dLocal delivered yet another strong quarter. However, the analysts concern on the Argentina crisis and the rise in company’s operating expenses in Q3 seem to dampen the upside to the stock. The company’s revenue grew by 63% YoY and up 11% QoQ to $111.9 million. The company beat the analysts revenue estimates by 1.6% and the revenue growth is good in spite of the high comps of last year. The total payment volume (TPV) grew by 51% YoY and 12% QoQ to $2.7 billion.
The company’s net revenue retention rate came at 152% compared to 157% in the Q2 2022 and 185% in the same period last year. The NRR has decelerated, however it is within the management guidance of above 150% for the year 2022.
The company’s revenue from top 10 merchants accounted for 53% of the revenue. This is down from 51% in Q2 2022 and 57% in Q3 2021.
The company’s LatAm revenue grew by 39% and flat QoQ to $87.3 million. The LatAm revenue accounted for 78% of the total revenue. Excluding the Argentina’s cross border business, it grew 43% YoY and 7% QoQ in LatAm. Argentina’s central bank has imposed some limitations to access the foreign exchange market for the payment of certain imports of goods and services as the country faced a fall in foreign currency reserves. The management mentioned in the call that the situation has improved during the quarter. However, the analysts were not too impressed as they had concerns that these issues in Argentina could be recurring unless the situation in Argentina improves.
The company’s revenue in Asia and Africa grew by 312% YoY and 80% QoQ to $24.5 million. It accounted for 22% of the total revenue compared to 9% in the same period last year. The management is positive on the growth in these regions. The company’s single API has helped it to quickly ramp up in these regions.
The company’s President, Jacobo Singer said in the earnings call, “So I think, overall, it's taking what was saying, the fact that we have a single API we call — and we have. There are a lot of analogies between the services we have been providing Latin America and opportunities that are in Africa and in Asia, and we have been able to replicate our playbook in LatAm in those two continents. And the merchants, they value a lot the fact that, that playbook is constant on the same API and on the same agreement, allow them to test our service or in the region faster than doing any other solution before.”
The company’s gross profit grew by 56% YoY and 9% QoQ to $53.9 million with a gross profit margin of 48% compared to 49% in Q2 2022 and 50% in the same period last year. The management mentioned that the slight decrease was due to the country and product mix. Diego Canay, CFO of the company said in the earnings call, “Our cost of processing for the quarter represented 2.0% of our TPV, stable quarter-over-quarter and compared to 1.8% a year ago. The increase versus Q3 2021 was driven by business mix, particularly an increase in pay-ins, which have higher processing costs than payouts.”
The operating profit was $37.2 million compared to $21.6 million in the same period last year. The operating margin was 33% compared to 31% in the same period last year. There was a rise of operating expenses that was primarily due to the increase of headcount, marketing, and travel expenses.
Diego Canay said in the earnings call, “If we look at operating expenses for the quarter, we see that they have grown 26% year-over-year, as we saw an increase in salaries as we continued expanding our team with focus on sales, expansion and technology. In addition, we increased our travel and marketing expenses. We operate in a hyper growth business and want to keep investing in building the infrastructure and harvesting long term sustainable growth with a very disciplined and lean approach.”
The company’s net profit came at $32.5 million compared to $19.7 million in the same period last year with the net profit margin of 29% during both the periods. The company’s EPS came at $0.10 compared to $0.06 for the same period last year. The company missed the analysts EPS estimates by $0.01. The profits for the current quarter include net financial losses of $2.5 million which was mainly driven by higher cost of hedges due to the changes in FX regulations and higher interest rates. The management expects these financial costs to get normalized in the coming quarters.
Jacobo Singer said, “So regarding financial expenses and related to this particular change in regulation, yes, part of Q3, we have incurred into high cost of hedges because of the change in regulation. We see these being temporary changes, which we need to incur extraordinary in order to cover our position. As we have always been saying, we take a very conservative approach towards FX. We have never been in the business of taking corrective risk — so that's why we hedge non-dollar amount. If anything, we expect in the coming quarters this cost to get again normalized going forward.”
The adjusted EBITDA increased by 58% YoY and 9% QoQ to $42 million. The adjusted EBITDA margin was 37% compared to 38% in the last four quarters. The management has a given a guidance of 35% plus for the year 2022. To an analysts question for the guidance for Q4, Diego Canay replied, “Sure. So we give you annual guidance, so we're not giving guidance per quarter. As we mentioned, all the strengths continue in terms of growth. As I mentioned, we have an increase in OpEx in the third quarter, but we don't expect that type of increase in the coming quarter. So we expect operating leverage going forward. We will guide for a new EBITDA margin level in the next year, but these are the trends that we are seeing right now.”
The company has a cash and marketable securities of $542.3 million which includes $320 million of own funds and $222 million of merchant funds. The company has debt of $14.8 million. The company generated a free cash flow of $121 million in the past year.