DLocal Limited (Nasdaq: DLO) — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a quarterly report; it does not provide standalone Q4 results. Financial statements are prepared under IFRS in U.S. dollars. Unless noted, amounts below are in millions of U.S. dollars.
Business context
dLocal operates a single payment-processing segment, providing pay-in, pay-out and marketplace payment services to global merchants in emerging markets. At year-end, it served 35 countries and connected merchants to more than 700 local payment methods. Revenue is primarily transaction-based, with foreign-exchange fees on some cross-border payments.
Financial and operating performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total payment volume (TPV) | $6,049.0 | $2,064.8 | +193.0% |
| Revenue | $244.1 | $104.1 | +134.4% |
| Gross profit | $130.4 | $60.1 | +117.1% |
| Operating profit | $83.8 | $30.9 | +170.9% |
| Profit for the year | $77.9 | $28.2 | +176.2% |
| Adjusted EBITDA | $99.2 | $41.9 | +136.5% |
| Adjusted EBITDA margin | 40.6% | 40.3% | +0.3 percentage points |
| Basic / diluted EPS | $0.27 / $0.25 | $0.10 / $0.10 |
Gross margin was approximately 53.4% versus 57.7% in 2020; operating margin was approximately 34.3% versus 29.7%; net margin was approximately 31.9% versus 27.1%. Adjusted EBITDA is a management performance measure and should not be treated as a substitute for IFRS profit.
- Cash flow: Operating cash flow was $108.5 million, investing cash outflow was $37.9 million, and financing cash inflow was $153.7 million. Operating cash flow included a $118.3 million working-capital inflow, substantially reflecting growth in merchant-related payables and receivables.
- Cash and liquidity: Cash and cash equivalents were $336.2 million, including $108.3 million of merchant client funds. Management stated available cash and operating cash flows were expected to cover ordinary working-capital and capital-expenditure needs for the next 12 months.
- Debt: Borrowings were $5.0 million, a Brazilian real working-capital loan due April 2022 at a fixed 1.85% annual rate. Lease liabilities were $3.9 million. The filing reports net debt of positive $328.0 million, reflecting cash and financial assets net of borrowings, leases and derivative liabilities.
- Capital expenditure: $48.0 million, compared with $3.9 million in 2020, mainly for PrimeiroPay-related intangible assets, software development and hardware.
Changes versus prior year and unusual items
- Revenue growth was led by existing merchants: existing-merchant revenue was $228.1 million, while new-merchant revenue was $16.0 million. Net revenue retention was 219%, up from 171% in 2020; the filing says 2020 NRR would have been 159% excluding a 2019 merchant warrant effect.
- Top 10 merchants contributed 56% of revenue, down from 64% in 2020 and 70% in 2019. One customer exceeded 10% of FY2021 revenue, versus two in 2020.
- Cost of services rose 158.0%, faster than revenue, although average processing cost declined from 2.0% to 1.8% of TPV. FY2021 cost of services included $7.3 million in broker fees and foreign-exchange losses on processing-to-settlement timing.
- Operating profit included a $3.4 million other operating gain, primarily from extinguishing a shareholder option agreement; the comparable 2020 period included a $2.9 million loss related to that agreement.
- General and administrative expense increased to $40.6 million, including $5.2 million of secondary-offering expenses, higher compensation and costs associated with the PrimeiroPay asset acquisition.
- dLocal acquired primarily merchant agreements from PrimeiroPay for $40.0 million, including $38.7 million paid in cash and $0.7 million of recognized contingent consideration. The acquired assets are being amortized over an estimated 18.75 years.
- The June 2021 IPO raised approximately $82.6 million net for the company. A later secondary offering was sold by shareholders, and the company received no proceeds from it.
Outlook, risks and contingencies
- The filing gives no numeric revenue, profit or margin guidance. Management planned continued investment in new markets, products, technology and merchant growth, and cautioned that margins could decrease in coming quarters while it invests.
- Management said COVID-19 had produced a net benefit to date from increased e-commerce and digital payments, despite disruption to travel and ride-hailing activity; the future impact remained uncertain.
- Key exposures include concentration in Latin America, currency volatility and controls on moving funds, changing tax and payment regulations, licensing uncertainty, reliance on banks and third-party processors, merchant concentration, cyber and fraud risk, and dependence on cloud and other service providers.
- The company disclosed 145 legal proceedings with approximately $171.8 million of claims assessed as possible losses; no provision was recorded for those claims. Recorded labor provisions were $1.7 million. Management stated that litigation outcomes are uncertain.
- Management reported remediation of a material weakness in internal control over financial reporting identified as of year-end 2019. Disclosure controls were assessed as effective at December 31, 2021, but the company did not include management’s annual ICFR assessment or auditor attestation in this report under the transition relief for newly public companies.
- A Maltese regulator had requested remedial enhancements to anti-money-laundering risk assessment, onboarding, oversight, transaction monitoring and outsourcing controls. The filing also notes that a Maltese subsidiary’s regulatory Tier 1 capital was temporarily short at year-end; management expected audited profits to resolve the shortfall upon signing the subsidiary’s financial statements.
Important facts for investors to verify
- Whether TPV growth and 219% NRR can continue, and how much growth remains attributable to existing merchants versus new customers.
- How merchant funds within cash balances, settlement timing, local exchange controls and working-capital movements affect usable liquidity and operating cash flow.
- The durability of margins as processing costs, FX losses, investment spending and public-company expenses evolve.
- The status and outcome of the $171.8 million of possible legal claims, licensing matters, AML remediation and the subsidiary’s regulatory capital position.
- How the $40 million PrimeiroPay asset acquisition performs, including merchant-contract migration and the long amortization period.
- Potential dilution and governance effects from the dual-class structure: Class B holders had 80.6% of voting rights, and warrants to purchase up to 15.2 million shares remained outstanding at year-end.