dLocal Third Quarter 2026 Results - DLOCAL LTD

Explicit Guidance:

• Reiterates FY2026 TPV growth guidance in the 60–70% range, tracking toward the upper end despite moderating year-over-year comparisons.
• Updates FY2026 Gross Profit growth outlook to the midpoint of the 25%–30% range, downgrading from a higher trajectory due to unanticipated FX headwinds in Brazil, Mexico, and Argentina (estimated 6 percentage point swing in Q4) and softer performance in smaller African and Asian markets.
• Updates FY2026 Operating Profit growth outlook to the lower end of the 27.5%–32.5% range, reflecting a moderation driven by Q4 FX headwinds, despite continued operating leverage.
• No explicit guidance provided for full-year revenue, EBITDA, or EPS beyond the operating profit growth range.

Business-Segment Outlook:

• Geographies:
  • Asia-Pacific: Anticipated to become a significant growth component; expects mid-to-high single-digit contribution to gross profit in FY2027 as infrastructure and licensing build out, with a potential for rapid scaling if execution succeeds.
  • Brazil, Mexico, Argentina: Expects 6 percentage point headwind from FX volatility in Q4 2026.
  • Mexico: Projects business normalization and take rate recovery by the end of 2026 or in 2027 as scale leverages cost structures and pricing tiers are addressed.
  • Rest of LATAM: Potential for sequential acceleration outside Brazil, Mexico, and Argentina.
• Verticals:
  • Crypto/Stablecoins: Reporting growing adoption in remittance, repatriation, and checkout flows; pipeline remains strong.
  • Agentic Commerce: Identified as a future growth vector with high potential, though currently low volume; investment ongoing.
  • BNPL (Buy Now, Pay Later): Platform has >15 merchants and is expanding integration of multiple offerings across the Global South.
  • Travel: Expects growth to continue, following recent commercial wins and product-market fit.
  • Social Media Advertising: Anticipates normalization of election-driven volumes post-2026 election cycles.
  • Ride-hailing & On-demand Delivery: Expect continued growth, particularly in Mexico, Brazil, Colombia, and South Africa.
• Merchant Metrics:
  • Maintains focus on deepening existing relationships with a 173% TPV retention rate; pipeline for new merchants remains strong with long sales cycles typical of early-stage emerging market localization.

Market and Competitive Outlook:

• Licensing: Operating across 26 markets with 42 licenses/registrations and 10 additional authorizations; 20 applications active. Licenses viewed as a critical, hard-to-replicate advantage for emerging market operations.
• Payment Methods: Continued expansion of local payment integrations (11 added in Q3); developing technology for non-card payment conversion (digital wallets, real-time networks).
• Competitive Advantage: Leverages strong payment performance and operational reliability in markets where these are not standard; NPS for merchants reached 51 (up 5 points vs. H2 2025).
• Market Dynamics: Anticipates continued consolidation of merchant relationships leading to higher share of wallet through cross-selling into new countries, verticals, and products.

Macro / Industry Outlook:

• FX: Explicitly cites unanticipated foreign exchange headwinds in key Latin American markets (Brazil, Mexico, Argentina) impacting Q4 and full-year FY2026 gross profit growth.
• Rates: Notes lower interest rates in Argentina contributed to reduced advancement costs; overall cash balances earning local rates similar to or higher than the cost of the $150M credit facility.
• Seasonality: Highlights Q4 sensitivity to the global peak shopping season (starting immediately post-call), which could materially alter current guidance.
• Emerging Markets: Acknowledges inherent volatility in emerging markets as a constant factor in guidance.

Strategic Initiatives:

• Capital Allocation: FY2026 net income and strong cash flow ($182M YTD adjusted FCF) support continued investment and capital returns; share buybacks remain an integral part of strategy (approx. $34M repurchased in Q3, $120M YTD, all cancelled).
• Liquidity: $150M credit facility signed in August utilized for general corporate purposes and buybacks; balance sheet remains conservative at ~0.5x EBITDA leverage.
• AI & Automation: Investments in AI capabilities (2024–2025) are now yielding productivity gains; headcount peaked in Q2 and declined 3% in Q3; gross profit per employee >$100k.
• Organic Growth vs. M&A: Explicitly states no change in capital allocation framework; priority remains on organic reinvestment and buybacks/dividends; no specific inorganic M&A announced.
• Product Innovation: Continued rollout of physical payments (Mexico), BNPL, and banking-as-a-service infrastructure.

Risks and Headwinds to Outlook:

• Currency Volatility: Unanticipated FX moves in Brazil, Mexico, and Argentina could cause further deviation from guidance.
• Seasonality: Q4 results are highly sensitive to the peak shopping season; expectations could swing in either direction.
• Market Volatility: Inherent instability in emerging markets where the company operates.
• Performance Variability: Quarterly OPEX and gross profit figures may be "lumpy" due to timing of investments, marketing spend, and cost catch-ups (e.g., Mexico processing costs, Argentina seasonality).
• Execution Risk: Asia expansion depends heavily on successful execution, regulatory approval, and infrastructure build-out.

Management Tone on the Future:

• Confidence: High confidence in long-term compounding growth and the "early stage" nature of emerging market payment localization.
• Pivot: Tone shifted from heavy investment/infrastructure build-out to operating leverage, efficiency, and margin expansion following the maturation of AI/automation investments.
• Cautious Short-term: Moderately cautious on FY2026 full-year guidance due to specific FX headwinds, while maintaining confidence in the structural growth thesis.
• Strategic Shift: Management views the "investment cycle" as largely behind them, transitioning to a phase of delivering "high growth, margin expansion, and very solid cash generation."
• Hedges: Regularly cites seasonal volatility and market-specific "noise" as reasons for quarterly fluctuations, urging investors not to extrapolate single-quarter results.

Miscellaneous:

• Financial Model: Targets a financial model delivering year-on-year gross profit growth above OPEX on an annual basis, even while reinvesting in new geographies and products.
• Valuation Metrics: Management declines to reference a specific "Rule of 40" or similar metric, preferring to highlight the convergence of declining TPV growth rates with stable take rates and expanding margins.
• Tech Trends: Actively monitoring "agentic commerce" protocols, though noting current adoption is minimal compared to stablecoin-driven flows.