DLocal (DLO) Q3 2026 Earnings Call Transcript

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DATE

Nov. 12, 2026

CALL PARTICIPANTS

• Head of Investor Relations - Mirele de Aragao
• Chief Executive Officer - Pedro Arnt
• Chief Financial Officer - Guillermo Perez
• SVP of Corporate Development - Christopher Stromeyer
• Investor Relations - Pedro

TAKEAWAYS

• Total Payment Volume (TPV) -- $18.3 billion, growing 77% year over year and marking the eighth consecutive quarter of growth above 50%.
• Revenue -- $398 million, representing 41% year-over-year growth driven by expansion within the existing merchant base.
• Gross Profit -- $132 million, a 28% increase year over year and a 4% sequential rise.
• Operating Profit -- $76 million, growing 37% year over year and 19% sequentially.
• Net Income -- $68 million, representing a 31% year-over-year increase and 24% sequential growth.
• Net Revenue Retention (NRR) -- 140%, reflecting continued strength and expansion with existing merchants.
• TPV Retention Rate -- 173%, driven by merchants entering additional countries and expanding into new business verticals.
• Operating Profit to Gross Profit Ratio -- 58%, its highest level since the fourth quarter of 2023, reflecting improved operating leverage and cost discipline.
• Adjusted Free Cash Flow -- $99.1 million in the quarter, representing 146% conversion to net income.
• TPV Constant Currency -- 68% year-over-year growth when adjusting for foreign exchange fluctuations.
• Revenue Constant Currency -- 36% year-over-year growth on an underlying basis.
• Gross Profit Constant Currency -- 24% year-over-year growth, adjusted for currency impacts.
• Local-to-Local TPV -- 62% of total volume, primarily driven by ride-hailing and on-demand delivery verticals.
• Payout Volume -- 25% of TPV, with growth concentrated in financial services and remittance sectors.
• Operating Expenses -- $55.9 million, representing an 11% sequential decline due to lower third-party spend and marketing timing.
• Corporate Cash and Cash Equivalents -- $536.9 million, having increased by $167.8 million sequentially following the execution of a $150 million credit facility.
• Diluted EPS -- $0.23, representing 35% year-over-year growth supported by the company's share repurchase program.
• Share Repurchase Program -- $120.1 million year-to-date, including the repurchase of 9.1 million Class A shares through the end of the third quarter.
• TPV Guidance -- 60% to 70% growth for the full year, with management expecting results toward the upper end of the range.
• Gross Profit Guidance -- 25% to 30% growth for the full year, with expectations currently at the midpoint.
• Operating Profit Guidance -- 27.5% to 32.5% growth, with tracking currently at the lower end of the range.
• Headcount -- Declined 3% from its second-quarter peak, reflecting the impact of automation and productivity initiatives.
• Regulatory Licenses -- 42 licenses and registrations plus 10 authorizations across 26 markets, with 20 additional active applications.
• Merchant Net Promoter Score (NPS) -- Reached 51, an increase of 5 percentage points compared to the second half of 2025.

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RISKS

• Pedro Arnt stated, "we now expect previously unanticipated FX headwinds in Brazil, Mexico and Argentina during Q4, which we estimate as of today as having six percentage points of swing on our year-over-year gross profit growth for the quarter," noting potential pressure on fourth-quarter profitability.
• Pedro Arnt noted, "We're also seeing somewhat softer performance in smaller high take rate markets in Africa and Asia," which may impact regional revenue contributions.

SUMMARY

DLocal Limited (NASDAQ:DLO) reported third-quarter results characterized by $18.3 billion in Total Payment Volume, representing 77% year-over-year growth. Management stated that the operating profit to gross profit ratio increased to 58%, its highest level since the end of 2023, due to rigorous cost discipline and the implementation of automation tools. The company reduced sequential operating expenses by 11% while net income grew to a record $68 million. For the full year, the company reaffirmed guidance for gross profit growth near the 27.5% midpoint and TPV growth at the upper end of its 60% to 70% range. Management noted that fourth-quarter performance remains subject to seasonal shopping volatility and 6 percentage points of anticipated foreign exchange headwinds in major Latin American markets.

• CEO Pedro Arnt stated, "we anticipate Asia to become a growing part of our business with an enormous addressable market," following the hiring of new regional leadership.
• Arnt noted that the company's largest client had been with the platform for over seven years before experiencing its recent volume ramp-up, stating, "these sales cycles tend to be fairly long, and it's hard to predict when a big ramp-up will occur."
• The company reported that the digital asset and stablecoin vertical is growing through increased adoption in remittance, repatriation, and merchant checkout testing.
• Management launched physical payment solutions in Mexico and expanded its buy now, pay later platform to include 15 merchants across multiple emerging markets.
• The company implemented card-on-file-like experiences for noncard payments, including digital wallets and real-time payment networks, to improve merchant conversion rates.
• CFO Guillermo Perez noted that payroll costs declined sequentially for the first time this year, while gross profit per employee surpassed $100,000.

INDUSTRY GLOSSARY

• Alternative Payment Methods (APMs): Non-card payment types such as bank transfers, digital wallets, and cash-based vouchers used in local markets.
• Boleto: A popular voucher-based payment method used specifically in Brazil.
• EMI (Electronic Money Issuer): A regulatory license allowing an entity to issue electronic money and provide payment services.
• Net Revenue Retention (NRR): A metric measuring the percentage of revenue retained from existing customers, including expansion and contraction.
• Pay-in: The process of collecting payments from consumers on behalf of a merchant.
• Pay-out: The process of distributing funds from a merchant to consumers, partners, or employees.
• PIX: An instant payment system created and managed by the Central Bank of Brazil.
• Total Payment Volume (TPV): The total dollar value of all successfully processed transactions through the platform.

Full Conference Call Transcript

Operator: Hello, and welcome to DLocal Third Quarter 2026 Results Conference Call. [Operator Instructions] I would now like to turn the call over to Pedro. Sir, you may begin.

Mirele de Aragao: Good afternoon, and thank you all for joining our earnings call today. If you have not seen the earnings release, as always, a copy is posted in the Financials section of the Investor Relations website. On the call today, you have Pedro Arnt, Chief Executive Officer; Guillermo Perez, Chief Financial Officer; Christopher Stromeyer, SVP of Corporate Development; and Mirele de 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 DLocal's website at investor.dlocal.com. The recordings 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 DLocal's 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 filings 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: Thank you. Good afternoon, everyone, and thank you for joining us today. We delivered another quarter of consistent execution, supported by deepening merchant relationships, improving operating leverage and solid cash generation. Our TPV reached $18.3 billion, up 77% year-over-year, marking the eighth consecutive quarter above 50% growth and the fourth one at or above 70%. Net revenue retention was 140%, reflecting the continued strength of our business with our existing base of merchants. Gross profit grew 28% year-over-year to $132 million, while operating profit increased 37% to $76 million. The strong operating leverage we expected in the second half of the year is materializing.

Looking at what's driving our growth, one of the most important dynamics is how our relationship with merchants has evolved over time. As merchants grow their business across emerging markets, we have multiple opportunities to capture a greater share of their payment volumes. That can mean entering additional countries together, expanding into new business verticals within their organizations or adding payment methods and products within markets where we already operate together. Our TPV retention rate was 173% in the quarter, reflecting this continued expansion within existing relationships.

What allows us to capture these opportunities is not simply the breadth of our offering, but our ability to consistently deliver strong payment performance and operational reliability in markets where neither of these is the standard. Our merchant level NPS reached 51, up 5 percentage points versus the second half of 2025, reflecting the increasing trust merchants place in us. And while growth is moderating against demanding previous year comparisons following the significant ramp-ups in previous quarters, we continue to see good momentum and opportunities to deepen existing relationships and to win new business. Capturing these opportunities and delivering on them also requires us to build a business that can scale efficiently.

And during 2024 and 2025, we did invest significantly in the technology, infrastructure, licensing and organizational capabilities needed to support a much larger business and continue to compound growth at scale. Our AI capabilities were a large component of these investments, and we are now seeing those investments translate into greater productivity while continuing to push the frontier on payment coverage and performance. Headcount peaked in the second quarter and declined 3% in the third, while gross profit per employee surpassed $100,000 for the first time, a level we believe is consistent with best-in-class productivity. Operating profit as a percentage of gross profit reached 58%, its highest level since the fourth quarter of 2023.

These metrics demonstrate the operating leverage potential of our business, though quarterly progress can vary with investment timing and growth mix. As we look ahead, we'll continue capturing those efficiencies while investing in the capabilities that will drive our next phase of growth, particularly in product innovation, payment performance, local market expertise and licensing, all of which are essential to winning and expanding merchant relationships. On payment performance, we're continuously focused on conversion optimization with tools that help merchants approve more card payments, recover failed transactions, keep stored cards working and manage fraud. The more volume we process, the better we can optimize performance, ultimately driving higher revenue for our merchants.

Beyond cards, we added 11 new local payment method integrations this quarter, while developing additional technology to improve conversion, including a card-on-file-like experience for noncard payments such as digital wallets and real-time payment networks. Our regulatory infrastructure is also essential to our ability to operate across emerging markets. Having the right licenses both where our merchants are based and where we collect and disburse payments is a critical and difficult to replicate competitive advantage. During the quarter, we secured two additional money transmitter licenses in the United States, an AML registration in Canada and a remittance authorization in Tanzania. We now hold 42 licenses and registrations plus 10 regulatory authorizations across 26 markets with 20 more active applications.

Taken together, we see a business where deeper merchant relationships drive volume growth, scale supports greater efficiency and strong cash generation allows us to continue investing behind a significant market opportunity while managing our capital structure in ways that accrete value to our investors. With that brief summary, I'll hand it over to Guillermo to walk through our financial results for the quarter.

Guillermo Perez: Thank you, Pedro. Good afternoon, everyone. Let me start giving a quick overview of our financial performance this quarter. This quarter, strong volume growth drove gross profit up 28% year-on-year, while cost discipline and automation helped us expand our operating profit margin over gross profit. As a result, operating profit reached $76 million, growing 37% year-on-year and 19% sequentially. For the first time this year, operating profit grew year-on-year faster than gross profit. We achieved an operating profit of a gross profit ratio of 58%. This is the highest level since 2023. And net income reached $68 million. This is a new record. It grew 31% year-on-year and 24% sequentially. Finally, adjusted free cash flow reached $99 million.

This reflects our strong cash generation and allow us to keep investing in our growth while returning capital to shareholders. Let me now walk you through the key details behind these results. Starting with volumes, TPV reached $18 billion. It grew 77% year-on-year and 4% sequentially. Growth was broad-based. The largest year-on-year contributions came from Brazil, Mexico, Argentina, Colombia and South Africa. By vertical, our platform continues to scale across a wide range of industry and use cases. Most of the growth came from verticals such as ride-hailing and on-demand delivery. Ride-hailing grew sequentially in every region, particularly in Mexico, Brazil, Colombia, South Africa and smaller Latin American markets.

This growth came from multiple merchants and is mostly a local-to-local flow, which represented 62% of TPV this quarter. Financial services grew strongly in Turkey, Morocco and smaller markets across Latin America, Africa and Asia Pacific. Remittance growth was concentrated in Latin America. Both are mainly payout flows. Payouts represented 25% of TPV. Finally, social media advertising was especially strong in Brazil, driven by election-related activity. We expect this to normalize after the elections. Travel also contributed, reflecting our commercial efforts and our investment in product market fit. E-commerce was stable quarter-on-quarter. Within e-commerce, social commerce grew strongly, mainly local to local in Mexico and Brazil and offset softer cross-border volumes. Moving to gross profit.

We generated $132 million in the quarter. It grew 28% year-on-year and 4% sequentially. Sequential growth was led by Africa and Asia, where volumes grew across most markets. Gross profit also benefited from two items: a one-off cost recovery in Nigeria and lower FX losses in Mozambique compared with the second quarter. Argentina also grew despite softer volumes after a Hot Sale-related seasonal peak in the second quarter. But this was offset by lower advancement costs, thanks to a more efficient funding structure and lower interest rates. These gains were partly offset in other markets. In Brazil, underlying volume growth was offset by payment method shifting towards PIX and Boleto and by processing cost catch-ups.

In Mexico, volume growth slowed after the second quarter. Gross profit was also affected by higher processing costs, including cost catch-ups from prior periods. In other LatAm, growth came from remittances, on-demand delivery and ride-hailing, mostly local to local and payout volumes. Turning to expenses. Total OpEx reached $56 million. It was down 11% sequentially. This was driven mainly by disciplined cost management, particularly lower third-party spend and lower headcount as we continue to see benefits from our automation agenda. The comparison also reflects timing as marketing spend was concentrated in the first half of the year. As a result, operating profit reached $76 million. It grew 37% year-on-year and 19% sequentially. Operating profit represented 58% of gross profit.

This compares with 50% last quarter and 54% a year ago. Looking ahead, we continue to see opportunities to improve efficiency through automation while keeping the flexibility to continue investing as our business grows. Moving below the operating line. Net income reached $68 million. It grew 31% year-on-year and 24% sequentially. Sequential growth reflected higher operating profit and higher finance results. Finance results increased mainly due to higher interest income on our cash balances. This more than offset higher interest expense from the $150 million credit facility we signed in August. Our effective tax rate for the quarter was 15%. It was broadly flat year-on-year and sequentially. Diluted EPS reached $0.23, a record for the company.

It grew about 35% year-on-year, faster than net income, thanks to our share repurchase program. During the quarter, we repurchased approximately $34 million of shares. And year-to-date, total repurchases reached approximately $120 million. This is approximately Nine Class A shares and all of them have already been canceled. We continue to see our share buyback program as an integral part of our capital allocation program and a driver of improved EPS going forward. Finally, turning to cash generation. Adjusted free cash flow reached $182 million year-to-date. This is 111% conversion to net income year-to-date, and it was 146% in Q3. This reflects high operating profit and the reversal of temporary working capital effects from the first quarter.

Part of the working capital benefit we show in free cash flow in Q3 is expected to normalize in future quarters. With that, I'll hand it back to Pedro.

Pedro Arnt: Thank you, Guillermo. Before concluding, we want to give you an update on our outlook for the year. In short, we reiterate our guidance ranges given where we see the business tracking as of today. Strong volume momentum continues to support TPV growth towards the upper end of our 60% to 70% range. As I mentioned earlier, volume growth is moderating as expected against tougher comparisons following the merchant ramp-ups over the previous two semesters. At the same time, we now expect previously unanticipated FX headwinds in Brazil, Mexico and Argentina during Q4, which we estimate as of today as having six percentage points of swing. on our year-on-year gross profit growth for the quarter.

We're also seeing somewhat softer performance in smaller high take rate markets in Africa and Asia. As a result, we only expect full year gross profit growth around the midpoint of our 25% to 30% range. As a reminder, fourth quarter results are highly sensitive to seasonal performance during the peak shopping period of the year, which begins in the next few days and could change these expectations in either direction. Over the past few quarters, we have focused heavily on AI deployment, automation and expense discipline.

With these efforts now generating returns, we saw much of the OpEx improvement we expected materialize in 3Q '26 as we continue to balance our expense management with our strong volume growth and targeted investments going into the next year. Yet given the FX headwinds for the rest of the year, our current operating profit view has moderated towards the lower end of our 27.5% to 32.5% year-over-year range. As always, this guidance reflects what we see in the business today and is subject to the inherent volatility of the emerging markets in which we operate. With that, let me wrap up and hand it over to Chris to lead us through some questions on these quarterly results.

Christopher Stromeyer: Thank you. Thank you, Pedro. Thank you, Guillermo. Let's now move to some of the questions that might be top of mind to our investor community as we think about both this quarter's results and the trends of the business going forward. Pedro, growth continues to be driven primarily by our existing merchants as we expand into new markets and new business units with them. But give us a little bit of color on how our merchant pipeline is going and when we expect some of these wins to ramp up into the future.

Pedro Arnt: Yes. I don't think it's unexpected that the existing merchant base continue to drive a significant portion of the growth. To me, that's a validation of how early stage we still are in emerging market payment localization and the potential that exists with the existing merchant base. On the new merchants, these sales cycles tend to be fairly long, and it's hard to predict when a big ramp-up will occur. The recent massive ramp-up we had from our largest client is a client that had been with us for over seven years before that happened. I think most importantly, the pipeline looks very strong.

We're seeing very strong growth in some new verticals we've bet in, such as travel, the crypto and business -- Banking as-a-Service pipeline looks healthy. And so this is within the ordinary course of business. We still see substantial potential for many of these merchants that we've won an initial business with. And that's really the hardest piece is how do you get the foot in the door to eventually have a ramp-up. It's just hard to predict if that happens when they're still considered new merchants, meaning the first 12 months or if that happens at a later stage when we no longer consider them new merchants, but they can still be extremely accretive to the business.

Christopher Stromeyer: Yes. That makes a lot of sense. Guillermo, turning to you. We saw some diverging trends across markets this quarter, but the overall volume and gross profit trend continues to be strong. So to remove some of the noise here, what are the underlying trends really affecting this quarter?

Guillermo Perez: Yes. Thank you, Chris. So I think first, we need to look at the big picture. And if you look at year-over-year growth, volume is growing, revenue is growing, gross profit is growing and most of the regions that we look at are growing volume north of 50%. Now when you look at the quarter's results, especially when you look at specific regions, there's obviously some noise and volatility quarter-to-quarter. If I think about revenue, there was a big impact from Argentina this quarter. So Argentina had a very strong volume growth seasonality in Q2 that didn't repeat in Q3. And if you exclude Argentina, the portfolio overall grew quarter-on-quarter.

Christopher Stromeyer: Those puts and takes are part of our business. Turning to the cost side, here, we've talked a lot about OpEx this year. Operating profit reached 58% of gross profit this quarter as we expected with operating leverage, and this was the highest level since 2023. How should we think about this from here?

Guillermo Perez: Thank you, Chris. I would separate two things: structural improvements in our cost base and timing. On the structural side, we invested a lot during 2025, and much of that cost came into our base in the first half of this year. As we mentioned in previous quarters, we did not expect more material headcount increases in the rest of 2026. In addition to it, automation and cost discipline are starting to show in the results. Operating expenses were down 11% sequentially, and this was the first quarter this year with lower payroll costs sequentially. On timing, Q3 also had some help. Marketing spend was concentrated in the first half and one-off expenses were lower than usual.

So I wouldn't think about this quarter's result as a margin target, and I would be careful about extrapolating from a single quarter to future quarters. On an annual basis, the way we think about it is capacity in the P&L. On one hand, automation and cost discipline create room in our P&L, and we'll keep using some of that room to invest in growth. And going forward, our expectation is to grow gross profit above OpEx on an annual basis, but quarterly figures could be a bit more lumpy.

Christopher Stromeyer: Pedro, we're finally with you. We're getting closer to the end of the year. So let's talk a little bit about what comes next and about meaningful growth opportunities going forward. Where do you see the biggest growth opportunities and what investments might be needed to capture them?

Pedro Arnt: So look, this is still very early days for DLocal, and I think this business has the potential to compound growth over many years. And we've talked about the growth vectors, and they remain very consistent. So I'd say there's still a lot of room to grow share of wallet by expanding with existing merchants into new markets, into new products. There's new merchants, as we addressed in your previous quarter, we're only scratching the surface of global companies wanting to localize financial infrastructure. Then there's a geographic component, which I think is an important one to highlight. I'm off to Asia right after this. We're very optimistic on at least the size of that market that will require licenses.

It will require deeper local partnerships, which we've really begun to build. And so we anticipate Asia to become a growing part of our business. with an enormous addressable market. And then there's the new product angle. We've already gone to market with physical payments in Mexico. We're seeing our buy now, pay later product platform growing nicely. It has over 15 merchants and continues to add new merchants that are using us to integrate into multiple buy now, pay later offerings across the global South. Banking-as-a-Service and financial infrastructure is also beginning to emerge as an increasingly demand portion of our product portfolio.

So when we put that all together, right, ample room to grow share of wallet with existing merchants, new merchants, new geographies and new products, it really becomes a very strong growth thesis for us if you take a three- to five-year view.

Christopher Stromeyer: Perfect. Well, with that, that ends the prepared part of this webinar, and we now open the line to questions.

Operator: [Operator Instructions] Our first question comes from the line of Guilherme Grespan with JPMorgan.

Guilherme Grespan: Two questions on my side. Congratulations on the print. The first one is just Pedro touched a little bit on Asia. That was going to be my question. You seem Pedro very excited in the last interactions on this geography specifically. I think you recently hired a new CEO to Asia Pacific. The question is more the ramp-up curve here. How should we think about the contribution of Asia to gross profit over time? It's still too early to say it's going to be meaningful? Kind of just try to help us a little bit the time line to eventually see a ramp-up in the business there more materially. And then the second question is just a refresh.

You guys took $150 credit facility this quarter, right? Remind me just to make repurchase of shares? Or is there any inorganic application or any other use of proceeds?

Pedro Arnt: So on Asia, this is by far the largest emerging market region for financial infrastructure in terms of sheer TAM. It's a region that the more we've studied it, the more we see similar issues to be solved on behalf of global merchants and local merchants. And it's also a region that's characterized by a very large amount of local payment methods and so very characterized by fragmentation and many, many geographies with their own specific regulatory environments. So all of this plays very much into the reasons why DLocal is able to add value. Like I've always said, we have an initial go-to-market strategy that focuses very much on cross-selling into our existing merchant base.

And also, we already have multiple feet on the ground also sourcing local merchants. So I think the long-term ambition here is one that is very large. As always, this is very much dependent on execution. I wouldn't expect this to be material or sizable in 2027. I think for year one, since we've hired a local team and local seniority, think of it more in terms of maybe mid- to high single-digit contribution of top line, but with the potential to scale very quickly if we are successful.

Guillermo Perez: Okay. And if I take the second question on the credit facility that we got in August this year, you know we are a business that generates cash, but our corporate cash sits across many of our operating subsidiaries. And the good part is needed locally as well to things like refunding payouts, posting collateral with partners, meet regulatory requirements. And at the end of the day, moving cash up to the holding company takes time and money. And this facility gives us the liquidity at the holding level in a faster and more efficient way for, I would say, general corporate purposes, including obviously buybacks. And the economics of the credit facility are quite reasonable.

The cash in our subsidiaries actually earns local rates that are probably similar to even higher than the cost of this facility. It's worth saying that the balance sheet remains very conservative and leverage is around 0.5 turn of EBITDA, and we have a very strong net cash position. On your question on inorganic growth, nothing has changed from a capital allocation framework perspective. So obviously, the first thing that we do is putting our cash to invest and then whether it's organic or inorganic. And the second thing is returning capital to our stakeholders through dividend and the buyback program.

Operator: Our next question comes from the line of Matt Coad with Truist.

Matthew Coad: I wanted to ask about Mexico. We saw another sequential improvement in revenue, but gross profit stepped down a bit. And I know you're dealing with some elevated processing costs there. But I was hoping you could kind of like walk us through the game plan to solve this problem and then kind of like paint a picture in terms of the time it will take to get this business in Mexico back to kind of like a normalized take rate on a net basis.

Pedro Arnt: Yes. So look, we need to execute on a Mexican plan. The market is still very large. TPV was still record TPV. There are, I think, two prongs that once we're able to address them, should revert the Mexico situation. Let's not forget Mexico was the strongest grower through most of 2025. And so our business does go through ebbs and flows. Fortunately, the larger we are and the more diversified we are, it has less and less impact on our consolidated numbers. First of all, in Mexico, we need to leverage that scale and that record TPV to start driving cost structure not up, but down again.

So part of this is simply because TPV has continued to grow to be able to leverage that from a cost perspective at the COG level. And as I've said before, Mexico is one of our markets that has higher concentration on a few large merchants. And so consequently, that means that you have merchants that are at lower take rates and that we're through this last quarter, also still hitting the lowest tiers in terms of our pricing tiers. Therefore, I think once we start addressing those two things, Mexico can revert. And it shouldn't be a long-term issue. I mean I wish it would have happened sooner.

We're very focused on this, but this is not something that we think has to take multiple quarters. I think as we continue to focus on this, ideally, we see Mexico improving next year or maybe even as we exit this year, depending on how the shopping season plays out.

Matthew Coad: Super helpful, Pedro. And then I actually wanted to go back just to clarify the last answer on Asia. So I just want to make sure we're clear on this. We're going from kind of like a de minimis level of revenue and gross profit today potentially to high single-digit percentage of gross profit next year. And if that's the case, that's pretty meaningful success in like some new geos for you guys. Like do you have some big anchor merchants in place in certain countries? Kind of could you unpack how you're going to drive that substantial growth so quick?

Pedro Arnt: Yes. So I think you chose the high end of what I said, I think I said mid-single digits to potentially high single digits depending on success. We began to see processing for one of the world's largest streaming companies, one of the largest music streaming companies. We have conversations with one of the AI Labs. And then again, that market is just so large that even at a significantly smaller market share, it can ramp up very quickly. So let's see how things plan out. '27 is also a year still of building out a lot of the infrastructure, both in terms of payments infrastructure and piping and integrations into payment methods, but also team and go-to-market cadence.

But yes, given the size of that market, we do believe that if we hit on our own expectations, this could be in the mid-single digits to high single digits of revenue is what I said, but that's accurate.

Operator: [Operator Instructions] Our next question comes from the line of Julian O'Hara with Goldman Sachs.

Unknown Analyst: Congrats on the results. I just have a quick follow-up as well on the revenues and gross margin. Could you just give us a bit of color on how you see the mix going per region in the next few quarters? So if Argentina could potentially recover or if Mexico could recover more, how do you think the revenue mix is going to expand going forward?

Pedro Arnt: Great. Okay. I'll try to keep this to what we're seeing in terms of the overall short-term cadence of the business. I don't want to get in too much forward-looking statements. We'll report those when we give you Q4 results. Like I said, I think Mexico, because it's been somewhat weak, has potential to rebound. Other LatAm is somewhat of a similar story. I think there's potential across the rest of the region ex Brazil, Mexico and Argentina to drive some acceleration. This is all highly dependent as always, and that's why fourth quarter commentary is so difficult. Over the next, I'd say, month, most of the fourth quarter gets played out during the shopping season.

So we'll have much greater clarity over the next few quarters. But I think if I were to look at where the acceleration could come from, I would look at those two subsegments within LatAm. I think remaining regions continue to perform very well. And on a year-on-year basis, I think the business has been doing extremely well. But from a sequential perspective, seasonality adjusted, I would look for those two to be the ones that could drive some of the incremental acceleration sequentially.

Operator: Our next question comes from the line of Camila Azevedo with UBS.

Unknown Analyst: I have one question on operating leverage. So which specific cost reductions seen in this quarter are sustainable? I mean, do you aim to implement going forward? And how do you plan to balance necessary growth investments, mainly on what you commented about the expansion to Africa and Asia with the increased focus on automation and cost discipline.

Guillermo Perez: Okay. I'll take that one first, Pedro. So I think you're right on OpEx overall, we saw total operating expenses down 11% sequentially. There's a bit of both structural and more like temporary. If I think about the structural ones, the third one is payroll. You saw headcount coming down, and that's a result of the automation agenda that we had that is starting to give results. We also have quite a lot of cost discipline in terms of third-party spend. So that's another area that we put a lot of focus in the last few months that is showing results. And then from a more like temporary perspective, marketing was always front-loaded in the year. We always said that.

So obviously, in the second half, you saw a lower level of marketing spend. And there's always as well operating expenses and credit losses. There's a little bit of volatility when you look at it sequentially, and they were quite the when we look at them in Q3, although we've also been quite proactive on managing them to try to reduce them. So I think that's overall the picture from a structural and temporary perspective from an OpEx perspective. And when we think about the future, as I said in my remarks, we continue having a lot of opportunities to continue investing.

We want to do it in a disciplined way based on reinvesting some of the top line growth that we're seeing to avoid the lumpiness that we've seen in the past. And we plan to continue with our automation program to continue to drive efficiencies. We believe there's still opportunities in that area.

Pedro Arnt: Yes. I'll just complement that last part. The way we think of the financial model going forward, I think we've said there are four growth vectors, right? There's the growth that still exists with our existing merchants into new markets and new payment methods and then new merchants. Those two are, in a way, our core business. They should deliver significant operational leverage, as Guillermo just walked us through, given the previously made investments in automation and just the natural scale that exists in this business. Some of that leverage, some, I stress, is what we will look to reinvest back into the other two growth vectors, which is product expansion and geographic expansion, mainly Asia.

Now we will continue to be very disciplined and not invest too much ahead of the curve and make sure that we're balancing those investments also with growth and releasing more investments as the growth comes in. So the all-in of that financial model should continue to be one that delivers year-on-year margin expansion even as we invest behind new products and new regions.

Operator: Our next question comes from the line of Jamie Friedman with Susquehanna.

James Friedman: I wanted to ask the -- how do you think about the financial model now, Pedro, relative to the architecture of a rule of whatever. I mean, at the Analyst Day, you had -- and I know this predates you, but you had certain targets like Rule of 70. Tonight you're at a rule of 100. So you're over-indexed relative to how you were thinking about it then. So I'm just trying to figure out how do you think about the gross profit growth relative to the, say, operating margin and how that evolves over time?

Pedro Arnt: Look, this is still, I think, a business that has expanding margins and growth. The Rule of 40 or whatever it is, potentially is used more often, I think, in the context of a business that tries to show significant growth in exchange for significant investment. And I think what we're saying with DLocal is that it's one of, like I said previously, margin expansion. So we just did 58% margin. We've just asked you guys to look at full year-on-year margin expansion, but the message always is the investment cycle is behind us, and now it's more about continued expansion of margins going forward even as we pursue growth.

And then our growth algorithm, I think, has been fairly consistent in terms of TPV with declining take rates, which has left us in mid-20s to low 30s gross profit growth. We're seeing -- I wouldn't say we've hit the bottom in terms of take rate compression. But certainly, if you look sequentially, the declines are beginning to slow down as we anticipated they would. And so you may see a convergence between even as TPV decelerates given the tough comps, you have potential less take rate compression as we roll into the future years.

And so that should continue to leave us as a business that's delivering very solid year-on-year gross profit growth, expanding margins and very, very healthy free cash flow conversion. So I don't think we're alluding too much to a rule of anything, but the financial algorithm is one of high growth margin expansion and very solid cash generation, which we think is uniquely attractive.

James Friedman: Okay. And then I'd be interested in your perspective on the relative interest among your merchants between stablecoin and Agentic which seems to be the bigger priority for your merchants given what you do for them? Yes. And how has that evolved this year?

Pedro Arnt: Yes. So evolution this year is an easier answer, Jamie. I think we see a growing crypto business with some really interesting either wins or positive late-stage pipeline opportunities. I think we're seeing increased adoption of stablecoin usage in remittance flows, in repatriation flows, but we even have a growing roster of merchants that are accepting stablecoins at checkout and testing what kind of lift and how that impacts their user experience. So that's a very healthy new vertical for us that's coming along quite well. On the Agentic piece, I think our suspicion is that there's more Agentic commerce going on that we don't necessarily identify as Agentic because it isn't necessarily going through an Agentic protocol.

It's agents that are arriving at our website and simply emulating a human carrying out a transaction. If we were to look at Agentic protocol-driven commerce, it's still quite low and the number of merchants that we see adopting across the global South that format is not very big. But I think like many of these technology trends, they're fairly new. If you look at some of the largest personal assistance and Agentic agents, they're not even really two quarters old in terms of their initial hyperscaling trajectories.

So this is something that we are staying close to and investing in because we think that it has enormous potential to generate more needs of payments and for us to generate more value for merchants. But that second one right now is more our expectation than anything we're actually seeing in the numbers. The digital asset and stablecoin vertical is one that's actually delivering quite solid growth.

Operator: Ladies and gentlemen, I'm showing no further questions in the queue. That concludes today's conference call. Thank you for your participation. You may have a nice day. You may disconnect.

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