dLocal Third Quarter 2026 Results - DLOCAL LTD

Financial Performance:

• Total Payment Volume (TPV) reached $18.3 billion, a 77% year-over-year increase, marking the eighth consecutive quarter of >50% growth and the fourth at or above 70%.
• Net Revenue Retention was 140%, while merchant-level NPS rose 5 percentage points to 51.
• Gross Profit grew 28% year-over-year to $132 million; Operating Profit grew 37% year-over-year to $76 million.
• Operating Profit margin relative to Gross Profit reached 58%, the highest level since Q4 2023.
• Net Income hit a record $68 million (up 31% YoY, 24% sequentially); Diluted EPS reached $0.23 (up ~35% YoY).
• Adjusted Free Cash Flow was $99 million for the quarter ($182 million YTD), representing 146% conversion to Net Income for Q3.
• Operating Expenses (OPEX) decreased 11% sequentially to $56 million, driven by lower third-party spend and a 3% reduction in headcount; Gross Profit per employee exceeded $100,000 for the first time.
• Effective tax rate was 15%; interest expense increased due to a $150 million credit facility signed in August, offset by high interest income on cash balances.
• The company repurchased $34 million in shares during the quarter ($120 million YTD), all of which have been cancelled.

Guidance and Future Outlook:

• Full-year TPV growth guidance reiterated within the 60-70% range, with momentum tracking toward the upper end.
• Full-year Gross Profit growth guidance lowered to the midpoint of the 25-30% range due to unanticipated foreign exchange (FX) headwinds in Brazil, Mexico, and Argentina estimated to impact Q4 YoY growth by 6 percentage points.
• Full-year Operating Profit growth guidance moderated toward the lower end of the 27.5-32.5% range due to FX headwinds.
• Q4 results remain highly sensitive to seasonal peak shopping trends, which could alter current expectations.
• Management expects gross profit growth to continue outpacing OPEX growth on an annual basis, with quarterly results potentially experiencing lumpy fluctuations.

Business Segments and Product Lines:

• Ride-hailing: Strong sequential growth across all regions, particularly in Mexico, Brazil, and Colombia; local-to-local flows accounted for 62% of TPV.
• Financial Services: Strong growth in Turkey, Morocco, and Latin American markets; primarily payout flows.
• Remittance: Concentrated in Latin America; represented 25% of TPV.
• Social Media Advertising: Strong performance in Brazil driven by election-related activity, expected to normalize post-elections.
• E-commerce: Stable quarter-over-quarter; social commerce grew strongly in Mexico and Brazil, offsetting softer cross-border volumes.
• New Products: Buy Now Pay Later (BNPL) platform now serves over 15 merchants; physical payment solutions launched in Mexico.
• Infrastructure: Added 11 new local payment method integrations; developing card-on-file experiences for non-card payments (digital wallets, real-time payments).

Market and Competitive Landscape:

• Geographic Expansion: Significant focus on Asia-Pacific, characterized by high fragmentation and diverse local payment methods; expecting mid-to-high single-digit contribution to gross profit in Year 1 (2027) with potential for rapid scaling.
• Market Share: Capturing deeper share-of-wallet from existing merchants by expanding into new countries, verticals, and payment methods (Merchant TPV retention rate: 173%).
• Regulatory Moat: Holds 42 licenses/registrations and 10 authorizations across 26 markets, with 20 active applications; secured US money transmitter licenses, Canadian AML registration, and Tanzanian remittance authorization this quarter.
• Competition: Competitive advantage derived from operational reliability and payment performance in emerging markets where these are non-standard, supported by a deepened product suite including crypto and banking-as-a-service.

Risks and Challenges:

• Foreign Exchange (FX): Anticipated headwinds in Brazil, Mexico, and Argentina impacting Q4 gross profit growth by an estimated 6 percentage points.
• Market Volatility: Emerging markets inherent volatility affects quarterly sequencing; Q2 seasonality in Argentina did not repeat in Q3.
• Processing Costs: Elevated costs in Mexico due to pricing tier structures on large merchant concentrations; Argentina cost reductions partially offset by other market pressures.
• Growth Moderation: Growth rates are naturally moderating against higher prior-year comparables following significant merchant ramp-ups in previous semesters.

Management Commentary and Tone:

• Confidence: Tone was optimistic and confident, emphasizing a "strong growth thesis" with ample room for share-of-wallet expansion, new geographies, and product innovation.
• Operational Efficiency: Management highlighted the transition from heavy investment to operational leverage, noting that the investment cycle is behind them and the focus is on margin expansion.
• Strategic Focus: Emphasis on AI deployment and automation to drive productivity (e.g., declining headcount, rising gross profit per employee).
• Crypto/AI: Strong adoption of stablecoin usage in remittance and repatriation; "agentic commerce" noted as a high-potential but currently nascent trend.

Analyst Questions and Answers:

• Asia Ramp-up: Pedro confirmed Asia is the largest emerging market opportunity; expects 2027 to be a Year 1 infrastructure build with potential mid-to-high single-digit gross profit contribution, citing interest from major streaming, music, and AI clients.
• Mexico Costs: Addressed elevated processing costs in Mexico, attributing them to merchant concentration and pricing tiers; expects improvement by year-end or early next year as scale leverages costs.
• Credit Facility: Clarified the $150M facility is for holding company liquidity and general corporate purposes (including buybacks), with conservative leverage (~0.5x EBITDA). No inorganic M&A plans currently.
• Operating Leverage: Guillermo distinguished between structural OPEX reductions (automation, headcount optimization) and temporary factors (front-loaded marketing). Expects annual margin expansion despite quarterly lumpiness.
• Financial Model: Rejected strict "Rule of 40" metrics in favor of a model delivering high growth, expanding margins, and solid cash flow; noted take rate compression declines are slowing.

Other Key Points:

• Headcount: Peaked in Q2 2025 and declined 3% in Q3 2026, resulting in the first quarter with sequentially lower payroll costs.
• Crypto Adoption: Stablecoin vertical delivering solid growth, with merchants testing acceptance at checkout to improve user experience.
• Capital Allocation: Share buybacks remain an integral part of capital allocation strategy, contributing to EPS growth by 35% YoY.
• Product Market Fit: Continued strong performance in travel and e-commerce verticals, reinforcing the platform's versatility across diverse use cases.