DLocal Aktie

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.

Thank you for standing by, and welcome to the dLocal Limited Second Quarter 2025 Results Conference Call.

I will now hand the call over to the company.

Good afternoon, everyone, and thank you for joining the second quarter 2025 earnings call today. If you have not seen the earnings release, a copy is posted in the Financials section of the Investor Relations website. On the call today, you have Pedro Arnt, Chief Executive Officer; Jeffrey Brown, Interim 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 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.

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 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 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, and thank you for joining us today. We delivered another quarter of solid growth and disciplined execution with significant acceleration across key financial metrics. These quarterly results are another testament to our high growth, expanding margin and healthy free cash flow business model. They also demonstrate how we provide substantial value to our merchants. We continue to experience strong momentum across the business, once again setting a record high TPV of $9.2 billion and achieving our third consecutive quarter of over 50% year-over-year growth.

Both revenue and gross profit also reached all-time highs of $256 million and $99 million, respectively. Our core markets, particularly Brazil and Mexico, rebounded to deliver solid performance, while the rest of our geographies are growing even faster. All this underscores our increased business diversification and the resilience of our larger markets.

Despite our ongoing investment cycle to support our future growth trajectory, we've posted 5 consecutive quarters of improvement in the adjusted EBITDA over gross profit ratio, demonstrating our commitment to investing towards rightsizing our business, but doing so in a disciplined manner. Net income for the quarter totaled $43 million, negatively impacted by the Argentine pesos devaluation on our bond portfolio. Given the shifting market dynamics, we took the opportunity to expatriate funds more efficiently, reducing our position by over 80% and reallocating to U.S. treasuries. This move reduces the expected volatility and increases our funds available for general corporate purposes. If we exclude these effects, net income would have been $53 million. These are all very positive outcomes over the long run despite the negative impact on this quarter's bottom line.

The business also continues to deliver strong cash generation, with $48 million in free cash flow this quarter, a clear reflection of the strength of our underlying operations and our solid financial position. During the quarter, we added three new licenses: UAE, Turkey and Philippines, an important milestone for us in our strategy to offer our merchants the advantages of our growing portfolio of financial services licenses across the global south. Before we go into greater depth on this quarter's results, I'd like to take a few minutes to revisit the broader trends driving these strong results in our business.

First of all, we continue to observe a substantial long-term opportunity within the markets where we operate. Our addressable market in terms of total payment volume is valued at trillions of dollars, and because it still exhibits low penetration in digital adoption and card usage is projected to experience double-digit annual growth through 2030. Second, if we look at our current merchants' business in the countries where we operate in, we see significant opportunities to grow our share of wallet with those merchants. This will happen as we expand with them into new countries, as we integrate additional APMs and unlock new lines of businesses that we do not yet serve.

The third growth vector is the addition of new merchants. One way to think about the potential growth in that merchant base is that we are still in the early stages of the S-curve of digital merchants adopting emerging markets payment localization. This growth we've observed follows an identifiable pattern. Merchants will typically start by launching their businesses in developed markets. And then as they expand into emerging markets, do so using only international acquiring. This nets them initial access to only a portion of the population, delivers lower conversion rates and a generally poor user experience, ridden with hidden costs and friction.

Eventually, the size of these businesses across EMs reach a scale that demands the localization of payments to solve for those barriers to adoption. And finally, they initiate a phased expansion into other emerging and frontier markets, repeating the cycle. dLocal is able to accompany them through that journey. So as we move up the S-curve with these merchants, we build a more diversified, stickier and less volatile business that serves more merchants across more countries and in a greater number of payment methods. We see this playing out in our numbers. We now serve nearly 760 merchants.

If we consider the top 50 clients, they operate with us on average in 11 countries and using 48 payment methods. This is up from 8 and 35 only 18 months ago. Our geographic diversification has increased as a consequence with our top 3 markets now representing less than 50% of revenues, down 8 percentage points since 2023. The revenue in the rest of our markets are growing almost 3x faster if we look at the last 4 quarters. And so as we increase our merchant base and move up the S-curve with them, we expect merchant diversification to increase as well going forward.

As I've highlighted in the past quarters, we continue to increase our pace of investment in product innovation. I'd like to share some of the highlights from the last 3 months of these deployments. Just last week, we launched SmartPix in Brazil. This first-in-the-market groundbreaking solution redefines the Pix experience and replicates most of the functionalities and convenience of card-on-file payments for merchants. SmartPix is already live with clients and demonstrates our commitment to being leaders in the alternative payment method space throughout the global south.

During the second quarter, we also launched multiple Buy Now Pay Later integrations in several markets where we integrate market-leading BNPL solutions to our global merchants checkouts. Following our installment offerings in Brazil and Argentina, this is another important step towards enabling our merchants to benefit from the massive demand for credit that exists throughout emerging markets. It is important to note that we are not taking credit risk ourselves, but are able to revenue share on the credit yields being made by our BNPL partners.

We also continue to make progress on our stablecoin solutions, where we believe we are uniquely positioned to take advantage of some of the opportunities arising. With our broad EM presence, highly developed payout and pay-in infrastructure, local FX liquidities and capabilities and years of experience with stablecoins, we are a perfect on-ramp and off-ramped provider for stablecoin players and merchants looking to leverage the advantages of this emerging technology. Our partnerships with Circle and BVNK are some examples of the advances we are making in this space.

Before I turn it over to Jeff to give you a detailed breakdown of our P&L for the quarter, I'd like to make a few comments regarding the operating leverage in our financial model. As you know, and as we've been very clear, we've been in an investment cycle focused on product, tech, operations and compliance capabilities. Yet despite this investment cycle, we've turned a corner and continued to deliver higher revenues per employee that are increasing and that are better than many of our public company best-in-class peers, all of whom, by the way, process more TPV than we do. This reflects that despite smaller scale, we have a very lean and efficient culture. Furthermore, we believe there are efficiency and scalability gains ahead of us from our ongoing AI and automation initiatives, which are a core part of where the technology resources from our investment cycle are being allocated.

Great. So with that introduction, I'll now hand it over to Jeff to provide a more detailed review of our second quarter results.

Thank you, Pedro. Good afternoon, everyone. I'll walk you through the main figures for the quarter. We had another strong quarter, building on the positive trends we have seen since mid-2024. By consistently executing our strategy, we have once again hit record numbers in TPV, revenue, gross profit and adjusted EBITDA, all while maintaining disciplined cost management and continuing our geographic expansion. Consequently, in the second quarter of 2025, our TPV surpassed $9 billion for the first time, growing 53% year-over-year and 14% quarter-over-quarter. In constant currency terms, TPV would have grown by 65% year-over-year.

Growth was particularly strong in remittances and commerce, followed by SaaS, delivery, streaming and ride-hailing, slightly offset by weaknesses in advertising. Our TPV growth was broad-based. We saw strong quarter-over-quarter and year-over-year growth across cross-border, local-to-local, pay-in and payout flows. This reaffirms our leadership across a variety of solutions in our markets. Revenues reached $256 million in the second quarter and grew 50% year-over-year or 63% on a constant currency basis. This follows from the strong volume growth with a recovery in Brazil and Mexico, important growth in Argentina and notable contributions from Turkey, South Africa and Pakistan. On a quarter-over-quarter basis, revenue was up 18%, exceeding TPV growth, given a high share of pay-ins. This positive result was partly offset by Egypt, where we experienced a partial volume loss due to a large merchant implementing redundancies in the market in addition to lower FX spreads as a result of the currency devaluation.

Moving to gross profit dynamics. During the quarter, gross profit reached a record of $99 million, up 42% year-over-year or approximately 55% on a constant currency basis. This volume was driven by volume growth in Argentina, Brazil, Egypt and Mexico and growth in other markets, particularly Bolivia, South Africa and Turkey. This is a demonstration of the continued globalization of our business with profits from both larger and smaller economies.

On a quarter-over-quarter basis, gross profit increased by 17%, primarily driven by performance in Brazil, given a higher share of installment payments and the recovery of one-off processing costs from the previous quarter, Argentina's strong performance driven by higher volumes and increases in advancements, fully offsetting the impact of lower FX spreads and performance in other Africa and Asian markets, particularly in South Africa due to volume growth and lower processing costs. This positive result was offset by Egypt, as previously mentioned, and other LatAm markets that despite volume growth across various countries, were adversely affected by retry costs invoiced during this quarter in Chile and Colombia. Excluding Chile and Colombia, these markets grew 9%.

Our net take rate showed an improvement of almost 3 basis points quarter-over-quarter, largely due to higher share of pay-ins and a recovery of processing costs from the previous quarter. These positive effects were partially offset by lower FX fees in Argentina as a result of spread compression. As you can see, a number of mix shifts impact the evolution of our take rate quarter-to-quarter.

We continue to demonstrate operational leverage this quarter with careful expense management. Accordingly, for the second quarter, our total operating expenses were $43 million, representing a 10% increase quarter-over-quarter and a 9% increase year-over-year. On a quarterly basis, the increase in OpEx is primarily linked to increases in headcount, especially in tech and higher third-party services. Adjusted EBITDA reached $70 million, up 21% quarter-over-quarter and 64% year-over-year. The ratio of adjusted EBITDA to gross profit for the quarter was 71%, up 2.7 percentage points versus the first quarter, marking this the fifth consecutive quarter of improvement.

Although we anticipate a growth in OpEx in the second half of the year as we continue with our investment cycle, these results highlight our company's frugal culture and our built-in leverage in our business model. As Pedro mentioned previously, net income totaled $43 million for the quarter, impacted by the Argentine peso devaluation and expatriation costs from our Argentine bonds. We took advantage of a window to significantly lower our exposure to Argentine securities, which is expected to reduce volatility in our finance results going forward.

Our effective income tax rate ended the quarter at 16% compared to 10% in the first quarter of 2025 as a result of higher local-to-local share of pretax income. As you may recall, the effective tax rate in Q1 was favorably impacted by a one-off cost in Brazil. Finally, our free cash flow for the quarter, defined as net cash from operating activities, excluding merchant funds, less CapEx was $48 million, a significant 22% increase from the first quarter. We ended the period with a robust liquidity position with corporate cash and cash equivalents at approximately $254 million. The decrease versus the prior quarter reflects the payment of dividends in June.

With this, I'll pass it back to Pedro for his concluding remarks.

Thanks, Jeff. Moving on, I wanted to give you an update on guidance. On TPV and revenue, we expect to end the year around the upper limit of the guidance we shared at the beginning of the year. And on gross profit and adjusted EBITDA, we believe we are likely to exceed the previously stated upper limit. This is due to the strong performance in the first half of the year and the sustained momentum we expect across our businesses.

We've provided new ranges for your benefit, but we do want to also highlight some risks to keep in mind as you evaluate them. One, the evolving macroeconomic and trade landscape globally and its potential impact on emerging market consumers. Second, the recent increases in tariffs on cross-border e-commerce in Mexico, along with potential regulatory changes in other markets. Third, shifting fiscal regimes in Brazil. And finally, the potential for currency devaluation and changes in capital controls in the markets where we operate.

Despite the inherent risks, we remain optimistic on H2 2025. It is precisely in these environments of volatility that our key differentiators, a disciplined approach to scaling our business, deep local expertise and a steadfast commitment to delivering value to our merchants prove their worth. We're confident in our ability to navigate these challenges if and when they emerge and seize the significant opportunities that lay ahead.

I have a final set of announcements that we think are perhaps the most relevant even on the back of such strong quarterly numbers. After a full review carried out by our Board of Directors on our corporate governance and structure and practices, we would like to announce a series of important decisions. First, on the people front. We are pleased to announce that Guillermo López Pérez will be joining us as our new CFO. Guillermo has 20 years of experience in the payments industry, first at American Express and more recently at Visa. At Visa, he was the CFO of Continental Europe and more recently, has held positions at Tink, a leading European open banking provider and at Featurespace, a U.K.-based fintech specializing in real-time fraud detection and risk management. Guillermo brings with him deep expertise in fintech as well as a clear track record of scaling businesses. We're all very excited to welcome him on board. I also want to thank Jeff for his dedication and leadership throughout this transition period.

We're also pleased that Christopher Stromeyer had joined us in June as the SVP of Corporate Development. Chris brings with him years of experience at Bain across North and Latin America, and most recently served as Chief of Staff and Head of Strategy at the Latin American fintech Ualá. Some of you have already met Chris. He also leads our Investor Relations team as a part of his remit.

We are committed to transitioning to a majority independent Board. Our current independent directors are fully committed to continuing to serve in their roles, and we have begun the search for additional independent directors who will possess complementary backgrounds and skill sets. Of the remaining nonindependent directors, General Atlantic has agreed to remain on the Board as did I. The remaining seats will be held by members of the founding team. As we complete the new Board, we will also constitute nominating and corporate governance and compensation committees to further strengthen oversight and align with corporate best practices.

In addition, we will cancel the treasury shares currently held on our balance sheet. This action underscores our ability to deliver strong underlying business growth while returning excess capital to shareholders, whether through dividends or buybacks and reflects alignment with corporate governance best practices. We've covered a lot of ground today, strong business momentum and a lot going on here at dLocal, just as we always expected.

Thank you all for your trust and partnership, and we can now open the call for questions.

[Operator Instructions] Our first question comes from the line Tito Labarta from Goldman Sachs.

Congratulations on the strong results and the higher guidance. I guess just on the higher guidance, just to understand, what drove sort of the, I guess, the better-than-expected results? I mean you saw volume growth. I mean, Brazil and Mexico were strong. But did anything sort of surprise you from compared to when you gave your initial guidance? And I guess, how do you think about the sustainability of this sort of 50-ish percent TPV growth? Just to think about how eventually that could decelerate. I mean, I think the long-term potential is still very strong, but just to think about how that could moderate over time. And yes, what was sort of like better than expected that you're getting more volumes than maybe initially thought?

Thanks, Tito. So very strong results, obviously, given the level of the raise that we are giving on our guidance. We see the business with a much stronger momentum than we were seeing when we entered the year. I think it's fairly spread across the board. We saw Brazil rebound very quickly. Mexico was up again after a weak quarter. With the exception of Egypt, the rest of Africa and Asia also doing really well. And other, LatAm, as we mentioned, Colombia with negative impact on gross profit from -- retries from prior quarters. But other than that, a lot of strength there as well. So it's really across the border.

As we've said, we think that part of the shifting landscape geopolitically has shined a greater light and greater relevance on emerging markets as a venue for growth for global merchants. And when you look at the S-curve explanation that we were giving during the prepared remarks, I think what we're trying to say is that we see a pickup in interest in localizing payments from global merchants. We're seeing them take on more markets with us, more local payment market methods in markets where they were already operating.

So again, always hard to predict across EM what's going to happen 24, 36 months out. But we feel that this surprise to the upside for us in how the first half of the year has played out seems to be something that we will continue to see into the back half of the year. There are risks that we've outlined. So we're being somewhat cautious on the guidance. But in general, we've seen the business enter the third quarter with the same kind of positive momentum that it exited the first half.

Great. That's helpful. Maybe just a follow-up to that. When you think about maybe the breadth of this growth relative to your merchants, is it coming from maybe a few particular merchants? Are you seeing it across the board, all of your merchants? Just to think, I mean, given the wallet share you have, there is a lot of room to grow. But how do we think about sort of the breadth of increased volume from all of your merchants across? Or is it concentrated in a few merchants?

Yes. So if you look at the concentration of revenue over merchants, you'll see that, that number hasn't started to diversify as much as well. So I think it's fair to say that this increased push into emerging markets and the really deep localization of payments continues to be more prevalent among the very large global players. Now that does not mean that the strong results are driven by one or two merchants. I would characterize this as being driven by the top 20 merchants. And so I think that's also good news.

Congrats again on the strong results.

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

Good luck to Guillermo, Chris and Will that joined the Board. Pedro, two questions on my side. The first one is related to Brazil. You mentioned the one-off processing costs as a gain. And just a clarification. I remember you had this one-off cost last quarter. I just want to understand if it was a reversal. So it was a billable positive this quarter that's going to be a one-off and won't repeat next quarter? Or it's simply adjusting for the fact that there was a one-off last quarter that doesn't repeat? So just to be clear, if it was a reversal or only the fact that you didn't have this cost.

And then my second question, I'm going to take the opportunity to ask about stablecoins. To be honest, 90% of my discussions on the local has been on this topic. And I think it's not obvious. A lot of people, they have the view that this is a threat to the business, but I think you do have some use cases as an opportunity. So just to share your view, a few minutes sharing your view on how you see stablecoins impacting your business, and if there is anything in the short term that is happening with your clients.

Okay. So first of all, on Brazil, a part of this is a reversal, not all of it is a reversal. And I think more importantly, what you're looking for is we don't see this as something that generates as much quarterly -- quarter-on-quarter sequential headwinds that we think Brazil will then decelerate significantly moving into the third quarter. But there is an element of this, not -- there's a part of the result that is a consequence of a reversal. Notwithstanding, Brazil has actually rebounded well and to the best of our current knowledge, should sustain that momentum in terms of gross profit into the third quarter at least and ideally for the remainder of the year and in the future as well. So the accounting reversal isn't enough where we think it generates a significant enough sequential comp that then we see Brazil pulling back again next quarter, at least to the best of our knowledge through August 13.

Stablecoins, interesting. I think there is somewhat of a misconception that this is only a threat to us. We actually think that we're uniquely positioned to take advantage of stablecoin adoption as it begins to grow. A couple of reasons for that. I think, first of all, we have been involved in the space for a few years now. I think in the past, that was a bit of a no-no, but that knowledge and that experience, I think, is an advantage now. When you think about how stablecoins are increasingly being adopted, there is still enormous need for the on-ramps and the off-ramps, and really on-ramps and off-ramps from fiat to stable and from stable to fiat, we are uniquely positioned to offer that service. They are about local liquidity and attractive FX rates, both of which are strengths of dLocal because of our pay-ins and payouts businesses across multiple, multiple emerging markets.

We also already offer our merchants the ability to settle to us or from us in stablecoin so as to accelerate settlement times of cross-border flows. And so if you think about it that way, our belief is that some of the hardest parts to build within the stablecoin value chain, which is the shift from fiat to stable and then back from stable to fiat and also where a lot of the margin in stablecoin lies because of FX is exactly where dLocal plays and participates. So very specifically, we have a vertical sales force and a vertical product team focusing on this, and we actually think that there's an opportunity for us to capture.

More conceptually, if you think about what we do, we essentially solve merchants' needs for different ways to pay and to settle money cross-border. And so unless you're an absolute maximalist and you believe that fiat will altogether go away or local currencies will altogether go away and all of global trade all of a sudden happens in U.S.-denominated stablecoins, which we certainly do not believe is the case, then that generates all sorts of merchant needs around their stablecoin infrastructure that dLocal and its partners are really -- that's what we do. That's what we're all about. So we currently see stablecoin as an opportunity much more than a threat.

That's clear, Pedro. And congrats for the quarter.

And our next question comes from the line of Jamie Friedman from Susquehanna International Group.

I was wondering what your updated messaging might be about take rates, Pedro. So you had an improvement here. It sounds like you're calling out pay-in and payout mix and some processing-related stuff. But when you step back really longer term, how are you structuring your thoughts about the trajectory of take rates?

Thanks, Jamie. It remains unchanged. I think even if you look at the guidance, we continue to see our merchants significantly growing their volumes with us, potentially hitting new pricing tiers. I think in general, we continue to exert downward pressure on our acquirers and processors, but we also see merchants exerting downward pressure on the cost of processing payments on us. So we still believe that the general trend is a downward trend.

Now what we've been saying for some time now, and I think the last few quarters have validated is that, that erosion in take rate is gradual, that as we offer more frontier markets and mix shift moves away from some of the larger markets. And more importantly, as we accelerate our go-to-market of new products and new value-added services such as Buy Now Pay Later, those are also potentially higher take rate products. And so that all in, although we still think take rates will continue to decline, we probably have a more constructive view in both the pace of that decline and also what the bottom may be.

Okay. And then when you were describing the vectors of growth and the S-curve of adoption, you also talked about new products. And then you referenced them -- introduced the Pix functionality parcel out of the Pix expanded solution. I'm just wondering, what are you excited about in terms of new product introductions? What are the merchants asking you about? And what's your time frame for delivery on those?

Yes. So the products mentioned are all live. I think if I had to answer your question, I would probably answer that we see significant merchant interest in credit offerings and the ability to offer credit to their consumers across emerging markets without necessarily want to underwrite credit themselves. Hence, the Buy Now Pay Later Fuse platform, which allows them to offer the best-in-market buy now, pay later players and gives us leverage to rev share with the buy now, pay later players because we're giving them massive distribution into some of the world's largest digital companies. So that's one area that we're focused on, and we see things moving at a fast pace.

SmartPix is a quite unique way to access Pix, combining the open banking framework available in Brazil as well as the Pix rails, and that allows us to build features for Pix that make it more feature resembling credit cards and tokenized payment methods, which has also shown a lot of interest in our merchants. And then the third area we mentioned is the stablecoin and crypto space. So I think those are probably the three areas that we're looking at the most in this cycle of product innovation. A fourth one is potentially beginning to also offer solutions for off-line global merchants. And those four, I think, are the areas of new product launches that most of our engineering resources are being allocated to.

And our next question comes from the line of Neha Agarwala from HSBC.

Congratulations on the numbers. First, can I ask about -- you mentioned tariff as a risk and cross-border as well. Can you elaborate a bit on that? How do you see the impact of tariffs? And where do you see the biggest risk for dLocal coming from that? My second question is -- was on the product innovation. And can you double-click on the offline piece that you mentioned that's still upcoming? Previously, dLocal had mentioned that offline is not as fast growing as online, and therefore, you don't want to have capabilities on the offline side. So it seems that, that has changed. If you can please explain what is your thinking on that.

And my last question is on costs. I think you did a great job this quarter, better than expected on the cost front. Should we expect to see more controlled cost growth in the second half of this year and you've turned the corner on the cost side? Or were there any one-offs which might kind of not be there in the second half?

Thanks, Neha. So tariffs, I think there's two things we need to monitor closely. And in a way, they're related to the rapidly shifting tariff wars or tariff being used as a central part of geopolitics. So for example, Mexico has recently increased the de minimis on imports of e-commerce. And obviously, that's something that potentially could impact our merchants. We haven't seen any negative impact so far, but that's something to monitor closely. And what we highlight as a potential risk is simply as there's greater clarity on how the U.S. starts imposing tariffs on trade partners, are there retaliatory measures, how does the Brazil-U.S. issue end up, I think it's still unclear. So I think this is a potential risk, not a risk that we are calling out because of any headwinds that we have seen so far in our business.

So just potentially in terms of GMV slowdown could happen if there's no noise around tariffs. So that could be [ looked ] to GMV?

Correct.

Not take rate?

No, not really. I think the more immediate risk is simply that these tariffs could hinder cross-border commerce, which is the largest category we service. Or if the concept of digital taxes were to emerge, that could also impact many of our digital merchants. And again, just to stress, this is a risk given the uncertain trade environment, nothing that we have been seeing in our numbers. Offline, look, offline is still by far the largest market in terms of where payments occur in the emerging world. And what we began to see is that we were being approached by digital companies, but who somehow serviced the offline world. So either ISVs or payment companies who had smart POSs or SMB ERPs tied to POSs and that we're looking for a technology partner that could help them with payments and expatriation on those hardwares that served physical commerce.

And as a consequence of these specific merchant contracts, we've began to develop the capabilities at dLocal to not only process payments online, but also to process payments at POSs in the physical world. So it's early stages. There are already contracts tied to this that once they go live, we will announce. But that has been the thinking behind trying to also offer solutions for offline merchants. It's really been a reaction to specific RFPs we won and contracts that we've signed.

Jeff, I don't know if you want to take the one on OpEx for the second half of the year?

On OpEx, I think the answer is we continue to expect to increase OpEx over the next few quarters. We're going to be doing more hiring, want to hire into product technology operations. I think some of these comments were made in our recorded remarks, expansion expenses into new markets and new products. And then we still have some third-party expenses in our budget that we expect to spend in the second half of the year. So to answer shortly, we expect OpEx to continue to increase, and I think that's implicit in our guidance.

And our next question comes from the line of Matt Coad from Truist.

Pedro, I wanted to go back to the net take rate discussion. Just kind of wanted to make sure we have all the moving pieces right here, particularly on the 18-point headwind from the tighter FX spreads in Argentina, the 15-point tailwind from the processing cost recovery. Could you provide a little bit of color on like what you expect for 3Q, right? Like what impacts here were onetime and we should adjust for them versus like what impacts are ongoing as we look forward?

Yes. Let me start with the second part of the question, which perhaps is the more relevant one. If you look at the midpoint of guidance, there's a slight reduction in take rate. And so we do expect, as I said earlier, that the trend is slightly down. The Argentina impacts, as you realize, they kind of offset each other. So when there's a compression in spreads between official and parallel rates, it reduces our revenue, but it also lowers our costs somewhat in line. And so those kind of offset each other.

So for the remainder of the year, to the best of our current knowledge, we have take rates that are slightly down, almost flat, getting us to a full year take rate that at the midpoint is still above 100 basis points. It's hard to predict this because it depends a lot, as you can see here from the drivers of what the final mix between pay-ins and payouts, local to local and cross-border country and merchant mix are. So I'm not being coy here. It's that genuinely, we understand the drivers very well. It's not really in our control how these different drivers necessarily play out. What's implied at the midpoint of guidance again is a slight continued reduction in take rates, which is consistent with the answer I gave earlier.

That's super helpful. I understand that there's a lot of moving pieces. And then for my follow-up, I wanted to go back to the point on the top 10 merchants, right? Revenue growth with these merchants is still really strong, up 49% year-over-year. I was hoping you could touch -- kind of like break down that growth for us a little bit. I'm curious how much of that growth is kind of coming from these merchants using dLocal in more countries. And then as we think about growth from this growth vector going forward, what does the pipeline look like now in terms of these companies using dLocal in even more countries compared to, say, 12 months ago?

Yes. Look, as a general trend, and you see that in the data points we shared, not of top 10 merchants, but of top 50 merchants, we do see a consistent increase in the number of markets we serve for our merchants across most of the larger merchants. I'd say that trend is even more marked in the top 10. So if I think of the top 3 or 4 merchants, a significant portion of the growth is from new markets, in addition to most of them also growing their TPV with us in existing markets, either because their businesses grow or because we gain share of wallet.

There are a few top 10 merchants where growth has been more about simply gaining share of wallet in existing markets and less so about more markets. So it's hard to give you a blanket answer. In general, yes, the average number of markets we serve for top 50 merchants, you have the data. And for top 10, that growth is even more noticeable in terms of the number of markets that we serve for the top 10 merchants.

This does conclude the question-and-answer session as well as today's program. Thank you, ladies and gentlemen, for your participation. You may now disconnect. Good day.