing merchant relationships by expanding into new countries, verticals, and payment methods; TPV retention rate of 173% confirms this dynamic.
• Competitive Moat: Regulatory infrastructure (42 licenses/registrations across 26 markets) and payment performance/optimization (fraud, conversion) viewed as critical, difficult-to-replicate advantages.
• Take Rates: Anticipates continued decline in take rates due to volume composition (e.g., shift to PIX/Boleto in Brazil) but expects the rate of compression to slow as the business matures.
• Merchant Pipeline: Strong pipeline in Travel, Crypto, and Banking-as-a-Service (BaaS); sales cycles remain long with unpredictable ramp-up timing (referencing a 7-year ramp for largest client).
• Product Innovation: Development of "card-on-file-like" experiences for non-card payments (digital wallets, RTP) and continued expansion of payment method integrations (11 added this quarter).

Macro / Industry Outlook:

• Economic Environment: Management acknowledges "inherent volatility" of emerging markets.
• FX Volatility: Significant headwinds expected in Brazil, Mexico, and Argentina due to currency fluctuations affecting gross profit margins in Q4.
• Regulation: Viewed as a structural tailwind; active application for 20 additional authorizations across various markets.
• Interest Rates: Lower interest rates in Argentina noted as a benefit for funding structures; finance results boosted by high interest income on cash balances offsetting credit facility interest expense.
• Seasonality: Q4 peak shopping season expected to have outsized impact on final results.

Strategic Initiatives:

• Asia Expansion: Hiring local senior leadership; ambitious goal to reach mid-to-high single-digit contribution of gross profit by end of 2027 (Year 1) from a base of near zero; focus on infrastructure build-out and integrations.
• Physical Payments: Launched in Mexico; expected to drive growth.
• Banking-as-a-Service (BaaS): Emerging as a high-demand product portfolio component.
• AI & Automation: Investments from 2024–2025 translating to higher productivity (gross profit/employee >$100k); ongoing focus on AI deployment for conversion optimization and fraud management.
• Licensing: Secured 2 US money transmitter licenses, Canada AML registration, and Tanzania remittance authorization this quarter; 10 regulatory authorizations secured across 26 markets.
• Credit Facility: $150M facility (signed August) used for general corporate liquidity and buybacks to overcome cash repatriation frictions; leverage remains conservative at ~0.5x EBITDA.

Risks and Headwinds to Outlook:

• FX Headwinds: Unanticipated currency pressure in Brazil, Mexico, and Argentina impacting Q4 and full-year gross profit margins.
• Market Volatility: Inherent volatility in emerging markets and seasonal performance swings in Q4.
• Seasonal Normalization: Expectations for social media advertising revenue to normalize post-election in Brazil.
• Working Capital: One-time reversals of temporary working capital effects in Q3 expected to normalize in future quarters, potentially impacting FCF conversion metrics.
• Execution Risk: Asia ramp-up and new merchant conversions are subject to execution timelines and sales cycles.

Management Tone on the Future:

• Confidence: High confidence in long-term compounding growth ("early days," "enormous addressable market"), particularly in Asia and with existing merchants.
• Discipline: Strong emphasis on balancing investment in new geographies (Asia) with continued automation and cost discipline to ensure margin expansion.
• Operating Leverage: Viewed as materialized; management expects annual gross profit growth to outpace OPEX growth, though quarterly results may remain "lumpy."
• Financial Model: Shifted focus from "Rule of 40" to a model of "high growth, margin expansion, and very healthy free cash flow conversion" (Rule 100+ dynamics).
• Cautions: Management explicitly advises against extrapolating single-quarter margin performance (58% Op Profit/GP) and acknowledges the difficulty in predicting new merchant ramp timing.

Miscellaneous:

• Q&A Clarification: Asia gross profit contribution is expected to be mid-to-high single digits by end of 2027, not materially sizable in 2027 itself (build year).
• Headcount: Peaked in Q2 2026; declined 3% in Q3 2026; no material headcount increases expected for the remainder of 2026.
• Digital Assets: "Agentic commerce" (AI agents) is viewed as a high-potential future trend but currently represents low volume; stablecoin usage is already delivering solid growth.
• Leverage: Balance sheet described as "very conservative" with a strong net cash position despite the new credit facility.