DLocal Aktie

Good afternoon, everyone. Thanks for joining. I have the pleasure of hosting Pedro Arnt, CEO of DLocal. I am the LatAm financial analyst at Goldman. Pedro, thanks for joining us. I think third, fourth year now, becoming a regular.

Third year at DLocal. This conference has been forever. It is always good to be here.

Yes. Great. I appreciate you coming. Let us jump into it right away. Maybe just in second quarter, you had very strong results, particularly when you look at a TPV growing more than 90%, well above expectations on the TPV side, right? So maybe what surprised you and how do you think about the growth algorithm sort of going forward, particularly on the back of that quarter?

Yes. I think TPV growth kind of reflected most of the multiple growth vectors this company has in that it was broad-based. It was broad-based across different verticals. It was broad-based in terms of markets in general, with most markets performing quite well, save a few exceptions. And also with interesting ramp-ups from merchants that go to show that a lot of the investments we have been making over the last few years now place us within a position where these very large global enterprise merchants are willing to significantly increase the amount of business they do with us, where we are becoming one of their top 3 or 4 global PSPs. So from a volume perspective, share of wallet perspective, and ultimately market share perspective, I think nearly doubling TPV year-on-year off of what was already a strong base is phenomenal.

The other data point we gave, which substantiates how broad-based the growth is that even if you eliminate the largest grower, which we said that our largest merchant is also the one that is growing the most, you still get to TPV growth year-on-year, which is in the high 60s. So very, very strong.

Yes. Great. If we look, and you had a chart, I think, on the addressable market as well, where, let's get the exact number, but you are like 3% of the total addressable market with your merchants' wallet shares closer to 10%. So just to think about how that can evolve over time, how much of that can you really serve and how big can you get with your merchants?

Yes. So I think let's take a step back just to understand why it is that despite the size of the opportunity, the starting point is still so early stage, right? Your typical go-to-market strategy for emerging and frontier markets for a large global digital company is to start off by offering its service in that market, but to continue to use its existing developed world payment rails. So what typically is called international acquiring in credit cards.

Then as those local markets start becoming useful for them, large for them, and they begin to realize that to unlock further growth in those markets, they need to start localizing payments and offering the payment methods that consumers in those countries want to use is where DLocal comes onto their radar screen and they start thinking, okay, which payment methods do I start offering locally and gradually see the shift of volumes from international acquiring credit cards to other payment methods locally or local credit cards. We are still at a fairly early stage in that S-curve of adoption, and that is why our wallet share is still low, because there are many payment methods that merchants will be able to adopt through us that they do not yet adopt, and because so much of their volumes are still done through international acquiring.

When we look at merchants that are further down that path of localizing payments, I think it's realistic to think that you could have anywhere between 50% to 80% of their payments in a specific market. Why not 100%? Because most of these merchants will at least have one redundancy pipe. So they'll typically split things 80-20, 50-50, or maybe 50-30-20. But even if you take the 50% objective, that's still significantly more than what we have today.

Yes. When you think your top 10 merchants are still a sizable portion of your volumes. But it evolves over time, right? So when we think of that continued growth in terms of growing with existing merchants, getting new merchants, replacing those top 10, how do you think about that evolution?

Yes. So just to quantify what you just said, right? Of the top 10 merchants reported in the last quarter, if you were to go back 2 years, only half of them were in that top 10 list. So although the concentration in the top 10 and the top 20 has remained fairly unchanged, unfortunately, we'd like to see that diversify, it's not the same top 10 or top 20. Not because some merchants are churning, but because new merchants are coming in that very rapidly move into top 10 or top 20. So in that sense, when you look at a moving picture, the business is actually more diversified than the picture in one quarter would seem to indicate.

But I think more importantly, when I talk about an S-curve, I think the reality is that for the vast majority of digital businesses that still have global aspirations, they're very early on in their journey of actually worrying about localizing payments. They're much more focused on other elements of their go-to-market strategies, marketing, product development. I think that the secular tailwinds behind the concept of localizing payments are quite significant and still early stage. So this is a rapidly expanding TAM, and one that I trust will continue to expand for many years into the future as this notion of, "Hey, I need to localize payments," becomes more and more prevalent.

Not only because of merchant understanding and kind of figuring out this playbook, but also because if we look at global geopolitics and how things are playing out, this concept of payment sovereignty, I think, is something I hear from central bankers more and more. It is the idea that it is critical that countries have their own payment rails, their own payment champions, their own payment methods that power their economies and not necessarily depend on foreign credit card schemes or on international wire transfers for their economies to run fluidly. So that gives us confidence that Global South payment ecosystems will continue to be increasingly local and increasingly fragmented, which generates increasing value to what we offer our clients. Because at the end of the day, what we do is we simplify and abstract away that fragmentation, that complexity, and that localization for them.

Yes. I guess maybe thinking about that, maybe Pix in Brazil is a good example, right? How does your value proposition able to serve that versus cards and relative to the competition as well? What gives you the competitive advantage to be the provider for these merchants?

Yes. So I think to be quite frank, when you get to local payment methods as large as Pix and as relevant as Pix, most of our competitors also offer it. Even the companies that traditionally are credit card focused, when there is something like a Pix, they will build that into their product offering. Conceptually, I think what DLocal does is DLocal is able to offer you a unique breadth of market coverage and payment method coverage. So in addition to Pix, we can offer PicPay, we can offer Mercado Pago, we can offer a lot of the Brazilian buy now, pay later offerings, all under a single integration and a single APM. Then we can do that for you not only in Brazil, but across 60 emerging markets. So when you are a merchant, again, I go back to this point of abstracting complexity.

You are trying to avoid having to do this yourself in each of the 60 markets. But if at the end of the day, you need to pick 20 suppliers to cover the 60 markets, that is not very attractive either. You keep down that line of thinking, the ideal solution is a solution where through one partner, you have access to all 60 markets and the deepest breadth of APMs. That is probably the strongest point of our pitch to our merchants. It is this concept of one DLocal, and then you can start toggling on merchants and payment methods in a very efficient manner.

Yes. There are other global payment players as well, although the focus tends to be a little bit different, right? You mentioned the Global South. I think I get to how DLocal, the value add that DLocal has by being maybe more Global South than some APMs.

We have asked ourselves this question many times, right? Given the merchant roster we have, should we start offering our services in the U.S. or in Europe as well? I think we have consistently landed on the conclusion that our solution in these markets would be a me-too solution. Furthermore, I think I would argue that these markets are more about the product, the technology, and the integration, and less about the feet on the ground. When you move over into emerging markets, again, because of the fragmentation, because of the changing and ever-shifting regulatory landscapes, the actual feet on the ground are a big part of what allows you to deliver better payment performance. It is advocating with the regulators and shaping the direction of regulation. It is interacting with local issuing banks and local acquirers to optimize performance.

Those are all things that require being in those markets over the long run and really having deep local market knowledge. Because of that, I think we have defined our markets and where we believe we can differentiate solely in Global South emerging markets. The other interesting thing which I think led us to that is it is remarkable how similar the pain points and the problems within payments ecosystems are from Latin America to Africa to the Middle East to Asia. It is very different to developed markets. That similarity of problems is what has also allowed us to port playbooks and best practices across markets in a way that is very efficient for our merchants.

Yes. No, makes sense. I think along with that, take rate is always a question that the market tries to figure out, right? I think being an emerging market player, take rates are naturally higher, but we have even last quarter with the strong growth in volumes that we saw compression in the take rate. Given all the moving parts, ultimately, I think the market wants to what is the floor for take rate? I am not asking that direct question, but just the evolution of take rates and all the moving parts and how you see that relative to the TPV growth, I guess.

Yes. In general, within the payments industry, take rates are coming down. That is the first trend that is unavoidable. Second, within the emerging world, the starting point was significantly higher, and so the slope of that decline, I think, has been more marked and a greater cause of concern to investors. Third, as these merchant relationships that we are so successful with grow and their volumes with us become significant, by definition, they hit volume discounts as they grow with us. That is still all very accretive from a gross profit and earnings perspective, but at a lower take rate. Then finally, there is a mix shift issue going on all the time. About 30% of our business is FX. FX spreads across emerging markets tend to be volatile, so that also generates movement in take rates. I think the unavoidable reality is that take rates are coming down.

Silver lining to this, and I think it is quite significant. A, we do think we have reached a point where the rate of decline should begin to slow down. So the line is asymptotic, and we think we are getting closer and closer to that asymptote. If you look at the midpoint of our guidance, we are actually guiding to somewhat flat-ish take rates at least for the second half of this year. The second piece is, for us, take rate really is an output, right? So we are managing the gross profit dollars. So when a merchant either hits a new tier or is negotiating a 5 basis point discount, the question is, how much volume are you going to give me? Or how much volume is not going to migrate away? And that is always gross profit accretive.

That is why we have delivered such consistent gross profit growth over the past many, many quarters, is because despite the take rate decreases, volume growths have been enough to offset that and continue delivering very solid gross profit growth. Where it goes from here, I think we have avoided signaling what we think the floor is, but we have been pretty clear in saying that we think we are getting closer and closer to that floor.

Yes. When we think of maybe breaking it down a little bit by verticals, because some of your merchants like ride hailing last quarter grew significantly, and that probably came with lower pricing. But there is also a different country mix, right? So maybe thinking about the different segments, ride hailing, e-commerce, that have been really big growers, how is that growth potential relative maybe other verticals that you are not serving today or smaller?

Take rates are very affected by verticals. There is typically a fairly linear relationship between the margin structure in an industry and how willing they are to pay for payments. Ride hailing, e-commerce are both notoriously tight margin verticals, and therefore they do exert a lot of pressure on payments. We have other verticals like advertising or like travel that tend to be better margin and therefore higher take rate. We happen to be in a period over the last few years actually, where the 2 biggest growers have been, or the 3 biggest growers, because remittance is the third one, and that is also low take rate, have been lower take rate verticals. That does not mean that going forward you will not have periods where maybe advertising or travel or, I am trying to think of some others, but anyway, another higher take rate vertical could grow.

That is on the vertical side, right? Then market dynamics are also very significantly, the more "mature" or the less immature a payment market is and the more competed it is, like a Mexico, will have lower take rates. Mexican acquirers have lower margins than other markets. Then at the other extreme, some of the African markets, some of the Middle Eastern markets have higher take rates. As these newer geographies begin to become more relevant in mix, that should offset some of the take rate compression. Then the final piece is FX, right? About 1/3 of the business is FX. So I think that also defends take rates quite nicely when compared to developed world payments processors that typically do not have an FX component or have a dollar-euro pairing where you make no spread.

Right. Yes, that said, recently you have had very strong growth in Brazil and Mexico, which I would think are lower take rate countries. How much of that was because a merchant wants to grow there, yet on average, I think merchants have only 12 countries out of the 60 that you serve. How do you see that evolve, like the country outlooks, let us say to some extent?

As is usually the case with Brazilian financial institutions, the margins are actually better than we would expect. Mexico is very tight. Sorry, you had asked on.....

Yes. We've had strong growth in Brazil, Mexico, maybe some other countries that have higher take rates. How that can evolve.

We typically don't really have that much of a push product service on where merchants go. Merchants have their own emerging market growth strategies, and they dictate markets. We can suggest, we can kind of give them market insights, but I would say we are told where the merchant's next market entries are, and then we prepare to serve them there. So in that sense, it's very reactive to what merchants are looking for, and therefore it's expected that you're still continuing to see a lot of growth in Mexico, in Brazil, Argentina, maybe Indonesia, some of the larger markets. But I think over time, our expectation is that number that today is at about 12 markets on average and was at 8 not that long ago should continue to grow as 2 things happen. Merchants look more and more to the Global South for growth.

But maybe more importantly, they've grown increasingly familiar and trust our solutions to say, "Okay, you've shown me enough in the markets where I work with you that now I'm more comfortable pushing the boundary." And that's typically what happens with the largest relationships. I think the merchant that does the most markets with us does over 32 now.

They're very comfortable really pushing the boundary and saying, "Let's go do Senegal together. Let's go do markets that typically won't be where a merchant relationship will start from.

Yes. Okay. Makes sense. What about from on value-added services? You have buy now, pay later. You recently announced the merchant of record, dMoRe. How does that contribute to take rate longer term? When does that really become relevant? Also, how much stickiness does that create with your merchant?

Yes. From a strategic perspective, I think we identified about 2 years ago that not having more products that we could cross-sell to our merchant base didn't make sense. We were primarily pay ins and payouts, and we still are primarily pay ins and payouts. We identified different pieces of financial infrastructure that we think are very complementary to what we offered, and that we had a credible reason to be able to sell those financial services to our merchants. So integrations into buy now, pay later platforms, dMoRe, which is essentially an enhanced merchant of record model where we take on almost like an authorized reseller role so that the merchant really has to do very little when launching a new market. Better FX OTC products, and then getting into physical payments with physical POSs. The advantage we have is the distribution, right?

These were chosen because these are financial infrastructure products that most of our existing enterprise merchants are interested in. Now we need to go and build those products, see which ones stick, and execute. They were also chosen because in all except for one of them, they are higher take rate and stickier. The one that isn't higher take rate, which is physical payments, is by far the largest addressable market. Physical world payments. As we continue to execute, and once these actually become large enough to have an impact on the P&L, they should be take rate accretive. Now whether that's in a year's time or 2 years' time, that will depend a lot on the execution.

Yes. I don't know if you have any metrics, but how are you seeing adoption from merchants of these products?

Yes. So it varies by product. I think by and large, I would say none of these are above 1%, 2% of the business. So still more of an upside opportunity and optionality than something that is already impacting the P&L.

Yes. Okay. Thinking about AI, particularly in a tech conference, I guess, and different aspects of it for you. Where you can benefit from AI, maybe you have agentic commerce and serving some AI players. Thinking about all those different components and how you see yourself positioned.

I have to congratulate Goldman because you have not rebranded it into tech, comm, and AI yet. That will come soon. Let us see. You laid it out. I think there are 3 areas that we are very focused on. The first one is how do we add the AI labs and the AI companies as a relevant vertical, given the mind-blowing growth that we are seeing in their businesses. What has been interesting there is for most of these guys, I would say until very recently, the conversation was, "This is really interesting. I have so many other things on my plate right now that localizing payments in emerging markets is not one of them.

Let us keep the dialogue going, and once I have the resources and my EM businesses justify it or my growth in any of these businesses is beginning to be negatively affected by not having local payments, let us re-pick up the conversation." That has happened over the last few months. So we have landed one of them as a client, and we continue to pursue some of the others. I think this is a category that if we execute well 2, 3 years out, should be massive for us. If we do not, then someone else did, and we will have to figure it out. But so far, very good traction. There is an advantage here, which is typically when you start landing your first merchants, you start really understanding their business and their needs, and more importantly, how to optimize for that client base.

That becomes a virtuous cycle where you have better results to show the other guys, and it takes off from there. The second piece is how could AI impact our cost structure? I think as is the case with most financial service companies, the impact is massive. We have these back offices and middle offices that have historically been very people-driven. 80% of our cost structure of our OpEx is payroll. The more I look at the work we're doing with agentic deployment and more old school automations, the ability to dramatically change our cost structure in all these middle and back offices is significant. That is why I think we are optimistic about the operational leverage that is still inherent in the financial model over the next few years. You should start seeing some of that already being delivered in the back half of this year.

The third element is payments sort of a loser or winner in the AI space? How much is this radically transforming the payments landscape? This is always where I fear that this is my Ballmer moment with the iPhone. I always make the same joke. But the more we are looking at this, we are not really seeing too many scenarios where agentic commerce and agentic payments are actually diminishing the size of the pie in payments. But actually, we think it will increase it. Agents will generate more transactions, more payments. Agents theoretically will be better at optimizing multiple payment methods rather than always using the credit card you have kept in your pocket.

Leaving out certain more maximalist scenarios where agents are only using stablecoins and entire economies are powered on stablecoins, and therefore card schemes, PSPs, digital wallets, have all been somehow disintermediated by on-chain transactions, which I do not think will happen for multiple reasons. I actually think the rise of agentic commerce and AI in commerce actually expands the pie for payments companies.

Great. Maybe on the stablecoin, that has been in the past a risk, but you are also providing on-ramps, off-ramps for some of these stablecoin providers. Maybe delineate the risk, but also the opportunity that you may have there.

In a world where stables are an intrinsic part of the financial piping of how money moves around, but in essence, consumers and economies still move on fiat, I think that's a huge opportunity for us, and we're seeing it. We offer for a growing number of customers, what we call on-ramps and off-ramps. If someone in Argentina wants to buy from Argentina in pesos USDC, we had already built all that piping for them to buy things, whether it was a Netflix subscription or an Amazon purchase. For us, it's very simple to now allow exchanges to sell to them USDC. When they want to sell their USDC to receive fiat again, we also have those off-ramps. That vertical is really beginning to gain some traction now and is becoming an interesting vertical for us.

The second piece is actually moving money around for our merchants, not using wire transfers, but using stablecoins, which is, I think, the future of cross-border money movement. That's an interesting one. We have those solutions, but we're seeing adoption in pockets, in verticals and corners. For example, for remittance companies who have to send us money and instruct us, okay, now deliver these remittances to these 50,000 people in Kenya. About 40% of that initial settlement is already done to us in stablecoin, primarily because it's immediate settlement. Otherwise, they have to send us the instruction, and either they have a balance that they've been holding with us, or we have to foot that working capital for them, and we charge them for it. With the stablecoin, it immediately hits our balance sheet. We settle on their behalf.

In that vertical, it's picked up very rapidly. I'd say that across most other verticals, it's very piecemeal. If there's a specific corridor that's very slow or if there's a specific corridor where for one reason or another stablecoin settlement is more cost-efficient than fiat, we've seen some of that, but I wouldn't say we've seen massive adoption yet.

The final one is we offer the technology for our merchants to be able to charge in stablecoin at checkout. So you can pay with a credit card, you can pay with a digital wallet, you can pay cash, or you can pay with stablecoin. That's the one that I thought would have the least adoption for quite some time. Interestingly enough, and this is more anecdotal than material, but we do see some very large merchants beginning to use our technology for that. Not because they think it's a necessity or because they see massive customer demand, but because they want to play with the technology and they want to see what we jointly learn about it. We're actually beginning to see more deployments of stablecoin payments at checkout by large global enterprise merchants than I thought we would.

Yes. Great. I also wanted to go back a little bit on the countries, because in some of the meetings I've sat in, you've been talking a little bit more about Asia, that opportunity there. But how do you see that opportunity maybe outside of LatAm, Asia, Africa?

Yes. So our business today, just to give you a sense, is directionally still 75-ish percent LatAm, 20% Africa, and then 5% Middle East and Asia. So Middle East and Asia are very small for us. We attributed that for a long time to the fact that we were somewhat late to Asia. We thought that Asia had been figured out, so we had really never aggressively leaned into it. We've had presence there for a long time, but it's small. I think what we've learned over the last few years is that we actually think that a lot of our playbook for Africa and LatAm is applicable in Asia. The more we talk to our merchants and the more we win deals in Asia, the more we identify that the pain points are similar.

So we've now made the decision to actually invest more aggressively in our Asia team, in our license portfolio in Asia. I think we have aspirations for growing out Asia, which are more ambitious than they had been in the past. Just because of the sheer size of that market, even if we're not as successful as we are in LatAm, that could be very accretive to growth over the next 3 to 5 years.

Yes. Then maybe also to question a little on operating leverage and efficiency. For this year, you increased the gross profit guidance on the back of the strong TPV growth, but your operating profit guidance remained the same, although I think it's still a little bit higher. But how do you think about operating leverage? You had some investments last year that seemed to be done with that or anything else to invest in.

We did that first and foremost because we tried to move away from the adjusted metrics where I get to pick and choose what I leave in, what I take out. So we're guiding to straightforward IFRS operating income. As everyone knows, in the first half, we had about $4 million of prior year tax charges, so we're kind of running up against expenses that we never thought were going to be in the P&L, so we stayed cautious on what happens with the guidance. Were it not for those prior year costs or if we were adjusting, we very likely would have also raised the guidance on the adjusted operating income.

Longer term, given what I said about how significant the impact on our cost structure that AI can be, I think I'm quite optimistic about the ability to deliver very consistent margin expansions and therefore very consistent cash flow growth. So I think the financial algorithm is something like high TPV growth, lower gross profit growth because of take rate compression, operating leverage that gets us to better operating income growth than gross profit growth. Then because we're generating so much cash and we have been committed to share buybacks, you then have better earnings growth. We then need to see Pillar 2 and all these things, but I think that's generally how we're thinking about capital generation and capital allocation and the trends on the financial model.

Yes. Maybe just to wrap up on that, you have buyback, you have dividends, but how do you think about capital allocation and further buybacks or dividends from here?

Yes. I think in the absence of any M&A, and I think you never want to write that off because obviously Fintech is prime for some level of consolidation. There are just so many companies out there, more than the world needs. But in the absence of cash deployed for those special situations, this is very cash generative. We convert cash at high 90s, low 100s, and we're signaling strong EBITDA growth and expanding margins. So I think even after reinvesting back into our strategic plan and the 30% of free cash flow for dividends, which is the stated dividend policy, it's still likely that there's leftover cash for sustaining a share buyback program consistently over time. Now, whether it's going to be closer to 8% of market cap like this year's or lower, I think we'll have to take it very much year by year.

But I think it is an important part of the capital allocation framework.

Great. Makes sense. I think with that, we are out of time. Thank you, Pedro. Pleasure.

Thank you.

Good day, and thank you for standing by. Welcome to the dLocal Second Quarter 2026 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I will now turn the call over to the company.

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 Lopez 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. Thank you.

Good afternoon, everyone, and thank you for joining us today. Our results for the second quarter of 2026 are yet another proof point of our continued traction and execution. There are 4 main trends I'd like to kick off with, that best summarize the current strength of our business. TPV reached $17.7 billion, accelerating to 92% year-over-year, the highest growth rate since the first quarter of 2022. We've processed more in the second quarter than what we did throughout all of 2023.

Second, our net revenue retention was 153%, the fifth straight quarter above 140% as we continue to deepen our relationships with our merchants. Our gross profit hit $127 million, up 29% year-on-year. We've now hit an annualized rate of more than $500 million in gross profit. And finally, our operating leverage is improving with operating profit as a percentage of gross profit, up 6 percentage points quarter-over-quarter to reach 50%. As messaged previously, we expect further operating leverage improvements to kick in during the next 2 quarters as we benefit from the deployment of automations and AI we have been investing in and spending in key areas that was front-loaded to the first semester of this year softens out.

On TPV, the metric that reflects market share, growth was extraordinary this quarter, but even more importantly, has been consistently strong. TPV growth has remained above 50% year-over-year for 7 consecutive quarters, with the last 3 quarters at above 70%, and furthermore, growth has accelerated over the past 5 quarters, reaching its higher year-over-year rate in over 4 years. Although the pace and scale of this growth will naturally create more demanding comparisons as we move through the second half of the year and into 2027, what we are seeing today reflects the positive returns on investments we have made in our platform and our portfolio of licenses. It serves as a testament to the trust merchants place in us as they build and grow across emerging markets. This trust is a direct result of the execution on our value proposition. Through a single integration, our merchants access the locally relevant payment methods, local card schemes and the financial infrastructure they need to operate and grow across more than 60 emerging markets.

Our licenses, local teams and operating expertise help them navigate complexity and improve performance in each country, ultimately increasing substantially their chances of a successful go-to-market deployment in the places that they partner with us. Today, more than 760 leading global merchants trust dLocal. This includes four of the largest ride-hailing companies operating in emerging markets, 5 of the 10 largest e-commerce platforms, the top 5 video streaming platforms and 7 of the 10 largest remittance companies, amongst many other of the world's best businesses.

We are now also starting to serve some of the world's preeminent AI companies and digital asset exchanges. The trust that these merchants place in us is translating into deeper relationships over time as they add countries, payment methods and products. Consequently, our TPV retention rate of 188% this quarter demonstrates the depth of these relationships. This quarter alone, several Tier 0 merchants had significant ramp-ups in some of our largest markets such as Brazil and Argentina, demonstrating that the opportunity remains substantial even in more established markets. We also continue to see our merchants expand into new geographies at a very rapid pace.

Across our portfolio, we continue to gain both share of wallet and market share across the global South. Share of wallet increased by 2 percentage points year-over-year in the first half to the low teens, and we now estimate our share of EM digital payments to be in the low single digits. Despite our growth, the opportunity to deepen relationships across our merchant base and capture even more new merchants remains massive. Asia Pacific is a clear example of this and one we're increasingly excited about. It is the largest, very fast-growing and highly fragmented region with significant untapped opportunity that we serve. It has become one of our strategic priorities as we have been expanding our presence and investments throughout that region.

All of this growth that we're seeing today reflects the investments we've made in our platform over the last several quarters and years. Those investments are delivering tangible results, and they continue to strengthen the foundation for our next phase of growth. Our focus remains on three areas: First, we continue to broaden our offering and invest in performance through our optimization capabilities. In the end, the performance and breadth of our One dLocal offering is the single most important factor for our continued growth and success.

Second, we are embedding AI and automation across the business. This is already increasing our development capacity with meaningfully higher monthly deployments and shorter lead times. And we expect the positive impact on our cost structure from our automation efforts to become increasingly visible starting in the second half of the year, across different areas of the company. And third, we're expanding the value-added services we offer merchants, creating additional opportunities and revenue streams over time. We will soon launch dMore, our merchant of record solution through which dLocal acts as the legal seller on behalf of the merchant, allowing us to offer our clients a more comprehensive go-to-market solution.

And our buy now, pay later offering continues to expand and improve and is now live in eight markets. We will continue to invest with discipline behind these priorities and the others we have as we continue to scale out the business.

With that, let me turn it over to Guillermo to walk you through our quarterly financial results.

Thank you, Pedro. Good afternoon, everyone. Let me start by briefly summarizing the key financial highlights for this record quarter. As Pedro mentioned, we had an exceptional quarter in volume, which translated into another quarter of record gross profit. Operating profit improved 22% sequentially, and we also began to see operating leverage improvements emerge during the quarter, with operating profit as a percentage of gross profit up 6 percentage points sequentially.

Net income increased 28% year-over-year and roughly 30% sequentially. And EPS also benefited from the execution of our share repurchase program. And cash generation remained strong with adjusted free cash flow conversion of 86% of net income in the first half of the year.

Let me now dive into the details, beginning with volume performance. Volume reached $17.7 billion in the second quarter, up 92% year-on-year. First half growth was exceptional, broad-based across our merchants and verticals and helped by favorable FX. Ride-hailing was the largest contributor to sequential growth. One large global merchant was an important driver, but the growth wasn't concentrated just there. Several ride-hailing and on-demand delivery merchants expanded meaningfully too. Travel remittances, e-commerce, SaaS and advertising also contributed to growth.

Financial services were down modestly, mostly seasonality of some travel-related merchants in LATAM. So our business mix continues to evolve. Local-to-local flows hit 61% of TPV, up 6 percentage points from Q1. The increase is local-to-local mix was primarily driven by the growth of ride-hailing and on-demand delivery, which are inherently local-to-local businesses. This volume growth translated into another record quarter of gross profit.

Gross profit reached $127 million, up 29% year-over-year and 7% sequentially. Brazil and Argentina were the primary drivers. In Brazil, gross profit reached a record $40 million, supported by the ramp-up of ride-hailing and travel merchants alongside sustained e-commerce growth. Argentina also delivered record gross profit with $20 million, driven by broad-based growth across e-commerce, ride-hailing and on-demand delivery as well as lower advancement costs.

Elsewhere in Latin America, gross profit grew 6% sequentially and 32% year-over-year. Mexico kept growing volume well. Gross profit was modestly lower sequentially though, and the mix shifted to local-to-local and some large merchants ramp-ups reached their final pricing tiers. In Africa and Asia, gross profit was down sequentially. That's mainly due to a lower share of higher spread markets like Mozambique and Vietnam, where Q1 has gains that don't necessarily recur, as we flagged last quarter.

Turning to expenses. Total operating expenses were $63 million, up 46% year-over-year and down 4% sequentially. The year-over-year increase reflects three factors: the annualization of investments made in the second half of 2025; higher average salaries driven by the annual merit cycle and a limited number of senior strategic hires; and higher marketing spend concentrated in the first half around our World Cup campaign and large merchant events. Sequentially, the reduction reflects in part the absence of the $4.4 million non-recurring prior year tax item recorded in OpEx in Q1.

Headcount remained broadly stable sequentially, while gross profit per employee increased. From here, we don't expect material increases in headcount this year. As a result, operating profit reached $64 million, up 15% year-over-year and 22% sequentially. Operating profit represented 50% of gross profit, an increase of 6 percentage points from Q1. As Pedro mentioned, we have invested heavily in automation. As those initiatives deploy and as we annualize our second half 2025 investments, we expect operating leverage to become increasingly visible during the rest of the year.

Finally, below the operating line, net income reached $55 million, up 28% year-over-year. Diluted EPS was $0.18, supported by earnings growth and helped by the execution of our share repurchase program. Under the $300 million program authorized in March up to the end of Q2, we have repurchased approximately 6.9 million Class A shares for $86 million. All of these shares have been canceled. The reported effective tax rate for the quarter was approximately 16%. Excluding the non-recurring prior year tax adjustment, the normalized effective tax rate for the first half was 15%. As we have discussed, the effective tax rate can vary quarter-to-quarter based on country and business mix.

Adjusted free cash flow was $69 million, up 41% year-over-year, with adjusted free cash flow conversion of 125% of net income. Cash flow from operations before working capital changes increased to $83 million, reflecting higher operating profit, but free cash flow also benefited from a partial reversal of last quarter's temporary working capital effects, which was partially offset by higher income tax paid.

With that, I will hand it over back to Pedro.

Thank you, Guillermo. Following the strength we've seen in the first half, we are updating our annual guidance. Looking ahead, we continue to see strong momentum across multiple verticals and geographies. This strength is broad-based and gives us the confidence to raise our TPV growth guidance to 60% to 70% year-over-year. It's worth reinforcing why TPV remains such an important metric for us. Payments is ultimately a scale business. As our volumes grow, we gain greater leverage with downstream providers, deepen our FX liquidity and generate more data to improve performance. These dynamics reinforce one another over time and are central to the long-term value creation of our business model.

Following the strength in volumes and the continued ramp-up of several large merchants, we are also raising our gross profit growth guidance to 25% to 30% year-over-year. We are maintaining our operating profit growth guidance of 27.5% to 32.5% year-over-year only because, as Guillermo discussed, annual operating profit will be dragged down by the non-recurring prior year tax item and FX headwinds that we did not expect in the original forecast.

As always, our outlook is subject to the inherent volatility of the emerging markets in which we operate. That said, we believe this guidance best reflects what we see in the business as of today.

And with that, I'll hand it over to Chris to lead us through some questions on the quarterly results.

Hello, everyone, from a wintery but sunny day here in Montevideo, Uruguay. As we did last quarter, we want to take a few minutes here to cover the key themes that we think will be relevant to investors from this quarter. Pedro, Guillermo, thank you so much for being here with us again.

And Pedro, let me start with you. We delivered another spectacular quarter in terms of TPV growth with evident share of wallet gains across our portfolio. As we move into tougher comps going forward, what gives you confidence that we can keep delivering high growth in the medium term?

So big picture, the growth we're seeing is a reflection of two things: the market opportunity, which is still enormous and will continue to be enormous, but also the returns on the investments we've been making to improve performance, broaden product offering and strengthening our competitive positioning. And so those are trends that we feel comfortable, will sustain themselves in time. Looking at it a little bit shorter term, the first half of the year also benefited from a ramp-up of some large global merchant expansion deals, both into existing geographies and new markets.

So for example, the largest Tier 0 merchant that Guillermo discussed previously, that ramp-up across key markets is already completed. So the headwinds from the tiered pricing impact as they ramped up, which have been significant factors over recent quarters, becomes less pronounced going forward.

One interesting data point is if we exclude this one very large merchant relationships and a few currency volatility effects, net take rate would have been very close to flat quarter-over-quarter despite TPV growth that still would have been in excess of 65% year-on-year. So even as we enter these tougher year-on-year comps from these ramp-ups that were -- already have been behind us, we really don't see any signs of the overall growth model slowing down, and we continue to expect share of wallet gains across the existing merchant base, expansion into new merchants, going into new geographies and then, as always, continue to offer more payment methods and new products.

So the investment thesis is one of a durable growth opportunity, again, supported by size of market and an overall secular trend towards digitalization of emerging market economies globally. So as we continue to execute, we feel very, very enthusiastic about the mid to long-term opportunities of this business.

Great. Guillermo, going over to you, turning from growth to profitability. Operating expenses declined modestly quarter-over-quarter. But I think more importantly, our full year guidance implies further and important improvements in operating leverage in the following quarters. What gives you confidence in that trajectory?

Well, there are a few things that are coming together to give me some confidence. The first one, I would say the big one is timing. There's a lot of investments we made in the second half of last year. They are now fully in our numbers in the first half. So I think that headwind will fade in the second half. We also have front-loaded marketing into the first half. So we have the World Cup campaign. We have a large merchant event and that happened in the first half of the year, and that shouldn't repeat in the second half.

It's also worth saying that the first half carried one-off costs that we don't expect to happen in the second half. So we have higher credit loss provisions that we expected. We have higher operational losses. We have the prior year tax adjustments. So we don't expect that level of one-offs in the second half, although it must be said that those are always difficult to predict.

And also finally, headcount, as you can see in the earnings script, has been broadly flat. There's a salary step-up that was really the merit cycle that we do every year and a few senior hires that we did. And now that's embedded into our base. And there's the automation program that Pedro mentioned, that we should still to roll out throughout the organization and help us see some of that leverage in the second half of the year.

One thing I would mention and that I would flag is that if you take some combinations of our guidance ranges, you can back into an OpEx cut that's bigger than what we have currently planned. So cost discipline always carries some risk. So we'd rather hold the operating profit guidance as it is and let the gross profit upside and the cost normalization play out. I think that's the way we are balancing the near term with the long-term investments that we need in this growing business.

So following up on what Guillermo said about automation, which is what's actually happening operationally in the company. Pedro, can you give us some more color on how we're seeing our AI efforts and where we are on that trajectory?

Yes. So we're really seeing AI as a core enabler across the company as we increasingly embed it across engineering, compliance, operations, commercial, customer support. And there are tangible results already, although we expect more to come, especially in the back half of the year. So as we've said previously, over 60% of code is already AI generated. That's led to -- I think it's nearly doubling of engineering deployments year-over-year and a significant reduction of lead times in our software development cycle. And that's how we're supporting volume growth that is over 80% for H1, with headcount, as Guillermo just said, which is really broadly stable overall. And that bodes well for the long-term operational leverage of the business model.

So when I look ahead, I see further efficiency opportunities through AI and automation and more of a medium-term look as we expand our product portfolio and cover more and more countries. We expect to be able to selectively add headcount, but primarily feet on the ground and localization, while at a centralized and overall middle and back office level, which is always relevant in a payments company, we expect to be able to really push the envelope in terms of automation and high operational leverage there.

Great. Turning to taxes, where investors have seen some volatility in the last few quarters in terms of our effective tax rate. How should they think about the tax rate going forward?

So quarter-to-quarter, the tax rate will keep moving. And it depends on the country and the business mix. So there's going to continue to be that volatility in coming quarters. Now looking ahead and based on the legislation currently enacted, we do expect some upward pressure on our ETR, particularly in jurisdictions that are implemented the OECD's Pillar 2 framework, which we are expected to impact us starting in 2027.

It's important to say that there is still regulatory developments under discussion across several of the countries in which we operate. So it's too early for us to quantify the ultimate impact, but we continue to evaluate these changes with our external advisers, and we will provide updates as appropriate. That said, more on this year, excluding the quarter-to-quarter volatility that I discussed and the prior year tax adjustments, our normalized effective tax rate for the first half provides a reasonable reference point for the remainder of the year.

Great. And one last one, Pedro, before we open the line, let me just come back to you. From everything we've covered during the earnings presentation, during this conversation, for you, what are the most important takeaways that you'd like to leave our investor community with?

Yes. So first of all, is the strength of the execution, right, and the kind of growth that, that's delivered, but more importantly, that it should continue to deliver. And all of this supported by the fact that our relationships with global merchants are increasingly deeper and stickier. You see that in the retention rates we mentioned during the prepared remarks. And we're seeing merchants adding countries, adding payment methods and now beginning to add products that they use from us. And so that generates the kind of positive cycle where we can continue to invest in platform and product and innovation, and we see the returns of those investments, allowing us to capture what is a sizable market opportunity going forward.

Second, and this is somewhat related to scale, somewhat related to AI and somewhat inherent to the business model, is the operating leverage long-term. You're going to see some of that in the second half as the business continues to scale and the automation initiatives that we've mentioned get deployed. And longer term, the balancing act becomes one of making sure that we find that right equilibrium between continued deliverance of operating leverage, while at the same time, investing to keep that flywheel going. This is a highly attractive cash-generative financial model, and that gives us the ability to continue investing to carry out that flywheel, yet consistently return value to shareholders. So really, we think the company is in a really strong position right now, and we just need to continue executing on our strategic plan.

Great. Thank you very much, Pedro, Guille. This concludes our conversation, and we now open the line to questions.

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

I mean, very impressive on the TPV growth. I guess, I mean, just to understand what drove such a large increase in the quarter? I know you gave some color there on some merchants and ride hailing, et cetera. But was there anything like unexpected? I mean, I don't think anybody was modeling 90% year-over-year TPV growth. So just to understand that dynamic, and it seems like there's still room for that to continue to grow at a very healthy pace? And Pedro, you mentioned that there was that one merchant that negatively impacted the statement, but if it wasn't for that, it would have been flat. I just kind of missed, if you can just mention that again because I think on the other hand, what everybody is trying to figure out is what is the floor on the take rate? And I know there's an inverse relationship between TPV growth and take rate and there's a lot of local-to-local volume in Brazil and Mexico. But help us think about the take rate and TPV growth.

Thanks, Tito. If you look at the vertical performance quarterly, I think it paints a picture in terms of phenomenal strength around ride-hailing and travel primarily. Ride-hailing has doubled Q-on-Q. It's not even a year-on-year number. And that's just a reflection of some very rapid expansion into numerous new markets and significant share of wallet gains across a few key counterparts, very, very large global companies that have really, I think, pumped dLocal up to a whole new tier in terms of the importance and the amount of volume that they flow through us. In a way, I think this is a confirmation of what we've always said that even relative share of wallet of our existing merchants allows for significant room to grow. And when we see that happen, you have this kind of acceleration in TPV.

So it sets up tough comps for next year. But on the flip side, there are plenty, plenty of merchants and global opportunities where if we continue to execute well and deliver performance and cost, we can see this kind of massive ramp-up.

And then on take rate, I think -- thanks for the question. If you will, the flip side, but it's not really a flip side. That's just a consequence maybe of overfocusing on take rates. When merchants have these significant spikes in volume, they do rapidly hit new pricing tiers. That's still all incremental gross profit to us, and it's very positive, but it does drive down the headline take rate. Were you to back out that one very large ride-hailing merchants mix gains at a lower take rate, take rate would have been relatively flat sequentially. That doesn't necessarily signal a bottom, Tito, but it does show that there is potentially increasingly an asymptotic shape to this. And more importantly, I think it confirms what we've said all along, that incremental TPV at incremental gross profit is really the financial model here and not managing to any specific take rate.

And so just to clarify then, so it was just that one ride-hailing merchant, which seems to have given you a lot of volume. Excluding that one, take rates would have been relatively flat. And then in terms of -- you mentioned your wallet share, right? But how about like with ride-hailing merchants or with maybe your top 10 merchants, what -- how does the wallet share maybe compare to that versus the average overall?

So yes, this is a very large global merchant. So interestingly, even with this massive ramp-up for that merchant, it's not like we're maxing out share of wallet or that it has a significantly different share of wallet with us, but that won't always be the case. I think it's fair to say that in some cases, a very rapid ramp-up could mean that we become significant in terms of share of wallet. And remember, we measure share of wallet exclusively in markets where we operate. This ramp-up, as you've seen, is very much focused on LATAM, which means that in the future, potentially, there still could be more and more share of wallet gains from someone like this if we're able to serve them in a growing number of African, Middle Eastern or Asian markets. So we still have a very large untapped addressable market ahead of us if we continue to execute, even when you look at it on a per merchant basis.

Our next question is coming from the line of Jamie Friedman of Susquehanna International Group.

So in terms of the annual operating profit growth guidance, I know there were a couple of one-timers that you're calling out, foreign exchange and tax. I apologize if I missed this, but did you quantify the effect of those? And if not, could you?

I think you're referring to when I quantify how to think about tax in the remaining of the year. So there was the onetime tax impact that we booked in Q1, there was a one-off, and it's not repeatable. If you normalize for that item in Q1, the tax rate was about 15% in Q1 and Q2, so around 16%. And what I was trying to say is that if you think about the balance of the year, that normalized tax rate in the first half should be a good example of what we would expect for the remainder of the year.

Now in terms of FX, I don't know exactly what you referred. I mean we talked about the FX headwind that we saw on volume, and that is included in some of the presentations that we shared. But obviously, it's very difficult for me how FX will impact the remainder of the year from a volume or gross profit perspective.

So -- But the operating profit guidance of 27.5% to 32.5% growth for the year is unchanged. But -- I may be mistaken, but I thought that you had mentioned -- so we know about the tax in the Q1. And then I thought...

Jamie, let me see if we can help you walk through this. What we're saying is we are not adjusting stuff out. Operating profit is operating profit. So with the $4.4 million of prior year tax, plus the fact that if you look at currencies, they've actually become a little bit of a headwind versus where they were at the beginning of the year when we issued the guidance. Those two effects lead us to leave the guidance unchanged. If you look at the matrix slide, what we're saying is were we to adjust out the prior year tax period, it's likely we would have raised the operating income guidance as well. But we'd rather not adjust and just give you guys this kind of clarity.

Yes. No, I got it. When you say the matrix slide, you're talking about the bridge, right?

The guidance update, you'll see that it indicates that.

Operating profit...

Even [indiscernible] We would have seen the year coming in around the upper range of the original guidance and potentially would have also raised guidance on operating profit.

I got you. Okay. All right. Sorry to belabor that, but I think that, that is something investors are really focused on. And then let's see, in terms of the local-to-local, so -- sorry, I'm going to Page 21. Yes, pay-ins, payouts, local-to-local. So okay. How should we be thinking about the composition of those dimensions, both pay-in payouts and local-to-local cross-border and their impact on take rates?

Yes. Payouts in general have a lower take rate. They're instrumental many times in generating liquidity for us and having a better margin on the pay-in business, but they are lower take rate. And then local-to-local don't have the FX component that cross-border does, and those are also lower take rate. So when we mention a very large ride-hailing merchant, ride-hailing typically has a strong mix of local settlement because they need cash in market to settle to the driver. Therefore, those are lower take rates. And so that kind of explains why in part, if you back out for that very large ramp-up in volume coming from a local-to-local ride-hailing merchant, you would have gotten flat take rate on the rest of the book.

Okay. Now I got you. And just to clarify, sorry, is that sequentially? That's sequentially, not year-over-year, right?

These comments have all been sequential, yes.

Next question will come from Guilherme Grespan of JPMorgan.

My question is on the outlook for the second half and going forward, Pedro. I think the message is super clear that we could see costs slowing down a little bit. But my question is how much costs are tied to the strong performance, commercial performance that you're printing, right? Because there's a positive effect here. We always want companies to cut costs, but in some way, there's a positive effect, I think, on revenues as you invest in headcount expansion. So in the end, I'm not 100% sure how much of your very strong TPV and revenues in some way are tied to the investments you have been making on the business.

So my question is more looking forward, if there is any risk that you -- as you slow down a little bit costs and the investments, if we could see the top line that today has a very strong momentum, it also lose a little bit of momentum. How do you think about this trade-off?

Let me take a first cut at this, and Guille can complement me. There's obviously always a relationship between what you're investing and how you're growing. However, if you listen to the prepared remarks, I think we've highlighted three factors that we think drive the ability to really manage costs for the second half of the year. One is simply that you will no longer have the prior year tax impact. Two, marketing spend because of the World Cup campaign, where we were a World Cup sponsor, was heavily tilted to the first half of the year and doesn't happen in the second half of the year. And third, the operating leverage that we're expecting to see.

And the first two are already confirmed. The third is the one that we need to confirm as it plays out, is driven by the deployment of a lot of the automations and AI-driven replacements of headcount that we will carry out in the second half of the year. So it doesn't necessarily have a detrimental impact to top line growth because this is where the leverage is coming from. I don't think it's that the World Cup marketing has a direct pass-through to growth. That's just long-term merchant relationship building. So I think we're fairly confident that this is a business model that can continue to deliver strong growth and operating leverage into the future.

That's clear. And just a follow-up, very quick one on the point. I think it was asked in the call, it's on the FX point. I was just curious, like you mentioned that FX played a little bit against the beginning of the year. But just in what portion of the business, Pedro, because I'm trying to reconcile here, the EM FX had a very strong performance, right, year-to-date. Most of the countries had a positive tailwind from FX. So just trying to understand why it was a headwind throughout the -- this first half?

So I think -- Go ahead.

Yes. So if I think about OpEx and some of the FX impacts that we mentioned in Q1 is if you think about the footprint of our resources, they are in countries whose currency has appreciated against the dollar. So we're talking countries like Brazil, for example, or Uruguay. And it's difficult to predict going forward, but that's the impact that we're seeing in the first half. That said, it's not some of the most material impact that has had in terms of OpEx growth. So as we said in the first half, the majority of the impact came from the investments that we did in the second part of last year.

And our next question will be coming from the line of Pedro Leduc of Itau BBA.

Congrats on the quarter. And here, Pedro, I'm trying to also puzzle things together a little bit. I mean you're pacing on a much stronger TPV or pilot client traction pace, gross profit pace, choosing to reinvest a little bit, yes. But you go in 2027 with a lot more momentum, when I [indiscernible] my model, the pace that you're ending this year at for gross profit. And a little bit also tied to the second question, I'm not sure how much I carry from it also in terms of the reinvestments that you're doing? Of course, it should be more, but relatively speaking, for 2027?

Okay. Thanks, Pedro. I think you're picking up on something which is important, and I don't want to get too ahead of myself in terms of giving '27 guidance. But I think the nature that this year is playing out with more expenses and OpEx in the first half of the year than the second half of the year, we've called out World Cup, we've called some of the prior year tax issues, you're going to have a very strong operating leverage exiting Q4. I don't think you guys should then project that into all of '27 linearly. Because '27 should be better spread out in terms of where the spend occurs as well. And we're trying to make sure we find the right balance here between investing for the long-term and delivering operating leverage.

So again, we'll address this when we issue the guidance for '27. Now it's a bit premature. But what I'm trying to say is be careful with grabbing Q4 margin structures and assuming it continues to leverage from there. That may not be the case. Full year '27 versus '26, certainly, we're committed to very consistent operating leverage, but not necessarily Q4 exit rate to '27 full year. I hope that helps.

Yes, you got exactly the outcome I was getting here. So it helps me paint the picture a little bit.

The next question is coming from the line of Matthew Coad of Truist.

I have one more on the take rate. If I look at the monetization bridge slide that you guys provide, which is really helpful, it looks like there was like a 5 bps impact from lower FX spreads in Vietnam and overall volatility. Could you kind of unpack that a little bit more for us? Would you expect this to potentially reverse in the back half of the year or at least for this headwind to go away? And yes, it kind of like goes into -- if I look at the implied guide for the take rate in the back half of the year, it's 75 basis points versus 72 this quarter. So I'm just trying to connect the dots because usually, the take rate is a little bit lower in 4Q?

Okay. Let me start with the easier one, which is the FX spreads Vietnam. I think what you've seen with our business consistently is that there are pockets of the emerging world, which at times show very, very large spreads on FX because of macroeconomic volatility. So for periods of time, it's been Argentina, for other periods, it's been Egypt. For others, it's been Bolivia. For others, it's been Nigeria. The beginning of this year we saw that in Vietnam. And then the spreads in that market have significantly compressed when you compare Q2 to Q1.

So I think this is inherent in certain pockets of our footprint, smaller markets, more volatile, but that have periods of very high profitability. And this is just inherent in the business. I think the good thing is that as we deliver more and more time, kind of our thesis has been playing out that which pocket of the emerging world is high spread changes, but there always seems to be somewhere a period.

Volatility, I think, is a little bit more predictable going forward. It should lessen, I think, into the back half. There's about 1/3 to slightly less than half of that volatility that really was very much Q1 related of this year. And unless something else happens in terms of quick dislocations of currency values, I don't think you'll have this level of volatility in future quarters. A lot of this happened in Mozambique to be very specific. So yet another pocket of the emerging world.

And then maybe more fun of a question here. Like when you first provided your 2026 guidance, you gave a nice bridge in terms of the breakdown of incremental TPV where you broke it up into share of wallet gains in existing countries and new countries, new merchants, new products. I wanted to focus on the new merchants and the new products aspect of that guide. Could you just give us a reminder or update us on how that's trending compared to your original expectations? And then could you also double-click on the merchant of record solution business? Kind of curious like what geos, what verticals, where do you see product market fit there?

Okay. Yes. The answer there is no material changes. Directionally, if we were to update that data, you would see more performance from share of wallet gains of the existing book, less from new merchants and less from new products. I think the new merchants for existing merchants is almost more of a mix thing just that as we've said, there's been more than one existing merchant with very, very strong share of wallet gains that have exceeded initial forecasts.

On the new product issue, I think it's fair to say they're slightly behind where we'd like them to be right now, and there's work to be done there. Merchant of record, again, I think it's an attempt at having a broader portfolio of products to see which ones stick, which ones have a faster ramp-up. Merchant of record, I think if I were to give a proxy from a competitor, it's -- it does some of the things Stripe Atlas does and then more. It essentially places more of the burden of setting up a local entity, filing taxes, collecting taxes on us and less on the merchant. So it's a product that allows merchants to accelerate their go-to-market into a new country even faster because not only do they not have to deal with payments under dMore, they don't have to deal with many other statutory issues and tax issues. So we're just trying to do more and more of the heavy lifting when it comes to opening operations into a new emerging market. And obviously, those products allow us to capture a higher take rate.

Next question is coming from the line of Camila Azevedo of UBS.

Congrats on the results. I have one question in terms of the regional and vertical analysis when we talk about Brazil, Argentina overall. So while we saw strong TPV and gross profit in Brazil and Argentina, we saw a sequential decrease in gross profit in Mexico. So could you please provide more detail on the cost pressures and also volume price tiers affecting the Mexico market, please?

Great. So Mexico, I think it's worth covering. So thank you for the question. Mexico obviously continues to have very strong TPV growth. It actually had very strong revenue growth of 64% year-on-year. So I'd say top line is very strong, and then disappointing gross profit line, if you will. But the reason I'm calling out the revenue is that what that points to is that, that's primarily a cost issue. So what's happening in Mexico is the decline in our pricing power which is not that marked, that's why revenues continue to grow 64%, have been significantly offset by not being able to push down our cost structure. Our cost structure in Mexico is actually as a percentage of TPV slightly up.

So what we need to do a better job at, and I think scale and just further negotiation with processing partners should allow us to get there, is to manage the Mexican cost basis, primarily that of processing payments better, and that should begin to align gross profit growth closer to revenue growth, which continues to be very strong. So there's work to be done in Mexico, but it's more cost management, which I feel relatively confident we will deliver on. Did you ask about another region, Camila? Sorry, I was focusing on Mexico.

Pardon me, this is the operator. Camila has left the stage. Our next question is coming from the line of Neha Agarwala of HSBC.

Apologies if I'm making you repeat any of the answers. I just wanted to get a bit more color. You mentioned that you are gaining more share with your existing merchants that is where -- that is what is driving the strong TPV momentum that we are seeing. What is allowing you to gain this share? Is it the conversion rates that you're providing which is better or just the breadth of the platform? And I know there's not one silver bullet, but a mix of things. But if you can put in hierarchies as to what are the key things that is allowing you to win more business with your merchants? And would that also translate into more accelerated take rate pressure as margins quickly hit the tiered pricing as we saw that impact to take it in this quarter as well? So should we see a more accelerated compression in that take rate in the near term as you grow more with existing merchants?

Yes. Thanks. I think you've hit on some of the key drivers of a merchant decision on how to give us more markets, more volume, more products. It's a combination of conversion rate, price and obviously also service model and quality of service. I wish there were one answer for every single merchant. I think different merchants and different verticals will focus more on different things. Very low-margin businesses may be more price sensitive, higher-margin business will be more conversion rate or service model sensitive. But those are usually, I think, the three factors that drive decision. And given the strength and sustained strength of our TPV growth, I think it's fair to say that we're definitely doing a good job on delivering value on conversion, service model and price.

If you want a more specific readout on the current quarter results, I think it would be fair to say that this very rapid ramp-up of one global merchant is a good example of when -- because we have a multi-market relationship with them, we're able to ramp them up very quickly at a lower take rate, but it's still significantly accretive to gross profit. And then there are other secondary benefits that come from this, right? As our TPV grows across the market, it allows us -- hasn't happened in Mexico, it's definitely happening everywhere else, to lower our cost of processing, which then improves our net take rate across the rest of the book. Just because pricing is flat, cost is coming down. But on this specific win, I think it is a combination of them realizing that a rapid ramp-up gets them to lower price tiers and that we've reached a level of operational excellence that they can trust us with this level of share of wallet.

Going forward, I think this is -- I'm going to be careful here. But given what we're seeing today, I think our expectation is not of accelerating take rate decline into the end of the year. That's as far forward as I'll give you an indication of what we're seeing today.

Got it, Pedro. If I can just clarify there, would it be fair to assume that part of the take rate decline that we saw sequentially in this particular quarter could be maybe reversed in third quarter because it was driven by mix shift, which you can't control, which might change again next quarter and also FX-related volatility? So could we see part of the net take rate pressure ease in third quarter?

I think implied in our revised guidance is not a reversal of take rate. It is a deceleration in the rate at which take rate declines. We've raised TPV guidance, which means, I think the way we're managing the model is to even stronger market share gains and TPV acceleration, all in accretive gross profit deals, which means we've also raised the gross profit range, but not necessarily because take rates are going up, but rather on the strength of TPV growth.

Thank you. And that does conclude today's conference call. Thank you all for joining. You may now disconnect.

Welcome, everybody. My name is Sebastian Rodriguez. I'm the Managing Director with the Fintech Investment Banking franchise, and I'm joined today by Pedro Arnt, who is CEO of dLocal, one of the very high growth and interesting stories in fintech that I had the pleasure of covering.

So thank you, first and foremost, Pedro, for making the time today to join us and attend our conference. I thought I'd start our conversation a little bit where you kind of remind us what are some of those competitive advantages? What are some of those distinctive elements of the dLocal story that you think place you best or makes you great within the ecosystem?

Yes. So thanks for having me. I think it's been 2 years that I hadn't been back. Great to be here. The investment thesis, and I think understanding why we add so much value to our merchant starts with understanding how different payment ecosystems and financial infrastructure ecosystems are between the developed world and the emerging world. And the emerging world is characterized by extreme fragmentation, very different payments ecosystems from one market to the next and in many instances, legacy technology that is hard to optimize on.

And so if you're one of our large enterprise clients whose core markets, payments are a bit of an afterthought for you because everything runs quite well. And you're now figuring out your go-to-market strategy for the emerging world, very quickly, you realize that payments is a significant friction point and bottleneck to growth. But you also realize that if you were to try to solve for that, you'd have to go knee deep in building teams, building infrastructure across dozens of markets that on a stand-alone basis are just not that relevant to you.

Or you can choose a single integration into dLocal, which automatically allows you to then toggle on and off 60-plus emerging markets, thousands of payment mechanisms, being done through a company ourselves who has built the pipelines, have built the stakeholder relationships, have the necessary licenses and regulatory IP to abstract all that complexity away for you, and we've been building this for over 10 years now.

So that's a significant moat, a, to anyone else who would like to enter the market and replicate what we've built. But more importantly, it's a phenomenal value construction for our merchants. And that's why you see net revenue retentions like we've been delivering of north of 150%.

That's great to hear. And obviously, we've all been witnesses of the incredible performance of the company. You at the helm now close to 4 years since you joined the company, obviously, a lot of ground has been covered, both operationally as well as with clients. But where are you focusing your time primarily these days? Where are you seeing the opportunity for dLocal?

It feels like 4. It's actually been 2 as a sole CEO and getting up on 3 considering the joint CEO stint. A lot has happened. And I think I'd characterize it as the first year or 18 months, a lot of that was about just making sure that we had relaid the foundations for future growth. The CEO usually needs to tend towards the stuff that needs tending to. You don't always have to focus on the more long-term strategic stuff. So we had to rebuild large parts of the team. We had to focus on really ramping up investments and focus on areas such as middle offices, back offices, built out a more robust regulatory outreach. And I'd characterize a lot of that as somewhat of a defensive agenda.

I think over the last 6 months, I'm spending a lot more of my time on what I think is a more offensive agenda and what the CEO agenda should be longer term. So spending more and more time on the product innovation pipeline, how do we ensure that some of the newer products that we're coming to market with so that we're not so mono product just pay-ins and payouts, but our Buy Now, Pay Later platform, our alternative payment method platform, our Merchant of Record platform, omnichannel, so physical payments presence. How do we make sure that those products are shipping on time and then iterating sufficiently so that they're successful.

Geographic expansion, I think, is back on the map, not necessarily in terms of adding new markets, but we are, I think, consolidated leaders in LatAm. We have a very strong position in Africa that we need to sustain, but we're now beginning to look at Southeast Asia as the final frontier to continue growing. And more and more of my time will be spent on figuring out how do we unlock what we think is tremendous value out of leveraging the existing merchant relationships we have, but offering them Asia and Southeast Asian countries to go along with the African and Latin American portfolio we already offer them.

Okay. That's great. I want to start digging a little bit into the performance. During your most recent earnings, you held your guidance unchanged and particularly for total payment volume, which is obviously best-in-class and very attractive at 50% to 60% growth coming mostly from your existing merchants. What are some of the elements that could potentially impact that guidance to the upside and then potentially to the downside?

Yes. So I think our indication, we have this slide where we -- even when we don't raise guidance, we give an indication of where we think we're coming in, in terms of the top end of the existing guidance or the bottom end. And if you look at that, I think we're clearly indicating that we're seeing really strong momentum on what we consider the more important part, which is TPV and gross profit, right, so how are we doing in terms of share of wallet and growth.

And that's looking really good when we look at the business through May. And so we indicated that's coming in towards the top end of guidance. And it's pretty broad-based strength when you look at different verticals, different markets. There are more markets where we're ahead of schedule, way more than markets where we're behind schedule.

I think we'll talk about OpEx in a second. I think that's an important one to cover. So in terms of general outlook on the business, it started off the year with really good momentum. Risks are more, I think, the conceptual risks that typically are part of an emerging market story, right? So what happens with FX relative to the dollar? Do we have any major geopolitical disruption that hurts emerging markets? Or do we see any changes in tariff or trade barriers that hurt many of our cross-border merchants?

But even on that front, it's actually looking positive. Brazil just lowered de minimis on e-commerce imports, which typically helps our merchants a lot. So the risks are, I think, the inherent risks in operating across 60 very volatile emerging markets, none that particularly come to mind. So, so far throughout the year, I'd say more optimism than anything.

That's great to hear. And obviously, it is an evolving situation with a lot of things to continue to monitor. One of the other elements of the dLocal story that has always been a focus from investors is the evolution of your take rates. It's been a focal point ever since the IPO. When we parse through the different elements of the dLocal story, pay-in versus payout, local to local versus cross-border card versus APMs, where do you see or where have you identified the most competitive pressure or where you're paying a little bit more attention to that take rate? And if I can ask a quick follow-up there, how does that change as your relationships with your enterprise clients get even larger?

Yes. So increasingly, I'm tempted to say that declining take rates are an inherent feature of what we're trying to build and not a bug to our strategy. Now I recognize that for the capital market story, it's complex because at the end of the day, you need to underwrite a model. But what are we trying to manage for? Payments eventually will be a scale play, right? I would much rather have these very sizable global contracts across multiple markets with the world's leading and most demanding technology companies because eventually, I'll figure out the monetization.

We will launch new products to cross-sell. We will be able to sell them on much more complex frontier markets with higher FX spreads and higher processing fees. But I need to have them processing through me and not through a competitor. That will give me the scale to lower my cost, and it will give me these massive commercial relationships from which to cross-sell into. And so as a management team, our algorithm is much more around how do I continue to win share of wallet, win these large deals that generate incremental gross profit dollars so that once the operational leverage kicks in, that's even more earnings.

Take rate is an outcome where you then divide my TPV by my revenue. But as long as my revenue is growing as solidly as it's been growing and my OpEx is growing less than that, so that I'm generating incremental earnings and cash, that's the right strategy. Because when I look out 5 years, if we're the scale leader for the Global South, only good things will come from that regardless of what the take rate is. If on the other hand, we try to defend current pricing too much, things could go in the different direction.

So that's, I think, the overall strategy where maybe -- I don't want to say the Street isn't getting it, but it's a slightly different focus where for modeling purposes, you need take rate. We just need to continue to deliver these kinds of growth. If you look at our gross profit growth for Q1, for example, we're growing gross profit at 40% on TPV of 70% with a midpoint of guidance for gross profit, which was at 25%. So I think we're absolutely killing it versus our own stated expectations regardless of what's happening at a take rate level.

That's a great way to look at it and definitely appreciate that context. You talk about the Global South, which I love the expression, that focus on emerging markets where we've seen a lot of growth as of recently in the global economy, but obviously does come with exposure to countries that are viewed as more volatile or potentially less predictable. Talk to us a little bit about what have you done from a hedging perspective, from a treasury management perspective or otherwise to try to protect the business from any sudden changes in capital controls or sharp devaluations or otherwise?

Yes. So from I'd say that first degree of exposure to inherent emerging market volatility, the business is pretty sophisticated in its management of that kind of exposure. So currency risk is, I would say, fully hedged either because if it's a contract by which we take on the FX risk, that's literally hedged. A lot of our contracts, the merchant will take on the short-term FX exposure until we expatriate for them.

So the way that FX volatility and emerging volatility typically affects us, and it is inherent to the volatility in our results is not direct exposure that we don't manage away. It's simply that when you do have these emerging markets where currencies will devalue significantly or where macro becomes very volatile, merchants will typically deemphasize those markets. So there will be less marketing spend, less focus on that market and just TPV slows down overall.

Things like capital controls or regulatory shifts, that's not really under our control. What we have gotten a lot better at is it having very constructive and fluid relationships with regulators. So insofar as there are ways to advocate on behalf of our merchants, for the regulation to not hurt their businesses too much. And remember, many of these merchants are very relevant across the digital South.

At the core of our mission, it's how do we bridge the digital gap that exists. So how do we get a student in Lagos to be able to access Microsoft 365, right? So we do have some, I'd say, weight with regulators, but institution of capital controls, changes in fintech regulation, they are what they are. And our job is really just to help our merchants navigate it as best as possible, but the inherent volatility is there. But there are always second order impacts. The first order direct management of risk and volatility, I think we've done a good job at.

Okay. I want to maybe stay still on the financial profile elements. Let's talk a little bit about OpEx. OpEx, big focus in your most recent quarter. You mentioned there's an expectation that your operating leverage should resume or should start to kick in a little bit further in the back half of the year. We've heard from industry participants, others in the payments industry about the need to make investments as they prepare for the impact and the adoption of be it agentic commerce, stablecoins, other new technologies. Are there additional pockets of investment that you envision for dLocal in the near to medium term beyond what has been shared with the public?

Yes. So let me just take us on a little bit of a ride on this OpEx one because I think it's important. So I mean, we set out and communicated very clearly about 2 years ago that there was an investment cycle that we were going to go through where we were playing a little bit of catch-up in areas of the business that we wanted to invest in more aggressively. A lot of that was product R&D. Some of it was feet on the ground. We cover 60 markets. A big part of what we, in essence, sell to our merchant base is, I will be your feet on the ground for financial infrastructure.

A lot of that was compliance and regulatory. And another pocket of investment has been on AI and automation, and I'll circle back to that in a while. So how much we wanted to spend in OpEx for that catch-up? Nothing is ever set in stone, but I'd say it was a pretty clear understanding of this is the stuff we need to do regardless of the financial algorithm we want to deliver on the model. So we were going to do that. We also started signaling to the Street that, that investment cycle would end last year.

The third thing we signaled is like any investment cycle and especially the way this one played out, where in '25, not by design here, but it was more back-ended in the second half of '25. When you then roll over into Q1 of this year and annualize that OpEx, in addition with the fact that we always give our merit cycles and salary adjustments in January, you were going to have weak margins in the first half of this year, even though the investment cycle had ended. So the sequential increase in OpEx, you will see slows down a lot. And then when you hit the second half of the year because the comp gets easier, you begin to see the operational leverage kicking in.

And that's been very much by design. And so our objective is to deliver on that. And that's also why we've been saying in terms of guidance that even with the prior period one-off that made the OpEx issue even worse in Q1 because that was unexpected, and it was about $9 million from '23, '24 and '25, we're still on track to hit our guidance even if you don't need to adjust away that incremental cost. So it shows the confidence we have in managing how much we spend.

Now getting to your question, what about the dynamically changing landscape around you and all the innovation that's occurring. I think my answer to that is when your top line is growing the way ours is, it's not a matter of I don't have any incremental spend to lean into these new technologies. I'm still growing GP in Q1 at 40%. So even if I'm growing my OpEx at 20%, that's significant incremental spend that I can lean into a lot of these new technologies and still deliver operational leverage.

I think you're in a different situation if your top line is growing a lot less than that, where do I find the incremental dollars for innovation. Fortunately, that's not a challenge we have. So I think I'm fairly confident that we can still continue to invest in the business sequentially for growth to sustain these really high levels of TPV we're delivering and have the inherent operational leverage of our financial model kick in.

Okay. Why don't we shift gears a little bit into competition? We know that the dLocal strategy is one that is very emerging market focused. What has prevented some of the larger global guys like the Adyens and the Stripes of the world to name a couple, from further the presence in some of the locations where you partake beyond the Brazils and the Mexicos, which are deemed to be very large focal points of opportunity? Do you see them being more front-footed going forward? Or do you see any new challenges coming into the arena that you should be on the lookout for?

Yes. So I think I'm supposed to answer this one, first of all, by saying I can't speak on behalf of the strategies of those companies that I respect tremendously. I can just give you my view of what I think is different about emerging markets, which requires a very different type of company to be successful in, right? So if you think of the developed world of payments, one could argue that probably the success of Adyen and Stripe in large part is due to having controlled their entire stack to having built vertically to compete with many legacy players that had become an agglomeration of M&A through the years, older technology stacks. It was very hard for these legacy players to move at the speed of someone who owned every single line of code.

And that's absolutely the right strategy for the developed world, where the overwhelming majority of transactions occur on credit card rails and where primarily you are a merchant acquirer with a very sophisticated tech stack. When you move over to the developing world or to the emerging world, it's a very different market structure, right? First of all, you have more than half of the population that doesn't use or more likely doesn't have a credit card. So fragmentation is massive.

Performance from existing acquirers actually varies tremendously. So what is required and what we're great at is not so much that vertical owning of the entire stack. What's required is speed to market, speed to add new payment methods and optimize on top of them. So it's much more of what I call a horizontal layer where global merchants plug into us and then we abstract all that complexity, not by trying to rebuild the financial infrastructure stacks of each market, but by simply integrating into it and optimizing for it. It's a completely different playbook.

It's a completely different set of key success factors and one that, quite frankly, I don't think translates that successfully for my developed market peers that have structured their companies in a very different way. We've been competing with these guys in Brazil, for example, for over a decade. Adyen has been in Brazil for longer than dLocal has existed. And so far, we've done phenomenally well in that competitive battle.

And you could say it's because they haven't leaned into it. I don't think that's the answer. I think the answer is we're particularly equipped for those kinds of markets, and those are the only markets we do. So Brazil for me is a matter of life and death. For them, it's probably market number, whatever in a long list of markets that are much larger and more relevant to them than that.

So again, I think we're uniquely built to be successful across emerging and frontier markets. And I don't know if that ports over to these other competitors. I don't even know if most of our footprint will ever be of interest to them. I like the competitive dynamics of the business I'm in.

That's great to hear. I want to talk also a little bit about new technologies, and there has been a lot of buzz recently around agentic commerce in particular. In your most recent call, you mentioned that to use a baseball term, we're probably early innings as it relates to the impact that these technologies have in your financial profile today and that your merchants are perhaps a little bit more interested on APM, real-time networks, local card schemes, other more near-term oriented needs.

However, medium to long term, there's obviously a big opportunity as there's further adoption to agentic commerce and other new technologies. How do you view dLocal's positioning today to take advantage of growing adoption of agentic? And is there anything you have that potentially positions you even better to face that opportunity?

So I'll give you a very candid answer on agentic, which is more a process approach than an actual answer to your question. The reason for that is, quite frankly, I don't think anyone knows how this one plays out. I'd be very wary of everyone who tells you they do. So I think once we came to that realization, the question for us was less about what are we going to build for the agentic future and how that will look.

By the way, if you look at some of the more recent things around OpenAI and agentic commerce, it's kind of been like 2 steps forward, 3 steps back now. But rather, how do we build in the appropriate process to make sure that as the picture clarifies, we're in the right spot, and we can very quickly then move to where the puck is going because we don't even know where the puck is going to right now, to use a hockey analogy.

So what does that mean in more specifics? So we said, okay, there are certain things that we absolutely need to deliver in 2025. The first one is we need to enable our stack so that if any agent shows up at dLocal, so to speak, with a payment mandate, we can receive and process that payment mandate and all the posterior pain points that may exist in accordance with the protocol. Second, we need to be close to the protocols that we think may have the biggest chance of winning. So we work with Google, we work with OpenAI and Stripe. We work with Visa and Mastercard to make sure that we're ready and enabled should mandates from those protocols arrive.

And the third piece we're doing is if you think about it, these protocols are being written very much with a developed market mindset. So they're being optimized, first and foremost, for stable and then probably for credit cards. But who's advocating on behalf of PI or Via in Colombia or mobile money in Kenya so that they're also included in these protocols. And that's something we're trying to take upon ourselves to say, hey, what about global APMs and local payment methods that have completely different logics? Can we also get those included into what an agent can offer? And those are the building blocks of what we want to do 2026. We think that, that keeps us close enough to what's happening so that if and when it becomes clearer, we can start adapting.

One more thought. If you assume these agents will be fully rational optimizers per transaction of how to pay, I actually think that, that generates greater fragmentation. And that plays to our advantage because it's not, hey, I'm just going to use my credit card because of loyalty points. It's no, wait a minute, on this one, you should be using this payment method. On this one, you should be using this other one. That increased fragmentation plays to our advantage. But we'll have to see how all this plays out.

That's a great way to think about it in terms of the positioning that you serve in the ecosystem where you have all these deep connectivity into different APMs. I want to turn a little bit to cash flow generation and capital policy, if you don't mind. So with cash flow first, perhaps a little bit of movement in your most recent quarter as it relates to working capital, which you expect to reverse in the near future. Anything from a long-term trend perspective from cash flow realization or cash flow conversion that could impact the financial profile going forward?

Yes, and I think it's positive. So first of all, just to be categorical, if you look at cash flow from operations this quarter or another way is if you adjust back and we gave the disclosures on 2 interim issues that from a reporting perspective, made the optics of our free cash flow look bad. We're still converting free cash flow at roughly 100%, which is very consistent with our historical trend. So this business has been a cash-generating machine. When you look at our capital allocation policy, I think it reflects the confidence we have in that.

So we said, look, I've just told you how going forward, I actually think the business delivers more margin. That means that I can self-fund my strategic vision by generating more cash. It's extremely asset-light. I don't have big CapEx investments. I do need a liquidity buffer because I operate in volatile parts of the world. So fine, let's assume a liquidity buffer. I'm still generating sufficient cash. So let's have a dividend policy. That's a predictable, repeatable way of returning cash to investors, 30% of annualized prior year free cash flow.

I still have excess cash. Do we let it sit on the balance sheet and eventually look like a central bank? Or do we also try to give that back to investors? And what we said is, look, when I do the math, this is an unlevered balance sheet. So I even have room to lever it up a little bit. And when I look at my ability to buy back shares, it makes all the sense in the world from a return on equity and a positive impact on earnings per share. So we've announced just year 1, $300 million of share buybacks.

So if you think of our share count trajectory going forward, it should have decreasing number of shares on growing earnings power and free cash power. It's an incredibly powerful financial model if we execute behind it. And that's one disconnect that I do see between, I think, how investors are looking at the name and the actual power of the financial model we've been delivering on.

Okay. That's great. So you touched a little bit about 2 of the elements of capital policy that I wanted to touch upon dividends and share buybacks. Obviously, dLocal has been known for being an incredibly powerful organic story from a growth perspective, compounding over time. But you have done a couple of M&A deals, most recently the AA deal. How should we think or how should investors think about your M&A strategy going forward? And how does that play into your overall equation?

Good. And that's -- we did spend a lot of time thinking this one through when we were laying out that capital allocation policy. And the reality with M&A is we'd like it to be a part of our arsenal, but -- and there's a big but there. First of all, right now, the disconnect between private world valuations and public market valuations in the payment space make most of these conversations, 30-second conversations. So even when we've tried to do anything actionable, it's very difficult because that disconnect still persists. Obviously, private markets are right and public markets are wrong, right?

Second, in general, in tech, M&A, at least my experience, unless you're a really good serial acquirer, like some folks in the audience who know how to do that, you destroy value more often than you generate value. You need to integrate tech stacks. It's difficult. So we're not big fans.

And so what's left in the M&A landscape is if there's something that's really transformative and you're looking for an amazing asset, fine. Go tell your shareholders that there's a specific reason while you're either doing an equity raise or you may interrupt your share buyback program because there's this just absolutely crystal clear opportunity that you don't want to miss out on.

But so M&A isn't really baked into the capital allocation policy, except for the kind of stuff we've been doing, which is small-scale tuck-ins, which we can more than cover either with our liquidity buffer or just the annual margin.

And these are usually small deals where you're buying capabilities, you're buying contracts or you're buying people.

Okay. That's great to hear. We only have a couple of minutes left. I really like that element of the story in terms of the conversion of EBITDA, the ability to reduce your overall share stack and the compounding elements therein. I thought that was really good. But anything else in the dLocal story that perhaps the market doesn't fully appreciate that would be good to clarify?

I tend to not like to be one of those company leaders that blames the market for not getting it. I think public markets are incredibly efficient, right? I do think right now, what happens, but this is normal, is there's a little bit of throwing out the baby with the bathwater. So we're all bucketed into sort of, oh, it's the payment space.

I genuinely believe that dLocal is unique in where it plays in the payment space, right? It's a secular bet on emerging market digitalization. But you don't have to go and choose who's going to be the African e-commerce winner, who's going to get AI right in Brazil among Brazilian companies. You're essentially -- this is a proxy investment for the success of the largest and most successful digital companies. If the Googles, Netflix, Spotify, Amazons, Sheins, DDs, all my clients do well across the Global South, I will simply ride their coattails to sustained high levels of compounding growth. And those players will do well across the emerging world over the next 3, 5 and 10 years.

So yes, it's a financial infrastructure company, but one that is positioned within that space in a very unique, I think, combination of profitable cash-generative growth that sometimes I worry when we get bundled in with everyone else in the space. But I'm a big believer in that over time, the weighing machine beats the voting machine. So it's just a matter of keep executing.

Okay. Well, on that good note, thank you, Pedro, for making the time for us. Appreciate you taking your questions, and have a great conference.

Thank you very much.

Thank you, everybody.

Welcome to dLocal First Quarter 2026 Earnings Conference Call.

[Operator Instructions]

I will now hand the call over to the company.

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 financial section of the Investor Relations website.

On the call today, you have Pedro Arnt, Chief Executive Officer; Guillermo López Pérez, 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. Thank you.

Good afternoon, everyone, and thank you for joining us today. This year, 2026, marks 2 important milestones for dLocal. Ten years since we founded the company, and 5 years since our NASDAQ IPO. Before I go into the quarter's results, I wanted to reflect briefly on what has been built over the past decade and why it matters for where we're going.

The story of the past 10 years is one of consistent compounding growth built on a vision of helping world-class merchants reach consumers across emerging markets or, as we like to call them, the markets of the future. If we look back at 2016, we processed $100 million in TPV in a single country. On the last 12 months basis, as of this quarter, we've crossed $47 billion across the entire Global South. So we now process more in a single day than we did in our entire first year of operations, only a decade ago.

That's an almost 90% compound annual growth rate sustained over a decade. And what is most notable about that trajectory is not the scale itself, but the consistency throughout every phase from Latin America into Africa and Asia, from a handful of payment methods to over 1,000 from a start-up to a publicly-listed company. The strategic model has not changed, one API, deep local infrastructure, continuous expansion of payment method coverage, licensing, regulatory capabilities, and products.

The same focus on helping merchants operate efficiently in markets where the next wave of digital consumers is moving online. dLocal now operates in more than 60 countries, including new markets such as Algeria, Qatar, Kuwait and Oman. We now hold 38 licenses and authorizations across 26 markets with 16 additional applications in process. Our platform reaches approximately 70% of the world's population serving over 760 enterprise merchants through a single API. It took a decade of investing in infrastructure, building regulatory IP, forging relationships with local ecosystem stakeholders and learning how to operate at scale in markets that most find too complex to enter.

Those foundations are not easy to replicate and even harder to outperform. The reason all of this infrastructure matters is quite simple. Localization is what ultimately drives success throughout emerging markets. Local payment methods are no longer alternative options. In many of our markets, they are the primary way consumers transact online, and their share continues to grow. For merchants, supporting them is not just about improving the checkout experience, but also reaching consumers who do not transact in any other way.

In Peru, for example, Yape drives 40% net new customers to some of our merchants. In South Africa, Payflex drives 80%. And our own innovation layer such as SmartPix and Biometric-Enabled Pix lets us drive differential performance on top of those existing local rails. Even within the global credit card schemes, local processing is key to maximizing authorization and conversion rates in emerging markets. Compared to international acquiring, when merchants use international card rails to complete transactions, we're able to deliver up to 20 percentage points conversion uplift in certain markets. The same Visa or MasterCard card converts significantly better when processed locally, but Visa and MasterCard are only part of the story. There is a growing base of local card schemes emerging across the Global South. In Saudi Arabia, Mada represents around 90% of cards issued. Verve is roughly 60% of Nigeria's digital payment market, and Meeza is held by about half of eligible adults in Egypt. If you don't support these schemes, you simply cannot win in those markets. That's what One dLocal is. Local payments, local processing of global card schemes, and local scheme coverage all in a single API.

Vertical diversification is the other dimension of resilience to our model. Many payment companies tend to be concentrated in 1 or 2 verticals. Our platform has demonstrated the ability to scale across a wide range of industries and use cases. Every single vertical in our portfolio grew between the first quarter of 2024 and the first quarter of 2026, and our mix has become increasingly diverse across categories.

E-commerce remains our largest vertical. We work with half of the top global platforms in our markets, and they keep expanding with us. In ride-hailing, we serve 4 of the 5 largest players operating throughout emerging markets and continue to expand global deals with them. For several of those players, we also processed their on-demand delivery businesses. Both of these verticals inherently carry a higher local-to-local component with stronger adoption of local payment methods, which supports the strength you are seeing in our local-to-local volumes.

In remittances, one of our fastest-growing verticals, we continue to partner with major players and support their geographic expansion, driven by sustained strategic focus and ongoing merchant onboarding. Looking forward, we're excited about the prospects of our travel and gaming verticals as we continue to build these vertical payment flows that optimize for the particularities of multiple industries.

Perhaps the most compelling illustration of our business model in practice is at the individual merchant level. So I wanted to take a minute to walk through 3 examples of top 10 TPV merchants for us that demonstrate how it is that we scale alongside our customers over time. What we see consistently is that after an initial ramp-up period, relationships deepen as merchants expand into new countries, adopt products and add payment methods. One of our ride-hailing merchants who we've worked with since 2016, initially started with one specific use case and later expanded into on-demand delivery. We now serve this client end-to-end across 18 countries and are expanding through recently signed new deals that further reinforces the long-term growth potential of this relationship.

An Internet service provider who we've categorized as Software-as-a-Service merchant, onboarded in 2021, has expanded from 19 countries to 40 in the last 3 years, a testament to the trust these merchants place in dLocal to power their international expansion.

What enables that pace is our licensing portfolio, our local payment method coverage and our ability to open frontier markets very quickly. In markets such as Kenya, for example, over half of users transacting with this merchant via mobile money or net new customers, they would not have reached otherwise. And an e-commerce merchant we onboarded in 2023 started with only 2 countries, but now operates in 21 with Buy Now Pay Later having gone live in Mexico and South Africa over the past 2 quarters, which are driving higher ticket sizes and over 50% net new users for them. Examples like these are why our revenue retention has exceeded 140% for 4 consecutive quarters. But as we like to say, we're still in the early, early days. These 3 merchants, for example, all grew TPV north of 70% year-on-year during the first quarter of 2026.

So to wrap up, 10 years and the thesis is intact. The opportunity is larger than ever, and we're better equipped to capture it than ever before. The infrastructure we've built, licenses, payment methods, stakeholder relationships and data, the technology, it all abstracts local complexity and compounds in value over time. The combination of a strong base business momentum, a product roadmap that is beginning to gain traction and secular tailwinds across our markets as merchants increasingly convert to local processing gives us confidence that the next decade can be as impressive as the last.

With that, let me hand the call over to Guillermo to cover our quarterly financials.

Thank you, Pedro. Good afternoon, everyone. Let me take you through our Q1 results. Topline momentum continued to accelerate with TPV north of $14 billion for the first time and gross profit reaching a new record. The bottom line, though, reflects 2 specific dynamics I want to address upfront. The expected and already flagged higher OpEx carrying over from our 2025 investments, and a nonrecurring prior year tax adjustment.

TPV reached $14.1 billion in Q1, up 73% year-on-year and 7% quarter-on-quarter, our sixth consecutive quarter above 50% growth, and that's a number we're very proud of. And more importantly, this growth isn't concentrated in just one place. It's broad-based and runs across different countries, verticals, merchants and products. Our top 3 markets, Mexico, Brazil and Argentina, continue to grow consistently. And we're also seeing a strong contribution from markets like Chile, Nigeria, Colombia and Vietnam.

On verticals, travel-led quarter-on-quarter growth at 38%, driven by a new expansion deal with a key global travel merchant. This is a vertical that is still early for us, but it's gaining real traction. On-demand delivery also grew strongly quarter-on-quarter at 24%, fueled by the expansion of deals with both regional and global merchants. On the other hand, E-commerce and remittances delivered soft results sequentially, consistent with the expected seasonality, following the fourth quarter peak. Gross profit reached a record $119 million, up 40% year-on-year and up 2% quarter-on-quarter.

On a sequential basis, the gross profit performance is explained by 2 key positive drivers. Argentina recovery, which we show a strong volume growth and normalized funding cost and growth in Africa and Asia with notable contribution from Nigeria, Mozambique and Vietnam, which is also helping us drive a more diversified geographic mix. Those were partially offset by Brazil's normalization after an exceptionally strong Q4, together with a modest mix shift to lower take rate merchants across all the LatAm and other smaller markets. But most of these markets are still growing strongly in volume, and the quarter-on-quarter dynamics are driven by mix and seasonality, not by an underlying softness in demand.

Very importantly, this quarter, we decided to book a one-off prior period tax adjustment. During an internal review of certain tax items and after consulting with our advisers, we adjusted our tax treatment for prior periods of one of our installment payment products in certain markets to reflect where we're determined to be the most appropriate position and the applicable rules. This out-of-period adjustment was not material to any previously reported annual or interim period, and we do not expect to record comparable items in future quarters. The total impact was $9.7 million, of which approximately $5.3 million landed in the corporate tax line and $4.4 million in operating expenses. This related to indirect and other taxes.

Given its nonrecurring and prior period nature, within the normalized numbers tell the real bottom line story better.

Operating profit for the quarter was $53 million as reported, but $57 million, excluding this one-off out-of-period adjustment, representing a 25% growth year-on-year and a 48% operating profit to gross profit ratio, excluding the one-off. On the cost side, total operating expenses were $62 million, excluding the out-of-period adjustment, up 58% year-on-year and 16% quarter-on-quarter. This reflects the expected carryover of the second half of 2025 OpEx into the first quarter, something we have flagged at our last earnings call.

As we close out our investment cycle, a portion of that cost base is annualized into 2026, and the first half of the year is naturally where that pressure is most visible. This reflects the timing of our 2024-2025 investment cycle moving to our P&L. We expect that to moderate as the year progresses.

Below the operating line, net income came in at $42 million, as reported. Adjusted for the same one-off, we would be at $52 million, which represents about 11% year-on-year growth. It's worth noting that Q1 2025 benefited from approximately $7 million in noncash mark-to-market gains in our Argentina bond holdings, that's a low 10% effective tax rate. The reported effective tax rate for the quarter was approximately 26%, elevated by the nonrecurring item, but excluding it, the effective tax rate would have been approximately 16%.

Adjusted free cash flow was impacted by temporary working capital effects, primarily timing in tax credit, netting and higher receivables from our advancements operations. We expect this to gradually reverse over the coming quarters. We continue to see healthy cash generation with cash flow from operations before working capital changes at $69.3 million, growing by close to 10% year-over-year. So the underlying cash generation is working as it should.

So to wrap it up, topline momentum was strong again this quarter with new records on both volume and gross profit. Reported operating profit and net income was weighed down by a one-off other previous tax adjustment, but the underlying business is in great shape, and we're keeping our full year guidance unchanged.

With that, I'll hand it over to Chris.

Hello, everyone. Before we open the floor to questions, we thought we try something a little bit different today. A brief conversation with Pedro and Guillermo here covering the key themes we had in the quarter that we think will be most interesting to investors.

Guillermo, let's start with you, and let's start with the results. Gross profit came in quite strong this quarter, even above our own expectations. And this is typically a seasonally softer quarter for the business after the fourth quarter. What drove this performance?

Yes. And I think it's worth unpacking because the headline number, as you said, was very strong in Q1. The standout definitely was Argentina. To give some context, Q4 was a weak quarter for us in Argentina. We saw election-related FX volatility. We saw pressure on funding costs, and that pushed our margins down in the quarter. Now what we saw in Q1 was a clear recovery from that. So those specific pressures like funding costs came down materially, and volumes have continued to grow very strongly in the market. So you have both a real recovery in the market and then improvement in gross profit quarter-on-quarter. So a very good story in Argentina.

On the other hand, Brazil works in the opposite direction in the quarter. So Q4 was particularly strong in Q4. You had the seasonal peak of like Black Friday and holiday e-commerce installments that helped the quarter quite a lot. And you saw what you usually expect in Q1, which is a sequential decline from that. What matters in Brazil, though, is that if you look at the performance, it's very strong year-on-year. So we almost doubled -- more than doubled the gross profit in the quarter year-on-year.

So the other thing that I would highlight as well is Africa and Asia. They represent now approximately 29% of gross profit, and they grew by 16% quarter-on-quarter. So more than the average of the company. So that is meaningfully outpacing how the company is growing, and it's actually helping us from a diversification of geography as well.

So the key message is very simple. All our core markets are growing in volume. The sequential movements are mainly explained by mix, seasonality and, in the case of Argentina, a clear recovery from a weak Q4. The most important thing is that diversification that I'm talking about in the gross profit base, which is pointing into a more healthy portfolio of countries.

Great. And staying on the financial results for a second and talking more about bottom line dynamics, specifically on operating expenses. We've previously communicated, we talked about this quite a bit during the fourth quarter, that are our expectations for OpEx trajectory this year and indicated that operating leverage would be much more pronounced in the second half of the year than the first half. Based on what you've seen so far, has anything changed? And how should investors think about operating leverage going forward?

Okay. So I don't think it's changed. So from -- on OpEx side, the first quarter shows -- well, we already flagged in Q4 last year in the earnings call. We are carrying over from the investment cycle costs that happened at the end of 2025. And as we said, they are more visible at the beginning, the first half of 2026. And the operating profit to gross profit ratio obviously reflect that.

OpEx was also impacted by the prior year tax adjustment I mentioned. Specifically, of the $9.7 million, $4.4 million were in OpEx. That's the portion that relates to indirect and other taxes. And obviously, that flows through operating expenses and the operating profit to gross profit ratio. So it's important to normalize this when you want to get a clear picture of the underlying expense performance.

Excluding that one-off, which I'll discuss a little bit more in a moment, the underlying operating profit to gross profit ratio would have been 48%. So it's still relatively healthy. As we lap the 2025 cost build-out, OpEx growth rates should naturally moderate throughout the year. So that's the mechanics that we're waiting to see throughout the year. So with that, combined with the continued topline momentum, that should drive improving operating leverage in the back half of the year. So that trajectory is what matters to us, more than like the results of a single quarter.

Now looking ahead, the ongoing impact from this updated tax treatment that I mentioned, we expect it to be limited. We are actively working with merchants to pass these costs through commercially. And to the extent that we cannot fully do so, we believe the residual impact will be manageable. And we do not foresee, at this point, any meaningful additional prior period adjustments in relation to this.

Again, you need to normalize for the tax adjustment that I mentioned to get a clear picture. So excluding this item, operating profit grew 25% year-over-year, and net income grew approximately 11% year-over-year, which I think that was the real story of the underlying performance.

Yes. So putting this all together on going to U.K. and as a reminder, our investor community, unless there are material changes, we only expect to provide updates to our guidance twice yearly. But just for the avoidance of doubt here, how should investors interpret our results in the connection to our full year guidance.

Yes. So guidance remains unchanged, as Guillermo mentioned at the end of his prepared remarks. We continue to see a lot of strength across topline. We expected costs to come in heavy from a margin perspective in H1 and improving towards H2 on a year-on-year basis. And I'd say they came in slightly ahead even of that expectation, but we're already addressing that. So guidance remains unchanged.

Great. I want to talk now about the commercial side. What really fuels our business? You spent time, Pedro, with some of our most important merchants during our large annual event just a few weeks ago. In these conversations with these merchants, what stood out to you? What are their priorities?

So yes, it was generally a very energizing event. And to me, what was most interesting is how much the conversation has shifted over the past 3, 4 years. In the past, merchants would typically come to us with a very specific market or payment method problem. And there was usually something in one of the few very large emerging markets where we operate.

Conversations now show that they're thinking about emerging market payments infrastructure as a core part of what they need to solve as part of their overall go-to-market strategy across emerging markets. So the conversations are deeper and merchants are definitely increasingly more sold on the concept of localizing payments as a key unlock to growth. And so the conversations with us are much more central to them, not in a few markets and a few payment methods, but truly across the Global South. So it goes beyond your typical BRICS conversation, and they start asking for solutions for a vast number of frontiers market.

Merchants who used to come to us with a very basic local-acquiring coverage of just Visa or MasterCard now start to ask about real-time networks like Pix and Bre-B in Colombia, we're beginning to see a strong pickup in curiosity around credit solutions and Buy Now Pay Later, local wallets and certainly, local card schemes that are also becoming increasingly important in different markets.

And so all of this raises the bar for what they expect from us. It also raises the share of wallet that we can capture from these merchants globally.

I think one illustrative conversation was one of our very, very large clients basically told us, look, you've now reached a scale with us where you are among our largest payment partners. And this is exactly where we want to be sitting with these merchants with significant growth in share of wallet, but also our relationship with them becoming very relevant for them on a global basis. That's how you really are able to sustain the kind of compounding of growth that we aim to sustain.

Great. And switching topics slightly. There's one more question I want to ask you, Pedro. The asset transaction, which we spoke about last year closed during this last quarter. How should investors think about what this opens for us strategically and what it means for dLocal's presence in Africa more broadly.

Yes. So I think we need to frame this correctly. The most useful thing is to be very precise about what the asset transaction is and also what it's not. So to be very upfront, the transaction is not material or meaningful in the results that we've just announced. And that has a lot to do with a number of legal and regulatory hurdles that we faced prior to being able to close. I'm glad we've crossed that finish line. But in that time period, the deal structure mutated a lot.

It ended up being an asset purchase. And also because it took so long as this topline was definitely negatively affected by the time that it took. On the positive side, what we do get is strategically important to deepen the capabilities and the positioning that we have in Africa. So it brought us customer relationships. It brought us intellectual properties and some licenses and key talent that will help us continue to expand our leadership across African markets. And it would definitely have taken us a lot longer to build all of that without having gotten this acquisition across the finishing line.

And I think most importantly, Africa is a region that we've been investing into consistently and where the long-term opportunity in terms of digital payment adoption, cross-border commerce growth and the expansion of financial inclusion remains among the most compelling when we look at the globe. And so the transaction, above all else, reinforces our commitment to the region and positions us even better to capture the opportunity as it develops.

We're not signaling any near-term revenue impact from this. I'd say, by and large, it shouldn't have any sort of distortion in future quarters that would force you to want to look at the business on the same-store sale-type metric or anything. So happy to have concluded it. Happy to have the -- as a team and assets on board, and we continue to build a phenomenal business across the continent.

Great. One final question for you, Guillermo, as we wrap up here. You've now been at dLocal for about 6 months. I would love to hear your early assessment of the company where we stand today, where you're focused, and what surprised you?

Yes. That's right, 6 months in. And I have to say my conviction in the opportunity, that first made me join dLocal has all increased. I think at the beginning, I was talking about, we're just scratching the surface. And definitely, that's what I'm seeing 6 months in. The business is really exceptional at what it does. So if you look at the depth of the local infrastructure that we have, the quality of the relationships that we have with merchants and then how consistently we execute in markets that are difficult to operate, I think that's something that has really impressed me. And that combination, I think, is rare and it's difficult to replicate.

Second, on where I see my work ahead, I am focused on 3 key things. The first one is to continue improving how we translate the topline growth that we, for example, see in this quarter into operating profit, especially as we exit the investment cycle that dLocal has been in the past few years. The mechanics are favorable, but that leverage doesn't just happen by itself. I think my role is to make sure that we have the discipline as a company to capture it.

And also something very close to home is to make sure that our financial model translate the strong cash generation that the business produces into higher return for our shareholders. And we've already taken meaningful steps already to execute in these, like, for example, the $300 million buyback authorization that we got and we mentioned in the last quarter of last year.

And finally, and also making sure that the finance organization continues to build and evolve the processes and the systems in a way that are appropriate for our business that now processes north of $14 billion of volume every quarter and that is growing by more than 70% year-on-year.

So the last thing I would mention is having come from businesses that were at different stages of maturity, the opportunity ahead for dLocal is generally immense. I think even I appreciate this opportunity and it has really surprised me. The markets we operate are still in early stages in the digital payment adoption. And our merchant base continues to expand, growth, deepen. The product roadmap that Pedro mentioned, I think he talked about BNPL and stablecoins. I mean these are real growth opportunities and levels that are just beginning to contribute. So what can I say is, strong business, clear work ahead in my hands and a large opportunity ahead for the company. So all exciting work.

Great. Pedro, Guillermo, thank you both. We hope this has been a useful conversation to our investors. This concludes it, and we can now open the line to your questions.

[Operator Instructions]

Our first question coming from the line of Daer Labarta with Goldman Sachs.

Just wanted to follow up, I guess, particularly on the expenses a little bit. And Pedro, you mentioned that it did come a little bit higher than expected. Looking at the guidance, you're above on gross profit, but a little bit below on the OpEx. So what drove that to be a little bit higher than expected? You mentioned some corrective measures. What do you -- what are those measures just to think about how that can evolve from here if you can bring that closer to the higher end of guidance by year-end? Or is this -- should that continue to be maybe a little bit below the trend of gross profit?

Yes, happy to start taking that one. So I think it's important to say that the Q1 has the full annualized impact of the investment cycle ramp-up that we started to see in late '25, and we're already tracking Q4. The important thing you know, this is the largest single driver, the year-over-year growth in OpEx, okay? And if you moderate as we move through 2026.

Now you're right that in our remarks, I said that OpEx did come in slightly above that we were expecting in the quarter. And to be honest, there wasn't a single factor. It was a handful of smaller items from some discretionary categories and third-party spend to slightly higher average salaries. And we have already initiated some targeted corrective actions. For example, we don't expect any new net hiring throughout the rest of the year.

So when you think about the remainder of '26, I think there's 4 things that you should combine to have a more favorable OpEx growth trajectory. The first one is what I mentioned at the beginning, the natural phasing of the late '25 investment cycle annualization. The second one is we're starting to accelerate all of our automation agenda. We also have the corrective actions that I just mentioned, and then we're also mechanically expecting lower share-based payments expenses as the great investing attribution method flows through the remainder of the year. So I think together these should contribute to improving operating leverage as we move through the year, in particular, in the second half of the year.

Yes. I just complement that by reminding everyone that, first of all, as Guillermo just said, the OpEx will come under control moving forward. We had signaled last quarter that the first half of the year would be a bit weak on margin, and then that sequentially improves. But more importantly, let's not forget that the investments we had been making over the prior 2 years, and as Guillermo said, are rolling over into the first half of this year with a less expense-heavy comp in H1 of '25, are exactly what is allowing us to deliver the kind of TPV revenue and gross profit acceleration and consistency that we've been delivering.

And that's what sets us up long term to be scale leaders to have the widest number of commercial relationships with global merchants, which, if we take a longer-term view, is exactly how we believe we should be managing this business. So now that the investment cycle is behind us, we start entering a phase over the next few quarters, where that innate operating leverage of the business model should begin to flow through the P&L.

No, that's very helpful. And one clarification. Just there was the one-off, which I think did impact operating expenses. Are you considering that in the guidance or you're not considering that? I mean we should adjust for that, right, or just to make sure?

Look, Tito, we've moved away from adjusted metrics and have given a guidance on operating income because at the end of the day, philosophically, that's what we manage for. So let's see how topline comes in. I think we're off to a good start through April. But in general, our guidance comments they don't try to adjust anything else out. It makes it more difficult to give guidance, but we think it reflects the philosophy of how we're managing this, which is to true operating income and to true EPS.

Our next question coming from the line of Pedro Leduc, Itau BBA.

First on that, you saw it on the working capital, you guys mentioning a period of more prepayment services for clients. So first, around that topic, how do you see the revenues for that? Does it come part of the fee revenues or generate financial income? Second, how are you seeing the business building up potentially in more than one region. And that's one question.

And then the second would be on the -- again, on the gross profit part when I look at the Delta revenues, Delta gross profit for Brazil, and you guys mentioned Argentina, but Brazil, it looks like the incremental leverage is coming a lot of profitability. If you can just give double-click on that a little bit.

Okay. So I think I understood your first question. We do drive revenues from very, very short-duration merchant advances, typically for liquidity needs that a merchant may have in a market. And we do advance installments for our merchants in markets where installment advances are common, such as Brazil and Argentina. We don't break out the revenue derived from that business yet, I think at some point when it becomes sufficiently material, we will. It's important, but it's not anything massive.

More importantly, on the working capital, just one clarification here. It's not that these businesses are inherently working capital consumptive. It's the architecture we have to fund these businesses in Argentina short term is something that has hit working capital. That gets reversed, and this is important, ideally over the next few quarters.

And not only does it mean that going forward, that business is no longer working capital negative, but that the last few quarters, Q3 and Q1 of this year, that had this negative impact on working capital, all of those funds get released from this SPV that we're using to fund this. And so there's a big one-off free cash flow gain from the stuff that had been sent into the SPV and negatively affects working capital. So this is a temporary hit to the free cash flow that, ideally, over the next 3 quarters, gets reversed.

Yes. If I may add to that on free cash flow. I think if you look at the underlying cash generation, it remains strong and in line with our expectations. So I think this quarter, this type of quarter volatility, we've already seen in the past. So to be honest, we don't see this quarter as a structural change to our cash generation capacity.

And on Brazil, a couple of things. First of all, I think Brazil, year-on-year, extremely strong gross profit more than doubled. The comps get more difficult going forward, but Brazil has really been one of the strongest performers when we take a multi-quarter view. It is down sequentially driven primarily by seasonality. E-commerce in Brazil is very relevant. And within the e-commerce segment, these installments we're talking about typically are more prevalent by consumers during the holiday shopping season. So there have been less installment revenues in Q1 and slowdown in the e-commerce merchants.

And the other thing driving the sequential decrease in Brazil is we have seen an increase in Pix mix once we move out of Q4 and Pix does have lower monetization than cards, which typically are more prevalent in Q4. So I would say Brazil sequentially is seasonal. Brazil performing very well. Comps get harder, but I think the underlying strength of the business is still there.

Yes. Even with the seasonality, it looks like it was maybe stronger even than it could have been. Yes, I appreciate it.

Our next question in the queue coming from the line of Camilla with UBS.

I have just one from my side. So Africa and Asia showed broad-based growth, but experts suggest Asia is significantly more challenging due to a more developed local financial landscape. So you also mentioned that merchants are increasing its interest in more regions. So how is dLocal's strategy in blue ocean markets like Nigeria and Egypt different from its approach in highly competitive markets like Vietnam or Indonesia?

Yes. Great question. Thank you. So the strength in the Africa and Asia segment is still driven by Africa, including the Middle East. Asia, for us, is still initial steps. I think what has changed in our view of Asia is that the more work we've done around Asia, our thinking has really evolved from thinking that we were late to Asia and that it was a market that was entirely well served to increasingly understanding from our merchants and leveraging the merchant relationships we already have with most of the most relevant global merchants that the high level of fragmentation across Asia, the prevalence of alternative payment methods and the relatively still improvable performance they have on cards means 2 things about Asia, that we think that our strategy and the key success factors that have led us to be very successful in Africa and Latin America actually are applicable to Asia as we cross-sell our growing Asian capabilities to our global merchants.

And the second, I think, myth we've dispelled is that Asia necessarily was a lower take rate market for the enterprise segment. From what we're seeing in our current Asian operations as it scales out, that doesn't seem to be the case either. So I think you will see us increasingly build out capabilities in Asia. And ideally, Asia over a multiyear period becomes quite relevant to our overall P&L.

And that really could be trajectory changing just because when you look at the size of the total market, Asia still dwarfs LatAm and Africa. So encouraging initial steps. We're seeing markets like Vietnam, Philippines performing well for us, and it's giving us increasing confidence to continue to build out in Asia. That doesn't mean significant investments. It just means executing the playbook that has been so successful across the rest of emerging markets across Southeast Asia as well.

The next question coming from the line of Matt Coad with Truist.

Wanted to ask about some of the new verticals that you're seeing success in travel and gaming. Just curious if you guys could kind of like double-click on what's driving that new success there? Is it kind of like go-to-market investments? Is it product related? Any additional detail would be really helpful.

Yes. Thanks, Matt. So I think -- and we tried to highlight this in the opening remarks, we've actually gotten fairly good at being able to leverage the core payment capabilities which are universal across most verticals with the right amount of verticalization, both from a product perspective but also from an account management and understanding the specifics of payments in multiple verticals. So dLocal is not a specialist in any one payment vertical, but has strength across multiple verticals, which sets us up very well for sustained growth. And we keep adding more and more verticals.

I'd say right now, travel and gaming are slightly different situations. Travel has been growing driven by 1 or 2 very large wins that took a long time. The pipeline is typically slow, but that have landed and are beginning to ramp up with very, very large global leaders. And it has a very solid pipeline within the travel space, both OTAs, direct travel, airlines, payment facilitators that work with the industry.

Gaming is slightly earlier on in its development. Gaming is one where the merchant of record product that we have is quite relevant, where you take on not just the payment, but some incremental parts of the digital distribution which makes it a higher take rate category, which is why it's attractive for us. But I'd say from pipeline and actual commercial deals that are ramping up, gaming is slightly behind travel. Over time, this should be a natural part of our strategy, which is to add more verticals that we verticalize the user experience, the merchant experience and the sales efforts, and we're able to move into a growing number of categories.

Super helpful, Pedro. And then just a quick follow-up, kind of on same topic of expanding your TAM here. You guys kind of talked a little bit last quarter about moving into the Card-Present world. I was just hoping that you could provide an update on your integrations there, any investments that you're making there and kind of like early success that you're seeing in the Card-Present world?

Yes. The Card-Present product is one that is being developed as a solution for a very large client, a global client. Ideally, we'll be able to announce it when it goes live. So that contract allows us to fund the build. But more importantly, that will be the maiden launch of our Card-Present efforts by powering their Card-Present payment operations initially in a few Latin American countries and then if successful, expanding. So that's not live yet, and therefore, that product hasn't gone live yet. It will, once that initial large deal goes to market, which is scheduled for some time in the second half of this year. Hopefully, we can meet deadlines. The physical world is more difficult, it's slightly more complex. It involves physical hardware logistics. So it's a project that is one that we need to make sure we delve into step-by-step alongside our merchant clients.

Our next question coming from the line of Jamie Friedman with Susquehanna.

Thank you for all of the perspective and details on the results. Pedro, I was hoping you could just remind us at a high level, what the investments were that you made over the last, I'm going to say, a year. And how you're seeing those return because your confidence in the increased profitability in the company in the second half is noteworthy. So that's my first one.

And then at a very high level, if you could share from your merchant perspective, which conversations are more urgent? Are they related to stablecoin or agentification? Or neither? Or both? But which of those do the merchants ask you about most?

Let me take those back to front, Jamie, because the first one is straightforward. I would say neither. Really the biggest interest is alternative payment methods, real-time networks that are very, very rapidly expanding throughout the emerging world, digital wallets that were invented in the emerging world and they've become very relevant in many markets. Local card schemes, as I mentioned. So most of the financial infrastructure across the Global South, before we even get to stable or agentic, is very different to the developed world. And that's what we solve for and abstract complexity away from global merchants that aren't accustomed and don't really want to deal with all of that. So I'd say stable and agentic are things that we're working on, but it's not really where the short-term volumes and business are. Those are things we need to be prepared for.

Stablecoins, first, which is actually, I'd say, a reality already. We launched our stable full solution about 2 or 3 weeks ago. So we have significant capabilities, and we're already beginning to see a rapid increase in settling to and settlement from merchants in stablecoins.

Agentic, I think the focus is simply to make sure that all these global APMs that we serve somehow are included in the agentic protocols that are emerging. And so we're trying to work closely with most of the more relevant ones. But those 2 things are way smaller than just the core digital wallets, real-time networks, local card schemes, and localization of credit cards, which is still the bread and butter of our volume.

In terms of the investments, again, just to reiterate, and thanks for asking the question. We have a business that's growing TPV this quarter at 70% and actually has been accelerating off of an increasingly larger base. Now there's a lot of operational leverage in our business, and we hope and strive to show that over the next few quarters. But it still does require when you're adding markets, you're adding payment methods and you're growing your volume at that rate, to make sure that you've invested in the people, in the systems to be able to manage that growth over the long run. And then we also have a growing product development pipeline. We've talked about new verticals, new products. And so a big part of the increase in spend in the '24, '25 cycle was in engineering head count and product headcount. As we said all along, towards the end of '25, we've staffed and we've invested in most of the things we saw as necessary to do some catch-up on. And what we're seeing now, as Guillermo pointed out, is kind of the flow over from those investments into the first half of this year, but the pace of incremental headcount and the pace of incremental investment in systems will significantly decelerate so that the operational leverage can begin to kick in.

Thank you. And there are no further questions in the queue at this time. Ladies and gentlemen, this concludes today's program. Thank you all for participating, and you may now disconnect.

Good day. Thank you for standing by. Welcome to the dLocal Fourth Quarter 2025 Results. [Operator Instructions] Please be advised that today's call is being recorded.

I would now like to hand it over to the company for opening remarks.

Good afternoon, everyone, and thank you for joining the fourth quarter 2025 earnings call. If you have not seen the earnings release, as always, a copy is posted in the financial section of the Investor Relations website. On the call today, we have Pedro Arnt, Chief Executive Officer; Guillermo Lopes Perez, Chief Financial Officer; Christopher 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 dLocal's website at investor.dlocal.com. The recording will be available shortly after the event 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. While 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 local's presentation or discussed in the conference call. Forever reasons, including those described in the forward-looking statements and Risk Factors sections 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. Thank you.

Good afternoon, everyone, and thank you for joining us today. 2025 was a year of exceptional execution, one that proved the strength of our business as we continue to build a world-leading financial infrastructure platform for emerging markets. Our business flywheel is accelerating. High growth in a massive and expanding TAM, strong customer loyalty and retention, a growing capacity to innovate and an asset-light high cash conversion financial model.

We demonstrated the scale of the emerging market opportunity. Our TPV reached $41 billion, up 60% year-over-year and accelerating as the year progressed. Revenue crossed the important milestone of $1 billion for the first time. We continue to deepen our merchant relationships. TPV retention reached 158% and net revenue retention, 145%, both strong testaments to the value of the service we offer and our ability to ride the secular waves of emerging market growth alongside our merchants.

We also continue to advance our developing innovation engine. Buy Now Pay Later fused products are now live across 6 countries with solid merch adoption. We've completed the launch of our full-service stablecoin suite, enabling merchants to on- and off-ramp feat to stable coins, settle and be settled in stablecoins and collect at checkout in stablecoins. And we continue to add an ever-growing portfolio of APMs, a smart APM platform.

We also delivered strong cash generation in the year that ended adjusted free cash flow was $191 million, up 110% year-over-year with a 97% conversion ratio, all this strength in our P&L was driven primarily from our sustained TPV growth with merchants in 2025. Flowing on from TPV growth, gross profit grew 37% year-on-year. And despite a still active investment year we expanded adjusted EBITDA as a percentage of gross profit by 5 percentage points, underscoring the operating leverage inherent in our financial model. As a consequence, net income reached $197 million, up 63% year-over-year.

Taking a step back, it's important to acknowledge the consistency of our TPV growth over our entire history. From 2020 to 2025, TPV has grown at an 82% compound annual growth rate. It hasn't really decelerated that much when we see 60%-plus growth in 2025. At the size we have today, -- these high levels of growth drive significant incremental dollar volumes. Case in point, in Q4 2025 alone, we added more TPV quarter-over-quarter than in the prior 3 quarters combined. The scale of this is worth pausing to reflect on.

In 2025, we processed in a single day what we processed in all of 2016. Over the year, we handled approximately 3.5 pay-in transactions which is equivalent to around 6,700 payments every minute, every hour of every day.

On the payout side, more than 100 million individuals received a payment through dLocal. And so despite it still being the early days for our company, this kind of scale sets us up well for competitive advantage in costs, operating leverage data accumulation and organizational knowledge. We now process payments in 44 markets across the Global South, nearly doubling our footprint over the last 5 years.

With an increasing number of markets becoming meaningful contributors to overall volume, 2025 also represented acceleration in financial metrics. When we compare our 2021 to 2024 gross profit, adjusted EBITDA and net income against our 2025 growth rates the sustainability of high levels of growth at much larger size is clear across every line.

The business continues compounding solid growth even as it scales. And there's a reason for this. Merchants are increasingly global, but financial infrastructure remains local and ever more complex and locally regulated. Emerging markets continue to be defined by fragmented payment infrastructure, regulatory complexity and rapidly evolving localized consumer behaviors.

The structural challenges are exactly why our platform exists and has such wide adoption among the world's most successful digital companies. We address complex financial infrastructure challenges that our merchants lack expertise in and prefer not to focus on. And there is still room to continue doing this for a very long time.

I'd like to share a few examples of such complexity. We now hold 37 licenses across 26 markets. adding 4 in 2025 alone, including Argentina, Chile, the UAE and the Philippines, with 16 additional applications in process including for the United States. Without these serving customers with the local financial infrastructure that their consumers expect would not be possible. alternative payment methods already account for the majority of e-commerce volumes across EM markets. and our APM volumes continue to grow as we deepen capabilities around tokenization, biometrics, improved regulatory compliance and increasingly offer instant rails being built across the Global South.

On stablecoins, we've offered a full suite of stablecoin solutions for merchants. And on AI agents, a possible new frontier for commerce, we are collaborating with Google on the API open standard for interoperable AI engine payments to ensure local payment methods across emerging markets are part of that infrastructure for the ground up. Most importantly, we simplify and abstract away all this complexity through a single, unified, world-class platform.

Our ability to offer one integration covering the widest and deepest footprint across the Global South, the most markets, the most payment methods per market is our durable differentiator. That is the One Dlocal proposition. And the more complex the environment becomes the more valuable it gets. I think it's worth highlighting a few examples from this last quarter alone that exemplify what I've been talking about.

On stablecoins, we now offer merchants a complete infrastructure suite for digital assets from treasury and effects through on and off ramps all the way to stablecoin acceptance at checkout and settlements in stable with leading partners, including Circle, BVNK, Fire Blocks and Felix. On Buy Now Pay Later, our Fuse product grew 88% quarter-on-quarter during the fourth quarter. a clear signal that merchant and consumer appetite for installment-based payments is real and rapidly accelerating.

And on alternative local payment methods, we continue expanding depth and intelligence across markets and use cases to deliver improved performance; from biometric authentification and tokenized card on file to instant payment rails, DHL Express and Open English are among the latest merchants to go live with these capabilities. APMs currently account for a significant portion of our quarterly TPV. The value to our existing merchants of the product and service model we offer becomes clear when looking on our retention metrics.

As merchant rides the secular trends in our markets, scale into new geographies and adopt new payment methods or expand them into new use cases, dLocal grows with them. This is the compounding nature of our model reflected in our TPV retention rate and net revenue retention.

Equally important to our growth algorithm is the size of the market we are pursuing. Estimates place the total addressable market for digital payments across the urging markets at over $2 trillion and expect it to double by 2030. And we currently hold the less than 2% of that market. While our share of wallet with existing merchants is only approximately 10%. We're scaling fast and yet the runway ahead remains enormous.

This dynamic is also visible in the breadth and depth of our merchant base. Total merchant count reached more than 760 in 2025 and the diversity of that base continues to increase. Revenue concentration in our top 3 markets has declined. And our top 10 merchants account for a lower share of total revenue than in the prior year, reflecting broader platform adoption across geographies and verticals. And while admittedly, concentration remains, the business has become not only increasingly diversified, but also stickier.

Today, we serve our top 50 merchants across an average of 12 countries and 50 payment methods. That multi-country multi-payment method engagement is the clearest expression of the resilience and compounding nature of what dLocal has to offer. All along, these results have been delivered with best-in-class efficiency. Our gross profit per employee has improved despite continued investment levels with AI and automation as growing key enablers. In 2025, AI-driven automation delivered the productivity equivalent of roughly 7% of total headcount, allowing us to scale without proportional cost increases.

More importantly, we expect further progress. throughout this year. We have a clear self-reinforcing logic to our business model. high growth drive scale, scale drives efficiency and efficiency generates the cash we reinvest to extend our lead or generate greater shareholder returns. This continued our track record of strong cash generation, which positions us to reinvest in technology product and commercial capabilities, while maintaining sufficient liquidity and returning capital to shareholders.

As previously announced, I'm very pleased to have Guillermo Lopez Perez, on board as our new Chief Financial Officer. This will be Guillermo's first earnings call in the role and we're all very excited to have him leading our finance organization. And so with that intro, let me hand the call over to him.

Thank you, Pedro. I am thrilled to have joined dLocal and report of this team's next chapter. And good afternoon, everyone. As I shared with some of you in London a few weeks ago, the opportunity ahead of dLocal is enormous. And the business this team has built over the past 10 years is exceptional. I look forward to having more conversations with you in the coming months about how we are strengthening and scaling dLocal.

So Pedro walked us through some full year results. Let me focus on our performance in the fourth quarter. TPV surpassed $13 billion for the quarter, growing 70% year-on-year and 26% quarter-on-quarter. This is our highest quarterly volume in the local's history and our fifth consecutive quarter of above 50% year-over-year TPV growth. Our sustained trend that reflects the strength and consistency of our business.

As you can see as well, we are exiting 2025 with very strong momentum in TPV growth. This growth was broad-based across our key markets and verticals. It was particularly strong in Brazil, in Mexico, South Africa and Colombia. On the vertical side, on-demand delivery stood out in the quarter, driven by existing merchants ramping up expansion deals across Argentina, South Africa, Mexico and Colombia. E-commerce continued its positive trajectory, delivering a seasonally strong quarter, particularly in Mexico, Brazil and South Africa.

And advertising recovered quarter-on-quarter, supported by the partial return of volumes in Egypt. Q4 was a strong quarter to finish the year as well from both a revenue and gross profit perspective. revenue reached an all-time high of $338 million, up 65% year-on-year and 20% quarter-on-quarter, demonstrating that our TPV momentum is translated into very strong top line performance.

Gross profit reached $116 million up 38% year-on-year and 12% over Q3. It reflects the natural margin pressure dynamic of scaling volume with established merchants and into new payment methods, products and countries. But even with that natural margin pressure, we added $32 million of gross profit year-over-year in the quarter, nearly a 40% growth. On a sequential basis, besides higher local to local volumes and the typical Q4 enrollment seasonality, the gross profit story was driven by 5 main contributors.

Brazil led the growth where we saw very strong seasonal e-commerce growth, supported by solid trends across streaming, advertising, financial services and remittances. Egypt partially recovered versus Q3, reflecting the return of a large merchant and the ramp-up of new e-commerce streaming and ride-hailing metals. Mexico contributed thanks to a strong volume growth in e-commerce, on-demand delivery and ride hailing and other Africa and Asia contributed with broad-based growth, with a notable contribution from South Africa, where we are increasingly operating with more global merchants.

Argentina, on the other hand, was the primary drag to growth. While underlying volume growth was very strong, gross profit was held back by higher cost amid election-related FX and rate volatility. Q4 continued to demonstrate the operating leverage inherent in our business. Total operating expenses were $53 million for the quarter, up 28% year-on-year, driven primarily by our investment cycle related head count growth and higher average salaries following our merit cycle.

Adjusted EBITDA reached $78 million, up 38% year-on-year and 9% quarter-on-quarter. Starting 2026, we are introducing operating profit to provide investors with greater transparency into our operating performance. As the business scales, adjustments represent a declining share of revenue and we believe this metric offers a more standardized basis for comparison with industry peers.

Net income totaled $56 million for the quarter, up 87% year-on-year. and 7% quarter-on-quarter. Year-over-year growth reflects a lower effective tax rate in the quarter, driven by a more favorable jurisdictional mix and the nonrecurrence of a onetime tax settlement recorded in Q4 of last year. Return on equity reached 35% on a last 12-month basis, up 10% points year-over-year and continued on to increase every quarter. The improvement in ROE reflects both a stronger profitability and the effects of our capital return policy, mostly the inaugural dividend payment in 2025.

Finally, adjusted free cash flow for the quarter was $65 million, doubling year-over-year with an adjusted free cash flow to net income conversion ratio of 117%. The quarterly conversion can fluctuate with items like tax payment timing. But on a full year basis, we converted close to 100% of net income into free cash flow. This is a business that converts growth into cash at an exceptional rate.

With that, I'll pass it back to Pedro, who will speak to how we are deploying this strength.

Thank you, Guillermo. 2025 confirmed what we've long believed. The opportunity in emerging markets is massive our model is the right one to capture it, and our team executes consistently across a complex and dynamic environment. We enter 2026 with a clear strategy, a strong platform and a proven track record. This year also marks 2 milestones, 5 years as a listed company and 10 years since our finding, a reminder of how far we've come in so little time and how much of the opportunity still lies ahead.

Let me turn to our outlook for 2026. We expect continued strong growth in the key market share and product market fit measurement that is total payment volume. We currently see TPV growth in the range of 50% to 60% year-over-year. Greater volume drives pricing leverage with downstream providers, improves FX liquidity and generates better data that feeds conversion rates.

This is the compounding logic that excites me the most about our long-term trajectory in this business. We're guiding for gross profit growth of 22.5% to 27.5% year-over-year. As existing merchants grow and large clients continue to scale, we expect more volume-based discounting that is embedded in our long-term customer relationships. At the midpoint, this implies gross profit dollars, what we managed to of $0.5 billion in the year.

On profitability, we are guiding for operating profit growth of 27.5% to 32.5% year-over-year. Following a 2025 investment cycle, which has overhang into early 2026 as salaries and wages spend from 25 hirings gets annualized, we expect operating leverage acceleration to become evident more towards the second half of the year and then flow into the following year. As a reminder, emerging markets remain inherently volatile, and our projections reflect those uncertainties.

These conditions are not new to us. We've built this business to navigate exactly this kind of complexity, and we remain confident in our guidance.

We believe we are only scratching the surface of the opportunity ahead when I take a longer-term view. So I wanted to leave you with a way of thinking of that opportunity further into the future. First, the growth of our existing merchants in markets where we serve them today. The world-class companies we serve are riding some of the strongest secular trends: digitization, middle-class income growth and e-commerce penetration. In many cases, there are entire lines of businesses for which they have not yet localized their payments infrastructure.

Second, geographic expansion with existing merchants. We serve merchants across an average of 12 countries today, but we operate in over 44 in further expansion into Asia, the Middle East and Africa, where we see increasing merchant interest will be an even greater growth vector going forward. These 2 elements are what will drive increases in our consolidated share of wallet of our existing merchants. And they also explain why we expect continued high TPV retention rates with these merchants.

On top of that, our growth will be powered by new merchants. Our last 2 years have been predominantly driven by the strength of our existing base. However, we're seeing strong commercial traction with new merchants across priority verticals such as travel, crypto, gaming and AI as they move further along the emerging market payment adoption curve. We expect new merchant contributions, therefore, to increase over the medium term.

And fourth is our innovation engine. While near-term P&L impact is still expected to be modest we see multibillion TPV opportunities in our wider financial infrastructure bets such as Buy Now Pay Later, enhanced merchant of record solutions, virtual accounts and our soon-to-launch card-present offerings.

Finally, and before I close, I'd like to cover capital allocation. We continue to have enormous confidence in the cash generation capacity of dLocal. The asset-light nature of the business, negative working capital requirements and potential for operating leverage ahead of us gives us a growing free cash flow profile even under conservative projection scenarios. In addition, we currently operate with minimal debt. And while we remain disciplined do not rule out using it in the future as a way to secure additional cash or enhance the efficiency of our capital structure.

Our allocation framework is structured around 4 priorities: first, invest to sustain high levels of growth that we aspire to; second, ensure the appropriate liquidity buffers given the volatility of the markets where we operate; third, selectively be prepared for M&A if it accelerates our strategy; and fourth, return excess capital to shareholders. On this last point, through the end of 2025, we have returned 64% of adjusted free cash flow generated since 2022 to our shareholders. We intend to maintain this disciplined approach to capital returns going forward.

Consequently, we're confirming our dividend policy of 30% of the prior year's free cash flow, which this year translates to $57 million. Additionally and upon thorough analysis and consultation, we believe that our business will generate sufficient cash in the medium term beyond our minimum liquidity requirements and dividend policy commitments. This allows us to increase returns to shareholders.

As a result, the Board has approved a new share repurchase program of up to $300 million of our Class A common shares. The policy is a first step in what should become a multiyear capital allocation model that combines the predictable discipline of our diligent policy with add-on allocations for share buybacks that will prove accretive to EPS.

The precise quantum of these plans will be determined by multiple factors. Among them, trading volumes to ensure the adequate liquidity for our shares, continued confidence in excess free cash flow generation and analysis of the potential for other areas of investment that can generate even higher total shareholder returns. We trust that these corporate finance decisions and programs highlight our commitment to be prudent allocators and custodians of your capital as shareholders in dLocal.

And now finally, these are turbulent times. So to close, I want to highlight what makes our story special and more importantly, durable. We have a business that is growing rapidly highly profitable on a cash basis with low leverage and high and increasing return on equity. That combination of growth, profitability and financial strength is where as a team, we remain fully focused on the lung game, disciplined growth, continued product innovation and sustainable value creation for our merchants and our shareholders.

The opportunity across the emerging market landscape is vast. Our platform is uniquely positioned to capture it. and our track record gives us confidence in our ability to continue to execute against this strategic vision. Thanks, everyone, for your continued support, and we can now open the call to take your questions.

[Operator Instructions] Our first question will come from the line of Tito Labarta from Goldman Sachs.

A couple of questions, I guess, to start. First on the TPV growth guidance, as you mentioned, Pedro, you have continued strong opportunity for growth there. Just if you can give a little bit more color on where you're seeing the growth come from this year? Is it a continuation of like Brazil, which has been growing quite a bit more in Africa. Just any color that you can give on where you think the PPV growth will come from by country, by vertical, like e-commerce has been strong. Any color on that, I think, would be helpful.

And then my second question, specifically on the quarter, in Argentina, we saw actually very good revenues. Gross profit were lower. I mean, I think you mentioned FX and some other things impacting costs. But how do you think about the gross margin in Argentina? Should we think of this as a one-off this quarter given everything going on there? And should that gross margin sort of recover to levels that we saw before? Just to think about the growth that we can expect, not just on revenues, but also gross profit for Argentina.

Great. Thanks, Tito. I'll take the first one. I'll leave the second one to Guillermo. So the strength of our business continues to be broad-based in terms of the guidance. Latin America will continue to deliver strong growth. We consolidate our position further in Africa with some critical markets there, sustaining growth. We've seen Egypt pick back up in the fourth quarter, and we assume that, that rolls into the '26 guidance. And we're also becoming increasingly ambitious in the Middle East and in Asia, where, despite being a late entrant we do see significant opportunity and will lean into that market as a long-term growth vector.

The other part that we indicate, if you look at Page 27 of the slides is we also begin to see increasingly a better distributed set of growth vectors in the guidance, whereas our '25 results were extremely concentrated on share of wallet gains and organic growth of our existing merchants in existing countries. When we take our bottoms-up approach and probability adjust our pipeline to get to the 26% guidance numbers, we begin to see more participation coming from taking those merchants into new countries, which shows the depth of the relationships we're building and also the growing importance of frontier markets and smaller markets within the emerging world footprint as well as our expanding footprint into more parts of the globe, for example, Asia, as I just mentioned.

And then also, we expect a pickup in new merchant impact in year 1. So a very strong cohort. And finally, still small, but I think if we take a midterm view, a very, very important part of what we're building are our new products. which allow us to further monetize and gain traction with our merchants. And more importantly, many of these ideally also become take rate accretive because they are higher monetization products.

Okay. So, let me take a start to your question on Argentina and feel free, Pedro, to chime in. So Argentina had a significant rate in FX volatility leading into the elections in Q3. I think this macro volatility was already mentioned in the previous earnings. Unfortunately, we show it remained elevated throughout Q4. which affected the cost of the funding sources that we use for our attachment business. But I think on a positive note, we continue to see very strong volume growth and Argentina remains a highly attractive market for us. It is one of our fastest growing countries. And when we calculate the returns on capital deployed really well above our cost of capital. So our thinking on Argentina, it is high growth, high return market despite this increasing volatility that we have seen.

Okay. Very helpful, Pedro and Guillermo. If I can, just a quick follow-up on each. So we should expect that gross margin, which kind of suffered from the FX volatility as the FX normalizes, that should recover maybe closer to what we were seeing in the past. Is that correct for Argentina? And then Pedro, just curious on the stablecoin by now, I'll say later, I mean you mentioned those as opportunities. When do you expect those to become a sort of like significant contributors you expect already in '26? Is it more a '27, '28 story? just to think about the potential there? And what can -- how much that can contribute?

So '26 is more about the confirmation of product market fit and solid growth we gave an idea of quarter-on-quarter growth and buy now pay later above 80%. Now obviously, coming from a small base, so it still doesn't move the needle, unlikely that it moves the needle in 2026 but compounding at those levels of growth sequentially by 2027, ideally, that does become material in our P&L.

And then on Argentina, we'll comment on how the market evolves when we get into it. As you know, Argentina is a particularly volatile country. I'd rather not be making forward-looking statements. I think Guillermo's point was, if we abstract ourselves from the short term, we look at TPV growth, we look at merchant interest in the country. We look in general at a country that seems to be on the right track. We expect a lot out of Argentina over the long term.

Our next question will come from line of Guilherme Grespan from JPMorgan. .

Congrats on the quarter, very strong print. Two questions on my side. The number one is just on stablecoins. You mentioned a little bit on stablecoins by an operator APMs, but specifically on stablecoins. If you're seeing any pickup, Pedro or not in the volumes of table point, I think on the treasury of dLocal makes more sense, maybe it's picking up. But my interest is more on the pains and kind of adoption in if we're seeing any signal that stablecoins technologies already picking up in some way?

And then my second question is just to check the box on United States license, should we read this as a U.K. license similar to that movement? Or it's specific to any service or product here?

On stablecoins, we are not seeing significant volumes or pick up in stablecoin at checkout. We do begin to see growing interest in merchants and understanding the product that we've come to market with, understanding regulatory requirements and how each market works but I would not say we've seen volume. Where we're seeing the most volume within that vertical is serving digital asset marketplaces exchanges with the legs on the way in and the way out, so what we call pay-ins and payouts.

And then increasing and growing conversations with corporate treasuries and our clients' treasuries on the usage of stablecoins in particular markets where they may have a cost benefit or a speed benefit or a 24/7 settlement benefit, which I think over the next few years, will probably be the largest of those 3 segments that we offer products around, which is stablecoins as a payment means or settlement means, stablecoin on and off ramps to Fiat and corporate treasury adoption.

There's a second part to this question or a second question, which was on U.S. licenses. We continue to be solely focused on the emerging market global footprint. As I said, we're very excited in our forays into the Middle East and Asia. So there's not an ambition here to offer developed market solutions. We see our strength and our differentiation and our ability to leverage over 10 years of building infrastructure, and pipelines across the emerging world. Those licenses just facilitate settlements to merchants and simply allows us to operate on our own licenses in an increasing compliant way rather than have to rely on licensed partners.

Now for our next question will come from line of Pedro Leduc from I BBA.

Congratulations on the strong close of the year. First question on Brazil. Revenues and gross profits, gross profits growing much faster than revenues here this quarter. I was wondering if you could detail to us a little bit, if it's product mix, claim mix. Second, if you want to develop a little more on what dragged up the G&A expenses this quarter. And there's a comment in the prepared remarks that operating leverage should kick in, in the second half of the year. You see per trade within the profit and gross profit guidance. But if it's something that we should also expect the 4Q level to be still upon us here in this first half of the year.

And if I may squeeze on the third. Just to clarify, I think there was a comment about present card operations going forward, if you want to detail a little bit more about that.

Okay. On Brazil, I would say, in general, Brazil really has begun to rebound. If we look at the TPV growth, it shows this tremendous strength in that market. And then Brazil also benefited from very strong monetization A portion of that is it's one of our largest markets. It's where we have a lot of TPV from mid-tiered merchants, which typically have slightly higher take rates. The vertical mix there with advertising performing well, that usually tends to be a slightly higher take rate. But it was a particularly strong quarter.

I don't think that level of dispersion between TPV growth and gross profit growth is something that you should necessarily project into the future. So very strong in general, structurally strong really glad to see Brazil turnaround after a difficult '24. There's also an easy comp to a certain extent, but I think mission accomplished by the team there. We always said that we were confident that '24 was more about volatility and that there was still significant growth for us ahead in Brazil. It was particularly strong. I don't think that kind of strength necessarily should be extrapolated into the future.

On G&A, very quickly because I think we tried to explain this, but important to understand the cadence into the quarter. If you look at our year, A lot of the growth in head count within our investment cycle was more backloaded to the second half of the year than the first half, not necessarily by design, but the way it played out. So what you're seeing there is very much driven by increased investment in engineers, in commercial teams and in operational teams. And that does have a spillover into 2026. I'll let us Guillermo cover that, but I think it's relevant.

Yes. I think you asked specifically about G&A, I mean, there were some one-off items, but actually you normalize for them. These nonrecurring at the underlying time on G&A is consistent with what we see in rest of OpEx. And the story of OpEx is on our Q4. It reflects the last leg of the hiring coming out of the investment cycle that Pedro started 2 years ago. We invested mostly in headcount, and there's also a component of our annual merit cycle increases.

Now to help you understand how this is going to pan out in 2026, we are not planning to add any significant head count at this point in 2016, beyond a few hirings already mentioned at the end of '25. But given this '25 hiring is back loaded in the year, you should see higher levels of OpEx year-over-year growth in the first few months of and this cost as discussed are advertised. This growth should produce in the later months of 2026. But overall, we expect OpEx growth for the full year to be below gross profit growth, and the operating leverage imparted in our guidance is probably going to be a story for the second half of the year.

It is worth noting as well that when you compare us to our peers, as we show in the presentation, we believe we are our own best-in-class in terms of the resources required to run a business of this scale and growth rate. And I think that's a reflection as well of the operating model that we built and very comfortable with the levels we are maintaining.

You had a third part to your question, I didn't jot it down.

There's some mention about card-present transactions that you're going to upgrade? Maybe I misunderstood it, but there's something in the call that mentioned that.

Yes. That's part of our innovation pipeline. I think there are select verticals where we have inbound interest from merchants who would like to use dLocal technology stack embedded in smart hardware and Smart POS. So that would be our first foray in being able to capture some share of wallet in card-present processing, which is by far the largest market.

If you look at dLocal until today, 100% of the merchants we process are digital merchants, so not card-present transactions. And through this new card-present platform, we'd be launching it would allow us to start having some share of wallet of the card-present market. Still focused a lot on global international merchants, where the advantage of one integration and then being able to deploy that across multiple markets remains unchanged. We're not changing our go-to-market strategy, but it does open a very large addressable market for us.

Our next question will come from the line of Matt Coad from Truist.

Pedro, I just wanted to do one more on the card present offering there. Could you kind of like touch on -- I assume that's more of like a 2027, 2028, even maybe 2029 story. But could you talk about if there's any kind of like upfront OpEx investment in 2026 to drive some of that growth? And then just second question. It seems like the large merchant coming back on board in Egypt is a pretty unique situation, bodes pretty well for dLocal. Could you guys kind of provide a little bit of color there? Like why did you lose share of wallet? And why ultimately did the merger come back to dLocal?

Great. Let's see. I don't want to get too dragged into this card present thing to not make too much out of an embryonic product launch. Everything we build is actually typically very determined by a specific merchant contract that's existing. And therefore, rarely ever do we invest significant OpEx ahead of having concomitant revenues backing it up. And I think this is yet another case where we will build alongside our client. And that allows us to gradually see if there's product market fit and how much more interest there is for what we're building and how much we can grow with that initial merchant.

In general, that's one of the reasons we're so encouraged by the cash generation of our financial model is that we don't really make big investments ahead of existing real enterprise merchant demand to fund the build-out of the products.

Egypt. I think Egypt, we've walked through this. I think regaining share of wallet is phenomenal. It doesn't surprise us, but losing it in the first place, we explained this was a merchant that we had a 100% share of wallet in. The merchant started rolling out redundancy. And in the initial phases of that redundancy, we lost a significant amount of that share. And through performance, we've gradually been recovering it. We will never return to 100% because the merchant understandably will always have redundancy. But certainly, at least over the last quarter, it's been 1 of recovering a lot of the market share that was initially lost when we moved to 100% to sub-50%.

I think the other thing to add on it is we're diversifying our business with the ramp-up of e-commerce is trimming and right-headed merchants, it's good to have and see that diversification.

Next question will come from the line of Jamie Friedman from Susquehanna.

I appreciate the new disclosures especially Slides 12, 13 and 27. So I want to ask about those. So in terms of the -- so if you don't have it in front of you, the share of wallet analysis on Slide 12, I think, is important. So if I'm reading this right, you're getting 300 basis points of share of wallet increase year-over-year is your estimate from your installed base, if that's right. I'm just trying to reconcile that, Slide 12 with Slide 27. How do we think about the share of wallet contribute to growth going forward and the contribution from new merchants, which you're articulating is expanding next year?

Jamie, so I think you've understood correctly. Slide 12 is an actual breakout of what was driving growth, which then informs the left-hand column of the slide further down. And if you look at '25, our TPV retention was phenomenal. And within that retention, it was very much driven by the growth of our merchants in the markets where we already serve them and share of wallet gains within those merchants in those markets.

So think of that almost as the enormous expansion of the existing market we're in, and that's one of the great things about emerging markets is just riding the growth of our business partners as emerging market consumers become more and more digital and consume more and more of these global digital products gives us significant growth. On top of that, as we gain share of wallet in some of these merchants, things play out as they did in '25.

What we see in our pipeline for '26 is that we see a pickup in growing into new markets with those merchants, better impact coming from new merchants. So we're beginning to see increasing pickup in new merchants globally looking to localize payments, and so we expect a lot out of the '26 cohort. And then finally, beginning to see, as I said before, product market fit and new products coming to market, whether that is buy now pay later, card-present, virtual accounts, and a few other things we've indicated. If you take a longer-term look, what we'd like is to see new products and new merchants increasingly becoming a bigger and bigger part of the story.

And then if I could just follow up, Pedro. With the new merchant contribution contemplate for '26, Slide 27, 10%, I would have thought that those would be accretive to the gross profit take rate because they probably don't have the volume discounts because they're new. Is that a fair assumption? And because that is a bigger number next year than this year, so why is it that we're landing at like an 80 basis gross profit take rate at the midpoint next year if new merchants are ramping the way that they are?

So I think that's a generalization. And it depends very much on the new merchant and the new merchant potential and the size of their projected volume as well. So if you have the possibility to engage in a conversation with some of these new gen companies that are growing 11x Q-on-Q and convince them to adopt localized payments think you're going to focus on volume there and give them an attractive take rate. So it's not that easy to generalize.

And I think more importantly and again, sorry for being so reiterative on this but the more we look at the size of the emerging market opportunity, the more convinced we are that the single most important thing for us is to continue to grow total payment volume to continue to drive to max scale and to not lose merchants or lose accounts on trying to maximize for take rate. at the end of the day at high TPV growth, which drives incremental gross profit dollars and solid gross profit growth with operating leverage, which drives even more solid operating income growth, we get the best of both worlds.

Long term, we guarantee that we continue to be one of the scale leaders across emerging markets. And we feel fairly confident that if you have the merchant relationship and you're processing for them, we will figure out ways to monetize those relationships and all that TPV. So focused on TPV growth, focused on gross profit dollar growth and being scale leaders across emerging markets is what's implied in the guidance. not all new merchants that come in necessarily come in at higher take rates. It depends on the vertical, and it depends on the size and the potential of the new merchants. The new products do all tend to be accretive to take rate, but those are still quite small in terms of their impacts in the '26 guidance.

Our next question will come from the line of Neha Agarwala from HSBC.

Congratulations on the results. Just a quick clarification on the OpEx on what I understand you're done with all the hirings that you needed, most of the investments. The reason why the operational efficiency will be visible more in the second half of this year is mostly because of base effect because some of those expenses will be on the first half. right? But most of the investments, the changes that needed to be done, those are already done. We don't have significant investments per se in 2026?

And my second question is where do you see upside or downside risk to your guidance? What are the main factors that we should work out for during this year that could bring in volatility or diversion from the guidance that you have provided?

Let me take the first one and hand the second one to Pedro. So you're right, you're thinking about OpEx. We see a lot of the hiring in the second half of this year. There were just a few handles of positions that were open at the time that come in 2026. But from an OpEx perspective, what you're going to see is the annualization of those late in the year hirings budding out in '26. And so you will see that high year-over-year growth in the first few months, and that should normalize and come down in the latter part of the year in which we are predicting a reduction in the level of growth, that's correct.

Great. Let's say, I don't want to give you a trite answer. Clearly, as an emerging market operator, global macro, geopolitical and primarily how that flows through to FX are the clear -- we don't control, we don't know, but they can have an impact on our results. I'd say if we take a more micro approach within the things we do control, probably the largest risk. And this somewhat also answers Jamie question on the take rate implied is there have been some very strong global wins with some of our large merchants.

I think the way we like to say it is we feel like we've moved into a new category of partnership with many of the world's leading digital companies. where we now are 1 of the largest global payment processors, operating for them across multiple markets across the emerging world. And the expectation of the delivery on those contracts is a big part of the growth in 2026. So it is guidance that remains concentrated in a merchant perspective, less and less so in a country perspective because we're serving these merchants across many, many more markets and payment methods.

But that's probably the biggest risk is that we do have to deliver on these net new adds in terms of markets and payment methods so that we continue to roll out everything that has been jointly agreed to in these large global contracts where we become one of their most important and trusted global financial infrastructure providers.

So I mean, if I put it differently, you said it probably goes upside risk to the volume growth with more of these big wins coming through but your ratio, which is the take rate ratio might get diluted because of that, but because you are very focused on volume growth. as that's the right strategy for the long term?

Gross profit growth, operating profit growth, obviously, earnings above all else and convinced that this is a race to scale as payments and financial infrastructure always are. And that, as I said before, if we have the TPV, we have the merchant relationships as our product portfolio widens, we have that TPP and those relationships to cross-sell new products and also to figure out different ways that we can help our merchants across the markets where we operate with them.

So we continue to see take rate as an output metric. The metrics we manage to our TPV growth which reflect market share, share of wallet and how our merchants choose. Remember that TPV for us is revenue for our merchants and then be able to drive gross profit growth operating profit growth and earnings growth as a consequence of that sustained high level of compounding TPV growth.

And with that, this concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

[Operator Instructions] I will now hand the call over to the company.

Good afternoon, everyone, and thank you for joining the third quarter 2025 earnings call. If you have not seen the earnings release, a copy is posted in the financial section of the Investor Relations website. On the call today, you have 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.

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.

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.

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

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...

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.

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?

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.

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...

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

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

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

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.

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.

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?

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.

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

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.

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.

Our next question coming from Jamie Friedman with Susquehanna.

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.

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.

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?

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.

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

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.

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.

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?

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.

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?

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.

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?

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.

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.

Okay. Great. Good afternoon, everyone. Thanks for joining. I'm Tito Labarta, the Lat Am financials analyst here at Goldman. I have the pleasure of hosting Pedro Arnt, CEO for dLocal. Pedro, thanks for joining us.

Thank you for having us.

Great. And I think this is now your third Communacopia, at least at dLocal. So maybe we start there, right? What's been the maybe biggest surprise challenge in a couple of years at dLocal now?

Yes. I think it's my second because I've been here for 2 years. But -- so at the peril, I'll give you a positive one and a not so positive one. I think that's more balanced. On surprises that perhaps I underestimated when joining the company, we still inhabit a highly fragmented cross-border payment space. We see many, many subscale companies product of the fintech financing boom pre-2022 that probably generate a market structure that has more cross-border payment companies than necessary. I think that's one of the factors that goes into the declining take rate reality that I'm sure we'll address. So it's more fragmented than I thought it was. And I knew it was fairly fragmented. I think the upshot to that is that we probably are on the verge of some level of consolidation, and that will probably benefit the staying power of incumbents.

On the positive side, I think the more I'm immersed in emerging market cross-border payments, the more the thesis of why we add value crystallizes to me. So payments across the global south are extremely fragmented. Like every market has way more than just your Visa and Mastercard like in developed markets. You have real-time payment networks, bank transfers, digital wallets, buy now, pay later. So there's this really fragmented ecosystem. That ecosystem is very different from one emerging market to the next, to the next. Regulatory frameworks are very different from one market to the other and tax regimes are very different from one market to the other and typically are multilayered. So they even are varied from one state to the next within a jurisdiction.

So when you put all of that complexity into the blender across the 45 markets we serve, it's become incredibly clear to me why if you're a global merchant, you would not want to build the solution for all that in-house. It just makes so much more sense to have one integration with the local, and then we abstract away all of that multilayered complexity for you. And now that I've been at the business for 2 years, it's a lot of complexity.

No, it makes sense. And if we think about -- I mean, you had a very good second quarter recently where you raised your guidance. But maybe just kind of thinking it from a long-term perspective, I mean, you have -- you mentioned a very large addressable market to capture. So the surprise in the second quarter but also thinking of it more longer term and the opportunity set that's available to you.

Yes. So strong execution across the board. I think that was one of the real positive outcomes of second quarter results. So we saw our largest markets, Brazil and Mexico that had a weak second half of '25 -- sorry, of '24, really rebound nicely starting in Q1 but really materializing in Q2 and on the back of multiple merchant strength. So there's not a single merchant driving the rebound in those markets. And then we continue to see, and this is perhaps the more important trend, really solid growth coming out of non-Lat Am markets. So Africa and the Middle East for us plus Asia already represent nearly 1/4 of our business and are growing significantly faster than Lat Am.

That increased diversification brings all sorts of benefits, higher take rates, less dependency on a single market. Africa and the Middle East are this enormous 5- to 10-year TAM for us. And so in that sense, I think the 2 key takeaways from the second quarter was how strength was distributed across merchants and geographies. So really firing on all cylinders across the board and that it's sustainable going forward when we look at the back half of the year because it is so diversified.

And I think those -- if we look at some of your global payment peers were negatively impacted by the tariff situation. I think maybe you're on the positive side of that. Maybe can you talk a little bit about that.

Yes, for sure. So definitely, we have been beneficiaries, at least in this first phase of the rejigging of the global commercial order. So when you look at our numbers and you look at how our business has behaved, it's pretty easy to extrapolate that primarily our Asian merchants as they began to see their growth prospects in the U.S. and Europe closed off through tariff and non-tariff barriers, you see this clear reallocation of capital and resources to emerging markets. And so we've seen significant pickup in number of markets and number of payment methods that we offer to our Asian merchants over the past year. So Phase 1 for us has been very positive.

I just think we need to continue to monitor this closely because this is, I think, something that's in constant flux. And we have begun to see isolated pockets, nothing that changes our confidence in H2 guidance but we have begun to see pockets where we began to see tariff increases across the global south to protect local retailers from this very aggressive entry of the Asian e-commerce players. So Phase 1, very good to us. Let's see if there is a Phase 2 and how that plays out.

And then when we think about your TPV growth guidance of 40% to 50% a year, you're at the high end of that even above it. To think about maybe sustainability of it but where is the biggest opportunities, pay-ins, payouts, country, sector exposure, if you can kind of unpack that a little bit.

Yes. So tying it back to my initial comment, I think if we continue to help global merchants solve for that enormous amount of complexity that exists across the payments ecosystems in the emerging world, these levels of growth or high levels of growth at least, are sustainable. Kind of the way we think about the growth vectors, I would say, in order of importance over the next 2 quarters. So the first one is to continue to offer our existing merchant base more markets and more payment methods. So as we have proof of concept with what we're doing for them, we've been able to really accelerate the pace of cross-selling. So over the last 18 months for our top 50 merchants, the average number of countries that we serve has gone from 8 to 11, and the average number of payment methods has gone from mid-30s to low 40s. So we're seeing very rapid expansion of what we offer with existing merchants.

The second driver, I would say, is those same merchants and the payment methods in countries that they already contract from us gain share of wallet there through improved performance. So we're also seeing that improve. The third driver is new merchants. And we only have about 715 active merchants. The potential is in the thousands. It's also true that when you add a merchant, there's a typical 1- to 2-year ramp-up before they actually start having a substantive impact on our P&L. So that's why I place that one third. The merchants that we add in '25 probably become very relevant to us in '27.

And then the final one is new products, which I think is something that historically we kind of lagged behind. We're still very much focused on payouts and pay-ins, but we are beginning to accelerate our capacity to push new products that give our commercial team a wider portfolio to cross-sell. So now we've launched credit offerings. We've launched physical store payments, and we intend to continue doing that so as to have a more well-rounded portfolio of products and services. So if you think of it that way, there are plenty of growth vectors going forward. And I think all of them sufficiently equipped for us to be able to sustain high levels of TPV growth if we execute.

Great. And having had the luxury of sitting in a few meetings before this, the top 10 concentration has remained relatively steady. But one interesting comment was that the actual -- the top 10 merchants has actually changed. And then maybe marrying that a little bit with your wallet share with those merchants, how do we think about that?

Interesting. So the disclosure that we typically give is that the top 10% -- sorry, the top 10 merchants account for 60% of our revenue. And that's been fairly consistent over the last 2 to 3 years. So there's a tendency to extrapolate that the business has remained concentrated on very few merchants. The data point that should be in the disclosures and isn't is that the top 10 merchants in 2025, only half of those were part of that top 10 cohort in '23. So the business is actually more diversified on the merchant front as well. It just happens to be that the evolving top 10 tend to be 60% of the business but they're a very different group of top 10 as the years move on. What that means is that even as some merchants may decline in share of wallet, the overall business still grows very well because it's growing the number of large merchants it has.

And so tying that to share of wallet very quickly, we actually have -- still have low share of wallet of our merchants. I think in Lat Am, which is where we're strongest, we calculate that if you were to grab the entire business of our entire existing merchant base in Latin America, we only process about 20% of their payments. The rest is either done primarily by international acquiring or to a lesser degree, by competitors or other payment service providers. If you move to Africa, that number is even smaller, and that's because international acquiring is still even more prevalent. And then Asia, that number is in the low single digits. And that's primarily because we were late to Asia. We've only really started focusing on Asia over the last year or so.

So this is still very early stages for dLocal. Just through share of wallet gains of existing merchants, we can grow this business multiple times over the next few years. And then if you overlay on top of that, all the new merchants we can add, again, the growth algorithm is quite compelling.

Yes. I mean I think definitely the market sees that growth opportunity. I think on the other side of it, the question mark is always what happens to take rates, right? And I think there is a bit of an inverse relationship with growth in take rates. But help us unpack a little bit the take rates given merchant concentration, sector concentration, pay-ins, payouts, et cetera.

Yes. So there is an inverse proportion for sure, between volume growth and take rates. And that's because our commercial relationships are kind of structured that way. Our merchants, as they grow global TPV with us or local TPV hit newer tiers of discount. And that's just typical volume discounts. What's been happening consistently is that the rate of TPV growth has more than offset the take rate compression. And so gross profit dollar growth has begun to accelerate more recently. And if you think of it really as a management team, we're here to manage for gross profit dollar growth because then when you overlay that with the inherent operational leverage that exists in the financial model, that gets you to very solid EBITDA and earnings growth that we can compound over multiple years.

So take rate for management teams is typically an output. So if you can add a very large contract at half your average take rate, but all of those gross profit dollars are incremental, obviously, you're going to do it. And it doesn't matter because you're adding incremental gross profit dollars. Take rates typically become a contentious point because when you're modeling the company out, it's more of an input, right? TPV times take rate x.

So yes, they will continue to come down most likely. TPV growth should offset compression sufficiently so that gross profit dollars growth is very healthy. And then the natural operational leverage in the business gets us to strong EBIT growth that we believe we can compound out over multiple years because of how large the TAM is.

Yes. And maybe going back a little bit to sort of my initial question from when you started to today in the sense of -- I think one concern investors decide on dLocal is a little bit the volatility in the results. But now, I mean, you had a quarter where your gross profit guidance almost doubled, right, from 20 million to 30 million to 40 million to 50 million. How are you feeling -- like how are you sleeping at night today relative to when you first started given where the business is and where you may have wanted it to be?

Yes. We're always behind where we want to be. I think that's inherent in any CEO, and I think that's fine. We have made significant strides over the last 24 months in terms of building much more solid foundational blocks for the company to be able to grow multiple times over the next 5 years. So we've invested in operations. We've invested significantly in product and technology teams. We've upped our compliance game, which was one of the big concerns. So I sleep much better at night because I think this is a much more solid company.

One case in point, I always say, I think the best proof point of our confidence level in our internal controls and our internal operations is that we've made growing our license portfolio an actual strategic mandate. So we're now licensed in the U.K., we're licensed in the EU. We have a license in Singapore on the way. We have 37 other licenses and registrations, and we've actually started pursuing U.S. licenses. So when you are pursuing licenses in the U.S., that's probably the strongest indication that we feel very good about the robustness of our internal operations, compliance, regulatory frameworks.

But it's never finished, right? I mean when you operate across 45 emerging markets with differing and constantly in-flux regulatory environments, you're always having to invest behind all of those back offices because at the end of the day, when global merchants are outsourcing to you their payments operations across all of those markets, your #1 objective is to ensure the reputational safety of those merchants. So we're significantly better off than we were 2 years ago. It will be a never-ending process of continuous improvement.

And maybe touching on investments needed for the business. You already have very high EBITDA margins, 70%. I mean, you've been as high as 75%. Help us think about what investments are needed? What does that mean for operating leverage? And yes, can you get back to those 75% EBITDA margin?

Yes. So structurally, this business is actually extremely attractive from a financial model, right? It's completely asset-light. Even if you think of the core technology that we build, we're building integrations into existing payment mechanisms. It's not to say that, that isn't complex but it's not the most complex of technology builds. We're not building a digital wallet. We're not building an acquirer. We're being an integration layer, and then we're building all sorts of technology and processes that optimize the performance of all of those payment products across each market. So the business is inherently high margin and is inherently cash flow positive and has inherent operational leverage.

When you overlay on top of that very attractive structural business and financial model, the potential impact of AI on our cost structure because so much of what we do still are people running compliance checks, people doing reconciliations, people carrying out refunds. A lot of these back-office tools of the 1,300 people we have, there's probably 400 to 500, which really are manual intensive processes still that with successful AI deployments, you could significantly reduce that cost structure. So if you overlay all of that on top of it, given everything I know today, I see no reason why we couldn't hit that 75% of adjusted EBITDA to gross profit that we had delivered in the past. And if you take a midterm view, even end up above that.

Interesting. And at the same time, given the growth outlook, given the operating leverage and high margin, why would that not invite competition, which could maybe pressure on the other side of things on pricing to something?

Yes. So going back to my initial question point, right, I said this is a very fragmented market. I think it is a market that has a lot of competitors. I'm actually optimistic. I see it in the other direction. I think that as you begin to gain scale and grow in scale and grow in scale, you can probably deliver some of those scale benefits back to your clients in the form of improved pricing, hence, the take rate compression that I said will continue to exist. But with your scale and your operational capacity, probably crowd out smaller competitors from the market.

And so I think if you take a longer look, what I've said consistently is, although over the next 24 months, I continue to see take rates declining, I do think it's asymptotic, and I think it flattens out much higher than what developed world PSPs are at, which then makes for long term, a very attractive financial model.

Yes. Okay. Makes sense. And maybe if we can break it down a little bit on a country-by-country basis to some extent. We saw Brazil had a very good quarter last quarter. What went right there? Why was Brazil able to grow so much? It's already, I think, your biggest market.

Yes. So I think to understand the strength in Brazil, you have to understand the weakness in Brazil in H2 of '24, right? So Brazil, we were coming in weak in the back half of last year on the back of one large contract where we were losing share of wallet. We had 100% of their business. They had built the technology to have redundancy. And so we were going from 100% to less share of wallet. So that negatively affected us in the back half of '24. As the share of wallet with that merchant began to stabilize because they had already introduced the redundancy, what happened is that the strength that we had all along across the rest of the merchant base began to kick in without being offset by continued declines from that large merchant.

And so as we look into the back half of the year, that's why we're optimistic that Brazil will sustain these levels of growth because it's not like all of a sudden, many merchants accelerated is that the one merchant that was hurting results plateaued. And the strength that had been there all along in the rest of the merchant base no longer has that offset. On top of that, we've seen a pickup in installments in Brazil, which helps our take rate. And so strength and strength that we believe should [ procure ] into the second half of the year.

And then maybe it's neighbor in Argentina, which seems to be coming back but now there's some uncertainty given recent elections and FX. What's the outlook for Argentina?

Yes. Harder to tell. So Argentina, over the last 3 or 4 quarters had been one of the strongest performers. As Argentina reduced import tariffs and began to ease capital controls, we began to see merchant interest in Argentina pick up significantly. So when you look at the last 3 quarters, it was one of the strongest performers. What we've seen more recently is an acceleration in the devaluation of the peso, which always is a bit of a headwind if you're running an Argentine business in peso and reporting in U.S. dollars. And then this weekend, the government had a setback in regional elections. Too early to tell if that changes the macroeconomic outlook. You could guess that maybe the pace of devaluation accelerates.

So from an accounting and reporting perspective, you may see a slowdown in Argentina. I don't think necessarily that translates into a slowdown in constant currency growth. I still think that the demand of Argentine consumers for cross-border trade is unmet and that there's still a lot of run room to the business of our cross-border merchants into that market, right?

And then maybe what about other countries, Egypt has been strong, other Lat Am, where is the opportunity and where there risk?

Yes. So we're seeing a lot of opportunities in Africa. South Africa has been quite strong more recently. Middle East is beginning to pick up. A lot of that driven by Turkey but also beginning to make inroads in Saudi Arabia. Rest of Lat Am, I think, had a very strong Q1, sequentially kind of flattish Q2, potential to rebound in Q3 and accelerate again. So more pockets of strength than weakness. Egypt, which you mentioned, we actually anticipate will be a pocket of weakness. We're seeing slowdown in volumes there and some compression in spreads. But I think that's really the only identifiable potential weak spot into the back half of the year.

Right. Okay. Great. I think another common question we've been hearing is on the stablecoin, right? And some people may see it as a risk. I think you've been saying it's potentially an opportunity. What's the opportunity risk there?

Yes. So a lot to unpack on stablecoins. I think we're quite optimistic right now because if you look at all the stablecoin use cases that are emerging right now, none of them really do away with Fiat. They all start in fiat, then move to stablecoin and eventually move back to fiat. So I would argue that most of the value in terms of ability to monetize across that stablecoin transaction is the on-ramps and the off-ramps where you go from stable back into local currency. So you need someone who has local liquidity and the person who has that local liquidity can actually make the FX.

It so happens to be that, that's exactly what dLocal is, right? We do local payments into dollars, and we do local payouts from dollars into local currency. So we see a very large opportunity for us to serve existing cryptocurrency operators with those on-ramp and off-ramps and FX across the markets where we operate. So if we execute well, that should be a big vertical for us.

Second thing we've done is we already have the ability to be settled in stablecoin or to settle to our merchants in stablecoin. Very limited adoption so far. We have some use cases of remittance players who will settle to us in stablecoins to accelerate the fund flow for the remittances. And so consequently, they don't have to pay us 1 or 2 days of working capital that we would typically foot for them because they receive the remittance instruction, instruct us immediately. We do immediate payout for them in local currency, and then they take 1 or 2 days to send us the U.S. dollars. We would typically charge them for those 2 days of float. If they send us USDC, it's immediate and they save that cost.

That's really the only use case that we're seeing. We're not seeing the large enterprise merchants of the world, the Googles or the Netflix or the Amazons asking to be settled in stablecoin. So I do think that today, stablecoin is probably more disruptive at the consumer level and at the SMB level, where maybe spreads have historically been higher and are more sensitive to time of settlement than at the enterprise level, where enterprise merchants are already transacting at wholesale FX prices and may not be sensitive to 1 or 2 days of extra time to settlement. So again, the capabilities are built. If we see global treasuries wanting to move money around in stablecoin, we can already offer that to them. We're not really seeing significant pickup.

The third element that we're working on, this one hasn't been launched yet, is merchant acceptance. So in the same way that merchants across the global south use us to be paid in credit cards or local payment methods or real-time networks, we'd like to be the ones who offer them the technology to accept stablecoin as payment.

I don't think there will be much consumer adoption for that but I'd rather build the product and be there should it pick up than just assume that it's not going to happen.

Right. Okay. Makes sense. What about other products? I think you recently launched like SmartPix, Buy Now Pay Later. What other products can you launch? What the opportunity set is there?

Yes. So I think one of the weaknesses of our model today is we're still very much reliant on our 2 core products, right, the pay-ins and the payouts. So the ability to allow merchants to collect in local payment methods and then the ability to send money to people in their local bank accounts, local wallets, cash, whatever they want. Related to the take rate issue but also related to increased stickiness with our merchants, one of the things we want to be able to do is to have a broader portfolio of products to cross-sell. But I've seen a lot of fintech companies rush to sort of, oh, I need to improve my take rates. I'm going to offer software. I'm going to offer a whole bunch of things that then the execution of the cross-sell just doesn't happen. We're selling to some of the largest and most sophisticated global merchants. So they're not going to buy from us just because we're pitching it to them. They're going to buy best-in-class or best of breed.

So we've tried to identify what things are very closely related to the payouts and the pay-ins that make sense as a cross-sell. So right now, the 2 products we've announced that have gone to market and that we'd like to scale, the first one is on credit. So if you think about emerging market consumption, credit is absolutely necessary. Consumers across the global south need credit to buy. On credit cards, it's obvious where the credit is coming from. But on alternative payment methods, which is more than 2/3 of our volume, there aren't that many credit overlays.

And so if we can integrate existing buy now, pay later players, existing credit offerings, so not take on credit risk or credit on our balance sheet but integrate existing credit providers into our merchants' businesses so that they can offer more credit to their emerging market consumers, we think that's a very attractive business and one with higher monetization. So Buy Now Pay Later Fuse is our buy now, pay later platform, where in the same way that merchants can select which payment methods they want to include in checkout, they can now also include Buy now Pay Later and other credit alternatives into checkout integrated through dLocal. We manage all of that complexity for them.

The second product that we've said we're piloting and testing is another characteristic of the developing world is that online penetration is still much lower. So the vast majority of transactions, payment transactions are still occurring in physical store. Historically, we had no way to offer payment solutions at point of sale. We're now building a product, which would be a dLocal point-of-sale solution. So that would allow us to provide infrastructure to merchants that have physical store payment necessities and needs. So emulate what we do for online merchants for offline merchants. So that's what we've announced.

Again, the idea is to build the internal capability so that we get better at launching new products that are needed by our merchants and that we believe we have a right to win by launching that product.

Great. I have a couple of minutes. I want to see if there's any questions from the audience, if anybody has any. Now I have a couple more.

Gave a great answer about your internal controls and how that makes you comfortable. And then later on, you talked about how you see no problems really at the country level. When Tito asked the question, I thought about the previous quarters where there were sudden surprises, like one, country was a surprise, one customer was a surprise. Is there anything that you can do going forward to reduce that sort of volatility? Or is it just inherent?

Yes. Okay. So thanks for those final comments. So emerging markets are volatile, and they will be volatile, and they continue to be volatile. Like I was talking about weakness in Brazil and Mexico. Those are our 2 largest markets. That's not minor weakness. Despite that, H2 was a record semester for us. Now we're seeing Brazil rebounding faster than I thought. That's also volatility in the good direction. That's not going to go away. I think what's happening, and we've said this all along, is scale, by definition, will smoothen out the impact of that inherent emerging market volatility. So now Egypt is weak. We're still guiding to a very strong H2 despite Egyptian weakness.

So one of the things that I think we've delivered the most on since I took over is just that consistency of growth and diversification has meant that the business is increasingly less exposed to whatever pocket of weakness is occurring in one emerging market or the other. But that's always going to be there because it's the nature of EM. If that didn't exist, the value of what we offer our merchants wouldn't be as large either. They could probably go and do it themselves if everything was Switzerland.

Question on your Asia business. What's the split between new logos versus existing clients just for the Asia business? Because as you said, there are a ton of like competition there. So what's really the value add for new logos, cheaper rate or -- and reversely, do you see the Asian guys actually coming to attack Latin America?

Perfect question. I said we were late to Asia, and most of Asia has been solved. Our Asia growth strategy is not really about new logos, very hard pitch. It's about existing merchants who have solid relationships with us in Africa or Lat Am are already integrated. And so if I can offer conversion or price or maybe they just need one more redundancy player, that's my in. I don't think we expect to go gain Asian logos from 0, at least not in the initial phases. Once we have sufficient scale, then maybe we can.

Do I expect the Lat Am -- the Asian guys to come into Lat Am? I think eventually, yes, but that's also an opportunity. For example, I can say this without saying it, I think the largest Asian fintech actually uses a lot of our infrastructure for their Lat Am growth. So there's also an opportunity if we see Asian fintechs wanting to move into Africa or Latin America because we're also a very relevant infrastructure play.

Great. I think with that, we are out of time. Thank you so much, Pedro. It's been a pleasure.

Thank you.