DLocal (DLO) Q3 2025 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Wednesday, November 12, 2025 at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Pedro Arnt
• Interim Chief Financial Officer — Jeffrey Brown
• SVP, Corporate Development — Chris Stromeyer
• Head of Investor Relations — Mirele Aragao

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• CEO Arnt said, "recent increase in tariffs in Mexico for low-value goods have already caused a slowdown in our Mexican business as witnessed this quarter."
• Arnt noted, "potential for currency devaluations and/or changes in FX regimes beyond Argentina, such as Egypt or Bolivia," highlighting ongoing exposure to currency and policy risks in multiple markets.
• Arnt described, "shifting fiscal and tax regimes in Brazil, as we also called out last quarter is another potential headwind," although no current negative impact is anticipated.

TAKEAWAYS

• Total Payment Volume (TPV) -- $10.4 billion, up 59% year-over-year in dollars and 13% quarter-over-quarter, or 66% growth in constant currency.
• Revenue -- $282 million, representing 52% year-over-year growth (63% in constant currency) and a 10% increase quarter-over-quarter.
• Gross Profit -- $103 million, increasing 32% year-over-year (41% in constant currency) and up 4% sequentially.
• Adjusted EBITDA -- $72 million, up 37% year-over-year and 2% quarter-over-quarter, with a margin of 70% of gross profit.
• Net Income -- $52 million, attributed primarily to lower finance costs after reducing Argentine peso bond exposure.
• Free Cash Flow -- $38 million for the quarter.
• Operating Expenses -- $48 million, rising 10% sequentially and 28% year-over-year, mainly through increased salaries and noncash share-based payments.
• Cross-Border Growth -- Cross-border volumes expanded 75% year-over-year and 13% sequentially, displaying consistent momentum.
• Local-to-Local Growth -- Local-to-local TPV grew 46% year-over-year and 13% sequentially.
• Pay-ins and Pay-outs -- Pay-ins increased 55% year-over-year (12% sequentially); pay-outs climbed 70% year-over-year (14% sequentially).
• Net Revenue Retention (NRR) -- 149% this quarter, with management stating, "Since 2020, our NRR has always been above 100%."
• Buy Now, Pay Later (BNPL) Fuse -- Newly launched aggregator live in 6 countries, showing 2.5x quarter-over-quarter volume growth, with management stating it operates on a revenue share model and takes no credit risk.
• APMs-on-File Coverage -- Now live for 27 alternative payment methods across 16 countries, with a specific rollout in Peru raising conversion rates on Yape by 34 percentage points.
• Segment Contribution -- Notable volume and gross profit strength in Brazil, Colombia, Nigeria, and Bolivia; Egypt cited as offsetting factor due to wallet share loss.
• Argentina Exposure -- Gross profit impact attributed to lower interest rate spreads and processing costs, with the country comprising 12% of gross profit this quarter.
• Effective Tax Rate -- 15% for the quarter.
• Guidance Update -- Management "currently expect TPV to exceed the high end of the range" previously shared and revenue "tracking around the upper limit for the year." Gross profit and adjusted EBITDA are projected between the midpoint and upper level of prior guidance.
• Product Roadmap -- Focus areas include Buy Now, Pay Later, card-present capabilities, stablecoin corridors, and KYC as a service for merchants requiring unified integration.

SUMMARY

Management reported a consecutive record-setting quarter, with every key financial and performance metric reaching new highs, highlighting diversification across regions and customer verticals. The company recorded significant market share gains and signaled expanding penetration through broad merchant growth rather than reliance on single clients or verticals. Platform innovation was underscored by rapid adoption of new solutions such as tokenized alternative payment methods and proprietary Buy Now, Pay Later aggregation, each cited as drivers of both merchant conversion and volume expansion. Fiscal discipline was demonstrated through continued operating leverage despite investment in talent and automation, alongside sustained generation of free cash flow. Guidance was reiterated upward for TPV and at the upper bound for revenue, but management highlighted macroeconomic and regulatory uncertainties in key emerging markets as critical ongoing variables for future performance.

• CEO Arnt said, "our clients include 6 of the Mag-7," referencing deep relationships with some of the most prominent global digital merchants.
• Jeffrey Brown stated, "The quarter was also impacted by a noncash IFRS inflation adjustment in Argentina," clarifying an earnings headwind from local market accounting effects.
• Management described local payment methods as accounting for over half of Brazil's e-commerce volume and projected this trend to reach nearly 60% of global emerging market e-commerce by 2027.
• Brown noted, "Our revenue per employee had a second quarter of strong growth as we realized gains from our investment cycle and reaped initial returns on our automation and AI projects."
• CEO Arnt noted a deliberate reduction in top merchant and market concentration, stating that new merchants are outpacing older cohorts and enhancing overall diversification.

INDUSTRY GLOSSARY

• TPV (Total Payment Volume): The total value of transactions processed through the payment platform in a reporting period.
• NRR (Net Revenue Retention): A metric measuring recurring revenue retained from existing customers, including upsells and cross-sells, after accounting for churn and downsell.
• APM (Alternative Payment Method): Non-card payment options such as digital wallets, real-time bank transfers, or local payment networks commonly used in emerging markets.
• Buy Now, Pay Later (BNPL): A point-of-sale financing solution allowing consumers to pay for purchases over time, with the merchant receiving payment upfront.
• IFRS Inflation Adjustment: A noncash accounting adjustment under International Financial Reporting Standards to reflect the impact of inflation on reported financials in hyperinflationary economies.
• KYC (Know Your Customer): Regulatory processes for verifying the identity of clients to prevent fraud, money laundering, and other illicit activities.

Full Conference Call Transcript

Pedro Arnt, Chief Executive Officer; Jeffrey Brown, Interim Chief Financial Officer; Chris Stromeyer, SVP of Corporate Development; and Mirele Aragao, 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 the dLocal website at investor.dlocal.com. The recording will be 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.

Whilst 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 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 filing with the Securities and Exchange Commission, which are available on dLocal's Investor Relations website. Now I will turn the conference over to dLocal.

Pedro Arnt: Hello, everyone, and thanks for joining us today. We delivered another record quarter for the first time with TPV above $10 billion and gross profit that surpassed $100 million. Yet another example of our strong growth and continued diversification, all of which underscore the potential and resilience of our business model. TPV, and I'd like to remind you that it's the key metric we continue to manage the business to trusting that long term scale and market share are the critical elements behind our investment thesis. So TPV grew nearly 60% year-over-year in dollars and 66% on a constant currency basis.

This marks the fourth consecutive quarter of TPV growth above 50% compared to the prior year, a testament to the favorable secular trends in emerging markets and to our track record of execution with our merchants as they grow into new markets and new payment methods. Gross profit reached $103 million up roughly 32% year-over-year and 36% for the first 9 months of 2025.

The quarter's results was driven by strong volume growth across the business with particular strength in Brazil, Colombia and other LatAm and other Africa and Asia segments, partially offset by a volatile macro situation in Argentina, temporary cost pressure in Mexico, potentially also headwinds from tariffs in that market and a full quarter's effect of the share of wallet losses in Egypt that we had already referenced in the second quarter. As anticipated, our investment cycle increased head count expenses. However, our disciplined expense management, sustained healthy operating leverage with adjusted EBITDA reaching $72 million, representing 70% of gross profit.

We delivered a robust net income growth, primarily due to lower finance costs following a significant reduction of our exposure to Argentine peso-denominated bonds during the second quarter of '25. And finally, adjusted free cash flow to net income conversion remains at healthy levels reinforcing the cash-generative nature of our business model. These strong results reflect our continued ability to navigate the fragmentation and complexity that's inherent in emerging markets financial infrastructure so that we can deliver value to our shareholders and growth to our investors. This complexity and fragmentation across the global South is not waning, but rather we would argue increasing. In Brazil, local payment methods, driven by Pix already account for more than half of e-commerce volume.

We see these trends across all emerging markets. Local payments methods represent the majority of e-commerce volumes and are expected to reach nearly 60% by 2027. Buy Now, Pay Later solutions, one of our newer focus areas although smaller today are growing faster than the overall market, and we believe have enormous potential. Crypto corridors through stablecoins are also rapidly emerging as relevant in the payment infrastructure mix, opening up new business opportunities and positioning dLocal as a key provider of on- and off-ramps between stablecoins and fiat across the over 40 markets where we operate.

In the face of this ever-increasing complexity and fragmentation, our core value proposition, one dLocal does nothing but increase in value to our merchants being able to abstract all the complexity away to a single partner who has the widest and deepest coverage. And by that, I mean the most emerging market countries and the largest number of payment methods per country is fundamental. That is why our value proposition for merchants is to be the one-stop shop for their emerging market financial infrastructure needs, offering all card-based, local payment and alternative financial infrastructure in any given country. Last quarter, you may recall, we shared our view on the S-curve of digital merchants adopting payment localization throughout EM.

As you can see here, our growth is broad-based within TPV contributions throughout that S-curve. We add new merchants, deepen our share of wallet with existing merchants, add payment methods and accompany them as they go to market in new countries. And throughout, we benefit from secular trends of digitalization and economic growth in our markets and the desire of the world's preeminent brands to expand where growth is, which is across emerging markets. Most of these results are coming from existing merchants, a testament to the strength and size of our current merchant base. For example, our clients include 6 of the Mag-7.

The strong volume growth with our key merchants, coupled with our value proposition, results in customer loyalty that we are very proud of. We have leading net retention of revenue when compared to most peers in the payments and software industry, reflecting durable upsell and cross-sell geographies, payment methods and flows. Since 2020, our NRR has always been above 100%, and this past quarter increased to 149%. During the quarter, we continued to partner with best-in-class players from a commercial and capabilities perspective to help them solve financial infrastructure challenges in our markets. Let me share with you some examples of high-profile recent integrations. Our work supporting Western Union's pay-ins across Latin America as they digitize their business.

The expansion of checkout options for the ride-hailing service Bolt across Africa, Asia and Latin America, leveraging our unique position to offer on and off ramps for stablecoins with Fireblocks for their global payments network. And finally, partnering with Google on their agent payments protocol, AP2, as we jointly explore the opportunities AI bring to commerce. And as we continue to deliver great work on behalf of our merchants, and therefore, scale and increase breadth, depth and quality of service, our business becomes stickier as we saw in the NRR data I just shared and more importantly, ever more diversified. Last quarter, we highlighted how our country market concentration has been decreasing.

Our top 3 markets continue to grow very healthily but at a slower pace than the rest creating diversification and thus, very importantly, reducing the impact of the inherited volatility of any individual emerging market on overall quarterly and annual results. And top merchant concentration, defined simply as the top 10 merchants on any given quarter remains broadly in line with historical levels, but as we deepen our share with existing merchants and onboard new large ones, the composition of the top 10 merchants rotates from quarter-to-quarter. Therefore, when we look at this on a cohort basis of the top 10 merchants of any given quarter, we see that they lose concentration as time goes on.

And not because they shrink, but because other newer merchants grow more in most cases. The importance of looking at this in a cohort level is that it shows that actual merchant diversification is actually increasing on a name by name basis, and are dependent on single merchants decreases over time. Our product innovation road map also remains a top priority as we look to diversify our revenue base and drive increased average revenue per merchant. We wanted to provide 2 updates this quarter.

First, our APMs-on-file capabilities now cover 27 of these local payment methods across 16 countries and is quickly growing, replicating card-on-file convenience to reduce checkout friction and lift conversion while allowing merchants to benefit from cost, speed and adoption of these leading local payment methods. For example, after rolling out tokenization of Yape, a top APM in Peru, conversion rates on that payment method rose by a whopping 34 percentage points. Second, 2 weeks ago, we launched Buy Now, Pay Later Fuse, our proprietary aggregator for Buy Now, Pay Later solutions, it's now live in 6 countries with 2 more to follow shortly across Latin America, Africa, the Middle East and Asia.

This is an important step towards enabling our merchants to benefit from the massive demand for credit in our markets. Although still in its infancy, we are seeing initial signs of product market fit with 2.5x growth in volumes quarter-over-quarter. It's also important to note that we deploy it via a revenue share model with local partners, taking no credit risk and generating a higher take rate payment volume on these transactions. To wrap up this section, the quarter clearly consolidates the positive trends we have seen over the last 9 months, sustained growth, an improving business mix, disciplined cost posture and continued strong cash generation.

And with that, let me pass the call on to Jeff who will walk you through a detailed analysis of this third quarter performance.

Jeffrey Brown: Thank you, Pedro. Good afternoon, everyone. I'll now take you through a detailed look at the numbers and the main drivers of our performance this quarter. We delivered another strong quarter, again setting records across TPV, revenue, gross profit, adjusted EBITDA and net income while keeping operating leverage at healthy levels despite continued investment. Our TPV reached $10.4 billion, representing significant growth of 59% year-over-year and 13% quarter-over-quarter. In constant currency terms, TPV would have grown by 66% year-over-year despite being impacted negatively by the depreciation of the Argentine peso. This strong result was particularly visible in remittances, e-commerce, on-demand delivery and SaaS verticals. Weakness in advertising is explained by Egypt, as mentioned by Pedro.

Performance proved to be broad-based across all flows and products with each one achieving a new record high. This consistency powerfully validates the value proposition we offer our merchants. Cross-border grew 13% quarter-over-quarter and 75% year-over-year, while local-to-local grew 13% sequentially and 46% year-over-year. Once again, this shows the staying power of our cross-border offering. Pay-ins grew 12% quarter-over-quarter and 55% year-over-year while pay-outs grew 14% quarter-over-quarter and 70% year-over-year. Revenue was $282 million, up 52% year-over-year or 63% on a constant currency basis. On a quarter-over-quarter basis, revenue was up by 10%, driven by volume growth. Moving to gross profit.

During the quarter, gross profit reached a record of $103 million up 32% year-over-year or approximately 41% on a constant currency basis. This performance was primarily driven by volume growth with notable contributions year-over-year from Brazil, Argentina and Colombia. On a quarter-over-quarter basis, gross profit increased by 4%, primarily driven by volume growth across frontier markets with strong performance in Colombia, Bolivia and Nigeria and Brazil's solid growth across streaming, e-commerce and advertising, coupled with higher share of pay-ins. This positive result was offset by Egypt, as previously discussed.

Argentina, reflecting lower interest rate spreads and a temporary increase in processing costs and a payment mix shift towards an APM with temporary margin pressure in Mexico as well as a slowdown in TPV growth, likely driven by increased tariffs on imports as we have cautioned in our last guidance update. The quarter was also impacted by a noncash IFRS inflation adjustment in Argentina. Our net take rate was down sequentially, explained mainly by lower share from Egypt, volatility in Argentina and payment mix shifts in Mexico. It is important to note that take rates in our business can be volatile quarter-to-quarter given the many mix shifts by which they are affected.

We continue to demonstrate operating leverage and careful expense management. Our total operating expenses were $48 million for the quarter, representing a 10% increase quarter-over-quarter and a 28% increase year-over-year. On a quarterly basis, the increase is driven mostly by salaries and wages, especially in sales and marketing and tech and offset by a $1 million decrease in impairment losses on financial assets. It is important to note that the increase in salaries and wages includes an almost $2 million increase in noncash share-based payments. Adjusted EBITDA reached approximately $72 million, up 2% quarter-over-quarter and 37% year-over-year. The ratio of adjusted EBITDA to gross profit for the quarter was approximately 70%.

Our revenue per employee had a second quarter of strong growth as we realized gains from our investment cycle and reaped initial returns on our automation and AI projects. As Pedro mentioned previously, net income totaled $52 million for the quarter, explained by lower finance costs following the reduction of our exposure to Argentine peso-denominated bonds. Over the next few months, we expect to fully diversify away from the portfolio of Argentine securities generating less volatility from financial results on an ongoing basis. Regarding income taxes, our effective income tax rate for the quarter was 15%. Finally, our free cash flow for the quarter was $38 million. With this, I'll pass it back to Pedro for his final remarks.

Pedro Arnt: Thanks, Jeff. Before concluding, we wanted to give you an update on guidance. We reiterate our guidance numbers given where we see the business tracking as of today. However, there are continued important risks to consider that we want to make sure we call out. We currently expect TPV to exceed the high end of the range we shared during the second quarter '25 earnings call. Market share and merchant traction remained very strong. And once again, let me remind you that this for us is the most important metric. Revenue is tracking around the upper limit for the year while gross profit and adjusted EBITDA are likely to be between the midpoint and the upper level.

As highlighted last time around, it's important to consider the evolving global macro currency and trade landscape throughout EMs. More specifically, recent increase in tariffs in Mexico for low-value goods have already caused a slowdown in our Mexican business as witnessed this quarter. That, along with potential trade barriers in other markets should be followed closely. Also, shifting fiscal and tax regimes in Brazil, as we also called out last quarter is another potential headwind. And finally, potential for currency devaluations and/or changes in FX regimes beyond Argentina, such as Egypt or Bolivia. Now with that, let me wrap up.

As a team, we are squarely focused on continuing to execute on the large opportunity before us, confident that we're building a leading emerging market financial infrastructure company over the next decade and beyond. Thanks, everyone, for your trust and partnership, and we'll now open the line for your questions.

Operator: [Operator Instructions] Our first question coming from the line of Tito Labarta with Goldman Sachs.

Daer Labarta: I guess 2 questions, if I can. I guess, first on Argentina? I know you've been flagging sort of some concern about the FX. But how much of Argentina was impacted just by the uncertainty around the elections in September and then going into October, do you think now with the market views as a positive outcome to the election, can that subside and can potential growth in Argentina offset some potential FX devaluation from here? And then my second question, I mean you also mentioned changing tax regimes in Brazil. There was some news intra-quarter impacting Netflix and taxes on expecting funds outside of Brazil.

If you can give some color on how that could potentially impact your business, if at all, and how that could impact volumes between cross-border and our local-to-local...

Pedro Arnt: Thanks, Tito. Argentina, we have seen a gradual pickup in total payment volume post elections as consumers in that market probably sense a little bit more of stability and predictability of the economy. So from a TPV perspective, it has been positive. We now need to observe what happens with exchange rates, right? And I think that was our only note of caution. It's a market that we are very bullish on for the fourth quarter in terms of volume growth and the underlying growth of our business. We just don't know what's going to happen with FX and so we're monitoring that one closely short term. I think longer term, the signs coming out of Argentina are positive.

And the spread compressions that negatively affected the third quarter and were the principal driver of weak gross profit. A lot of that has been repriced, so as to improve spreads again. And so that's also positive in terms of potential for Argentina in Q4. On Brazil, the specific tax that our client referred to is one of the many moving pieces in the Brazilian fiscal puzzle. That particular one, not only does it not affect us, but I think potentially with some of our payment structures could become more attractive for global merchants looking for local payment capabilities that don't get subject to that specific tax.

But in general, because the ruling doesn't apply to payment facilitators such as ourselves. So that's not a negative. The only things we're mentioning about the Brazilian fiscal landscape, just to be clear here, is we haven't necessarily seen anything that negatively impacts us. There has just been so many moving pieces there that we're just leaving a note for investors to track all the occurrences but there is no anticipation at this point that something will negatively affect us during the next few quarters, given everything that's been determined up to now.

Daer Labarta: Okay. That's clear, Pedro. Just 2 quick follow-ups, if I may. On the FX in Argentina, I mean, for now, it seems like the government wants to maintain the band that they have. If that band is maintained at least in the short term, is that more positive for you? So they let the currency float, would that potentially be more negative? Just to understand how the band removing of the band and what happens afterwards would impact you? And second question on Brazil, there have been something about taxing fintechs at a higher rate, which was not passed by Congress.

But just curious, would you have been potentially one of those fintechs that would have had that higher tax rate if that had been passed or just curious where your Brazilian subsidiary would fit in that tax regime?

Pedro Arnt: So if Argentina remains within their currently informed crawling peg, then that's probably a positive outcome for us. I think what would be negative for us or for anyone with exposure to Argentina. And just to put this in context, right, Argentina was only 12% of our business from a gross profit perspective this last quarter. So I understand it's a complex market, but let's not focus only on that market when we're seeing phenomenal strength across other markets. Brazil, which was a concern has rebounded excluding Egypt, other Africa and Asia continue to perform really well, and the rest of Latin America came in really strong.

So just to, I think, take a step back and put Argentina in context, or else we focus on the noise there and not on everything else that's going on. But I think the answer to your question is, if things remain within the crawling peg which the government is extremely committed to and has the significant backing of the U.S. government as well, then that's a positive outcome for us moving forward. If they let it float then it depends on how big is there of a devaluation, if any. So who knows? Brazil, on the potential fintech tax regime, I don't know the answer to that.

Daer Labarta: Okay. I could follow up with you on that separately. Thanks for that Pedro. And that's a bit on the things that are concerned, but I just want to make sure the questions get answered...

Pedro Arnt: No, no, super understood. Just trying to put it in a larger context as well.

Daer Labarta: Of course, of course. I'll appreciate that. Thanks a lot Pedro.

Operator: Our next question coming from the line of Matthew Coad with Truist Securities.

Matthew Coad: Pedro, like you mentioned, another really strong quarter of volume growth above 50% year-over-year. It seems to me like a lot of the strength has come from the remittances and e-commerce verticals. And I was just hoping that you could kind of like opine on that and touch on the outsized drivers of growth there? And then also maybe talk about how you're thinking about those verticals for the next 12 months. Should we be worried at all about a slowdown due to tariffs, due to tax regimes, due to law of large numbers and tougher comps? Just hoping that you could touch on that a bit more.

Pedro Arnt: Yes. So look, these are two of the largest digital payment verticals. Commerce is probably the largest so the fact that it continues to grow nicely in a way is an indexation of the overall digital payment landscape in emerging markets. I'd also point to pretty strong growth across a fairly diversified number of verticals. I mean, hovering at around that 50% average, you have our streaming business, Software-as-a-Service merchants, on-demand delivery merchants, ride-hailing merchants. So almost the entire online consumer digital world is growing at or around that average. And then the one that continues to be soft is advertising. I think looking into 2026, we expect continued strength in remittances in commerce.

Let me remind you that remittances is particularly important because it generates outbound flows into the emerging world, and that makes us somewhat unique in that we are one of the global PSPs, if not the one with the best balance between pay-ins and pay-outs, which generate cross-selling opportunities across merchants, but also allows for interesting netting opportunities, which keep the take rate on our businesses more defensible given those netting opportunities where we keep the entire FX spread. And we see no signs of alarm for those business. Now obviously, when you're growing at over 200% like the remittance business year-on-year, you could potentially see natural deceleration but nothing beyond what's expected when you're coming from such strong growth.

Matthew Coad: That was super helpful. And then just as my quick follow-up, I want to talk about the take rate. So on the positive side, what I was trying to better understand, you guys provide that nice walk in the deck. And you're pointing to a 4 bp headwind from an others category. I was wondering if you could shine some light on what that was? And if there was anything onetime in there that could reverse? And then the other thing I wanted to ask was in -- on the guidance slide, you guys mentioned the potential risk of aggressive discounting by competitors. Is that just a risk to be aware of?

Or is that something that you've been seeing in some of your markets?

Pedro Arnt: Yes. So there is a strong one-off nature to that other. So that's not necessarily a continued compression of take rate. I think if you were to call it a normalized take rate, pulling out one-offs, it would have remained above 100 basis points for the quarter. And we've always pointed to the fact that I think the general trend for take rate, we believe, is still potentially downward but with a volatile trajectory and not necessarily at a very fast pace. I mean had this been 103%, then it would have only been down 4 basis points sequentially after having gone up a little bit in the second quarter versus the first quarter.

Discounting, I don't think it's that necessarily we're alerting folks to something that's very specific to this quarter. But generally, every single Q4, this is common in the payments industry where you will see more discounting in exchange for volume during the peak shopping season occurring from competitors, we do it as well. So it's simply, I think, part of what we observed in the industry during the peak season is something that's worth pointing out as just to be aware of.

Operator: And our next question coming from the line of Guilherme Grespan with JPMorgan.

Guilherme Grespan: Congratulations on the results. My question is on Brazil. trying to get together here the pieces that I have on Brazil, a pretty strong rebound sequentially again. And we have our internal tracking here. We saw a very strong performance since May specifically, at least in our tracking. So my question is basically trying to understand the nature. Is it a specific client? How much concentrated is this additional revenues and gross profit you're getting from Brazil. And if you can provide a little bit more color, I also see that the gross profit margin of the country has been moving up.

It made a bottom at 38% in the first quarter, now rebounded to 50%, which tends to hint sometimes that this is more FX cross-border. So in summary, long story short, just trying to understand what is the composition of this Brazilian growth pretty strong rebound.

Pedro Arnt: Yes. So first one, categorically, it's not driven by a single merchant. It's driven by a strong reacceleration of growth in some of our long-term global relationships, combined with the ramp-up of some important adds that we made in 2024 and then some important wins from more recently that have also begun to pick up steam very fast. So it's very likely that most of the relevant global digital services or e-commerce players that are performing well in Brazil now, we power some or all of their payments. So Brazilian strength has been very broad-based. Brazil does have a higher share of cross-border and also a higher take rate composition than, say, Mexico, which is the next market in size.

So that means that there are more cross-border merchants and more ForEx that we do in Brazil and also better spreads than in Mexico.

Operator: Our next question coming from Jamie Friedman with Susquehanna.

James Friedman: Congratulations on the results. So I wanted to ask you, Pedro, about your comments in your prepared remarks about the relative growth of local-to-local and the expectation of that going forward and the comment about Buy Now, Pay Later in the same context. So first, I want to clarify with those comments. Is that -- were you speaking specifically about Brazil? Or is that more broadly across the platform? And secondly, how could we interpret the take rate conclusions of that? Because it would seem to me like if local-to-local is outgrowing cross-border, that's dilutive to take rate, but local-to-local take rate may be moving higher if there's more about Buy Now, Pay Later, if you know what I mean.

So those are 2 questions in there.

Pedro Arnt: Okay. So look, I think the cross-border volumes and cross-border mix, so the part of our business that has a local payment transaction, followed by repatriation of funds to the merchant overseas which was a concern a few years back, if that was going to lose mix significantly has had very strong staying power. It's gained share for most of the past quarters and has remained a fairly stable, I think, overall mix for the company. So I don't think anything that we've seen in the recent history leads us to worry too much about a significant mix shift towards local-to-local, which understandably does have a lower take rate.

But again, if you look at the percentage of cross-border volume, it has held up nicely. Buy Now, Pay Later, again, early, but what we're saying is, I think it's gotten off the gates to a good start. We're seeing significant merchant interest in looking at the Buy Now, Pay Later offerings. We've integrated a few Buy Now, Pay Later into some of our largest merchants and this is still a relatively small platform in terms of the number of Buy Now, Pay Later options that we're offering. That will only grow over time as we offer more Buy Now, Pay Later players and also in more countries.

And as I said in my prepared remarks, the Buy Now, Pay Later offering does have the potential for being higher in terms of take rate because we monetize not only the merchant but also the credit originator by keeping a rev share on the credit that is distributed through dLocal onto the merchants client.

James Friedman: Yes, that makes sense. I think we were trained at MDRs overall on Buy Now, Pay Later or higher, so presumably, you participate. I wanted to ask -- I got a lot of questions, but I'll just ask one more and drop it back into the queue. But -- in terms of your comments about alternative payment methods and 25 on-file. I kind of lost the train of thought there. Like my understanding was you had 1,000 or more APMs when I last checked. How is it different that you have 25 on-file, if I heard you right? Like what is that -- what does that mean?

Pedro Arnt: Right. I think the on-file solution is a piece of what we call smart APMs. So these are tokenized APMs with additional features that we build on top of them with the objective of making the performance of these payment methods, be more and more feature rich and have performances more akin to credit cards. So the vision with the APM suite is eventually to be able to get APMs to perform in line with credit cards, yet they typically have an advantage of being real time, in some cases, being 24/7 and being a very, very commonly used, if not the most commonly used payment methods across emerging markets.

So the differentiation between a normal noncard payment method and a part of this suite of products is that these have tokenization and added features that we're building in, which make the merchant experience and performance better.

Operator: Our next question coming from the line of Neha Agarwala with HSBC.

Neha Agarwala: First, really exciting new launches and initiatives that you had talked about. Just to clarify, I mean, with these -- the 27 APMs that you just mentioned, if I'm not wrong, the net take rate for APMs would be lower than that for cards. Your gross profit margin might be the same for both products, but in general, the net take rate should be lower for APMs.

Pedro Arnt: That's right. They actually have a slightly better margin. They are lower in net take rate because they tend to be cheaper. They also have a significantly lower and cheaper cost basis. I think in many cases, their potential, as you well know, is that their volume increases are significant because a lot of the digitalization and inclusion of consumers across emerging markets, is not really happening on cards or internationally enabled credit cards, but happening through many of these real time networks or digital wallets. So the play there is a significant volume play. But yes, they do have lower net take rates.

Neha Agarwala: Yes. So it could also be -- act as a differentiator versus your competitors by giving much better conversions on APMs and gaining a higher wallet share for these particular type of volumes?

Pedro Arnt: Correct. But -- and I think more importantly, even than that is that consumers across the emerging world increasingly are adopting and using these local or alternative payment methods as their preferred payment methods. And even from a regulatory and almost geopolitical standpoint, many of these present sort of payment sovereignty for local governments. And so they're getting significant government backing and being widely adopted because of that as well. So we really envision local payment methods as a rapidly, rapidly growing portion of payments across most of the markets in the global south and we want to make sure that we've built the best suite of APMs with the best performance to capture that growing share of payments.

Neha Agarwala: Perfect. My second question is on the take rate evolution more in the medium term. So as you mentioned, all of these factors will probably put pressure on the net take rate. And one way to offset is by probably having more embedded finance products and the BNPL aggregator that you launched is one of those products that you could offer but apart from that, what are the other embedded finance kind of products, which some of your competitors are probably trying to focus on for instance, card issuing or the stablecoin on runoff ramp that you mentioned.

What are the products that we can think of in the medium term that would offset some of the pressure on the net take rate?

Pedro Arnt: Yes. So I think, broadly, there will be a lot of financial infrastructure that we would like to build for our global merchants in emerging markets. The ones we've addressed because we have specific projects are built on, I think you mentioned most of them. It's the Buy Now, Pay Later product. It's our card-present capabilities. So the ability to also attack the largest portion of the payments market across the global site, which is still physical POSs or tap-to-phone solutions for physical global merchants we've mentioned and it's a big area of focus for us, stablecoins.

So helping our merchants adopt stablecoins either as a way to move money cross-borders or potentially offering them the on-ramps and the off-ramps from stable to stable across the markets where we are important liquidity providers with competitive FX and liquidity. And we have some solutions that we offer in terms of KYC as a service or verification as a service for merchants who need a one API integration for KYC and verification across the markets where we serve. So those are the ones that either exist as products or we've mentioned because they're rolling out. I think more conceptually, we're getting better at building product and rolling out product.

And so as merchant needs emerge, we feel increasingly confident that we'll be able to build product to address those. But we haven't specifically mentioned any of the other things we're working on.

Neha Agarwala: Just to clarify on the card present capability that you mentioned. You're not trying to enter the off-line POS business, right? Now your presence is 100% online volumes. You're not trying to go into the offline volumes, right?

Pedro Arnt: No, there are use cases where merchants that have a very similar profile to the ones we have today would benefit from our technology, our integration, our scale and aggregation so that we could offer our payment capabilities at physical point of sale. One example is merchants that deliver physical point-of-sale ERPs or other types of ISVs who need an integration between the software they sell and the physical POS. And so we're building a platform that does that integration and performs that payment. And so that would give us access to digital merchants that actually pursue physical clients, whether they be SMBs, restaurants or that kind of thing.

Operator: And there are no further questions in the queue at this time. Ladies and gentlemen. This does conclude our conference for today. Thank you for participating, and you may now disconnect.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool recommends DLocal and recommends the following options: long January 2027 $7 calls on DLocal and short January 2027 $10 calls on DLocal. The Motley Fool has a disclosure policy.