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Filed Pursuant to Rule 424(b)1
Registration No. 333-255793

PROSPECTUS

29,411,765 Class A Common Shares

 

LOGO

DLocal Limited

(incorporated in the Cayman Islands)

 

 

This is an initial public offering of the Class A common shares, US$0.002 par value per share of DLocal Limited, or dLocal. dLocal is offering 4,411,765 Class A common shares to be sold in this offering. The selling shareholders identified in this prospectus are offering 25,000,000 Class A common shares to be sold in the offering. We will not receive any proceeds from the sale of Class A common shares by the selling shareholders.

Prior to this offering, there has been no public market for our Class A common shares. The initial public offering price per Class A common share is US$21.00. Our Class A common shares have been approved for listing on the Nasdaq Global Select Market, or Nasdaq, under the symbol “DLO.”

Upon consummation of this offering, we will have two classes of common shares: our Class A common shares and our Class B common shares. The rights of the holders of Class A common shares and Class B common shares will be identical, except with respect to voting, conversion and transfer restrictions applicable to the Class B common shares. Each Class A common share will be entitled to one vote. Each Class B common share will be entitled to five votes and will be convertible into one Class A common share automatically upon transfer, subject to certain exceptions. Holders of Class A common shares and Class B common shares will vote together as a single class on all matters unless otherwise required by law. Following this offering, our issued and outstanding Class B common shares will represent approximately 83.8% of the combined voting power of our outstanding common shares, assuming no exercise of the underwriters’ option to purchase additional shares, and approximately 83.2% assuming exercise in full of the underwriters’ option to purchase additional shares.

 

 

We are an “emerging growth company” under the U.S. federal securities laws as that term is used in the Jumpstart Our Business Startups Act of 2012 and will be subject to reduced public company reporting requirements. Investing in our Class A common shares involves risks. See “Risk Factors” beginning on page 26 of this prospectus.

 

     Per Class A
common share
     Total  

Initial public offering price

   US$ 21.00      US$ 617,647,065  

Underwriting discounts and commissions

   US$ 1.26      US$ 37,058,824  

Proceeds, before expenses, to us(1)

   US$ 19.74      US$ 87,088,241  

Proceeds, before expenses, to the selling shareholders(1)

   US$ 19.74      US$ 493,500,000  

 

(1)

See “Underwriting” for a description of all compensation payable to the underwriters.

The selling shareholders have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to 4,411,765 additional Class A common shares to cover over-allotments, if any, at the initial public offering price, less underwriting discounts and commissions.

Prior to the date hereof, Fidelity Management & Research Company LLC, or the cornerstone investor, has, on behalf of entities managed by it or its affiliate, indicated an interest in purchasing up to 20% of our Class A common shares sold in this offering (excluding the underwriters’ option to purchase additional shares) at the initial public offering price. Because this indication of interest is not a binding agreement or commitment to purchase, the cornerstone investor could determine to purchase more, less, or no shares in this offering or the underwriters could determine to sell more, less, or no shares to the cornerstone investor. The underwriters will receive the same discount on any of our shares of Class A common shares purchased by the cornerstone investor as they will from any other shares of Class A common shares sold to the public in this offering.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the Class A common shares against payment in New York, New York on or about June 7, 2021.

 

Global Coordinators

 

J.P. Morgan   Goldman Sachs & Co. LLC   Citigroup   Morgan Stanley

Joint Bookrunners

 

BofA Securities   HSBC   UBS Investment Bank

The date of this prospectus is June 2, 2021.


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TABLE OF CONTENTS

 

     Page  

Glossary of Terms

     iii  

Summary

     1  

The Offering

     19  

Summary Financial and Other Information

     24  

Risk Factors

     26  

Presentation of Financial and Other Information

     72  

Cautionary Statement Regarding Forward-Looking Statements

     75  

Use of Proceeds

     76  

Dividends and Dividend Policy

     77  

Capitalization

     78  

Dilution

     80  

Market Information

     82  

Selected Financial and Other Information

     83  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     87  

Regulatory Overview

     108  

Business

     115  

Management

     151  

Principal and Selling Shareholders

     157  

Related Party Transactions

     160  

Description of Share Capital

     162  

Common Shares Eligible for Future Sale

     181  

Taxation

     183  

Underwriting

     188  

Expenses of the Offering

     205  

Legal Matters

     206  

Experts

     206  

Enforceability of Civil Liabilities

     208  

Where You Can Find More Information

     209  

Explanatory Note To The Financial Statements

     210  

Index to Financial Statements

     F-1  

 

 

Neither we, the selling shareholders nor the underwriters have authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may have referred you. We and the selling shareholders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we, the selling shareholders, nor the underwriters are making an offer to sell the Class A common shares in any jurisdiction where the offer or sale is not permitted. This offering is being made in the United States and elsewhere solely based on the information contained in this prospectus. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of the Class A common shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.

For investors outside the United States: Neither we, the selling shareholders, nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction, other than the United States, where action for that purpose is required. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of our Class A common shares and the distribution of this prospectus outside the United States.

 

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No offer or invitation to subscribe for any securities may be made to the public in the Cayman Islands.

We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business, including our corporate name, logos and website names. Other trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners. Solely for convenience, some of the trademarks, service marks and trade names referred to in this prospectus are listed without the ® and symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names.

 

 

Unless otherwise indicated or the context otherwise requires, all references in this prospectus to “dLocal” or the “Company,” the “Issuer,” “we,” “our,” “ours,” “us” or similar terms refer to DLocal Limited, together with its subsidiaries, following the contribution of dLocal Malta (as defined below) shares to us.

All references to “dLocal Malta” refer to dLocal Group Limited, the consolidated financial statements of which are included elsewhere in this prospectus. See “Presentation of Financial and Other Information.”

 

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GLOSSARY OF TERMS

The following is a glossary of certain industry and other defined terms used in this prospectus:

“alternative payment methods” or “APM” means payment methods other than traditional payments like cash, credit cards or debit cards.

“API” means application programming interface, which is a general term for programming techniques that are available for software developers when they integrate with a particular service or application. In the payments industry, APIs are usually provided by any party participating in the money flow (such as payment gateways, processors, service providers) to facilitate the money transfer process.

“Articles of Association” means dLocal’s memorandum and articles of association that will be effective immediately following the completion of this offering.

“Class A common shares” means Class A common shares of dLocal par value US$0.002 per Class A common share, which confer the right to one vote per share.

“Class B common shares” means Class B common shares of dLocal, par value US$0.002 per Class B common share, which confer the right to five votes per share.

“Companies Act” means the Companies Act (as amended) of the Cayman Islands.

“local payment methods” refers to any payment method that is processed in the country where the end user of the merchant sending or receiving payments is located, which include credit and debit cards, cash payments, bank transfers, mobile money, and digital wallets.

“NRR” means Net Revenue Retention rate, which is the U.S. dollar-based measure of retention and growth of our merchants. We calculate the NRR of a period by dividing the Current Period Revenue by the Prior Period Revenue. The Prior Period Revenue is the revenue billed by us to all of our merchant customers in the prior fiscal year. The Current Period Revenue is the revenue billed by us in the current fiscal year to the same merchant customers included in the calculation of the Prior Period Revenue. Current Period Revenue includes any upsells and cross sells of products, geographies, and payment methods to such merchant customers, and is net of any contractions or attrition, but excludes revenue from new customers on-boarded during the current fiscal year.

“pay-in” means a payment transaction whereby dLocal’s merchant customers receive payment from their customers.

“pay-out” means a payment transaction whereby dLocal disburses money in local currency to the business partners or customers of dLocal’s merchant customers.

“PIX” means the instant payments system launched by the Brazilian Central Bank in 2020, enabling users in Brazil to make and receive instant payments and instant fund transfers.

“PSP partners” means payment service provider partners, which are third party service providers that provide payment settlement services.

“SaaS” means software as a service, which is a method of providing software used by certain of our merchant customers whereby they forego the traditional method of selling a perpetual software license to end users and requiring them to host, run and manage the program they just bought; instead, SaaS vendors host the application on their own servers, make it available through the web and charge for the service of accessing and using the software.

“SMB” means small and medium-sized businesses, which we use in this prospectus to refer to the SMB clients and partners of our marketplace merchant customers with which they carry out the marketplace business.

 

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“TPV” means total payment volume, which is an operating metric of the aggregate value of all payments successfully processed through our payments platform

“U.S. dollar,” “U.S. dollars” or “US$” means U.S. dollars, the official currency of the United States.

 

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SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary may not contain all the information that may be important to you in making your investment decision, and we urge you to read this entire prospectus carefully, including the “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and our consolidated financial statements and notes to those statements, included elsewhere in this prospectus, before deciding to invest in our Class A common shares.

Our Mission

Our mission is to enable global merchants to connect seamlessly with billions of emerging market users.

Overview

dLocal is focused on making the complex simple, redefining the online payments experience in emerging markets. Through one direct API, one technology platform, and one contract, which we collectively refer to as the One dLocal model, we enable global enterprise merchants to get paid (pay-in) and to make payments (pay-out) online in a safe and efficient manner. Merchants on our platform consistently benefit from improving acceptance and conversion rates, reduced friction, and improved fraud prevention, leading to enhanced potential interaction with nearly 2 billion combined internet users in the countries we serve (excluding China). Our proprietary, fully cloud-based platform has the ability to power both cross-border and local-to-local transactions in 29 countries as of the date of this prospectus (which includes seven new countries where we have recently made our services available but have not yet processed volume). Our solutions are built to be both payment method-agnostic and user friendly. We enable global merchants to connect with over 600 local payment methods (some of which are financial institutions) across our different geographies, thus expanding their addressable markets. Furthermore, our proprietary technology architecture is highly scalable and flexible, allowing us to constantly and rapidly innovate in response to market demand, expand to new countries and enhance our value proposition for our merchant clients. Agility is in our DNA. We believe our product offering makes us the most comprehensive online payments infrastructure currently available for global enterprise merchants operating across emerging markets.

Our focus on merchants’ demands drives us to develop solutions that address the complex payments issues they face in emerging markets.

 

   

For Microsoft, we offer a reliable, country-specific solution that facilitates payments, enabling merchants to sell their suite of products and services in Nigeria.

 

   

For one of the largest video streaming companies in the world, we enable acceptance of local payment methods from viewers eager to access their content in Peru.

 

   

For Didi, we facilitate a pay-out solution that enables bank transfers, split payments, and tax withholding functionalities for its drivers in Argentina to collect fares.

 

   

For one of the leading global internet search engines, we developed dynamic transaction routing capabilities in Brazil to automatically direct traffic to payments providers with the highest probability of success, thus enabling more reliable processing.

As global enterprise merchants continue to face payments complexities, we believe they will seek to engage with partners that have demonstrated high acceptance rates of alternative payment methods, or APMs and have expertise in local payments; foreign exchange, or FX, management; local regulations; and compliance, tax, and fraud management capabilities across the relevant emerging markets, as opposed to engaging providers they may



 

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already use in developed markets where the payment and infrastructure dynamics are different. Capitalizing on this opportunity, we have continued to expand our presence globally, with the goal of becoming the online payments partner of choice for global merchants in emerging markets.

We are an enterprise-focused company, targeting large global merchants that operate in different verticals and geographies. Our key verticals include retail, streaming, ride hailing, financial institutions, advertising, SaaS, travel, e-learning and gaming. We have built our global platform from the ground up to be accessible through a single direct API and to meet the rapidly evolving needs of these fast-growing global merchants. We believe simplicity, scalability, transparency, agility and innovation are keys to our continued success. We partner with over 330 merchants, including leading global enterprises such as Amazon, Didi, Microsoft, Spotify, Mailchimp, Wix, Wikimedia and Kuaishou. In addition, we cater to the needs of leading marketplaces to help their SMB clients and partners expand their geographic reach. Our global merchants benefit from maintaining direct relationships with their end users while facilitating a faster, safer, more reliable and compliant payments experience. On average, our global merchants used dLocal’s platform in nearly six different countries and 44 payment methods in 2020 and in five countries and 35 payment methods in 2019, in each case for merchants with at least US$6 million of annual TPV on our platform. Such merchants comprised 92% of our TPV in 2020 and 93% in 2019. As a result, we believe that dLocal has become a trusted partner forging resilient relationships with global enterprise merchants.

We benefit from an attractive business model with improving economies of scale. We are often subject to rigorous vetting processes with global enterprise merchants that invest significant time and resources in the selection, diligence, and on-boarding of technology and payments providers. This on-boarding process can often take several months as these merchants assess our technological capabilities, ability to comply with their data security protocols, and adherence to regulatory, tax and compliance requirements. However, once we establish a direct connection (meaning there are no third party intermediaries between us and the merchant in the payment flow and technical integration), global merchants have the ability to access the full breadth of our solutions and the countries where we have a presence instantly through one direct API and one contract. Merchants can also choose to route all or a portion of their applicable pay-in and pay-out volume through us. Our direct connections with merchants serve as a strong competitive advantage and barrier to entry for competing providers, and makes incremental volume that flows through our platform highly margin accretive for dLocal.

Our single integrated platform provides a merchant-friendly alternative to the numerous legacy providers that global merchants were previously forced to rely upon for their payments needs in emerging markets. The breadth of our online payments infrastructure and expertise, allowing merchants to transact in 29 markets as of the date of this prospectus, the direct connections with global merchants, our relationships with APMs, local financial institutions and acquirers, our understanding of the countries in which we operate, and our differentiated compliance, tax, and fraud management capabilities are attributes that in combination are difficult for competitors to replicate and create strong barriers to entry. Our technology DNA (we have been a “technology-first” business from inception), execution-driven culture and agile innovation mindset keep us at the forefront of the industry.

Our success is reflected in our rapid growth and strong profitability. dLocal earns revenue from fees charged to our merchants in connection with payment processing services for cross-border and local payment transactions in emerging markets. These fees are primarily generated on a per approved transaction basis as either a fixed fee per transaction or fixed percentage per transaction. The fees include a Merchant Discount Rate, or MDR, to compensate us for our services, as well as an FX service fee earned on payments involving conversion and expatriation of funds to and from various currencies, including the U.S. dollar and the Euro. Our TPV was US$925.9 million and US$388.2 million for the three months ended March 31, 2021 and 2020, respectively, and US$2.1 billion and US$1.3 billion for the full years of 2020 and 2019, respectively, representing a growth rate of 138.5% when comparing the three months ended March 31, 2021 to the three months ended March 31, 2020 and



 

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a growth rate of 60.3% when comparing the full year of 2020 to 2019. Our total revenues were US$40.3 million and US$18.0 million for the three months ended March 31, 2021 and 2020, respectively, and US$104.1 million and US$55.3 million for 2020 and 2019, respectively, representing a growth rate of 123.7% when comparing the three months ended March 31, 2021 to the three months ended March 31, 2020 and a growth rate of 88.4% when comparing 2020 and 2019. Our net revenue retention rate, or NRR, was 171% for the year ended December 31, 2020 and the revenue growth attributable to new merchants, which represents merchants that did not process volume with dLocal prior to January 1, 2020, was 17%. Excluding the effect in 2019 of a warrant with a merchant, the NRR would have been 159%. For the three months ended March 31, 2021 and 2020, our NRR was 186% and 216% (or 139% excluding the effect of the warrant), respectively, and our growth attributable to new merchants was 38%. The NRR includes the merchants that generated revenues in the same period of the prior year. For the year 2020, 167 merchants were included, and for the three month period ended March 31, 2021 and 2020, 179 and 135 merchants were included, respectively. Our asset-light operating model with low capital expenditures facilitates continuous reinvestment to drive topline growth. Our strong profitability and cash flow generation is due in large part to our solving of the complex payments problems on behalf of our merchants in underserved geographies. Our Adjusted EBITDA Margin was 44.3% and 41.3% for the three months ended March 31, 2021 and 2020, respectively, and 40.3% and 36.3% during the full years of 2020 and 2019, respectively. As we continue to deepen the relationship with the global merchants we serve, and improve and expand our current solutions and increase our presence in emerging markets, we expect to continue growing as existing and new merchants further rely on our capabilities.

Our History and Evolution

We started our journey in 2016 as a technology-first company seeking to disrupt online payments and to unlock opportunities for global enterprise merchants in emerging markets. We believe that we were among the first providers to recognize that, while large global merchants want to grow their business by selling their products and services online in emerging markets, they did not have the right online payments infrastructure to do so efficiently.

Since our inception, we have harbored global ambitions. We started with a single product to support a single payment method in one market, specifically pay-in cross-border payments in Brazil. Our early success empowered us to expand to other emerging markets, leading to our presence today in 29 countries including Mexico, Argentina, Colombia, and Chile in Latin America; India and Indonesia in Asia; and Egypt, Nigeria, and South Africa in Africa.

From the outset, our founding management team leveraged its technical expertise and entrepreneurial acumen to construct our flexible, scalable platform from scratch. The addition of strong commercial and financial talent complemented their technical proficiency, which has allowed dLocal to scale the business. Over the years, we have been able to continuously and rapidly introduce new solutions and capabilities in response to our global merchant’s dynamic needs and payments ecosystems, further develop and enhance our technology platform, and evolve our business model.

Today, dLocal is a key enabler of online commerce in emerging markets serving different high-growth, technology-related verticals across key sectors in the economy. In addition to pay-in cross-border solutions, we have successfully developed fast-growing pay-out solutions, as well as local-to-local capabilities for both pay-in and pay-out transactions. We have also developed marketplace capabilities, having on-boarded one of the world’s largest e-commerce platforms in 2018 as our first marketplace merchant. Our roster of market-leading global enterprise merchants and their reliance on our platform are the strongest testament to the strength of our overall value proposition.

We benefit from the support of our investors, including our strategic shareholders, General Atlantic and Mastercard, and the opportunities our scalable platform offers us. Moreover, Sebastián Kanovich and Jacobo Singer, our CEO and President, respectively, and members of our founding management team hold a meaningful combined ownership in dLocal and are deeply committed to our continued success. See “Principal and Selling



 

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Shareholders” and “Management”. With this support and commitment, we intend to continue expanding into new markets, developing new products, and retaining and expanding our merchant base while growing their overall volume processed through our platform, all of which are drivers that will continue to propel our growth in the years to come.

Our Market Opportunity

The global payments industry is experiencing a rapid, secular shift towards digital payment methods, particularly driven by the growing prevalence of online and mobile channels. In 2020, consumers and businesses worldwide made over 454 billion purchase transactions on global network cards, according to Nilson Report. The share of e-commerce as a percentage of total global retail payments volume expanded to 21% in 2020, compared to 16% in 2019, according to Digital Commerce 360, aided by the accelerated shift to online purchasing during the ongoing COVID-19 pandemic.

In order to capitalize on this trend, global merchants continue to seek international expansion, thus raising their need to facilitate payment transactions from a wide array of methods and channels across what we believe to be complex and fragmented payments ecosystems. We believe that global enterprise merchants recognize the growing importance of emerging market economies as a key driver of growth. According to the International Monetary Fund, or the IMF, in 2019 emerging markets represented 57% of aggregate global GDP (measured on a per person basis), a significant increase from 43% in 2000. Emerging markets are expected to continue growing faster than developed markets overall.

However, global merchants face many challenges when trying to gain access or further penetrate emerging markets. Banking penetration remains low in these countries, falling below 20% of the adult population in some cases, according to a report commissioned by us and prepared by Americas Market Intelligence, or AMI. As opposed to developed economies where card-based transactions relying on international card schemes are prevalent, local card, bank transfer-based payment methods, digital wallet, and cash-like payments, such as using Boleto in Brazil or UPI in India, and making payments at Oxxo in Mexico, are the predominant payment methods for end users in emerging markets. Furthermore, in order to gain access to emerging markets, merchants also need to:

 

   

adhere to local compliance, regulatory, and tax frameworks,

 

   

offer transparency and security for their end users,

 

   

address inherent fraud risk while maximizing acceptance and conversion,

 

   

gain insights from their transaction data, and

 

   

identify and engage with partners that can scale as their emerging markets operations expand.

Through the One dLocal model, we address these needs.

The payments industry is complex, cumbersome, and varies in structure in each country. In many instances the interaction between parties varies substantially from jurisdiction to jurisdiction. For example, a payments service provider, or PSP, may compete with other providers in one market and collaborate in another (under a sub-acquirer relationship or otherwise). This results in different unit economics for PSPs in each market largely depending on the services offered and the role that they play in the payments value chain. This complexity has created the demand for next-gen providers that integrate directly with global merchants and act as a single point of interaction that can engage with a large ecosystem of participants, offer them integrated solutions, and thus limit disintermediation.



 

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We believe we have a large market opportunity in pay-out transactions, for both cross-border and local-to-local payments, which is currently underserved by what we believe to be a fragmented set of industry participants, most of them legacy payments companies.

According to AMI, there is an estimated US$1.2 trillion in total e-commerce pay-in and pay-out volume in the countries in which we operate, excluding China. Of the estimated US$428 billion pay-in volume for 2020, 86% corresponded to local-to-local transactions, and only 14% corresponded to cross-border transactions. Overall, pay-in volume is expected to grow up to US$1.1 trillion by 2024, implying a CAGR of 27% from 2020 to 2024, according to AMI. AMI also expects the share of pay-outs vis-a-vis pay-ins to increase in the coming years on the back of strong tailwinds associated with an expected recovery in the next 24 months from the COVID 19 pandemic, which fueled a rise in remote work and initially dampened travel, ride hailing and remittances, but which are expected to recover following the pandemic.

The chart below shows 2020 pay-in and pay-out volumes and the projected growth of the total pay-in volume in the countries in which we currently operate, excluding China:

Payment volumes in the countries in which we currently operate, excluding China (in US$ trillions)

 

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Payments in emerging markets are still dominated by local payment methods. Whereas in the United States and Europe, credit and debit cards are widely held and used online, this is not the case in emerging markets where, according to AMI, banking penetration can fall below 20% of the adult population and cash-based payment methods, local digital wallets, and bank transfers are prevalent. According to AMI, local payment methods represented 83% of total e-commerce expenditure in 2020 in the 14 core markets analyzed by them. In Brazil, for instance, according to AMI, internationally-enabled credit cards only represented 10% of the aggregate e-commerce payment volumes, whereas domestic-only credit cards and cash-based methods represented 55% and 14% of the aggregate e-commerce payment volumes in 2020, respectively, and the remaining 21% were alternative payment methods. Similarly, in India, internationally-enabled credit cards only represented 30% of the aggregate e-commerce payment volumes in 2020, whereas debit cards and bank transfers represented 19% and 14%, respectively. In Nigeria, internationally-enabled credit cards only represented 13% of the aggregate e-commerce payment volumes in 2020, whereas debit cards and bank transfers represented 28% and 27%, respectively. We believe the prevalence of local payment methods creates a fragmented payment system in emerging market countries, which hampers global merchants’ ability to expand in these new markets. We see an opportunity to continue growing and acquiring new clients by solving the existing complexities that result from using alternative local methods through our One dLocal model.



 

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We believe our opportunity is driven in large part by the following favorable trends:

Increasing globalization of commerce

Fueled by fast-paced changes in technology and the increased mobility of goods, services, people, and capital, globalization continues to be a driving force in the world economy. In particular, over the past few decades globalization has greatly changed economies, societies, and the way business is conducted. According to Bloomberg, cross-border trade involving developing or emerging economies constituted 53% of global trade in 2017, an approximate 10 percentage points increase over the past 20 years. Such rapid expansion has created new opportunities for businesses to grow and extend their reach, resulting in a significant increase in multi-country flows of funds, which requires a robust financial technology infrastructure, systems, and processes to support cash flows for pay-ins and pay-outs.

A shift in consumer expectations has further accelerated the pace of globalization, as consumers increasingly expect to be able to make purchases or receive funds anytime, anywhere, and using their preferred method of payment.

In addition, as global merchants broaden their geographic footprint in search of more scale and growth, they are faced with the challenge of operating in a multi-jurisdictional environment where they must ensure appropriate compliance with local regulatory, FX, and tax frameworks, and deal with the diverse set of available or preferred local payment methods of end users. Maintaining compliance with these regulatory and market standards can be costly, burdensome, and often hard to address without the help of a partner such as dLocal with the adequate know-how, technology, and level of connectivity to the broad local payment infrastructure.

Continued rise of the digital economy

Technology has revolutionized the way we interact with one another and the way we consume information, entertainment, goods, and services. As a result, the digital economy has become a massive web of interconnected stakeholder and supply chains, spanning across a wide range of easily accessible products and services. The growing accessibility of the internet, as well as the rising adoption of smartphones, have been important trends in developed and emerging market countries. In 2020, smartphone penetration levels for Turkey, Brazil, and Mexico reached 61%, 80%, and 75% respectively. According to AMI, 80 million Nigerians are estimated to come online in the next five years. As a result of these growing trends, e-commerce penetration has experienced an accelerated expansion. Global e-commerce as part of overall payments volume grew at a 17% CAGR from 2014 to 2019, according to Insider Intelligence. Likewise, e-commerce among the core emerging countries we operate in grew 27% in 2020, while global GDP contracted 3.5% during the same year. We believe the penetration of the internet should continue to increase over time.

E-commerce has been a primary beneficiary of shifts in purchasing behavior during the COVID-19 pandemic. Consumer preferences for contact-free solutions are reshaping the way companies interact with their clients. Multiple industry observers and market participants (including Insider Intelligence and Euromonitor) believe this increase in digital commerce has the potential to become permanent, driving a two to three-year acceleration in adoption levels. Turkey, Brazil, and India are expected to grow at a CAGR of 39%, 30%, and 17% from 2020-2024, according to AMI, further emphasizing the rapid rise of digitalization in emerging markets during the next years.

Large, digitally-native enterprises are capitalizing on this opportunity, serving consumers globally who are eager to use the internet for consumption and connectivity, driving their ability to continue to take market share from legacy market participants which have experienced varying degrees of success in their attempt to go online. We believe that as the digital economy continues to expand globally, particularly in emerging markets, dLocal is



 

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well-positioned to serve the needs of key participants due to our inherent emphasis on e-commerce and our shared appreciation for technology and product innovation.

Middle class in emerging markets continues to expand

On the back of continued economic growth, the middle class in emerging markets has been increasing its level of spending and online transaction frequency. This group is eager to consume global goods and services previously unavailable due to lack of access or spending constraints, leading to higher growth rates for goods and services in emerging markets, as well as the associated methods used to pay for them. This is driving an average expected annual GDP growth from 2021 through 2025 to 4.9% for emerging market economies (more than three times the expected growth for developed markets in the same period), according to Oxford Economics via Refinitiv Datastream. Global merchants wishing to capitalize on these changing economic demographics may seek to accelerate their entrance or further their penetration into emerging markets, which we believe may benefit technology and payments providers such as dLocal.

Research by Next Big Future suggests the global middle class would surpass 4 billion people by the end of 2020. According to this same research, the global middle class is growing by 120 to 160 million people every year, mostly in emerging markets, and is expected to reach 5.3 billion people by 2030. As a result, a growing emerging markets aspirational middle class should continue to gain disposable income over time, raising their expectations of convenience and customer experience, as well as their consumption of global merchants’ products and services.

Cross-border payments in emerging markets are fragmented and poised for growth

While e-commerce is now mainstream, cross-border transactions still present unique challenges due to low approval rates, poor predictability of timing, low transparency, volatile exchange rates, dynamic regulatory requirements, and significant complexity that comes from having to settle transactions across multiple parties and currencies without a consistent regulatory and tax framework or an integrated payments infrastructure.

Furthermore, while developed countries have made significant progress, emerging markets still lack a coherent interoperability between regulatory and technical payments systems. According to Statista, the proportion of cross-border e-commerce transactions relative to total e-commerce transactions was significantly higher in developed versus emerging economies. For example, in 2019, as a share of all e-commerce transactions, cross-border e-commerce transactions accounted for 30% in Belgium, 27% in Ireland, and 18% in Austria. By contrast equivalent shares in India, Mexico, and Brazil were only 18%, 22%, and 6%, respectively. This presents a strong e-commerce growth opportunity as developing countries continue to make progress towards improving their infrastructure.

Facing differing local regulations, fragmented standards, inefficient infrastructure, and high fixed costs, we believe that service providers focusing on cross-border payment solutions will seek to balance the need for local expertise with the increasing merchant expectation of a single, digital, and global experience. In this context, we believe that strong cross-border business partnerships between global merchants and service providers are important and will continue to gain importance. Integrated payments solutions are the future, replacing disparate players operating in silo, requiring incremental connection between participants which further increases friction in the payments value chain.

Global enterprise merchants are establishing local presence in selected emerging markets

In order to complement operations that may have initially been run from abroad, some of the largest global merchants are seeking to establish local presence in certain large emerging markets (e.g., Didi in Brazil).



 

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Accordingly, once established locally these merchants also need to facilitate pay-outs to local vendors, employees, and contractors, and pay-ins from local customers via their preferred method of payment. Even with the ability to send and receive funds in local currency (through the establishment of local bank accounts), merchants still face what we believe to be fragmented payments ecosystems and market-specific regulatory environments, presenting complexities similar to those in cross-border transactions, which we believe generate sub-par results on acceptance rate, fraud and other relevant payment features.

As global merchants selectively expand their local presence in emerging markets, the demand for integrated digital payment capabilities becomes even more relevant, benefitting participants with broad presence and solutions, such as dLocal, that we believe can provide a simplified offering, broader connectivity, and better performance compared to legacy payments providers. We have observed this trend first-hand, and evolved with many of our merchants as they expanded our relationship to include our local-to-local solutions in one or more countries in addition to the cross-border solutions they continue to process through our platform (in the same or other countries).

Highly complex and evolving local regulatory and tax environments

The challenges that merchants face are further exacerbated by the increasing impact of regulation in the payments market globally. Systemic stress to global markets, such as that experienced during the 2008 financial crisis, has emphasized the need for policymakers to enhance and strengthen financial systems to make them more resilient, more secure, and better prepared to handle future shocks. Furthermore, the increase in fraud and cyberattacks continues to push regulators to increase scrutiny across the payments value chain. Regulators have also been concerned with the higher cost of services charged by legacy payments providers driving the creation of new APMs such as the PIX in Brazil. However, while we believe that most countries and jurisdictions share and understand this need, the effort to make necessary changes has been largely localized in nature, particularly in emerging markets. As a result, local regulatory frameworks are complex, unique, and constantly changing.

Ensuring adherence to and compliance with these regulatory and tax requirements are costly and burdensome for global merchants, often deterring or limiting their entry to certain jurisdictions, particularly in emerging markets. This presents an attractive opportunity for service providers such as dLocal that have local expertise to offer robust, up-to-date, and integrated capabilities that comply with regulatory, FX, and tax frameworks across emerging markets.

Our Competitive Strengths

The following strengths and advantages are at the core of our strategy:

One single API, one single platform to connect to emerging markets

dLocal’s value is derived from the simplicity of our fully cloud-based proprietary platform, accessible through a single direct API, that enables global merchants to potentially reach nearly two billion internet users in the emerging markets we serve (excluding China). Traditional payments providers serving these markets are often burdened with disparate legacy technology systems that have been stitched together over time. This limits pricing transparency and leads to reconciliation and refund management complexities, a sub-optimal user experience, lower conversion rates, and subpar system availability, as well as increased levels of fraud and compliance issues. Conversely, dLocal offers a modern and flexible technology stack that is purpose-built to meet our global merchants’ high performance and scalability expectations, as demonstrated in our ability to increase our TPV by 15 times over the last four years.

dLocal’s platform provides rapid, reliable, and convenient support for pay-in and pay-out transactions, including cross-border and local-to-local in each case. We deliver a seamless, transparent, and integrated



 

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experience for global merchants while ensuring secure and compliant transactions. Our platform has been designed to make it simple for our merchants to add payment methods, products, and new markets in an expeditious manner, all through a single point of integration and one contract. Our single API addresses the requirements of our merchants, ranging from back-end integration to an easy-to-integrate checkout module where dLocal handles the payment process. We increase the payments conversion rates through automatic retries, fallback transaction capabilities, easy management of each transaction through our API or dashboard, and user and account automatic validation, combined with broad connectivity to local financial institutions and local payment methods.

Our founding management team built dLocal’s state-of-the-art platform from the ground up. It is designed to serve multiple functions in the payments value chain. dLocal combines payment processing and FX management with compliance, tax, and fraud management capabilities into one intuitive, fully integrated platform. We provide global merchants increased transparency and valuable insight into their cross-border and local-to-local payments flows, enabling them to provide an enhanced user experience for their end users. The features that power dLocal’s platform enhance the processing systems in each of the emerging markets we serve, while at the same time standardizing payments offerings across multiple countries. Our dynamic routing feature leverages the full breadth of dLocal’s connections with our more than 350 acquiring company partners to maximize approval rates. Our fraud prevention module helps our merchants to detect risky patterns and prevent fraud. Our security features are very relevant to our merchants as we handle highly sensitive transaction and user information. Refund and dispute management, currency exchange management, reporting and reconciliation for automatic settlements of funds, among other capabilities, round out our comprehensive suite of solutions.

We have made significant investments in product development and software design through the engineering expertise of 165 full-time equivalents (including employees and contractors) focused solely on technology. These investments have enabled us to efficiently expand our platform solutions and capabilities, enhance our payments infrastructure, rapidly deploy technology updates, and embrace high-security standards for our business and technology. As an example, we enhance our platform constantly and deploy system updates typically on a daily basis that instantly become available to all our merchants, in contrast with legacy players, which normally deploy such updates a limited amount of times per year. We believe that our capabilities are highly differentiated and hard to replicate, strengthening our overall competitive advantage.

Direct integration with our global, blue-chip enterprise client base

Our goal is to establish direct integration with our merchants which allows us to better understand their needs, reduce our response time, collaborate efficiently, and provide a superior payments experience. In doing so, we build relationships that are difficult and costly for competitors to replace or replicate. We also partner selectively with PSPs to which we offer our services and “last-mile” connectivity to local payment methods in emerging markets, thus allowing us to reach certain long-tail merchants to which we may not otherwise directly connect. Since its inception, dLocal has focused on enabling our clients to access a cloud-based digital payments infrastructure in emerging markets that offers a similar level of standards, functionality, and payments experience as that available in developed markets. This includes the ability to execute recurring payments, facilitate payment in installments, allow customer refunds, or split payments even when local providers do not support this functionality. We recognize the need for our merchants to carry out commerce in emerging markets in a seamless and secure manner. Accordingly, we have set up a platform designed to provide a comprehensive, enterprise-grade solution to enhance their operations in these markets.

Our commitment to these standards has allowed us to build a portfolio of merchants that includes some of the largest companies in the world, including Didi, Amazon, Microsoft, Spotify, Mailchimp, Wix, Wikimedia and Kuaishou, among many others. Furthermore, we have a strong track record of successfully acquiring new merchants and growing these relationships over time, cross-selling solutions in additional geographies or



 

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payment methods beyond the initial contracted services. On average, our global merchants used dLocal’s platform in nearly six different countries and 44 payment methods in 2020 and in five countries and 35 payment methods in 2019, in each case for merchants with at least US$6 million of annual TPV on our platform. Such merchants comprised 92% of our TPV in 2020 and 93% in 2019.

As we continue to strengthen the relationship with our global merchants, we are well positioned to capitalize on their own incremental penetration in emerging markets and the growth of their business, which we expect to be a driver of our future growth.

Our product portfolio and data-driven value added services

Our platform includes a rich catalogue of multiple products, capabilities, and value-added services focused on helping global enterprise merchants to get paid and make payments in emerging markets in a safe and efficient manner, minimizing friction, and increasing conversion rates and end user satisfaction. We believe dLocal is well positioned as a valuable “one stop shop” for global merchants looking to consolidate their emerging market transaction services with one trusted partner through one contract.

We provide merchants with proprietary fraud management tools built on machine learning algorithms and rules-based technology to help identify potentially problematic activity and execute transactions with increased levels of security. In addition, we offer tax and compliance capabilities that streamline regulatory compliance by helping merchants stay up-to-date with complex and frequently changing local laws and regulations, and FX management and multi-currency collection and settlement capabilities to address their needs in cross-border transactions.

Our innovative, technology-focused, and data-driven approach also allows us to be nimble in adjusting products and solutions to respond to specific client needs. We offer our clients a comprehensive merchant dashboard that gives them visibility into key information and provides valuable tools that can be accessed through a secure, individually-tailored interface. We believe that this results in an enhanced level of transparency and understanding of their operations, enabling global merchants to adapt user interfaces, enhance the payments experience, and ultimately conduct more effective and efficient decision-making. Our visibility into the payments value chain, along with our deep connectivity with, and understanding of, emerging markets, allows us to gather data on end user behavior, which can then be used to generate actionable insights for merchants to better serve and engage with their end users and optimize their systems and settings to achieve higher authorization levels and minimize friction. We believe this ultimately leads to a smoother payments experience without compromising risk management and fraud detection.

Deep connectivity with local partners in emerging markets

dLocal offers its global merchants comprehensive access to a broad payments ecosystem through our One dLocal model in the emerging markets where we have a presence. dLocal’s strategic relationships with over 600 local payment methods (some of which are financial institutions) create a broad and effective acceptance network for our payments solutions. We have ongoing dialogue with many local regulators, exchanges, and tax authorities in different countries, as well as direct integration with certain tax payment systems, which enables us to optimize operations and adapt quickly and efficiently to regulatory changes.

Given the relevance of APMs and local financial institutions in emerging markets, we believe it is critical for merchants to have the ability to accept the widest variety of payment methods and have the broadest possible reach in order to maximize conversion rates and reduce transaction friction with end users. Through our One dLocal model, we offer access to a large number of locally issued cards (under banners such as Visa, Mastercard, Diners, Verve, Elo and Naranja) and other APMs in each market, such as UPI in India, MPESA in Kenya, Ovo in Indonesia, and Boleto and PIX in Brazil.



 

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Establishing and facilitating our breadth of connectivity requires knowledge of the market-specific regulatory frameworks and requirements, local knowledge and connections with different market participants, as well as having the right licenses in place. We believe dLocal is well positioned to continue broadening our network of APM partners and local financial institutions, ensuring our merchants can always rely on our connectivity to reach the end users they target.

Client-centric mindset drives agile innovation and rapid deployments

Our focus on merchants’ demands drives us to develop solutions that address the multiple and complex issues they face in emerging markets. dLocal operates in an agile manner, guided by our intrinsic focus on innovation to build solutions tailored to address the ever-evolving needs of our merchants. Whenever helpful, we provide merchants with a safe environment to rapidly test and iterate new solutions ahead of broad deployment. We believe that our agility and focus on solving the payment-related problems of our merchants in an effective and efficient manner minimizes wasted resources and differentiates us from our competitors. For example, in 2019, as a result of rapidly evolving changes to the regulatory framework, we filed with the regulator to become a licensed payment processor in Brazil. This provided us with the ability to partner with one of the largest ride-hailing companies in the world due to our ability to create in Brazil a local-to-local payment solution that allowed thousands of its drivers to receive payments from and its customers to make payments to the merchant, which we believe is difficult to replicate by other providers.

We have also created broad solutions with feature-rich capabilities that assist multiple merchants operating in the same market. We often create these products in response to a specific merchant need, which we can then replicate across our entire platform, thus benefiting other merchants operating in the same countries at minimal added costs. For example, we developed a differentiated tool to streamline tax withholdings in Argentina. At the time, the Argentinian government had made changes in tax policy, giving merchants little time to react. Our solution, which was built and launched rapidly across our entire platform, assisted all our merchants operating in the country to comply with evolving regulatory changes.

We recognize that our success is directly correlated with the success of our merchants. It is our responsibility to provide a secure, reliable service for them to drive payments volume through our platform. This makes us highly attuned to our merchants’ needs. We offer what we believe to be superior customer service, with 24/7 support and direct accessibility to a team of software engineers. We typically deploy daily updates for our platform, constantly enhancing our offering, while legacy players do so only a few times per year. Similarly, our customer support team stands ready to address issues at any time, in any time zone. We strive to promptly resolve our merchants’ problems, often before they arise, differentiating us from competing platforms, which we believe have longer response times.

We firmly believe in the importance of working alongside our merchants. In collaborating closely through our multiple touch points (including technology, operations, sales, account management, and product support), we aim to better serve them. This creates a cooperative environment, helping us work well together on product innovation and market expansion. Our merchants are our best partners in developing new solutions, in many instances helping us test them in secure and live environments, iterating, learning, and applying insights to new product releases that we then make generally available to our entire merchant base at the moment of launch.

Attractive business model that delivers strong financial performance

Our technology-driven business model creates significant opportunities for scale and operating efficiencies. We benefit from strong relationships with our existing merchants, many of whom benefit directly from strong secular trends such as the increasing adoption of e-commerce. In addition, many of our global merchants offer subscription-based models that provide greater visibility into the TPV processed through our platform. This all



 

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translates into the expanding performance of our annual merchant cohorts over time. Furthermore, our asset-light structure drives our ability to deliver strong margins and generate cash flow. Our business model has proven to be resilient, even through the recent COVID-19 pandemic. In fact, the COVID-19 pandemic has accelerated the digitalization of commerce, which has benefited some of our global merchants. For the three months ended March 31, 2021, our revenues grew by 123.7% compared to the three months ended March 31, 2020, and we reported an Adjusted EBITDA Margin of 44.3%. For 2020, our revenues grew by 88.4% compared to 2019, and we reported an Adjusted EBITDA Margin of 40.3%.

We have built our platform and all of its capabilities to last. We believe we will continue to drive growth and profitability through our investment in expanding our existing business into new countries, developing new products and capabilities, and attracting new global merchants into our platform, allowing us to remain ahead of the competition.

Technology-oriented, execution-driven management team fostering an entrepreneurial culture

We are devoted to fostering an entrepreneurial culture, built upon a commitment to offer a superior value proposition for our merchants. We were proudly born out of Uruguay, which forced us to think big and be global since inception. This is largely reflected in our presence in 29 countries and the expanding geographic diversity of our team of over 300 professionals in 20 countries as of December 2020. We are mission driven and are focused on creating innovative solutions, launching new products, and adding new functionalities, always seeking to ensure the best possible execution and to continue supporting the growth of our merchants. Delivering a superior technology infrastructure is a key pillar of our management team’s focus, as evidenced by the fact that three of our current key executives have served in senior technology roles within dLocal at some point during their tenures.

Talent development and the retention of dLocal’s culture are key business imperatives. We also believe fostering diversity and inclusion are critical for business success, as they lead to stronger teams and better outcomes for our merchants, employees, and the communities we serve. Our management team has strong expertise and experience in emerging markets, which we believe is a competitive advantage to maintain the high levels of agility and adaptability that the market demands. We continue to expand globally and have assembled an experienced team that includes several members who have worked together for many years (even prior to dLocal’s foundation), and which is supported by compliance, tax, finance, operations, regulatory, and other functional experts and payments and technology leaders.

Our Growth Strategy

dLocal has a clearly defined and readily executable growth strategy to become the online payments infrastructure of choice in emerging markets. We will continue to focus on serving our diversified base of global enterprise merchants, especially in attractive industry verticals such as retail, streaming, ride-hailing, financial institutions, advertising, SaaS, travel, e-learning and gaming. We are focused on the following strategic pillars for growth, all of which build on each other and further enhance the power of our value proposition:

Grow with our existing enterprise merchant base and deepen our relationships with them

Our clients include some of the world’s leading global merchants. Increased adoption of e-commerce and online modes of payment in emerging markets have delivered significant growth for global merchants in recent years. Given the nature of our business model, the TPV that flows through our platform drives our overall revenue. As global merchants continue to benefit from these strong secular trends, we believe this will translate into larger transaction volumes and additional revenue for dLocal from the solutions we offer and the countries where we serve them today.



 

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We have a strong track record of account management, cross-selling merchants, and expanding their use of our services, which will help us broaden their use of our platform across both additional solutions (e.g., offering pay-out solutions to a pay-in-only merchant) and countries (e.g., activating our platform in India for a merchant currently only engaging with us in Latin America). We believe that our continuous investments in enhancing the merchant experience (both for the merchants and for their end users) and our strong problem-solving culture will help us deliver superior service, leading our merchants to increase the percentage of their overall volume routed to dLocal.

We measure our success in growing and deepening our relationships with our existing merchants by means of our cohort performance in terms of TPV, countries and payment methods per merchant, as well as with our NRR. In 2020, the TPV derived from the cohort of enterprise merchants that began using our products in 2019 grew by 209% in 2020. Our NRR was 171% for the year ended December 31, 2020 and the revenue growth attributable to new merchants was 17%. Excluding the effect in 2019 of a warrant with a merchant, the NRR would have been 159%. For the three months ended March 31, 2021 and 2020, our NRR was 186% and 216% (or 139% excluding the effect of the warrant), respectively, and our growth attributable to new merchants was 38%.

Increase number of global merchant clients

Our dedicated sales team continues to develop new global merchant relationships with the intent to be on-boarded and provide them our solutions and capabilities across one or multiple emerging markets. Furthermore, we will continue to benefit from the ability to reference our existing clients to recommend our platform, helping us gain traction with new global merchants. To further expand our merchant base, we have developed a robust sales process with a proven track-record of winning competitive requests for proposals, or RFPs. Global merchants typically conduct a rigorous bidding and due diligence process before choosing and on-boarding their preferred PSP, evaluating candidates across many factors primarily including approval rates, technical capabilities, security, fraud management capabilities, payments experience, and price (including price transparency). The process from the initial RFP to final integration can take several months and typically involves multiple functional areas of the merchant, including payments infrastructure, operations, legal, compliance, and tax departments. For example, the combined RFP and on-boarding processes can take in general between two months to just over two years. Since 2016 through 2020, we have successfully added on average nearly six new pay-in merchants per month and one new pay-out merchant per month. We may also seek to expand our merchant base through selective acquisitions of cross-border payment processing companies.

Expand our global reach

We believe that the online global payments market is massive and remains underserved, particularly in emerging markets, where dLocal is focused. We have made significant investments to develop a flexible and extensible platform that can adapt to the specific needs of new local markets we enter. We seek to continue to leverage the scalability of our technology to broaden our geographic footprint.

We believe our playbook for expanding into new emerging markets is difficult to replicate. We have developed a systematic approach to understand the local regulatory and tax frameworks, obtain all necessary licenses and required approvals, and establish relationships and connectivity with key partners (including APMs and local financial institutions). We have typically been able to set up operations in new local markets we enter in less than six months. We tailor our strategy based on the consumption and behavioral trends specific to a market, and typically develop a local presence (for example, through a locally based country manager) to provide relevant solutions and deliver high level of customer service for our current and future merchants. Once we establish an initial presence in a new market, our merchants can begin to route their existing payments volume in that market to our platform without additional integration required, driving a meaningful and rapid return on our investment.



 

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Our global expansion strategy follows the needs of our merchants by prioritizing markets with the most attractive opportunities and where our merchants face the most complex payments, compliance, and regulatory challenges. For example, we entered and began processing transactions in Egypt at the specific direction of one of the largest social media platforms in the world, which is also one of our largest clients. Capitalizing on our ability and commitment to expand geographically, in 2020 we established a presence in multiple new countries including Egypt, Bangladesh, Panama, and Bolivia. We aspire to eventually establish a presence in all relevant emerging markets where global merchants require a differentiated technology and payments partner as we see this as a key competitive advantage going forward.

Broaden the breadth of our products

We believe we are in the early stages of a financial technology revolution that is addressing increasingly complex payments challenges. Our technology-first DNA and problem-solving culture have fostered a strong track record of repeatedly delivering new and relevant solutions and capabilities for global merchants in emerging markets.

We have developed multiple new solutions for our merchants since our inception and are well-positioned to continue to innovate and be at the forefront of developments in payments technology. Pay-out is an example of a solution that we added at the request of one specific merchant during the Olympic Games in Rio de Janeiro. After developing the baseline solution, we quickly adapted it to work across our entire platform for our entire merchant base.

Another example is the recently developed issuing-as-a-service initiative, currently in beta testing, which will enable merchants to create their own payment ecosystem. In order to address a growing demand for a branded card experience, we intend to offer merchants the ability to issue pre-paid cards to their end users. End users will be able to conveniently add balance in local currency through cards, cash deposits, bank transfers, funding from merchants, and P2P payments and use the balance for products or services from the issuing merchants or other unaffiliated transactions.

Our privileged position as a trusted partner to over 330 merchants gives us ongoing visibility into their needs and requirements. We are well poised to capitalize on the opportunity to address new use cases as they emerge in an agile manner, broadening our overall total addressable market, and offering greater value for global merchants in whatever emerging markets they choose to enter.

Our One dLocal Model

Our One dLocal model combines our proprietary technology, intellectual property, capabilities, and business processes to create a differentiated go-to-market approach. It offers access to more than 2 billion consumers in 29 emerging markets through one direct API, one platform and one contract. We have a core aspiration to make the complex world of emerging market payments as simple as possible for our merchants through our model, unlike what we believe is the standard for other solutions. Merchants can then access all of the markets we serve using one integrated set of technologies governed by one overarching contract. The inherent simplicity of this model, combined with our platform’s extensive capabilities and benefits, including what we believe are higher conversion rates and lower fraud, creates a highly compelling value proposition for our global enterprise merchants.

dLocal’s founding management team built our cloud-based payment platform from the ground up. It was designed to provide an improved payments experience for our merchants with a strong focus on scalability, security, and performance. Our single platform enables merchants to experience the same standard of functionality and client interface that they have come to expect in developed markets as they enter into or further



 

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expand in emerging markets. Once on-boarded, our merchants gain immediate access to the full breadth of our platform, allowing them to expand their presence in emerging markets through one trusted partner and one contract, while receiving a consistent level of performance and client service globally. We believe that our robust network of APMs, local acquirers, and financial institutions; our deep understanding of each local market; and our comprehensive value-added services (such as our advanced fraud management system) deliver superior benefits for our global merchants. Some of these benefits include increased acceptance and conversion rates, risk mitigation, improved level of compliance, transparent FX management, reduced settlement times, and valuable data insights, all of which are critical for managing merchants’ interactions with their customers, employees, and vendors and improving their sales.

Furthermore, dLocal’s payment platform provides merchants with holistic and granular views of their payments activity. For example, merchants are able to view in real-time summarized transaction information pertaining to specific locations or counterparties or drill down into why a specific transaction was rejected through our API or dashboards. These insights can help merchants improve reporting and reconciliation and avoid potential payments settlement issues, often allowing them to increase their sales or reduce their costs. This in turn benefits dLocal by further strengthening the relationship with (and the value of our platform for) our merchants.

Summary of Risk Factors

An investment in our Class A common shares is subject to a number of risks, including risks relating to our business and industry, risks related to the countries in which we operate and risks related to the offering and our Class A common shares. The following list summarizes some, but not all, of these risks. Please read the information in the section entitled “Risk Factors” for a more thorough description of these and other risks.

Certain Risks Relating to Our Business and Industry

 

   

If we cannot keep pace with rapid developments and change in our industry, including making the necessary investments to keep pace with such developments and change, the use of our services could decline, reducing our revenues.

 

   

Substantial and increasingly intense competition may harm our business.

 

   

We may not be able to successfully implement strategies to attract or retain merchants, or increase adoption of our payments processing platform, which would limit our growth.

 

   

We have a limited operating history with financial results that may not be indicative of future performance, and our revenue growth rate is likely to slow down as our business matures.

 

   

If we fail to manage our growth effectively, our business could be harmed.

 

   

Potential customers may be reluctant to switch to a new vendor or integrate with a new vendor, or integration may take longer than expected, which may adversely affect our growth.

 

   

A decline in the quality of the services we offer could adversely affect our ability to attract and retain merchants and partners.

 

   

Certain large merchants provide a significant share of our revenues and the reduction in business with these merchants could materially harm our business.

 

   

Interruption or failure of our information technology and communications systems could impair our operations, which could also damage our reputation and harm our results of operations.

 

   

We are subject to cyberattacks and may be subject to breaches of our information technology infrastructure and applications, and any failure to adequately protect our information technology



 

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infrastructure and applications could result in data breaches and/or downtime and materially adversely affect our reputation, business, and financial condition.

 

   

We may not be able to obtain or maintain the relevant regulatory licenses, permissions or registrations to carry out our business in the various jurisdictions in which we operate, which may subject us to fines, penalties or force us to discontinue operations in such jurisdictions, any of which could have a material adverse effect on our business, financial condition and results of operations.

 

   

We are subject to complex and evolving tax regimes in the countries in which we operate and failure to accurately interpret applicable tax laws, or changes in tax laws or changes in existing interpretations of tax laws, could have a material adverse effect on our business and financial condition.

Certain Risks Relating to the Countries in which we Operate

 

   

A substantial portion of our business is primarily concentrated in Latin America, exposing us to disproportionate risk to the political, regulatory, economic and social conditions in this region.

 

   

The governments of the countries in which we operate have exercised, and continue to exercise, significant influence over the countries’ economy. This involvement as well as the political and economic conditions in these countries could harm us and the price of our Class A common shares.

 

   

Developments and the perceptions of risks in emerging markets, the United States and Europe, may harm the economies of the countries in which we operate and the price of our Class A common shares.

 

   

Infrastructure and internet connectivity in the countries in which we operate may impact economic growth and have a material adverse effect on us.

 

   

Our business and results of operations may be adversely affected by political, economic and social instability risks, currency restrictions and devaluation, and various local laws associated with doing business in countries in Africa and Asia.

 

   

Credit rating downgrading of the countries in which we operate could reduce the trading price of our Class A common shares.

Certain Risks Relating to the Offering and our Class A Common Shares

 

   

There is no existing market for our Class A common shares, and we do not know whether one will develop to provide you with adequate liquidity. If the trading price of our Class A common shares fluctuates after this offering, you could lose a significant part of your investment.

 

   

Following this offering, our existing shareholders will together own 90.0% of our outstanding common shares and 96.7% of corresponding voting rights, which means that our existing shareholders, when acting in concert, will have significant influence over matters requiring shareholder approval. This concentration of ownership and voting power limits your ability to influence corporate matters.

 

   

Our dual class capital structure means our shares will not be included in certain indices. We cannot predict the impact this may have on the trading price of our Class A common shares.

 

   

We are a Cayman Islands exempted company with limited liability. The rights of our shareholders, including with respect to fiduciary duties and corporate opportunities, may be different from the rights of shareholders governed by the laws of U.S. jurisdictions.

Our Corporate Structure

Our Corporate Reorganization

We are a Cayman Islands exempted company incorporated with limited liability on February 10, 2021 for purposes of facilitating our initial public offering.



 

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On April 14, 2021, all of the then-existing shareholders of dLocal Malta contributed all of their shares in dLocal Malta to us. In return for this contribution, we issued new ordinary A shares to the existing shareholders of dLocal Malta in a one-to-one exchange for the shares of dLocal Malta contributed to us, or the Share Contribution. In addition and following the Share Contribution, in connection with this offering, we are implementing a one-to-500 share split, effective upon the pricing of our initial public offering on             , or the Share Split. Prior to this offering, we expect to redesignate the ordinary A shares held by Andres Bzurovski Bay (directly and indirectly through Emerald Bay 24 LLC), IZBA SA, Aqua Crystal Investments, Sebastián Kanovich (our CEO (indirectly through Ledlife SA)) and Jacobo Singer (our President) as Class B common shares and the remaining issued ordinary A shares as Class A common shares. Shares sold in this offering by holders of Class B common shares will convert automatically into Class A common shares upon the transfer of the shares. Until the Share Contribution, we had not commenced operations and had only nominal assets and liabilities and no material contingent liabilities or commitments. See “Presentation of Financial and Other Information—Corporate Events—Our Corporate Reorganization.”

After accounting for the new Class A common shares that will be issued and sold by us in this offering, we will have a total of 292,915,765 common shares issued and outstanding immediately following this offering, 148,693,634 of these shares will be Class B common shares beneficially owned by certain of our existing shareholders, and 144,222,131 of these shares will be Class A common shares beneficially owned by our other existing shareholders and investors purchasing in this offering. See “Principal and Selling Shareholders” and “Presentation of Financial and Other Information.”

Our Structure Chart

Our group is currently composed of the following material operating subsidiaries: dLocal Brasil Pagamentos Ltda., Demerge Brasil Facilitadora de Pagamentos Ltda., dLocal Mexico S.A. de C.V., Demerge Mexico S.A. de C.V., DLocal Argentina S.A., DLocal Chile SpA, Pagos y Servicios Limitada (Chile), DLocal Colombia S.A.S., Demerge Colombia S.A.S., and Depansum Solutions Private Limited (India). The following chart shows our simplified corporate structure, after giving effect to the Share Contribution and this offering:

 

LOGO

 

(1)

Includes Class B common shares beneficially owned by Andres Bzurovski Bay (directly and indirectly through Emerald Bay 24 LLC), IZBA SA, Aqua Crystal Investments, Sebastián Kanovich (our CEO (indirectly through Ledlife SA)) and Jacobo Singer (our President).

(2)

Includes Class A common shares beneficially owned by each of the other existing shareholders. See “Principal and Selling Shareholders.”



 

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Corporate Information

Our principal executive offices are located at Dr. Luis Bonavita, 1294, 11300, Montevideo, Uruguay. Our telephone number is +1 (424) 392-7437.

Investors should contact us for any inquiries through the address and telephone number of our principal executive office, or at the following e-mail address: investor@dlocal.com. Our principal website is www.dlocal.com. The information contained in, or accessible through, our website is not incorporated into this prospectus or the registration statement of which it forms a part.

Implications of Being an Emerging Growth Company

As a company with less than US$1.07 billion in revenue during our latest fiscal year of the financial statements, we qualify as an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

   

the ability to present more limited financial data for our initial registration statement on Form F-1, including presenting only two years of audited financial statements and only two years of selected financial data, as well as two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure;

 

   

an exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, in the assessment of our internal control over financial reporting;

 

   

reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; and

 

   

exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute arrangements.

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than US$1.07 billion in annual revenue, have more than US$700 million in market value of our Class A common shares held by non-affiliates or issue more than US$1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens and accordingly, the information that we provide shareholders may be different than you might get from other public companies in which you hold equity.

In addition, under the JOBS Act, emerging growth companies who prepare their financial statements in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, can delay adopting new or revised accounting standards until such time as those standards apply to private companies. Given that we currently report and expect to continue to report under IFRS as issued by the IASB, we will not be able to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB.



 

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THE OFFERING

This summary highlights information presented in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before investing in our Class A common shares. You should carefully read this entire prospectus before investing in our Class A common shares including “Risk Factors” and our consolidated financial statements.

 

Issuer    DLocal Limited
Selling Shareholders    Aqua Crystal Investments Ltd., Endeavor Catalyst III L.P., General Atlantic DO B.V., Greenbrick S.A., HMAJG, LLC, IZBA S.A., Ledlife S.A., Paired Minds Ltd., Ritual Payments Corp, Unsal Holding Ltd., Emerald Bay 24 LLC, Jacobo Singer, Marcelo F. Perez, Michel Golffed Naistathauser.
Class A common shares offered by us    4,411,765 Class A common shares.

Class A common shares offered by the selling
shareholders

  

 

25,000,000 Class A common shares (or 29,411,765 Class A common shares if the underwriters exercise in full their option to purchase additional shares).

Offering price    US$21.00 per Class A common share.
Voting rights   

The Class A common shares will be entitled to one vote per share, whereas the Class B common shares (which are not being sold in this offering) will be entitled to five votes per share, respectively.

 

Holders of Class A common shares and Class B common shares will vote together as a single class on all matters, unless otherwise required by law and subject to certain exceptions set forth in our amended and restated memorandum and articles of association dated May 19, 2021, or the Articles of Association, as described under “Description of Share Capital—Voting Rights”

 

Upon consummation of this offering, assuming no exercise of the underwriters’ option to purchase additional shares, (1) holders of Class A common shares will hold approximately 16.2% of the combined voting power of our outstanding common shares and approximately 49.2% of our total equity ownership and (2) holders of Class B common shares will hold approximately 83.8% of the combined voting power of our outstanding common shares and approximately 50.8% of our total equity ownership.

 

If the underwriters exercise their option to purchase additional shares in full (1) holders of Class A common shares will hold approximately 16.8% of the combined voting power of our outstanding common shares and approximately 50.2% of our total equity ownership and (2) holders of Class B common shares



 

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will hold approximately 83.2% of the combined voting power of our outstanding common shares and approximately 49.8% of our total equity ownership.

 

The rights of the holders of Class A common shares and Class B common shares are identical, except with respect to voting, as described above, and transfer restrictions applicable to the Class B common shares. In addition, holders of Class B common shares (i) have certain conversion rights, and (ii) are entitled to preemptive rights to purchase additional Class B common shares, in the event that additional Class A common shares are issued, upon the same economic terms and at the same price, in order to maintain such holder’s proportional ownership interest in us. Moreover, the Class B common shares shall not be listed for public trading. See “Description of Share Capital” for a description of the material terms of our common shares, and the differences between our Class A and Class B common shares.

Option to purchase additional Class A common shares

  

 

The selling shareholders have granted the underwriters the right to purchase up to an additional 4,411,765 Class A common shares within 30 days of the date of this prospectus, at the public offering price, less underwriting discounts and commissions, on the same terms as set forth in this prospectus.

Listing    Our Class A common shares have been approved for listing on the Nasdaq, under the symbol “DLO.”
Use of proceeds   

We estimate that the net proceeds to us from this offering will be approximately US$86.4 million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds from this offering (1) to accelerate our investments in technology, (2) to manage potential working capital needs, (3) to pursue growth opportunities, including through the acquisition of cross-border payment processing companies, software development companies or other payment related companies and (4) for general corporate purposes. See “Use of Proceeds.”

 

We will not receive any proceeds from the sale of common shares by the selling shareholders.

 

Share capital before and after offering    As of the date of this prospectus, our authorized share capital is US$3,000,000, consisting of 1,500,000,000 authorized shares of par value US$0.002 each, after giving effect to the Share Contribution and after the Share Split. Of those authorized shares, (1)


 

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   1,000,000,000 are designated as Class A common shares; (2) 250,000,000 are designated as Class B common shares; and (3) 250,000,000 are yet undesignated and may be issued as common shares or shares with preferred rights.
   Immediately after this offering, we will have 144,222,131 Class A common shares outstanding, assuming no exercise of the underwriters’ option to purchase additional shares.
Dividend policy    The amount of any distributions will depend on many factors, such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our board of directors and controlling shareholders.
Lock-up agreements    We have agreed with the underwriters, subject to certain exceptions, not to offer, sell, or dispose of any shares of our share capital or securities convertible into or exchangeable or exercisable for any shares of our share capital during the 180-day period following the date of this prospectus. Members of our board of directors and our executive officers, and all of our principal existing shareholders have agreed to substantially similar lock-up provisions, subject to certain exceptions. See “Underwriting.”
Risk factors    See “Risk Factors” and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in our Class A common shares.
Indications of interest    Prior to the date hereof, the cornerstone investor has indicated an interest in purchasing up to 20% of our Class A common shares sold in this offering (excluding the underwriters’ option to purchase additional shares) at the initial public offering price. Because this indication of interest is not a binding agreement or commitment to purchase, the cornerstone investor could determine to purchase more, less, or no shares in this offering or the underwriters could determine to sell more, less, or no shares to the cornerstone investor. The underwriters will receive the same discount on any of our shares of Class A common shares purchased by the cornerstone investor as they will from any other shares of Class A common shares sold to the public in this offering.

Cayman Islands exempted company with limited liability

  

 

We are a Cayman Islands exempted company with limited liability. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights of shareholders and responsibilities of directors in companies governed by the laws of U.S. jurisdictions. In particular, as a



 

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   matter of Cayman Islands law, directors of a Cayman Islands company owe fiduciary duties to the company and separately a duty of care, diligence and skill to the company. Under Cayman Islands law, directors and officers owe the following fiduciary duties: (1) duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole; (2) duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose; (3) directors should not properly fetter the exercise of future discretion; (4) duty to exercise powers fairly as between different sections of shareholders; (5) duty to exercise independent judgment; and (6) duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal interests. Our Articles of Association have varied this last obligation by providing that a director must disclose the nature and extent of his or her interest in any contract or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the Nasdaq and unless disqualified by the chairman of the relevant meeting, such director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting, provided that such disclosure does not modify the duty of interested directors to act bona fide in the best interests of the Company. In comparison, under the Delaware General Corporation Law, a director of a Delaware corporation owes fiduciary duties to the corporation and its stockholders comprised of the duty of care and the duty of loyalty. Such duties prohibit self-dealing by a director and mandate that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. See “Description of Share Capital—Principal Differences between Cayman Islands and U.S. Corporate Law.”

Unless otherwise indicated, all information contained in this prospectus:

 

   

assumes the implementation of the Share Contribution and the Share Split, applied on a pro forma basis to all of the figures in this prospectus, setting forth the number of our common shares and per common share data as well as the issuance of 45,000 Class A common shares (post Share Split) as equity compensation grants subsequent to March 31, 2021, except for the figures in the consolidated financial statements; and

 

   

assumes no exercise of the option granted to the underwriters to purchase up to an additional 4,411,765 Class A common shares in connection with this offering.



 

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The number of Class A and Class B common shares to be outstanding after this offering is based on 288,504,000 common shares outstanding as of the date of this prospectus (after giving effect to the Share Contribution and the Share Split) and excludes Class A common shares that may be issued following this offering under our employee share incentive plan. We expect that the plan will not exceed 2% of our common shares at any given time. See “Management—Employee Share Incentive Plan.”



 

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SUMMARY FINANCIAL AND OTHER INFORMATION

The following tables set forth, for the periods and as of the dates indicated, our summary financial and operating data. This information should be read in conjunction with “Presentation of Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, included elsewhere in this prospectus.

The summary statements of financial position as of March 31, 2021 and December 31, 2020 and 2019, and the statements of income for the three months ended March 31, 2021 and 2020 and years ended December 31, 2020 and 2019, have been derived from the unaudited consolidated condensed financial statements and audited consolidated financial statements of dLocal Malta included elsewhere in this prospectus, prepared in accordance with IFRS, as issued by the IASB prior to the consummation of the Share Contribution and the Share Split. See “Presentation of Financial and Other Information—Corporate Events—Our Corporate Reorganization.”

Statement of Comprehensive Income

 

     For the Three Months Ended
March 31,
     For the Year Ended
December 31,
 
     2021     2020      2020     2019  
     (in thousands of US$,
except amounts per common share)
 

Revenues

     40,256       17,995        104,143       55,289  

Costs of services

     (16,989     (6,993      (44,065     (19,413
  

 

 

   

 

 

    

 

 

   

 

 

 

Gross profit

     23,267       11,002        60,078       35,876  
  

 

 

   

 

 

    

 

 

   

 

 

 

Technology and development expenses

     (520     (346      (2,005     (1,347

Sales and marketing expenses

     (1,042     (658      (2,852     (2,057

General and administrative expenses

     (5,762     (9,535      (22,188     (14,101

Net impairment gain/(losses) on financial assets

     (54     943        808       (807

Other operating gain/(loss)

     2,896       (83      (2,896     —    
  

 

 

   

 

 

    

 

 

   

 

 

 

Operating profit

     18,785       1,323        30,945       17,564  

Finance income

     18       35        502       279  

Finance costs

     (463     (3      (67     (30

Inflation adjustment

     (34     16        38       10  
  

 

 

   

 

 

    

 

 

   

 

 

 

Other results

     (479     48        473       259  
  

 

 

   

 

 

    

 

 

   

 

 

 

Profit before income tax

     18,306       1,371        31,418       17,823  
  

 

 

   

 

 

    

 

 

   

 

 

 

Income tax expense

     (1,379     (818      (3,231     (2,221
  

 

 

   

 

 

    

 

 

   

 

 

 

Profit for the period

     16,927       553        28,187       15,602  
  

 

 

   

 

 

    

 

 

   

 

 

 

Profit attributable to:

         

Owners of the group

     16,920       555        28,184       15,602  

Non-controlling interest

     7       (2      3       —    
  

 

 

   

 

 

    

 

 

   

 

 

 

Profit for the period

     16,927       553        28,187       15,602  
  

 

 

   

 

 

    

 

 

   

 

 

 

Earnings per share (in US$)

         

Basic earnings per share

     31.2       1.0        52.7       29.3  

Diluted earnings per share

     28.8       1.0        49.7       28.3  

Earnings per share pro forma (in US$)

         

Basic earnings per share pro forma

     0.06       0.00        0.10       0.06  

Diluted earnings per share pro forma

     0.06       0.00        0.10       0.06  

Other comprehensive income

         

Items that may be reclassified to profit or loss

     —         —          —         —    

Exchange difference on translation on foreign operations

     212       (711      37       27  
  

 

 

   

 

 

    

 

 

   

 

 

 

Other comprehensive income for the year, net of tax

     212       (711      37       27  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total comprehensive income for the year

     17,139       (158      28,224       15,629  
  

 

 

   

 

 

    

 

 

   

 

 

 


 

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     For the Three Months Ended
March 31,
     For the Year Ended
December 31,
 
     2021      2020      2020     2019  
     (in thousands of US$,
except amounts per common share)
 

Total comprehensive income for the year attributable to:

          

Owners of the group

     17,123        (156      28,231       15,629  

Non-controlling interest

     16        (2      (7     —    

Statement of Financial Position

 

     As of
March 31,
     As of December 31,  
     2021      2020      2019  
     (in thousands of US$)  

Total current assets

     412,368        194,854        77,216  

Total non-current assets

     6,526        5,613        2,380  
  

 

 

    

 

 

    

 

 

 

Total assets

     418,894        200,467        79,596  
  

 

 

    

 

 

    

 

 

 

Total current liabilities

     309,380        155,143        54,848  

Total non-current liabilities

     422        276        219  
  

 

 

    

 

 

    

 

 

 

Total liabilities

     309,802        155,419        55,067  

Total equity

     109,092        45,048        24,529  
  

 

 

    

 

 

    

 

 

 

Total liabilities and equity

     418,894        200,467        79,596  
  

 

 

    

 

 

    

 

 

 

Other Performance Metrics

 

     For the Three Months Ended
March 31,
    For the Year Ended
December 31,
 
     2021       2020       2020     2019  
     (in thousands of US$, except percentages)  

TPV(1)

     925,874       388,155       2,064,789       1,287,713  

Revenues

     40,256       17,995       104,143       55,289  

Adjusted EBITDA(2)

     17,841       7,433       41,931       20,070  

Adjusted EBITDA Margin(3)

     44.3     41.3     40.3     36.3

 

(1)

We define total payment volume, or TPV, as the aggregate value of all payments successfully processed through our payments platform. See “Presentation of Financial and Other Information—TPV.”

(2)

We define Adjusted EBITDA as the profit from operations before financing and taxation for the year or period, as applicable, before depreciation of property, plant and equipment, amortization of right-of-use assets and intangible assets, and further excluding the changes in fair value of financial assets and derivative instruments carried at fair value through profit or loss, impairment gains/(losses) on financial assets, transaction costs, share-based payment non-cash charges, secondary offering expenses, transaction expenses and inflation adjustment. See “Presentation of Financial and Other Information—Special Note Regarding Adjusted EBITDA and Adjusted EBITDA Margin.” For a reconciliation of Adjusted EBITDA to profit for the period, see “Selected Financial and Other Information.”

(3)

We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenues. See “Presentation of Financial and Other Information—Special Note Regarding Adjusted EBITDA and Adjusted EBITDA Margin.” For a reconciliation of Adjusted EBITDA Margin to consolidated revenues, see “Selected Financial and Other Information.”



 

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RISK FACTORS

An investment in our Class A common shares involves a high degree of risk. In addition to the other information in this prospectus, you should carefully consider the following risk factors in evaluating us and our business before purchasing our Class A common shares. In particular, you should consider the risks related to an investment in companies operating in emerging market countries, for which we have included information in these risk factors to the extent that information is publicly available. In general, investing in the securities of issuers whose operations are located in emerging market countries involves a higher degree of risk than investing in the securities of issuers whose operations are located in the United States or other more developed countries. If any of the risks discussed in this prospectus actually occur, alone or together with additional risks and uncertainties not currently known to us, or that we currently deem immaterial, our business, financial condition, results of operations and prospects may be materially adversely affected. If this were to occur, the value of our Class A common shares may decline, and you may lose all or part of your investment. When determining whether to invest, you should also refer to the other information contained in this prospectus, including our consolidated financial statements and the related notes thereto. You should also carefully review the cautionary statements referred to under “Cautionary Statement Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in this prospectus.

Risks Relating to Our Business and Industry

If we cannot keep pace with rapid developments and change in our industry, including making the necessary investments to keep pace with such developments and change, the use of our services could decline, reducing our revenues.

The electronic payments market in which we compete is subject to rapid and significant changes. This market is characterized by rapid technological change, new product and service introductions, evolving industry standards, changing client needs and the entrance of non-traditional competitors. Rapid and significant technological changes continue to impact the industries in which we operate, including developments in cryptocurrencies. These new services and technologies may be superior to, impair, or render obsolete the products and services we currently offer or the technologies we currently use to provide them.

In order to remain competitive, continue to acquire new clients, and maintain and enhance our customer experience and the quality of our services, we are continually involved, and must continuously invest, in a number of projects to develop new products and services, including projects to expand to new markets, integrate new payment methods and improve tools for merchants to manage their collections and disbursements. These projects carry risks, such as cost overruns, delays in delivery, performance problems and lack of adoption by merchant customers. There can be no assurance that we will have the funds available to maintain the level of investment required to support our projects and any delay in the delivery of new services or the failure to differentiate our services or to accurately predict and address our customers’ needs could render our services less desirable, or even obsolete. Furthermore, even though the market for alternative payment processing services is evolving, it may not continue to expand rapidly enough for us to recover the costs we have incurred in developing new services targeted at our customers and potential customers.

In addition, the services we deliver are designed to process very complex transactions and provide reports and other information concerning those transactions, all at high volumes and processing speeds. Some of these processes, such as exchange rate conversion, pricing, accounting and merchant settlements are not automated. Any failure to deliver an effective and secure service or any performance issue that arises with a new or existing service could result in significant processing or reporting errors or other losses. As a result of these factors, our development efforts could result in increased costs and/or we could also experience a loss in business that could reduce our earnings or could cause a loss of revenue if promised new services are not timely delivered to our customers or do not perform as anticipated. We also rely in part, and may in the future rely in part, on third parties for the development of, and access to, new technologies. Our future success will depend in part on our

 

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ability to develop or adapt to technological changes and evolving industry standards. We cannot predict the effects of technological changes on our business. If we are unable to develop, adapt to or access technological changes or evolving industry standards on a timely and cost-effective basis, our business, financial condition and results of operations could be materially adversely affected.

Substantial and increasingly intense competition may harm our business.

We compete in markets for payment services characterized by vigorous competition. We compete with existing providers of digital payment infrastructure solutions to facilitate pay-in and pay-out payment transactions, including both cross-border and local-to-local payment transactions. We compete with large companies, some of them with a substantially larger scale and higher investment capacity than us. We expect competition to intensify in the future as existing and new competitors introduce new services, enter our markets, compete directly with our products, or enhance existing services and as we expand our footprint into new emerging markets. A number of the companies that we compete against to attract customers may have greater financial and operational resources, a substantially larger sales force than we do, and may be more effective introducing innovative services than us, which may provide them with significant competitive advantages. Such companies may be already integrated with our current merchants and could start offering the same products and services in a less expensive and better or more attractive way than us, potentially obtaining some or all of the volumes routed to us. In the pay-out business we compete with established banks, global enterprise merchants, other financial institutions and other companies (including retailers) that may have greater liquidity and generate greater consumer confidence in the safety and efficiency of their pay-out services compared to ours. These banks take advantage of a larger scale and could offer lower prices and gain some or all of the volume processed by us. Mergers and acquisitions by or among these companies may lead to even larger competitors with more resources or more attractive pricing given their scale which we may not be able to match. We also expect new entrants to offer competitive services, existing local payment service providers to expand their business to provide cross-border payments, or other existing providers that currently offer only limited services (such as fraud management) to expand their service offerings to compete with us. Certain merchants may have longstanding exclusive, or nearly exclusive, relationships with our competitors to accept or send digital payments in certain countries that extend to our target markets when our competitors or we expand to new markets. These relationships may make it difficult or cost prohibitive for us to conduct material amounts of business with them. If we are unable to differentiate ourselves from and successfully compete with our competitors, our business will suffer serious harm.

We may also face pricing pressures from competitors. Certain competitors are able to offer lower prices to merchants for similar services by cross-subsidizing their digital payments services using other services they offer. This competition may mean we need to reduce our pricing, which could reduce or eliminate our profits. As they grow, merchants may demand more customized and favorable pricing from us, and competitive pressures may require us to agree to this, reducing our profits. If market conditions require us to increase the discounts or incentives we provide, our business could be materially adversely affected.

We may not be able to successfully implement strategies to attract or retain merchants, or increase adoption of our payments processing platform, which would limit our growth.

Our customers are mostly global enterprise merchants. Our future growth and profitability will depend, in part, on our ability to retain existing merchants, attract new merchants, and get merchants to increase the volumes processed through our platform. We expect to invest substantial amounts to:

 

   

increase merchant awareness of our platform;

 

   

encourage merchants to contract and use our digital payment services;

 

   

grow and diversify our customer base;

 

   

complement our product portfolio with additional payment solutions for our merchants;

 

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enhance our infrastructure to handle seamless processing of transactions;

 

   

continue to develop state of the art, easy-to-use technology; and

 

   

expand our operations into new markets.

Despite these investments, we may fail to implement these programs successfully or to substantially increase the number of merchants who pay for our payments processing platform. This could hinder growth in our revenues and harm our business.

If we are unable to attract, maintain and expand our merchant relationships, our businesses may be adversely affected.

Our growth is derived in part from acquiring new merchant relationships, developing new and enhanced product and service offerings, and cross-selling or up-selling our products and services through existing merchant relationships, including cross-selling our services to an existing merchant into new jurisdictions. We rely on the continuing growth of our merchant relationships and our distribution channels in order to expand our TPV. There can be no guarantee that this growth will continue. Similarly, our growth also will depend on our ability to retain and maintain existing relationships with merchants that use our platform. Furthermore, merchants with which we have relationships may experience bankruptcy, financial distress, or otherwise be forced to contract their operations. In addition, in certain markets, we carry out our payment processing services for merchants by means of local third-party payment service providers, or PSPs. In certain circumstances, we may decide to provide such services in other areas or directly to these merchants, which may adversely affect or lead to the termination of our relationships with certain PSPs and adversely affect our TPV. The loss of existing merchant or PSP relationships, failure to continue such relationships on similarly attractive economic terms, the contraction of our existing merchants’ operations or the inability to acquire new merchant relationships could adversely affect our TPV and our business and operating results.

We have a limited operating history with financial results that may not be indicative of future performance, and our revenue growth rate is likely to slow down as our business matures.

We began operations in 2016. As a result of our limited operating history, we have limited financial data that can be used to evaluate our current business, and such data may not be indicative of future performance. In particular, we have experienced periods of high revenue growth since we began selling our products and services, and we do not expect to be able to maintain the same rate of revenue growth as our business matures. In addition, estimates of future revenue growth are subject to many risks and uncertainties and our future revenue may be materially lower than projected.

We have encountered, and expect to continue to encounter, risks and difficulties frequently experienced by growing companies, including challenges in financial forecasting accuracy, hiring of experienced personnel, hiring of technology employees, determining appropriate investments, developing new products and features, among others. Any evaluation of our business and prospects should be considered in light of our limited operating history, and the risks and uncertainties inherent in investing in early-stage companies.

Our working capital needs may grow in excess of our cash generation capabilities, which may cause a decline in our cash and cash equivalents.

Our working capital needs may increase in the future. We have historically relied on our cash flow generation to satisfy our working capital needs. If our working capital needs grow in the future in excess of our cash generation, and we are not able to fund these needs with credit or other external sources, then our cash and cash equivalents may decline, and we may have to grow at a slower pace. In addition, our working capital needs may increase from time to time if and when funds are subject to restrictions on expatriation from emerging markets jurisdictions imposed by banks, central banks or other governmental authorities in such jurisdictions and

 

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we are required to pay merchants or make other payments prior to the receipt of such funds. In particular, to the extent there is a mismatch in timing on our TPV between funds from consumers that are retained in a local jurisdiction and the date on which we must pay merchants for the related transactions, we would be required to use our working capital to fund such payments until we are able to expatriate such funds from such jurisdictions and will be subject to foreign exchange risk on such mismatch (see “—Exchange controls and other restrictions on the movement of capital out of certain jurisdictions or otherwise affecting our subsidiaries’ ability to pay dividends or make other payments to us may have a material adverse effect on our results of operations and financial condition.”). Additionally, our working capital costs may be affected by interest and discount rates, especially in countries where payments can be made in installments and/or where we do not immediately receive the proceeds from transactions made with credit cards. All these impacts on our working capital needs may substantially harm our financial capacity.

If we fail to manage our growth effectively, our business could be harmed.

We are currently experiencing a period of significant expansion and anticipate that we will continue to expand in order to address potential growth in our customer base and take advantage of market opportunities. In order to manage our growth effectively, we must continue to invest in our existing infrastructure, develop and improve our internal controls and compliance mechanisms, create and improve our reporting systems, and address issues in a timely manner as they arise.

We must also attract, recruit, retain and develop the necessary personnel who can provide the needed expertise across the entire spectrum of our intellectual and human capital needs. While we have a number of our key personnel who have substantial experience with our operations, we have also had to hire a significant number of new employees in order to support our rapidly growing operations, including employees in technology, sales, legal, finance, accounting and compliance areas, who are gradually becoming integrated into and familiarized with our operations. As a result, we have and will continue to adapt and upgrade our controls, policies, procedures and overall operations to accommodate our growing operations and supporting personnel. Accordingly, our controls, policies and procedures, including with respect to accounting, risk management, data privacy, client on-boarding, transaction monitoring and reliance on manual controls, among other compliance matters, remain under development and may not be consistently applied or fully effective to identify, monitor and manage all risks of our business. If we do not inform, train and manage our employees properly, we may fail to comply with applicable laws and regulations, which could lead to adverse regulatory action. Moreover, the process by or speed with which our internal controls and procedures are implemented or adapted to changing regulatory or commercial requirements may be inadequate to ensure full and immediate compliance, leaving us vulnerable to inconsistencies and failures that may have a material adverse effect on our business, results of operations and financial condition. If our controls, policies and procedures are not fully effective or we are not successful in identifying and mitigating all risks to which we are or may be exposed, we may suffer uninsured liability, harm to our reputation or be subject to litigation or regulatory actions that could adversely affect our business, financial condition or results of operations.

We must constantly add new hardware, update software, enhance and improve our billing and transaction systems, and add and train new engineers, service providers and other personnel to accommodate the increased use of our platforms and the new products and features we regularly introduce. This upgrade process is expensive, and the increasing complexity and enhancement of our platform results in higher costs. Failure to upgrade our technology, features, transaction processing systems, security infrastructure, or network infrastructure to accommodate increased traffic or transaction volume could harm our business. Adverse consequences could include unanticipated system disruptions, slower response times, degradation in levels of customer support, impaired quality of merchants’ experiences of our services and delays in reporting accurate financial information.

Our revenues depend on prompt and accurate transaction processes. Currently, all our transactions are manually exported from a transaction server and registered to our accounting system, which may subject our

 

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accounting system to errors and possible mismatches between customer’s payment and our confirmation of such payment to our merchant, which may give rise to claims or allegations that could harm our business. Our failure to grow our transaction-processing capabilities to accommodate the increasing number of transactions that are processed on our platform could harm our business. Furthermore, we may need to enter into relationships with various strategic partners and other third parties necessary to our business. The increased complexity of managing multiple commercial relationships could lead to execution problems that can affect current and future revenues, and operating margins. Further, we are also expanding into new geographies, which may further strain our resources and bring new challenges. See “We are expanding and may in the future continue to expand into new industry verticals and geographic regions and our failure to mitigate specific regulatory, credit, and other risks associated with a new industry vertical or geographic region could have an adverse effect on our business.”

We cannot assure you that our current and planned systems, policies, procedures and controls, personnel and third-party relationships will be adequate to support our future operations. In addition, our current expansion has placed a significant strain on management and on our operational, accounting and financial resources, and this strain is expected to continue. As we grow, we may not be able to execute as quickly as smaller, more efficient organizations, which could impact the relationship with our customers, for instance. Our failure to manage growth effectively could seriously harm our business, results of operations and financial condition.

Potential merchant clients may be reluctant to switch to a new vendor or integrate with a new vendor, or integration may take longer than expected, which may adversely affect our growth.

Many potential merchant clients may have concerns about disadvantages associated with switching payment processing vendors or integrating with a new vendor, such as a loss of accustomed functionality, increased time and investments required to integrate services with a new vendor and potential business disruption. For potential clients, integrating with a new vendor or switching from another vendor or an internally-developed system may be a significant undertaking. As a result, potential clients often resist changing vendors or integrating with new vendors. We seek to overcome this resistance through strategies such as making investments in our sales personnel and in enhancing the functionality and improving the performance of our software and services. However, there can be no assurance that our strategies for overcoming potential clients’ reluctance to change vendors or integrate with a new vendor will be successful, and this resistance may adversely affect our growth. In addition, customers may take significantly longer than expected to directly integrate with us. Delays in integration, which are common and typically depend on the level of resources and efforts used by merchants, may have a material adverse effect on our growth potential and future performance.

Merchant attrition or a decline in our clients’ growth rate could cause our revenues to decline.

We may experience attrition of our merchant relationships due to several factors, including business closures, transfers of merchants’ accounts to our competitors, cancellations and account closures that we initiate due to heightened credit risks relating to contract breaches by merchants or a reduction in sales. We cannot predict the level of attrition in the future and our revenues could decline as a result of higher than expected attrition, which could have a material adverse effect on our business, financial condition and results of operations.

In addition, our growth to date has been partially driven by the growth of our clients’ businesses and the resulting growth in TPV. Should the rate of growth of our clients’ business slow or decline, this could have an adverse effect on volumes processed and therefore an adverse effect on our results of operations. Furthermore, should we not be successful in selling additional solutions to our active client base and/or expand merchant sales to other geographies, we may fail to achieve our desired rate of growth, which may have material adverse effects on our business performance, financial condition and results of operations.

 

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Interruption or failure of our information technology and communications systems could impair our operations, which could also damage our reputation and harm our results of operations.

Our success and ability to process payments and provide high quality client service depend on the efficient and uninterrupted operation of our computer and information technology systems, as our merchant customers expect a consistent level of quality in the provision of our services. Any failure of our computer systems and information technology to operate effectively or to integrate with other systems, performance inadequacy or breach in security may cause interruptions in the availability of our sites, delays in payment processing and reduced efficiency of our operations. Factors that could occur and significantly disrupt our operations include system failures and outages caused by fire, floods, earthquakes, power loss, telecommunications failures, sabotage, vandalism, terrorist attacks and similar events, software errors, computer viruses, worms, physical or electronic break-ins and similar disruptions from unauthorized tampering with our computer systems and payments platform. While we have certain backup systems and basic recovery plans for certain aspects of our operations and business processes, we do not have full redundancy in our infrastructure and our planning does not account for all possible scenarios, and requires further development, review and updates. Any disruptions or service interruptions that affect our systems could damage our reputation, require us to spend significant capital and other resources and expose us to a risk of loss or litigation and possible liability. Certain of our agreements with third-party service providers do not require those providers to indemnify us for losses resulting from any disruption in service. Furthermore, certain critical processes, such as hosting, cloud and other IT related services, rely on single vendors or components without built-in redundancy. Accordingly, we are exposed to potential single point of failure issues that could lead to service interruptions. Any such disruptions could materially adversely affect our results of operations.

In addition, our platform and internal systems rely on software developed by us or third parties that is highly technical and complex, and depend on the ability of such software to store, retrieve, process and manage large amounts of data. The software on which we rely has contained, and may now or in the future contain, undetected programming errors or flaws. Some errors may only be discovered after the code has been released for external or internal use. Errors or other design defects within the software on which we rely may result in a negative experience for companies or end-users using any elements of our platform, disruptions to the operations of our merchants, errors, or compromise our ability to support effective user service and user engagement or make us susceptible to cybersecurity breaches and attacks, or delay introductions of new features or enhancements. Any errors, bugs or defects discovered in the software on which we rely could result in harm to our reputation and loss of users, which could adversely affect our business, results of operations and financial conditions.

A decline in the quality of the services we offer could adversely affect our ability to attract and retain merchants and partners.

Our merchant customers expect a consistent level of quality in the provision of our services. We have service-level agreements with our merchants that define standards for the required level of service. A breach of such obligations could result in the loss of service credits and/or termination of the agreement, which would have a direct adverse financial impact on our business. Our account management and support services are a key element of the value proposition to our clients. If the reliability or functionality of our services is compromised or the quality of those services is otherwise degraded, or if we fail to continue to provide a high level of support or adapt our services to meet the evolving needs of our merchant customers, we could lose volumes coming from existing merchants and find it harder to attract new merchants and partners. In addition, if we are unable to scale our account management and support functions to address the growth of our merchant and partner network, the quality of our services may decrease, which could adversely affect our ability to attract and retain merchants and partners. See “—Interruption or failure of our information technology and communications systems could impair our operations, which could damage our reputation and harm our results of operations.”

 

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Certain large merchants provide a significant share of our revenues and the reduction in business with these merchants could materially harm our business.

A relatively small number of customers account for a significant share of our revenues. Our top 10 customers in terms of revenues represented approximately 62% of our revenues in the three months ended March 31, 2021 and 69% of our revenues in the three months ended March 31, 2020, and 64% of our revenues in the year ended December 31, 2020 and 70% of our revenues in the year ended December 31, 2019. In each of the three months ended March 31, 2021 and 2020, there was one customer that individually accounted for more than 10% of our total revenues. In 2020, there were two customers that individually accounted for more than 10% of our total revenues, and in 2019, one single customer individually accounted for more than 10% of our total revenues. Failure to maintain our contracts with, or a decrease in the relevant transaction volumes from, these merchants could negatively impact our business and could lead to significant fluctuations in our operating and financial performance. While our merchant customer contracts, including those with our largest merchants, are generally of indefinite term, they are not only terminable upon relatively short written notice, but they also do not prevent merchants from transacting with and sending substantial transaction volumes to our competitors. Merchants may seek price reductions when expanding or changing their services with us and/or when the merchants’ business experiences significant volume changes. Further, certain merchants may seek to lower prices previously agreed upon to pricing competition, volume increase or other economic needs or pressures faced by the merchant. In addition, our large merchants often have arrangements with multiple payment service providers, primarily in order to mitigate certain risks, such as downtime, delayed response time or default by a payment service provider, as well as to maximize conversion among payments service providers, and to have a complete array of payment methods available. Therefore, these merchants could shift business away at any given time without necessarily terminating their contracts with us. Moreover, from time to time, our merchants may require us to provide certain services or to process certain payment volumes that we are unwilling or unable to fulfill, which may cause them to reduce or cease business relations with us or to shift payment volumes to our competitors. If our contracts with our large merchant customers are terminated or if these merchant customers shift business away from us or offer cross-border payment solutions directly, or if we are unsuccessful in retaining high renewal rates and favorable contract terms, our business, financial condition and results of operations could be materially adversely affected.

The quarterly sales activity of certain of our merchant customers may fluctuate due to seasonality, which could result in seasonality in our results of operations if a significant share of our merchant clients are subject to similar seasonal fluctuations.

Our merchant customers operate across a range of industries, such as retail, streaming, ride hailing, financial institutions, advertising, SaaS, travel, e-learning and gaming, among others, which are subject to different seasonal trends. Accordingly, we expect quarterly fluctuations in our revenues and operating results to continue. As our business grows, these seasonal fluctuations may become more pronounced. As a result, we believe that sequential quarterly comparisons of our financial results may not provide an accurate assessment of our financial position. Developments in the mix of industries represented by our merchant customers could affect the seasonality of our business. If merchant customers that are subject to similar seasonal trends come to represent a large share of our clients, our results of operations and operating metrics could be subject to increased seasonal fluctuations, which could cause the price of our Class A common shares to become unpredictable or to decline.

We are subject to cyberattacks and may be subject to breaches of our information technology infrastructure and applications, and any failure to adequately protect our information technology infrastructure and applications could result in data breaches and/or downtime and materially adversely affect our reputation, business, and financial condition.

Our business involves the collection, storage, processing, and transmission of personal and financial data, including names, addresses, email addresses, tax identification numbers, credit card numbers and bank account numbers, as well as information about how consumers interact with our payments platform, all of which may be

 

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accessed by some of our employees. Our reputation depends on the reliability of our payments platform as a secure way to make payments. The techniques used to obtain unauthorized, improper, or illegal access to our systems, our data, client data or end-user data, disable or degrade service, or sabotage systems are constantly evolving and have become increasingly complex and sophisticated, may be difficult to detect quickly, and may not be recognized or detected until after they have been launched against a target. We expect that unauthorized parties will continue to attempt to gain access to our systems or facilities through various means, including hacking into our systems or facilities or those of our clients, partners, or vendors, or attempting to fraudulently induce (for example, through spear phishing attacks or social engineering) our employees, clients, partners, vendors, or other users of our systems into disclosing usernames, tax identifications, passwords, payment card information, or other sensitive information, which may in turn be used to access our information technology systems. In addition, we may also face distributed denial-of-service, or DDoS, attacks, which is a cyber-attack in which the perpetrator seeks to make a machine or network resource unavailable to its intended users by temporarily or indefinitely disrupting services of a host connected to the Internet. DDoS attacks are typically accomplished by flooding the targeted machine or resource with extraordinarily high volumes of traffic in an attempt to overload systems with the goal of disrupting the ability of commercial enterprises to process transactions and possibly making their systems unavailable to users, including clients and consumers, for extended periods of time. Recent industry experience has demonstrated that DDoS attacks continue to grow in size and sophistication and have the ability to widely disrupt internet services. Although we have systems in place to protect us against such attacks, these systems may become overwhelmed depending on the extent or sophistication of such an attack or may otherwise provide insufficient protection.

Certain efforts may be state-sponsored and supported by significant financial and technological resources, making them even more sophisticated and difficult to detect. Numerous and evolving cybersecurity threats, including advanced and persisting cyberattacks, phishing and social engineering schemes, could compromise the confidentiality, availability, and integrity of our systems, as well as the data they contain. Threats may also derive from human error, fraud or malice of employees or third party service providers, accidental technological failure or insufficient internal controls, including the ongoing challenge of managing employee access controls to our encrypted database and other information technology systems. We do not maintain insurance coverage to protect against cybersecurity risks. Although we have developed systems and processes designed to protect our data and client and consumer data and to prevent data loss and other security breaches, and expect to continue to expend significant resources to bolster these protections, there can be no assurance that these security measures provide absolute security.

Our information technology and infrastructure may be vulnerable to cyberattacks or security breaches. Third parties may be able to access personal or proprietary information stored on or accessible through those systems. We may experience breaches of our security measures due to human error, malfeasance, system errors or vulnerabilities, or other irregularities, which may lead to suspension or interruption of our services as a result of any of the above issues. For example, in 2019, we experienced a cybersecurity breach in India that went undetected for just over a month, whereby a hacker changed the payment status of nearly 2,000 payment transactions that we processed during the period to “approved,” which enabled fraudulent cash withdrawals from a local payment processor, resulting in the loss of approximately US$516,000. This loss was borne entirely by us. While we performed a thorough investigation of this security breach and have instituted additional measures to protect against future cybersecurity and fraud-related breaches, we cannot assure that we will not be subject to similar breaches in the future.

Actual or perceived breaches of our security or malfunction in our software could, among other things:

 

   

interrupt our operations,

 

   

result in our systems or services being unavailable,

 

   

result in improper disclosure of data,

 

   

materially harm our reputation and brands,

 

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result in significant regulatory scrutiny and legal and financial exposure,

 

   

cause us to incur significant remediation costs,

 

   

lead to loss of confidence in, or decreased use of, our services,

 

   

divert the attention of management from the operation of our business,

 

   

result in significant compensation or contractual penalties from us to our clients and their business partners or customers as a result of losses to them or claims by them, and

 

   

adversely affect our business and results of operations.

In addition, any cyberattacks or data security breaches affecting companies that we acquire or our clients, partners, payment processors or vendors (including data centers, cloud computing services, software as a service providers, and others) could have similar negative effects. Actual or perceived vulnerabilities or data breaches have led and may lead to claims against us.

We also expect to expend significant additional resources to protect us against security or privacy breaches, and may be required to redress eventual problems caused by breaches. We also expect to expend significant resources to maintain compliance with applicable data protection laws in a constantly evolving regulatory landscape, in particular insofar as data protection laws evolve for data that is shared between parties or systems located in different jurisdictions. New data protection legislation is frequently under discussion in the jurisdictions in which we operate, and any new requirements applicable to our business could impose significant costs, require us to change our business practices, make it more difficult for new and existing customers to use our payments platform, and reduce the ease of use of our services, which could harm our business. We may also incur significant legal expenses in connection with such attacks, which could adversely impact our financial condition and results of operation. See also “—We are subject to new and evolving regulations in respect of protection of personal data, and any failure to comply with these regulations could have a material adverse effect on our business and financial condition.”

Our insurance policies are not sufficient to cover all claims.

We have limited insurance coverage, which do not adequately cover all risks to which we are exposed, including cybersecurity risk and credit losses related to our exposure to third-party agents. A significant claim not covered by insurance, in full or in part, may result in significant expenditures by us, including with respect to legal fees and expenses. Moreover, we may not be able to maintain insurance policies in the future at reasonable costs or on acceptable terms, which may adversely affect our business and the trading price of our Class A common shares. In addition, we do not intend to contract civil liability insurance coverage for acts carried out by our directors and executive officers in the course of their duties.

Because we are a multinational company conducting a complex business in many markets worldwide, we are subject to legal, reputational and operational risks related to staffing and management, as well as a broad array of local legal and regulatory requirements that could adversely affect our operations.

Operating a multinational business creates difficulties associated with staffing and managing our international operations, as well as complying with local legal and regulatory requirements. We operate pay-in and pay-out financial transaction processing networks, both cross-border and local-to-local, that offer payment services to customers, and the laws and regulations in the markets in which we operate, as well as the respective interpretation of those laws and regulations, evolve and are subject to rapid change. As of the date of this prospectus, we are licensed and regulated in the EU as an Electronic Money Issuer, or EMI, and Payment Institution, or PI, and registered as a Money Service Business with the Financial Crimes Enforcement Network of the U.S. Department of the Treasury, or FinCEN, and we operate and are licensed, as applicable, in more than 20 countries in emerging markets, primarily in the Americas, Asia and Africa, with our principal operations in Latin

 

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America and India. Moreover, in Mexico, we are in the process of obtaining an aggregator registration for payment processing purposes, and in Brazil, we are in the process of applying to obtain a formal payment institution authorization from the Brazilian Central Bank. We are also in the process of obtaining other approvals in other countries, including Morocco.

Furthermore, we expect to continue to expand our operations to other countries in these regions. Some of these countries have undergone significant political, economic and social change in recent years and the risk of new, unforeseen changes in these countries remains greater than in the U.S. or other more developed countries. Although we have knowledgeable staff in countries in which we deem it appropriate, we cannot assure you that we will continue to be found to be operating in compliance with all applicable financial services regulations, foreign exchange controls, anti-money laundering and compliance regulations, transactional, sales and withholding taxes, transfer pricing rules, data protection laws, employment laws, corporate, contract, property and competition laws, and other laws or regulations to which we may be subject. Moreover, it is not always clear how such laws and regulations apply to our business and some of our customer’s industries (e.g. e-wallets and money remitters), especially as some of these laws were adopted prior to the advent of the internet, mobile and related technologies, and as a result, do not contemplate or address the unique issues of the internet and related technologies, which may be especially relevant in the context of the payments industry in which we operate. As a result, some of these laws are subject to interpretation by regulators and the courts on an ongoing basis and the resulting uncertainty in the scope and application of these laws and regulations increases the risk that we will be subject to private claims and governmental actions alleging violations of those laws and regulations, including with respect to our payments practices, compliance with informational requirements, or even claims that we may be conducting business without required licenses and/or authorizations thereunder in certain jurisdictions. We may be subject to increased scrutiny by regulatory authorities in certain instances where such regulatory authorities incorrectly attribute our jurisdiction of organization or corporate structure to that of a different country or entity than our actual jurisdiction of organization or corporate structure, which can enhance risks related to regulatory oversight in certain countries due to potential geopolitical tensions. We may also be subject to increased reputational risk, or scrutinized for compliance with labor, social security or tax requirements in connection with certain of our employment practices in different jurisdictions. In addition, we cannot assure you that laws and regulations applicable to us will not be modified or interpreted in ways that could adversely affect our business.

If we are unable to effectively manage our business to address the market demands and complexities of operating a multinational business, including due to any failure to operate our business in compliance with applicable laws and regulations across the various countries in which we operate, or adapt our business to changing legal and regulatory conditions in these countries, or fail to interpret existing or changing laws and regulations in line with the interpretations adopted by the relevant regulatory authorities, our business, financial condition and results of operations could be materially adversely affected.

See also “—We may not be able to obtain or maintain the relevant regulatory licenses, permissions or registrations to carry out our business in the various jurisdictions in which we operate, which may subject us to fines, penalties or force us to discontinue operations in such jurisdictions, any of which could have a material adverse effect on our business, financial condition and results of operations,” “—Complex and enhanced regulatory oversight in the banking and financial services industry could adversely affect our operations or our relationships with our banking partners,” “—We are subject to complex and evolving tax regimes in the countries in which we operate and failure to accurately interpret applicable tax laws, or changes in tax laws or changes in existing interpretations of tax laws, could have a material adverse effect on our business and financial condition,” “We are subject to new and evolving regulations in respect of protection of personal data, and any failure to comply with these regulations could have a material adverse effect on our business and financial condition,” “—If we fail to manage our growth effectively, our business could be harmed,” and “—Our controls and procedures may fail or be circumvented, our risk management policies and procedures may be inadequate, and operational risks could adversely affect our consolidated results of operations.”

 

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We are expanding and may in the future continue to expand into new industry verticals and geographic regions and our failure to mitigate specific regulatory, credit, and other risks associated with a new industry vertical or geographic region could have an adverse effect on our business.

We are expanding into new geographic regions and although we have no current plans to do so, we may in the future further expand into other industry verticals. We may not be able to successfully develop products and services for these new industries, and our merchants and financial partners may not want to be associated with us if we expand into certain verticals (whether as a result of actual or perceived increases in risk or reputational concerns or otherwise), which may result in the loss of such relationships. Our investment of resources to develop products and services for the new industries we enter may either be insufficient or result in expenses that are excessive in relative to payment volumes we may be able to generate in such industries. Additionally, industry participants, including our merchants, their customers and others, may not be receptive to our solution in these new industries, which may cause them to eventually reduce their volume routed through us or even stop working with us. The merchant profile or regulatory cost of compliance in new verticals may not be as attractive as in our current verticals, which may lead to higher costs and/or lower TPV levels than we have historically experienced. If we expand into new verticals or geographic regions, we will need to understand and comply with various new requirements applicable in those verticals or regions. Industries change rapidly, and we may not be able to accurately forecast demand (or the lack thereof) for our solution or those industries may not grow. Failure to forecast demand or growth accurately in new industries, or eventual reputational damages from engaging in certain verticals, could have a material adverse impact on our business.

We are exposed to fluctuations in foreign currency exchange rates.

We are exposed to currency risk on monetary amounts denominated in currencies other than our functional currency (the U.S. dollar), primarily the Argentine peso, Brazilian real, the Mexican peso, the Indian rupee, the Colombian peso and the Chilean peso, which have historically experienced significant devaluations. Since our financial statements are denominated in U.S. dollars, the strengthening or weakening of the U.S. dollar against these currencies may expose us to translation risk when the local currency financial statements for our subsidiaries or when the results of local transactions in such jurisdictions are translated to U.S. dollars. Additionally, in connection with providing services in multiple currencies, we generally set applicable foreign exchange rates for every pay-in and pay-out transaction processed. We may face financial exposure or could be subject to disputes with our merchant customers if we incorrectly set applicable foreign exchange rates in our cross-border business or as a result of fluctuations in foreign exchange rates between the times that we process payment transactions in local currencies and convert them to U.S. dollars. Given that we also hold certain client and our own funds in non-U.S. dollar currencies, our financial results are affected by the translation of these currencies into U.S. dollars. While we may take certain measures intended to manage our foreign exchange risk, including by minimizing banking balances held in local currencies in developing countries (e.g. both by choosing in certain cases to accelerate the receipt of our receivables with processors and acquirers where possible and by transferring any excess funds to operating companies in the European Union and the United Kingdom) and engaging in hedging transactions, fluctuations in foreign exchange rates, particularly sharp devaluation of local currencies, could nevertheless have a significant impact on our business, financial condition and results of operations. See also, “—Exchange controls and other restrictions on the movement of capital out of certain jurisdictions or otherwise affecting our subsidiaries’ ability to pay dividends or make other payments to us may have a material adverse effect on our results of operations and financial condition.”

We may not be able to obtain or maintain the relevant regulatory licenses, permissions or registrations to carry out our business in the various jurisdictions in which we operate, which may subject us to fines, penalties or force us to discontinue operations in such jurisdictions, any of which could have a material adverse effect on our business, financial condition and results of operations.

We were issued an EU Financial Institution License that allows us to operate as a payments processor in the European Economic Area, or the EEA. As a licensed payments processor, we are subject to extensive laws and

 

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regulations applicable to licensed entities in the Eurozone and the EU. In certain other jurisdictions, we have also obtained regulatory registrations to conduct our business, or are in the process of obtaining approval for such registrations, from the applicable financial regulatory authorities in accordance with applicable law in the principal jurisdictions in which we operate. In the United States at the federal level, for example, our subsidiary, dLocal Corp LLP, is registered with FinCEN as a Money Services Business. In certain other U.S. states, but not all, we have obtained specific waivers from the local state regulators to operate our business as presently conducted without obtaining a state license or registration. In the remainder of U.S. states we have otherwise determined under a risk-based approach that registration as a money transmitter is not currently a clear mandatory requirement. In some cases, including cases where there is no exemption for agent of the payee (either because: (i) is not recognized by the state, (ii) is expressly rejected by the state; (iii) is not applicable to our service, or (iv) is not applicable to a customer’s business, such as customers in the financial service industry), we consider using structural arrangements (including by partnering with third-party service providers or using alternative entities incorporated in states that recognizes the agent of the payee exemption or where we have obtained waivers) designed to prevent us from receiving or controlling our customers’ funds in the United States and therefore mitigate the risk of our activities being under the scope of U.S. state money transmitter regulation.

While we believe we have defensible arguments in support of our positions under various state money transmission statutes, we have not expressly obtained confirmation of such positions from every state banking departments who administer the state money transmission statutes. It is possible that certain state banking departments may determine that our activities are not exempt. Any determination that we are in fact required to become licensed under a state money transmission statute may require substantial expenditures of time and money and could lead to liability in the nature of penalties or fines, as well as cause us to be required to cease operations in some or all of the U.S. jurisdictions we service, which would have a materially adverse effect on our business and our financial results. For additional information on our licenses and regulations applicable to our operations, see “Regulatory Overview.”

There can be no assurance that we will be able to obtain or maintain any of the required regulatory licenses, certifications and regulatory approvals in the jurisdictions or industry verticals in which we operate or may in the future operate, or that the exemptions from licensing or registration upon which we rely will remain available. To the extent that we use structural arrangements designed to remove our activities from the scope of money transmitter regulation or other licensing requirements in the jurisdictions in which we operate, there can be no assurance that these structural arrangements will remain effective as applicable laws continue to evolve or that the applicable regulatory bodies will view our payment processing activities as compliant. The adoption of new payment processing, money transmitter or money services business statutes or regulations, changes in regulators’ interpretation of existing payment processing, money transmitter statutes or regulations, or disagreements by regulatory authorities with our interpretation of such statutes or regulations, could subject us to registration or licensing or limit business activities until we are appropriately licensed. These occurrences could also require changes to the manner in which we conduct certain aspects of our business. In addition, even where we maintain regulatory licenses, certifications and regulatory approvals or are able to operate in reasonable reliance upon exemptions or based on legal interpretation, there may be substantial costs and potential regulatory determinations, interpretations or changes associated with maintaining such licenses, certifications, registrations and approvals or in maintaining eligibility for such exemptions, and we could be subject to fines or other enforcement action if we violate applicable requirements. Regulatory compliance could result in substantial cost and delays in the provision of our payment services, or could require significant or costly operational changes to comply with applicable licenses. Regulatory laws and standards governing our licenses are subject to change or to varying interpretations, in many cases due to lack of specificity or due to the uncertain nature of their application to a new business such as ours.

In a number of emerging markets, new regulations applicable to financial institutions with business models similar to ours are being considered or in the process of being implemented. Moreover, it is not always clear how such laws and regulations apply to our business, especially as some of these laws were adopted prior to the advent of the internet, mobile and related technologies, and as a result, do not contemplate or address the unique

 

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issues of the internet and related technologies, which may be especially relevant in the context of the payments industry in which we operate. As a result, the actions required to comply with licensing regulations may evolve over time as new guidance is provided by supervisory authorities and the interpretation of requirements by supervisory authorities and courts may be further clarified over time. In addition, in certain jurisdictions, companies engaged in our types of business could be required to maintain a higher minimum authorized capital than other companies. We may be unsuccessful in our efforts to comply with existing or evolving regulatory interpretations applicable to licenses, authorizations and applicable regulations in the jurisdictions in which we conduct business, including as a result of our rapid growth and lack of familiarity with the regulatory requirements applicable to new jurisdictions (see “—Because we are a multinational company conducting a complex business in many markets worldwide, we are subject to legal and operational risks related to staffing and management, as well as a broad array of local legal and regulatory requirements that could adversely affect our operations,” “—If we fail to manage our growth effectively, our business could be harmed” and “—Our controls and procedures may fail or be circumvented, our risk management policies and procedures may be inadequate, and operational risks could adversely affect our consolidated results of operations”). Failure to comply with relevant regulations, directly and indirectly (including in markets in which our services are carried out through local third-party processors or collection agents), could subject us to fines or penalties or force use to discontinue operations in certain jurisdictions which would have a material adverse effect on our business, financial condition and results of operations.

Although we have the authorizations and licenses referred to above, we currently process payments in more than 20 countries and territories and we are not licensed in certain of these jurisdictions. Our understanding, in general, is that we are not conducting regulated activities in these other jurisdictions or we can rely on certain exemptions, or we can work via collaboration with local licensed partners. However, local regulators in these jurisdictions may reach a different understanding and, as transaction volumes increase and/or any related matter may be brought to our attention by local regulators, we expect to seek advice from external counsel in respect of local requirements on a case-by-case basis, as applicable.

Due to ongoing developments in payments regulation, we obtain advice from external counsel as required in order to assess any applicable risk and, where necessary, may determine to limit the extent of our operations in a particular jurisdiction or will consider whether to obtain a license in such jurisdiction. However, the adoption of new payment processing, money transmitter or other licensing statutes in the jurisdictions in which we operate, changes in regulators’ interpretation of existing money transmitter or other licensing statutes or regulations, or disagreement by a regulatory authority with our interpretation of such statutes or regulations, could require additional registrations or licenses, substantial increase in legal fees, limit certain of our business activities until they are appropriately licensed, and expose us to financial penalties.

We are not aware of any circumstances that may result in us being in breach of the terms licenses that would be likely to lead to a revocation or termination of such licenses or a material restriction on such licenses, nor are we aware of any current or pending financial, civil or criminal proceedings asserted against us in connection with a failure to hold a license in any relevant jurisdiction. However, if we were found to be in violation of any current or future regulations, or to have previously been in breach of any regulation, in any countries from which we accept merchants or customers, including as a result of any failure by our employees to apply correctly our anti-money laundering procedures, this could result in a requirement for future compliance, fines, other forms of liability, increased legal fees and expenses and/or force us to change business practices or to cease operations altogether, and we, our directors, executive officers or employees may also be exposed to a financial liability, civil or criminal liability, any of which could have a material adverse effect on our results of operations, financial condition and future prospects.

Complex and enhanced regulatory oversight in the banking and financial services industry could adversely affect our operations or our relationships with our banking partners.

The financial services and banking industry is subject to extensive regulation and oversight. In light of increased regulatory oversight in recent years, a number of banks are continually examining their business

 

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relationships, and certain major national and international banks have already withdrawn from providing service to payments processing providers, especially in foreign exchange transactions. In certain markets, we rely on and may in the future rely on local, regional or global banks to process payments and conduct foreign exchange transactions in local currency and we may not be able to obtain a license to directly operate in such markets in order to reduce our reliance on such banks. Changes in foreign exchange controls could make it difficult for us to engage in foreign exchange transactions or local regulators enforcing such regulations may use their power to slow or halt payments from global merchants to banks in emerging markets and vice-versa or otherwise prohibit us from providing payment services in a country. In addition, banks may be reluctant to transact or to accept certain transaction volumes due to different interpretations of the applicable foreign exchange, anti-money laundering and tax laws. If we are not able to complete foreign exchange and other transactions with certain banks due to enhanced regulation or different interpretations of the legal framework, our business could be materially adversely affected.

We are subject to complex and evolving tax regimes in the countries in which we operate and failure to accurately interpret applicable tax laws, or changes in tax laws or changes in existing interpretations of tax laws, could have a material adverse effect on our business and financial condition.

Most of the jurisdictions in which we operate have complex and subjective rules regarding the valuation of intercompany services, cross-border payments between affiliated companies and the related effects on income tax, value added tax, or VAT, sales tax, transfer tax, withholding tax, financial transaction taxes and share registration tax. In several of the jurisdictions in which we operate, we may be considered a tax agent or, in some cases, jointly liable to our clients or their respective customers for tax collection purposes and we may be required to withhold taxes from our customers and their customers (payers). While certain of our customers agree to indemnify us for claims by the relevant tax authorities if we should be required to pay additional amounts for taxes not withheld (including in the event we miscalculate or do not pay the relevant taxes and/or fees due), not all merchants have such agreements with us. And for those merchants for which we do enter into indemnity agreements, there can be no assurance that such tax indemnity agreements will cover all instances in which we may be subject to claims for additional withholdings by the relevant tax authorities. Moreover, tax regulations in the jurisdictions in which we operate change frequently, and are subject to varying interpretation by the regulatory authorities, in particular for how they relate to newly emerging businesses like ours, and governments may increase tax rates or implement new taxes, such as new taxes in respect of digital transactions, or governments and regulatory authorities may determine that we should withhold taxes from payment transactions in the instances where we currently do not withhold, or at higher rates than we currently withhold, or could prohibit or restrict the use of certain legal structures designed to minimize taxes. Any such changes or increases in taxes affecting our payment processing for our customers may lead them to decrease or cease the payment volumes processed with us or in the relevant country. Moreover, we may fail to timely implement or adapt to such changes to ensure full and immediate compliance, which may expose us to additional tax liability. Finally, the relevant tax authorities could interpret our engagement with independent contractors or employment of individuals in certain jurisdictions as constituting a “permanent establishment” in such jurisdictions, potentially subjecting our operations in such jurisdictions to corporate income tax, notwithstanding our limited operations in such jurisdictions. Our tax treatment for payments to independent contractors in certain jurisdictions could also be challenged, which could require us to pay or withhold certain taxes on payments to independent contractors in such jurisdictions or could subject us to fines or penalties. Any such tax determinations, changes or increases, whether borne by us or our merchant customers or consumers, could have a material adverse effect on our operating results and financial condition.

Changes in tax law, changes in our effective tax rate or exposure to additional tax liabilities could affect our profitability and financial condition.

We carry out our business operations through entities in multiple foreign jurisdictions. As such, we are required to file corporate income tax returns that are subject to foreign tax laws. The foreign tax liabilities are determined, in part, by the amount of operating profit generated in these different taxing jurisdictions. Our

 

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effective tax rate, earnings and operating cash flows could be adversely affected by changes in the mix of operating profits generated in countries with higher statutory tax rates as well as by the positioning of our cash balances globally. If statutory tax rates or tax bases were to increase or if changes in tax laws, regulations or interpretations were made that impact us directly, our effective tax rate, earnings and operating cash flows could be adversely impacted.

Any such adverse changes in the applicability of tax to us could increase the levels of taxation payable by us which would have an adverse effect on our business, financial condition, results of operations and prospects. In addition to the possibility of a substantial tax burden being imposed on us, the risk that we may become subject to an increased level of taxation may result in us needing to change our corporate or operational structure, which could have a material adverse effect on our business, financial condition, results of operations and prospects. Additionally, the tax authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements. For example, various levels of government and international organizations, such as the OECD and the EU, increasingly focus on future tax reform and any result from this development may create changes to long-standing tax principles, which could adversely affect our effective tax rate. The OECD has issued significant global tax policy changes that include both expanded reporting as well as technical global tax policy changes. Many countries in which we operate have implemented tax law and administrative changes that align with many aspects of the OECD policy guidelines. The breadth of this project may impact all multinational businesses by potentially redefining jurisdictional taxation rights, and could materially impact the law for transfer pricing and permanent establishment taxation. Additionally, tax authorities at the international, federal, state, and local levels are currently reviewing the appropriate tax treatment of companies engaged in internet commerce and financial technology. These developing changes could affect our financial position and results of operations. In particular, due to the global nature of the internet, it is possible that tax authorities at the international, federal, state, and local levels may attempt to regulate our transactions or levy new or revised sales & use taxes, VAT, digital services taxes, income taxes, or other taxes relating to our activities in the internet commerce and financial technology space. New or revised taxes, in particular, sales & use taxes, VAT, and similar taxes, including digital service taxes, would likely increase the cost of doing business. New taxes could also create significant increases in internal costs necessary to capture data and collect and remit taxes. Any of these events could have an adverse effect on our business and results of operations.

Furthermore, any changes in other jurisdictions to the political and social perception of running a business out of a tax-friendly jurisdiction (such as Malta) or any action by any tax authority to investigate our tax arrangements could result in adverse publicity and reputational damage for us, which could have an adverse effect on our business, financial condition, results of operations and prospects. The applicability of taxes to certain arrangements, transactions or structures may involve areas that are inherently subjective, requiring significant management judgments. If any applicable tax authority is successful in challenging our tax arrangements, we may be liable for additional tax and penalties and interest related thereto, which may have a significant impact on our business, financial condition, results of operations and prospects.

Transfer pricing rules may result in increased tax costs.

Some of the jurisdictions in which we operate have rules on transfer pricing that require intra-group transactions to be conducted on arm’s-length terms. Transactions conducted between and among us and our subsidiaries are made on a commercial basis by application of international guidelines and national regulations. As a consequence of globalization and growing world trade, tax authorities worldwide have increased their focus on transfer pricing with respect to cross border intra-group transactions, as part of protecting their respective country’s tax base. Transfer pricing is an inherently subjective area requiring significant management judgments. In the event the tax authorities in the jurisdictions where we operate consider our current transfer pricing not to be on arm’s-length terms and were to succeed with such claims, this could result in an increased tax cost, including tax surcharges, penalties and interest, which could adversely affect our business.

 

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We are subject to new and evolving regulations in respect of protection of personal data, and any failure to comply with these regulations could have a material adverse effect on our business and financial condition.

We are subject to laws relating to the collection, use, storage and transfer of the personal data of our service providers, employees and clients, including in respect of personal financial information. Several jurisdictions have implemented new data protection regulations and others are considering imposing additional restrictions or regulations. We expect data protections regulations to continue to increase both in number, complexity and in the level of stringency. The entry into force of the General Data Protection Regulation (EU) 2016/679, or the GDPR, in the European Union prompted various Latin American countries to begin processes to reform their data protection regimes. For example, Brazil has implemented a comprehensive data protection regulation intended to mirror the GDPR called the Lei Geral de Proteção de Dados, or LGPD and also has a Bank Secrecy Law (Complementary Law No. 105) that applies to certain regulated entities. In many cases, these regulations have strict measures regulating both the transfer of data externally, and also the storage and transfer of data internally among our employees in the course of their work and among our subsidiaries and affiliates. Moreover, these regulations may have conflicting and/or inconsistent requirements, and compliance with one data protection regime does not necessarily entail compliance with another data protection regime, and compliance with one data protection regime could potentially create conflicts in compliance with another data protection regime. In particular, we may transfer data across jurisdictions in the ordinary course of our operations, and we may not be able to ensure compliance with all applicable data protection regulations at all times. Any failure to comply with applicable data protection regimes could subject us to significant penalties and negative publicity, which could have a material adverse effect on our business, financial condition, reputation before our merchants and providers, and results of operations.

Our services must integrate with a variety of operating systems and networks of third-party payment processors, banks and acquirers. If we are unable to ensure that our services interoperate in real time with such networks, operating systems and devices, our business may be seriously harmed.

We are dependent on the ability of our services to integrate with a variety of operating systems and networks, as well as web browsers that we do not control. Any changes in these systems or networks that degrade the functionality of our services, impose additional costs or requirements on us, or give preferential treatment to competitive services, including their own services, could seriously harm the levels of usage of our services. We also rely on bank platforms, acquirers, payment processors, last-mile payment service providers and alternative payment methods to process some of our transactions. In addition, we are also directly exposed to liability in the event we incorrectly charge a customer or merchant when processing payment transactions. If there are any issues with or service interruptions in these platforms, our merchants and their users may be unable to have their transactions completed, which would seriously harm our business.

We rely on third parties for certain aspects of our business, which creates additional risk.

We rely on third-parties for certain aspects of our business, including payment networks (such as Visa and Mastercard), acquirers, processors, banks, market infrastructure (including clearing and settlement entities), alternative payment methods, last-mile payments service providers, collection agents, other payment service providers and digital wallets to process transactions. We may not manage to comply with our agreement with third-parties or these third-parties may refuse to process transactions adequately, may breach their agreements with us, may refuse to renew agreements on commercially reasonable terms, take actions that degrade the functionality of our services, impose additional costs, new licenses or other requirements on us, or give preferential treatment to competitive services or suffer outages in their systems, any of which could disrupt our operations and materially and adversely affect our business, financial condition and results of operations.

Some third-parties that provide services to us may have or gain market power and could increase their prices to us without competitive constraint. In addition, there can be no assurance that third-parties that provide services directly to us will continue to do so on acceptable terms, or at all, or will not suffer from outages to their systems.

 

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If any third-parties were to stop providing services to us on acceptable terms, we may be unable to find alternative providers in a timely and efficient manner and on acceptable terms, or at all, which could materially adversely affect our business, financial condition and results of operations.

In addition, we rely heavily on Amazon Web Services, or AWS, to provide cloud computing, storage, processing and other related services. Any disruption of or interference with our use of these services could negatively affect our operations and seriously harm our business. AWS has experienced, and may experience in the future, interruptions, delays or outages in service availability due to a variety of factors, including infrastructure changes, human or software errors, hosting disruptions and capacity constraints. Capacity constraints could arise from a number of causes such as technical failures, natural disasters, fraud and/or security attacks. The level of service provided by AWS, or regular or prolonged interruptions in the services provided by AWS, could also impact the use of our services by our merchant customers and could harm our business and reputation.

We face credit and liquidity risks from our agents and third-party processors, acquirers, collection agents and merchants that could adversely affect our business, financial condition, results of operations, and cash flows.

Our payment processing services are carried out through local third-party processors, acquirers and collection agents. Approximately 5% of our TPV in 2020 was processed by collection agents that are owned either by employees or certain of our directors. We have arrangements with more than 100 third party processors, acquirers and collection agents, and the top ten processed 39% of our TPV in 2020. These processors collect funds from consumers and are required to pay the proceeds from these transactions to us. As a result, we have credit exposure to these processors and acquirers. We are not insured against credit losses in connection with our exposure to these third-party agents. If a processor or acquirer becomes insolvent, files for bankruptcy, commits fraud or otherwise fails to pay amounts owed to us when due, we must nonetheless process the payment transaction for the benefit of our merchant customers and the end consumers. Since January 1, 2019, we have only once been prevented from collecting from a collection agent, which resulted in a loss of US$492 thousand, representing 0.01% of the aggregate TPV for such period.

Moreover, our ability to manage credit risk may be adversely affected by legal or regulatory changes, such as restrictions on collections or changes in bankruptcy laws. Increased credit risk, whether resulting from the deterioration of the credit profile of our merchant clients, deteriorating economic conditions, changes in our mix of business, liquidity issues faced by partner banks or acquirers or otherwise, could require us to increase our provisions for losses and could have a material adverse effect on our results of operations and financial condition.

We are subject to economic and political risk, the business cycles and the overall level of economic activity, which could negatively impact our business, financial condition and results of operations.

The electronic payment industry depends heavily on the overall level of consumer, business and government spending. We are exposed to general economic conditions that affect consumer confidence, consumer spending, consumer discretionary income or changes in consumer purchasing habits, particularly in the emerging markets in which we operate. A sustained deterioration in general economic conditions, including a rise in unemployment rates, or increases in interest rates or changes in foreign exchange rates may adversely affect our financial performance by reducing the number or average purchase amount of transactions made using electronic payments. A reduction in the amount of consumer spending, whether due to continued job losses, foreclosures, bankruptcies, higher consumer debt and interest rates, changes in foreign exchange rates, reduced access to credit, lower consumer confidence, or economic uncertainty, could result in a decrease in our revenue and profits. If consumers decrease their level of spending, our merchants make fewer sales of their products and services using electronic payments or people spend less money per transaction, we will have fewer transactions to process at lower amounts, resulting in lower revenue, which would significantly harm our business.

 

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Recently introduced economic substance legislation of the Cayman Islands may adversely impact us or our operations.

The Cayman Islands, together with several other European and non-European Union jurisdictions, have recently introduced legislation aimed at addressing concerns raised by the Council of the European Union as to offshore structures engaged in certain activities which attract profits without real economic activity. With effect from January 1, 2019, the International Tax Co-operation (Economic Substance) Act (2020 Revision) (the “Substance Act”) came into force in the Cayman Islands introducing certain economic substance requirements for in-scope Cayman Islands entities which are engaged in certain “relevant activities,” which in the case of exempted companies incorporated before January 1, 2019, will apply in respect of financial years commencing July 1, 2019, onwards. As we are a Cayman Islands company, compliance obligations include filing annual notifications for the Company, which need to state whether we are carrying out any relevant activities and if so, whether we have satisfied economic substance tests to the extent required under the Substance Act. As it is a new regime, it is anticipated that the Substance Act will evolve and be subject to further clarification and amendments. We may need to allocate additional resources to keep updated with these developments, and may have to make changes to our operations in order to comply with all requirements under the Substance Act. Failure to satisfy these requirements may subject us to penalties under the Substance Act.

In the event that we need debt financing in the future, uncertainty in the credit markets could affect our ability to obtain debt financing on reasonable terms.

Expanding our business might require debt financing to allow us to invest in new products, services or markets or to pursue strategic acquisitions. In the event we were to seek debt financing in the future, uncertainty in the credit markets, particularly for borrowers operating in emerging markets, could materially impact our ability to obtain debt financing on reasonable terms. The inability to access debt financing on reasonable terms could materially impact our ability to offer new services, enter into new markets, make acquisitions or materially expand our business in the future.

We rely in part on payment networks, card issuers and card schemes when processing our transactions. Changes to payment network and credit card scheme fees, rules or practices may harm our business.

We rely in part on payment networks, card issuers and card schemes when processing our transactions, and rely on our relationship with acquirers and other processors, the card schemes and payment network providers, and must pay a fee for this service. We are subject to operating rules, including mandatory technology requirements, promulgated by payment networks and credit card schemes that have previously subjected us and could subject us in the future to a variety of fines and penalties that we may not be able to pass on to our merchant customers. In order to access the international card networks to provide payment processing services, in certain jurisdictions we must have the relevant geographically based operating licenses, registrations or memberships. In some markets where it is not feasible for us to have a direct license with a card network, we must maintain a relationship with a local financial institution or third-party agent to act as a local sponsor for the license. In addition, card schemes may impose special assessments for transactions that are executed to facilitate cross-border payments and additional fees related to this could affect us, significantly increasing our operating costs, and reducing our profit margins.

We are also required by acquirers and other processors, payment networks and credit card schemes to comply with their operating rules. The payment networks and credit card schemes and their respective member banks set and interpret these rules and we have, in the past, been required to pay penalties and have been subject to warnings regarding other adverse measures for violations of credit card scheme rules, including suspension of services, and could be subject to additional penalties and adverse measures in the future. Visa, MasterCard, American Express or other credit card companies could create new participant licenses, adopt new operating rules or reinterpret existing rules that we or our processors might find difficult or even impossible to follow. Moreover, payment networks may change these rules and standards from time to time in their sole discretion and

 

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with or without advance notice to their participants. These changes may be made for multiple reasons, including as a result of changes in the regulatory environment, to maintain or attract new participants, or to serve the strategic initiatives of the payment networks, and may impose additional costs and expenses on or be disadvantageous to certain participants. Participants are subject to audit by the payment networks to ensure compliance with applicable rules and standards. The networks, acquirers and other processors and payment network providers may fine, penalize or suspend the registration of participants for certain acts or omissions or the failure of the participants to comply with applicable rules and standards.

Changes to these network rules or how they are interpreted could have a significant impact on our business and financial results. For example, changes in the payment card network rules regarding chargebacks may affect our ability to dispute chargebacks and impact the amount of losses we incur from chargebacks. Changes to and interpretations of the network rules that were inconsistent with the way we operated has, in the past, required us to make changes to our business, and any future changes to or interpretations of the network rules that are inconsistent with the way we currently operate may require us to make changes to our business that could be costly, difficult or even impossible to implement. If we fail to make such changes or otherwise resolve the issue with the payment card networks, the networks could, among other actions, pass on fines and assessments to us, including in respect of fines, fraud or chargebacks related to our merchants or disqualify us from processing transactions if satisfactory controls are not maintained, which could have a material adverse effect on our business, financial condition and results of operations.

Furthermore, failure to comply with payment network and card scheme rules, or the deterioration in our relationships with the payment networks or card schemes for any other reason could also result in the restriction, suspension or termination of our licenses and/or merchant accounts with acquirers to process payment transactions in various jurisdictions, or to act with sponsoring banks to use their acquiring licenses. If this were to occur, we would be unable to process transactions using the relevant acquirers and other processors, payment network or card scheme, as applicable, in the relevant jurisdiction, which could have a material adverse effect on our business, financial condition and results of operations.

We are subject to chargeback and refund liability risk when our merchants refuse to or cannot reimburse chargebacks and refunds resolved in favor of their customers. Any increase in chargebacks and refunds not paid by our merchants may adversely affect our business, financial condition or results of operations.

We are currently, and will continue to be, exposed to certain risks associated with chargebacks and refunds in connection with payment card fraud or relating to the goods or services provided by our merchant customers. In the event that a billing dispute between a cardholder and a merchant is not resolved in favor of the merchant, including in situations in which the merchant customer is engaged in fraud, the transaction is typically “charged back” to the merchant and the purchase price is credited or otherwise refunded to the cardholder. In certain circumstances where we are unable to collect chargeback or refunds from the merchant’s account, or if the merchant refuses to or is unable to reimburse us for a chargeback or refunds due to closure, bankruptcy, or other reasons, we may bear the loss for the amounts paid to the cardholder. Our financial results would be adversely affected to the extent these merchants do not fully reimburse us for the related chargebacks. In addition, our exposure to these potential losses from chargebacks increases to the extent that we have provided working capital solutions to such merchants, as the full amount of the payment is provided up front rather than in installments. While most of our merchant agreements establish that the chargeback and refund liability risk is with the merchant, and would permit us to collect and retain reserves, we generally do not collect and maintain reserves from our merchants to cover these potential losses, and for customer relations purposes we sometimes decline to seek reimbursement for certain chargebacks. If we are unable to maintain our losses from chargebacks at acceptable levels, the payment network providers could fine us, increase our transaction fees, or terminate our ability to process payment cards. Any increase in our transaction fees or liability for incorrect charges could damage our business, and if we were unable to accept payment cards, our business would be negatively affected.

 

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Failure to deal effectively with various types of fraud could materially adversely affect our reputation and our business, results of operations and financial condition, and could severely diminish merchant confidence in our services.

Various third-parties and internal parties may engage in a variety of fraudulent activity against us using our platform, the components of our platform, or our alternative payment methods, or APM. For example, a party may knowingly use a stolen or counterfeit credit, debit or prepaid card, card number, or other credentials to record a false sales transaction or process an invalid card. A merchant representative, agent or dLocal employee could submit changes in bank account details thereby resulting in a settlement of funds to inappropriate persons. Bank employees could engage in fraud in respect of our bank accounts and make illicit withdrawals of our funds or our clients’ funds, or third parties could impersonate our employees or our clients to gain access to our bank accounts. Alternatively, our employees could knowingly process unauthorized changes to bank account details or provide or change such details after falling victim to scamming attempts (such as phishing e-mails or a fraudulent call posing as dLocal management, requesting an unauthorized payment of funds or access to information systems), which could also result in a settlement of funds to inappropriate persons. See “—We are subject to cyberattacks and breaches of our information technology infrastructure, and any failure to adequately protect our information technology infrastructure could result in data breaches and materially adversely affect our reputation, business, and financial condition.” Moreover, our internal controls may not be sufficient to prevent such actions, especially given our rapid growth across a variety of jurisdictions (see “—If we fail to manage our growth effectively, our business could be harmed.”)

We have experienced a third-party fraud incident affecting our operations in Colombia in 2020 that resulted in certain funds being withdrawn from our accounts, which were subsequently reimbursed by our bank upon concluding its review and therefore did not lead to an adverse financial impact on us. Criminals are using increasingly sophisticated methods to engage in illegal fraudulent activities. We also face risks and periodically receive complaints from buyers and sellers who may not have received the goods that they had contracted to purchase or payment for the goods that a buyer had contracted to purchase that was paid for using our platform, which may subject us to reputational damage and adversely affect our brand and business. In addition, in some of the jurisdictions where we operate, regulatory authorities or courts may freeze or block access to our accounts in response to consumer complaints (which has occurred in the past in India), which may have a material adverse effect on our business and financial condition.

It is possible that incidents of fraud could increase in the future, and our failure to catch such incidents may result in sanctions and/or fines from regulators, lawsuits and a decline in our reputation. We have taken measures to detect and reduce the risk of these types of fraud, but such measures must be continually improved and may not be effective against new and continually evolving forms of fraud or in connection with new services offerings. If our fraud-prevention measures do not succeed, our business, reputation, brands, financial condition and results of operations could be materially adversely affected.

We are susceptible to illegal or improper uses of our platform and solutions, which could expose us to additional liability and harm our business.

Our payments platform and related payment solutions are susceptible to potentially illegal or improper uses. These may include transactions relating to illegal online gambling, adult content, unregulated trading of cryptocurrencies, fraudulent sales of goods or services, illicit sales of controlled substances, software and other intellectual property piracy, money laundering, terrorist financing, bank fraud, child pornography, human trafficking, prohibited sales of alcoholic beverages or tobacco products, securities fraud, pyramid or ponzi schemes, or the facilitation of other illegal or improper activity. In certain cases, we have identified transactions by certain merchants that employed means to disguise the illegal or improper origin or nature of their transactions in order to access our platform and make use of our services. Further, certain of our PSPs clients may be engaged in transactions that may be difficult to monitor and could expose us to additional liabilities. Moreover, certain activity that may be legal in one jurisdiction may be illegal in another jurisdiction, and a

 

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merchant may be found responsible for intentionally or inadvertently importing or exporting illegal goods, resulting in liability for us. Owners of intellectual property rights or government authorities may seek to bring legal action against providers of payments solutions, including us, that are peripherally involved in the sale of infringing or allegedly infringing items. Any threatened or resulting claims could result in reputational harm, and any resulting liabilities, loss of transaction volume, or increased costs could harm our business.

Our services and/or services used by our customers could also be subject to unauthorized credit card use, identity theft, employee fraud or other internal security breaches. We may incur significant costs to protect against the threat of illegal or improper use of our platform or information security breaches or to respond to or alleviate problems caused by any such issues. Laws may require us to notify regulators, customers or employees of security breaches and we may be required to reimburse customers or banks for any funds stolen as a result of any breaches or to provide credit monitoring or identity theft protection in the event of a privacy breach. These requirements, as well as any additional restrictions that may be imposed by credit card companies, could raise our costs significantly and reduce our attractiveness.

Any illegal or improper use of our platform could lead to fines or other penalties by governmental authorities or payment providers, as well as reputational harm, and any resulting liabilities, loss of transaction volume or increased costs could materially harm our business, financial condition and results of operations.

Use of our payments services for illegal purposes may materially and adversely affect our business, financial condition, results of operations and prospects and as we are subject to anti-money laundering, anti-terrorism, anti-corruption and sanctions regulations, failure to comply with these regulations may lead to administrative sanctions, criminal penalties and/or reputational damage.

We are subject to laws aimed at preventing money laundering, corruption and the financing of terrorism. This regulatory landscape is constantly changing, including as a consequence of the implementation of the Fourth Anti-Money Laundering Directive (Directive 2015/849/EU, “MLD4”) and the proposed amendments to the MLD4, often referred to as the fifth Anti-Money Laundering Directive. For example, the MLD4 introduces enhanced requirements on the verification of ultimate beneficial owners. In the United States, as a registered money services business, we are subject to anti-money laundering laws and regulations, including the Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001, or the BSA. Among other things, the BSA requires money services businesses to develop and implement risk-based anti-money laundering programs, report large cash transactions and suspicious activity, and maintain transaction records. Monitoring compliance with anti-money laundering and anti-corruption and sanctions rules can impose a significant financial burden on banks and other financial institutions, and on us, and requires significant technical capabilities. In recent years, enforcement of these laws and regulations against financial institutions has become more stringent, resulting in several landmark fines against financial institutions and reputational damage.

We are focused on providing trusted services to our customers and ensuring that data and confidential information is transmitted and stored securely. Combating money laundering and fraud is a significant challenge in the online payment services industry because transactions are conducted between parties who are not physically present, which in turn creates opportunities for misrepresentation and abuse. Criminals are using increasingly sophisticated methods to engage in illegal activities such as identity theft, fraud and paper instrument counterfeiting. Online payments companies are especially vulnerable because of the convenience, immediacy and in some cases anonymity of transferring funds from one account to another and subsequently withdrawing them. Our payments services may be a target for illegal or improper uses, including fraudulent or illegal sales of goods or services, money laundering and terrorist financing. Allegations of fraud may result in fines, settlements, litigation expenses, financial and reputational damage.

We are subject to anti-corruption, anti-bribery and anti-money laundering laws and regulations.

We operate in jurisdictions that have a high risk for corruption and we are generally subject to anti-corruption, anti-bribery and anti-money laundering laws and regulations, including the Brazilian Anti-Corruption

 

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Act, or the Clean Company Act and the United States Foreign Corrupt Practices Act of 1977, as amended, or the FCPA. Both the Clean Company Act and the FCPA impose liability against companies who engage in bribery of government officials, either directly or through intermediaries. Applicable money laundering regulations require firms to put preventative measures in place and to perform know-your-customer procedures, including conducting customer identification and verification and undertaking ongoing monitoring. In addition, regulations require companies to keep records of identity and to train their staff on the requirements of the relevant money laundering regulations. Although we have a compliance program focused on the anti-corruption, anti-bribery and anti-money laundering laws, rules, and regulations that we believe are applicable to our business, we may still be subject to a requirement to change various aspects of our business or the manner in which we carry out our business in certain countries, or to fines, injunctions or other penalties levied by regulators in one or more jurisdictions. In addition, we are currently in the process of revising certain of our employment policies and procedures, as well as consultancy agreements, that are applicable to certain employees, contractors, external advisors, consultants, expansion manager and country managers, to minimize our compliance risk, including reviewing certain compensation practices that may create unintended incentives relating to compliance with such laws, rules and regulations (though we are not aware of such unintended consequences). Violations of the anti-corruption, anti-bribery and anti-money laundering laws and regulations could result in criminal liability, administrative and civil lawsuits, significant fines and penalties, forfeiture of significant assets, as well as severe reputational harm.

We are also subject to regulatory oversight and enforcement by FinCEN and have registered with FinCEN as a money services business. Any determination that we have violated the anti-money-laundering laws could have a material adverse effect on our financial condition, results of operations and future prospects. For example, the BSA requires us to report currency transactions in excess of US$10,000, including identification of the customer by name and social security number, to the IRS. This regulation also requires us to report certain suspicious activity, including any transaction that exceeds US$2,000 that we know, suspect or have reason to believe involves funds derived from illegal activity or is designed to evade federal regulations or reporting requirements and to verify sources of such funds. Substantial penalties can be imposed against us if we fail to comply with this regulation. If we fail to comply with these laws and regulations, the imposition of a substantial penalty could have a material adverse effect on our business, financial condition and results of operations.

Such laws and regulations are subject to changes and evolving interpretations and application, including by means of legislative changes, administrative changes and/or executive orders, and it can be difficult to predict how they may be applied to our business and the way we conduct our operations, particularly as we introduce new products and services and expand into new jurisdictions. Any perceived or actual breach of laws, regulations, and standards could result in investigations, regulatory inquiries, loss of licensure, litigation, fines, injunctions, negative customer sentiment, impairment of our existing or planned products and services, or otherwise materially and adversely impact our business.

In addition, regulators may increase enforcement of these obligations, which may require us to make adjustments to our compliance program, including the procedures we use to verify the identity of our customers and to monitor our merchants’ transactions. Regulators may conduct audits of our compliance framework, which can include a review of all applicable records to verify identities of customers, reporting of suspicious transactions and transactional activity including monitoring processes implemented and all components of the compliance framework, and compliance with these audit processes can result in increased costs or subject us to potential enforcement proceedings. We face risks related to our ability to comply with existing or new anti-corruption, anti-bribery and anti-money laundering laws and regulations, as we may not be able to comply fully with, or obtain appropriate exemptions from, such laws and regulations. Costs associated with fines or enforcement actions, changes in compliance requirements, or limitations on our ability to grow could harm our business, and any new requirements or changes to existing requirements could impose significant costs, result in delays to planned product improvements, make it more difficult for new customers to join our network and reduce the attractiveness of our products and services. Any perceived or actual breach of compliance by us with respect to applicable laws, rules and regulations could have a significant impact on our reputation as a trusted

 

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brand and could cause us to lose existing customers, prevent us from obtaining new customers, require us to expend significant funds to remedy problems caused by breaches and to avert further breaches and expose us to legal risk and potential liability.

Our controls and procedures may fail or be circumvented, our risk management policies and procedures may be inadequate, and operational risks could adversely affect our consolidated results of operations.

We have in the past failed and may in the future fail to identify and manage risks and controls related to a variety of aspects of our business, including, but not limited to cyber-security, information technology and data privacy risk, operational risk and resiliency, interest rate risk, foreign exchange risk, treasury functions, access to information, tax, regulatory, legal and compliance risk, liquidity risk and credit risk. We have adopted various controls, procedures, policies and systems to monitor and manage risk. We cannot provide assurance that those controls, procedures, policies and systems are or will be adequate to identify and manage internal and external risks, including risks related to service providers, in our various businesses. We believe that any internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual rogue acts of some persons, including our employees by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, violations of our controls, procedures, policies and systems and misstatements due to error or fraud may occur and not be detected.

For example, failure to comply with the various foreign exchange registration requirements could result in liability under applicable law for circumventing applicable foreign exchange restrictions, procedures or governmental requirements. As a result, our business operations, our ability to distribute profits and/or TPV could be materially and adversely affected. Furthermore, as foreign exchange regulations, especially in emerging markets, are still relatively new and their interpretation and implementation has been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities.

The risk of individuals, either employees or contractors, engaging in harmful or misleading conduct, whether unintentional or intentional, such as consciously circumventing established control mechanisms to perform unauthorized or illegal transactions or otherwise exceed transaction limitations and restrictions, committing fraud or improperly selling products or services to clients, is particularly challenging to manage through a control framework. In addition, we are subject to increased resiliency risk, requiring continuous reinvestment, enhancement and improvement in and of our information technology and operational infrastructure, controls and personnel which may not be effectively or timely deployed or integrated. Moreover, the financial and reputational impact of control or conduct failures can be significant. Persistent or repeated issues with respect to controls, information technology and operational resiliency or individual conduct have raised and may in the future raise concerns among regulators regarding our culture, governance and control environment. There can be no assurance that our efforts to address such risks will be effective. While we seek to contractually limit our financial exposure to operational risk, the degree of protection that we are able to achieve varies, and our potential exposure may be greater than the revenue we anticipate that we will earn from servicing our merchants.

Internal control policies and procedures and employee training and compliance programs that we have implemented to deter prohibited practices may not be effective in prohibiting our and our affiliates’ directors, employees, contractors or agents from violating or circumventing our policies and the law. If we or our affiliates, or either of our respective directors, employees or agents fail to comply with applicable laws or policies governing our operations, we may face investigations, prosecutions and other legal proceedings and actions, which could result in civil penalties, administrative remedies and criminal sanctions. Any such government investigations, prosecutions or other legal proceedings or actions could adversely affect our business, performance, prospects, value, financial condition, and results of operations.

 

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We rely on manual processes in our operations to conduct our business.

Presently, several of our functions are performed using a number of different information systems that are not integrated. In part because of this, we rely on operations that are performed by individuals rather than automated systems and processes in the operation of all our IT, operations, and treasury-related activities. Accordingly, our treasury functions, for instance, require us to perform many manual reconciliations and other manual steps, which result in a high risk of errors, including errors in the pay-out amount to the beneficiaries, duplicate payments to our merchants in settlement transactions or to our merchant beneficiaries in our payout transactions and errors in our fees, foreign exchange rates, withholding and other tax calculations, which could involve material amounts. Manual steps also increase the probability of control deficiencies and material weaknesses.

Until these systems are fully migrated and implemented with automated replacement systems, we must depend on existing technology platforms that require more manual or duplicate processing. If we do not adequately manage and evolve our financial reporting and managerial systems and processes, our ability to manage or grow our business may be harmed. Our ability to successfully implement our goals and comply with regulations, including those adopted under the Sarbanes-Oxley Act of 2002, requires an effective planning and management system and process. We will need to continue to improve existing, and implement new, operational and financial systems, procedures and controls to manage our treasury operations and business effectively in the future. See also “—If we fail to manage our growth effectively, our business could be harmed.”

If we fail to establish and maintain proper and effective internal controls over financial reporting, our results of operations and our ability to operate our business may be harmed.

After this offering, we will be subject to the Sarbanes-Oxley Act, which requires, among other things, that we establish and maintain effective internal controls over financial reporting and disclosure controls and procedures. As an “emerging growth company”, we choose to rely on an exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, in the assessment of our internal control over financial reporting. Under the SEC’s current rules, starting in 2022 we will be required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to assess the effectiveness of our internal controls. Our testing may reveal deficiencies in our internal controls that are deemed to be material weaknesses or significant deficiencies and render our internal controls over financial reporting ineffective. For example, we identified a material weakness in connection with the preparation of our consolidated financial statements for the year ended December 31, 2019. See “—We have identified material weaknesses in our internal control over financial reporting and, if we fail to remediate such deficiencies (and any other ones) and to maintain effective internal controls over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations and/or prevent fraud.” We expect to incur additional accounting and auditing expenses and to spend significant management time in complying with these requirements. If we are not able to comply with these requirements in a timely manner, or if we or our management identifies material weaknesses or significant deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our Class A common shares may decline, and we may be subject to investigations or sanctions by the SEC, or other regulatory authorities. In addition, we may be required to expend significant management time and financial resources to correct any material weaknesses that may be identified or to respond to any regulatory investigations or proceedings.

We have identified material weaknesses in our internal control over financial reporting and, if we fail to remediate such deficiencies (and any other ones) and to maintain effective internal controls over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations and/or prevent fraud.

Prior to this offering, we were a private company with limited accounting personnel and other resources to address our internal control over financial reporting and procedures. Our management has not completed an

 

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assessment of the effectiveness of our internal control over financial reporting and our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. In connection with the preparation of our consolidated financial statements for the year ended December 31, 2019, we identified a number of control deficiencies that in the aggregate, comprise a material weakness in our internal control over financial reporting as of December 31, 2019. A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

We did not effectively design controls addressing the risk of material misstatement. Specifically, in certain cases we did not design controls at a sufficient level of precision to identify potential material misstatements. These material misstatements contributed to a number of control deficiencies that in the aggregate, comprise a material weakness in the design and maintenance of effective controls with respect to the accounting for leases, financial instruments, share-based payments, credit expected losses, provisions for contingencies, revenues from contracts with customers, intangible assets and financial reporting in hyperinflationary economies, as well as classification errors in several areas of our consolidated statement of financial position and consolidated statement of comprehensive income. These control deficiencies resulted in the restatement of our consolidated financial statements as of December 31, 2019. Accordingly, our management has determined that these control deficiencies constitute a material weakness.

As of December 31, 2020, we are in the process of implementing a remediation plan designed to improve our internal controls over financial reporting and to remediate the control deficiencies that resulted in the material weakness, including performing a risk-assessment process on a regular basis to identify, design, implement and re-evaluate our control activities related to internal control over financial reporting. We cannot assure you that the measures we have taken to date, and the actions we may take in the future, will be sufficient to remediate the control deficiencies that led to our material weakness in our internal controls over financial reporting or that they will prevent potential future material weaknesses. In addition, neither our management nor an independent registered public accounting firm has performed an evaluation of our internal controls over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act because no such evaluation has been previously required. Had we or our independent registered public accounting firm performed an evaluation of our internal controls over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses may have been identified. If we are unable to successfully remediate our existing material weakness, or identify and remediate any future, material weaknesses in our internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected, and consequently we may be unable to timely file periodic reports in compliance with securities laws and applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our share price may decline as a result.

Any factors that reduce cross-border trade in goods or services or make such trade more difficult could harm our business.

Cross-border trade of goods and/or services (i.e., transactions where the merchant and consumer are in different countries) is an important source of our revenues and profits. Cross-border transactions generally provide higher revenues and operating income than similar transactions that take place within a single country or market. In certain markets, cross-border trade represents our primary (and in some instances our only) source of revenue.

Cross-border trade may be negatively impacted by various factors including regional or international tensions, trade wars or international conflict of any kind, foreign currency exchange rate fluctuations and the interpretation and application of laws of multiple jurisdictions in the context of cross-border trade and foreign exchange. Moreover, governmental authorities in certain countries may determine to block some or all of our merchants, which could significantly disrupt our operations in such countries. Any factors that increase the costs

 

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of cross-border trade for us, our customers or their end users or that restrict, delay, or make cross-border trade more difficult or impractical, such as trade policy or higher tariffs, could reduce our cross-border transactions and volume, negatively impact our revenues and profits, and harm our business.

Exchange controls and other restrictions on the movement of capital out of certain jurisdictions or otherwise affecting our settlement transactions or our subsidiaries’ ability to pay dividends or make other payments to us may have a material adverse effect on our results of operations and financial condition.

We are subject in certain jurisdictions where we have operations, such as Argentina, India, South Africa, Egypt, Nigeria and Morocco, to the risk that regulatory authorities in or outside such jurisdictions may impose exchange controls or restrictions on the movement of capital, including on transactions involving transfers of funds from such jurisdictions, as well as restrictions on repatriation of funds or repatriation of profits on subsidiaries from such jurisdictions, which may restrict the amount of funds that can be transferred or dividends that can be paid upstream to us from such jurisdictions. For example, in certain jurisdictions, such as South Africa, Egypt, Nigeria and Morocco, we must obtain regulatory approval prior to the repatriation of funds from these jurisdictions. We are in the process of obtaining applicable approvals in these jurisdictions, though there can be no assurance that such approvals will be obtained in a timely manner, or at all, or that we will timely obtain approvals in jurisdictions where we may seek to operate in the future. In addition, the Argentine economy has experienced balance of payment deficits and shortages in foreign exchange reserves, and the government has responded by restricting the ability of companies to convert local currencies into foreign currencies and imposing other exchange controls. From time to time, we net funds, which could be challenged by regulators due to foreign exchange controls. These restrictive exchange control measures prevent or severely restrict the access to exchange for foreign currencies, such as U.S. dollars and the ability to remit them out of the country (which measures include prior approval by the local central bank, which may be denied at its discretion) and also restrict the ability to hold foreign currency in cash within the relevant jurisdiction. If we are unable to transfer such amounts from such jurisdictions when and as needed, we will remain subject to foreign exchange risk relating to such retained funds denominated in local currencies (including merchant funds held by us), to the extent we cannot convert such funds into other currencies (whether as a result of foreign exchange restrictions in such jurisdictions, or any restrictions on transferring funds out of such jurisdictions), which may adversely impact our ability to settle such transactions and subject us to significant foreign exchange risk, which could have a material adverse effect on our results of operations, liquidity and financial condition. See “—We are exposed to fluctuations in foreign currency exchange rates,” and “—Our working capital needs may grow in excess of our cash generation capabilities, which may cause a decline in our cash and cash equivalents.” Moreover, as a holding company, we require dividends and other payments from our subsidiaries to meet cash requirements.

In addition, repatriations of cash from our subsidiaries may be subject to withholding, income and other taxes in various applicable jurisdictions. If our subsidiaries are unable to pay dividends and make other payments or transfers of funds to us when needed, we may be unable to satisfy our obligations, which would have a material adverse effect on our business, financial condition and operating results. See also “—Complex and enhanced regulatory oversight in the banking and financial services industry could adversely affect our operations or our relationships with our banking partners.”

We may pursue strategic acquisitions or investments. The failure of an acquisition or investment to produce the anticipated results, the inability to integrate an acquired company fully, or potential contingencies related to any acquisition, could harm our business.

Although our core strategy focuses on organic growth, we may pursue strategic acquisitions, including with part of the proceeds of this offering, but there can be no assurance that we will be able to find suitable targets or that we will be able to complete acquisitions upon terms, including purchase price, that we find acceptable.

We may from time to time acquire or invest in complementary companies or businesses, which may subject us to additional risks. The success of an acquisition or investment will depend on our ability to make accurate

 

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assumptions regarding the valuation, operations, growth potential, integration and other factors related to that business and the transaction structure. We cannot assure you that acquisitions or investments will produce the results that we expect at the time we enter into or complete a given transaction or that we may not be subject to additional contingencies, including additional tax liability, in respect of certain transactions. Furthermore, we may not effectively integrate these acquisitions with our current business, including their personnel, financial systems and operating procedures, or be able to retain their key customers, in each case especially if they operate in different platforms. The costs of integrating any acquired business may harm our operating results. Moreover, unforeseen operating difficulties may arise and may result in the diversion of our capital and our management’s attention from other business issues and opportunities. In addition, we may acquire businesses or assets that may not be fully compliant with applicable regulatory regimes. If we fail to integrate acquisitions successfully or inadequately diligence and obtain appropriate indemnity coverage for such acquisitions, we could be subject to unforeseen costs, reputational damage and our business could suffer. In March 2021, we signed an agreement with an effective date as of April 1, 2021 to acquire certain assets (primarily merchant agreements) from a payment service provider that provides local payment services in certain emerging markets in Latin America. See note 31 to our audited consolidated financial statements. We have applied for an exemption from associated taxes arising from the transaction in Malta. In addition, we are in the process of novating the merchant contracts between such merchants and our affiliates, though there can be no assurance that all of the merchant customers will agree to novate their contracts with our affiliates. Until these contracts are novated, they may be subject to increased regulatory oversight risk, which could lead to fines or penalties for the current payment provider in respect of such contracts, which could adversely affect the assets we are acquiring, thus indirectly affecting us. We may also in the future be involved in potential conflicts with the selling shareholders of acquired companies, which could adversely affect our business.

Our failure to manage our client funds properly could materially harm our business.

Our ability to manage and account accurately for our client funds requires a high level of internal processes and controls, including maintaining customer funds in separate bank accounts held at leading banks, and segregated from our proprietary funds, including as required pursuant to applicable regulations in the jurisdictions in which we operate. As our business continues to grow and we expand our service offerings, we must continue to strengthen our internal controls accordingly. Our success requires significant confidence from our customers in our ability to handle large and growing transaction volumes and amounts of client funds. Any failure to maintain the necessary controls or to manage the assets underlying our client funds accurately could severely diminish client use of our services and/or result in penalties and fines, which could materially harm our business.

Our ability to protect our intellectual property rights, which are important to our success, is limited.

We believe the protection of our intellectual property, including our trademarks, domain names and trade secrets, is critical to our success. We seek to protect our intellectual property rights by relying on applicable laws and regulations, as well as a variety of administrative procedures. We also rely on contractual restrictions to protect our proprietary rights, both with our employees in the development of new services and technologies and when offering or procuring products and services, including through confidentiality agreements with our employees and parties with whom we conduct business.

However, contractual arrangements and other steps we have taken to protect our intellectual property may not prevent third parties from infringing or misappropriating our intellectual property or deter independent development of equivalent or superior intellectual property rights by others. Trademarks, domain name and trade secret protection may be expensive or difficult to assert and may require litigation. Protecting our intellectual property rights and other proprietary rights may be expensive and time-consuming and we may not be successful in every jurisdiction. Also, we may not be able to discover or determine the extent of any unauthorized use of our proprietary rights.

 

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As the number of products in the software industry increases and the functionalities of these products further overlap, and as we acquire technology through acquisitions or licenses, we may become increasingly subject to infringement claims, including patent, copyright, and trademark infringement claims. We may be required to enter into litigation to determine the validity and scope of the patents or other intellectual property rights of others. The ultimate outcome of any allegation is uncertain and, regardless of the outcome, any such claim, with or without merit, may be time-consuming, result in costly litigation, divert management’s time and attention from our business, require us to stop offering our services, or require us to pay substantial amounts to satisfy judgments or settle claims or lawsuits or to pay substantial royalty or licensing fees, or to satisfy indemnification obligations that we have with some of our clients. Our failure to obtain necessary license or other rights, or litigation or claims arising out of intellectual property matters, may harm our business.

The costs and effects of pending and future litigation, investigations or similar matters, or adverse facts and developments related thereto, could materially affect our business, financial position and results of operations.

We are, and may be in the future, party to legal, arbitration and administrative investigations, inspections and proceedings arising in the ordinary course of our business or from extraordinary corporate, intellectual property, tax or regulatory events, involving our clients, suppliers, consumers, as well as competition, government agencies (including central banks) and tax authorities, particularly with respect to civil, tax, financial, foreign exchange, and labor claims (including employee lawsuits). Our indemnities may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. Furthermore, there is no guarantee that we will be successful in defending ourselves in pending or future litigation or similar matters under various laws. Should the ultimate judgments or settlements in any pending litigation or future litigation or investigation significantly exceed our capacity to pay or applicable indemnity rights, they could have a material adverse effect on our business, financial condition and results of operations and the price of our Class A common shares. Further, even if we adequately address issues raised by an inspection conducted by an agency or successfully defend our case in an administrative proceeding or court action, we may have to set aside significant financial and management resources to settle issues raised by such proceedings or to those lawsuits or claims, which could adversely affect our business, as well as cause us reputational harm in case such issues become public. See “Business—Legal proceedings.”

We could incur certain labor liabilities in connection with the outsourcing of certain of our operations to independent contractors, which could have an adverse effect on our business and results of operations

We outsource a number of activities related to our business to independent contractors in order to adapt to different market customs and practices and to maintain a flexible cost base. As of March 31, 2021, dLocal had approximately 60 independent contractors. Although we have implemented policies regarding compliance with labor and social security obligations by our contractors, we cannot assure that our contractors will abide by their obligations or that local authorities in each market where we have operations will not impose additional labor related taxes or charges in connection with the contracts we have in force with such contractors, nor that contractors will not initiate legal actions to seek indemnification from us based on applicable labor laws and court ruling in the jurisdictions in which we engage independent contractors for a portion of our operations. If we were to incur material labor liabilities in connection with outsourcing certain operations to independent contractors, such liabilities could have an adverse effect on our financial condition and our results of operations.

We may be subject to unexpected claims and liabilities and reputational risk arising from our former operations as a division of AstroPay.

dLocal began as a division of AstroPay. Prior to August 1, 2018, we operated as a division of AstroPay, a global payment solutions provider with operations in emerging markets. On August 1, 2018, our business was separated from the business of AstroPay and its affiliated entity, Directa24, pursuant to a separation agreement. While we operated our business as a distinct division of AstroPay prior to the separation (and the separation

 

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agreement includes a mutual discharge provision related to claims against each other), we may still be subject to unexpected claims and liabilities relating to, arising out of or resulting from the separation, including, but not limited to, liabilities arising from the carve-out of our operations from AstroPay, and/or claims from third parties as a result of our status as a legacy operation of AstroPay. Moreover, while the separation agreement sets forth certain non-compete and non-solicitation agreements for both parties, these provisions shall lapse the earlier of (1) two years from the consummation of a change of control transaction which constitutes a sale of 100% of the issued share capital of either party or (2) three years from the consummation of any other change of control transaction of either party. Therefore, we are subject to competition from AstroPay and its affiliated entity Directa24 in certain industry verticals and may become subject to competition across all industry verticals in the future upon the expiration of such non-compete and non-solicitation clauses. In addition, we are subject to reputational risk related to our prior operations as a division of AstroPay and potential misattribution of our operations to those of AstroPay.

AstroPay and Directa24 process payments mainly for merchants operating in online gambling, forex, binary options or adult entertainment verticals. Their main markets are Brazil, India and Latin America generally. These activities do not have a clear legal framework in these jurisdictions and could be considered illegal in some of the jurisdictions, thereby exposing those companies to potential civil and criminal sanctions in one or more of the territories where they operate in the foreseeable future. Our controlling shareholders are the same controlling shareholders of AstroPay and Directa24. In addition, prior to January 1, 2016, our chief executive officer was the chief executive officer of AstroPay and currently holds a 1% equity interest in AstroPay.

Merchant customers or the market generally may continue to associate our operations with the operations of AstroPay. We may also be perceived to be associated with AstroPay and/or Directa24 due to partial overlap of our existing shareholder group with the shareholders of AstroPay. Finally, certain of our directors and officers were formerly associated with AstroPay and/or Directa24 and/or continue to hold an ownership interest in AstroPay and/or Directa24, and their prior association with and current interest in AstroPay and/or Directa24 may be imputed to us. Any perceived reputational shortcomings of AstroPay and/or Directa24 may reflect poorly on us, whether or not justified, which could have an adverse effect on our reputation and adversely affect our business, financial condition and results of operations.

Our use of open-source software could negatively affect our ability to sell our services and subject us to possible litigation.

Our platform incorporates and relies upon the use and development of open-source software and we intend to continue our use and development of open-source software in the future. Such open-source software is generally licensed by its authors or other third parties under open-source licenses and is typically freely accessible, usable and modifiable. Pursuant to such open-source licenses, which generally consist of GNU General Public Licenses (GPU) and GNU Lesser General Public Licenses (LGPL), we may be subject to certain conditions, including requirements that we offer our proprietary software that incorporates the open-source software for no cost, among other requirements. If an author or other third party that uses or distributes such open-source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our solutions that contained or are dependent upon the open-source software and required to comply with the foregoing conditions, which could disrupt the distribution and sale of some of our solutions. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional research and development resources to change our platform. The terms of many open-source licenses to which we are subject have not been interpreted by courts. As there is little or no legal precedent governing the interpretation of many of the terms of certain of these licenses, the potential impact of these terms on our business is uncertain and may result in unanticipated obligations regarding our solutions and technologies. Any requirement to disclose our proprietary source code, lack of availability of or updates to open-source software or payments of damages for breach of contract could be

 

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harmful to our business, results of operations or financial condition, and could help our competitors develop services that are similar to or better than ours.

In addition to risks related to license requirements, use of open-source software can lead to greater risks than use of third-party commercial software, as open-source licensors generally do not provide warranties, controls on the origin or development of the software, or remedies against the licensors. Many of the risks associated with usage of open-source software cannot be eliminated and could adversely affect our business.

Although we believe that we have complied with our obligations under the various applicable licenses for open-source software, it is possible that we may not be aware of all instances where open-source software has been incorporated into our proprietary software or used in connection with our solutions or our corresponding obligations under open-source licenses. We do not have open-source software usage policies or monitoring procedures in place. We rely on multiple software programmers to design our proprietary software and we cannot be certain that our programmers have not incorporated open-source software into our proprietary software that we intend to maintain as confidential or that they will not do so in the future. To the extent that we are required to disclose the source code of certain of our proprietary software developments to third parties, including our competitors, in order to comply with applicable open-source license terms, such disclosure could harm our intellectual property position, competitive advantage, results of operations and financial condition. In addition, to the extent that we have failed to comply with our obligations under particular licenses for open-source software, we may lose the right to continue to use and exploit such open-source software in connection with our operations and solutions, which could disrupt and adversely affect our business.

If we lose key personnel our business, financial condition and results of operations may be adversely affected.

We are dependent upon the ability and experience of our president, our chief executive officer, our chief financial officer, our chief operations officer and our chief technology officer, who have substantial experience with our operations, the rapidly changing payment processing industry, and emerging markets. It is possible that the loss of the services of one or a combination of our senior executives or key managers, including key executive officers, could have a material adverse effect on our business, financial condition, and results of operations.

In a dynamic industry like ours, the ability to attract, recruit, develop and retain qualified employees is critical to our success and growth. If we are not able to do so, our business and prospects may be materially and adversely affected.

Our business functions at the intersection of rapidly changing technological, social, economic and regulatory developments that require a wide-ranging set of expertise and intellectual capital. In order for us to successfully compete and grow, we must attract, recruit, develop and retain the necessary personnel who can provide the needed expertise across the entire spectrum of our intellectual capital needs. While we have a number of our key personnel who have substantial experience with our operations, our management team has no previous experience in working in a publicly-held company. In addition, we must also develop our personnel to provide succession plans capable of maintaining continuity in the midst of the inevitable unpredictability of human capital. However, the market for qualified personnel is competitive, and we may not succeed in recruiting additional personnel or may fail to effectively replace current personnel who depart with qualified or effective successors, particularly in the technology business. We must continue to hire additional personnel to execute our strategic plans. Our effort to retain and develop personnel may also result in significant additional expenses, including option grants, which could adversely affect our profitability. We cannot assure that qualified employees will continue to be employed or that we will be able to attract and retain qualified personnel in the future. Failure to retain or attract key personnel could have a material adverse effect on our business, financial condition, and results of operations.

 

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Our holding company structure makes us dependent on the operations of our subsidiaries.

We are a Cayman Islands exempted company with limited liability. We are organized as a holding company, and accordingly our material assets are our direct and indirect equity interests in our subsidiaries. We are therefore dependent upon the results of operations and, in turn, the payments, dividends and distributions from our subsidiaries for funds to pay our holding company’s operating and other expenses and to pay future cash dividends or distributions, if any, to holders of our Class A common shares, and we may have tax costs in connection with any dividend or distribution. In addition, the payments, dividends and distributions from our subsidiaries to us for funds to pay future cash dividends or distributions, if any, to holders of our Class A common shares, could be restricted under financing arrangements that we or our subsidiaries may enter into in the future and we and such subsidiaries may be required to obtain the approval of lenders to make such payments to us in the event they are in default of their repayment obligations.

The United Kingdom’s departure from the European Union could adversely affect us.

The UK withdrew from the European Union on January 31, 2020, commonly referred to as Brexit. The UK and the EU agreed a Trade and Cooperation Agreement on December 24, 2020, or the TCA, which is intended to be operative at the end of the transition period. The TCA was ratified by the UK parliament on December 30, 2020 and is expected to come into full force in April 2021 once relevant EU institutions have also ratified the TCA. Until then, the TCA governs the UK’s relationship with the EU on an interim basis.

While the TCA regulates a number of important areas, significant parts of the UK economy are not addressed in detail by the TCA, including in particular the services sector, which represents the largest component of the UK’s economy. A number of issues, particularly in relation to the financial services sector, remain to be resolved through further bilateral negotiations, which are currently expected to begin in the early part of 2021. As a result, the new relationship between the UK and the EU could in the short-term, and possibly for longer, cause disruptions to and create uncertainty in the economy, which could in turn result in reduced corporate transactional activity. Under the TCA, certain passporting rights with respect to the provision of financial services will remain in effect until December 31, 2021, though applicable EU payment and/or e-money institutions (including our subsidiaries) must apply for a temporary license to continue providing services in the UK after December 31, 2020. While we have applied for such temporary licensing, the implementation of the TCA agreement could potentially disrupt the markets we serve and we cannot assure that we will be able to obtain the relevant licenses to operate in the UK once our temporary passporting license expires (if granted). Despite providing services to customers in the UK, due to the remote nature of such services, our services are not considered provided in the UK. However, if we are unable to obtain any license eventually deemed necessary by the governmental authorities in the UK by December 31, 2021, then our ability to provide services in the UK may be disrupted. Any disruption of our business following Brexit could have an adverse effect on our business and financial condition.

The COVID-19 pandemic and other actual or threatened epidemics, pandemics, outbreaks, or other public health crises could have an adverse impact on our business.

Our business could be materially and adversely affected by the risks (or the public perception of the risks) related to an epidemic, pandemic, outbreak, or other public health crisis, such as the recent outbreak of novel coronavirus (COVID-19). The global spread of the COVID-19 pandemic, which originated in late 2019 and was later declared a pandemic by the World Health Organization in March 2020, has negatively impacted the global economy, disrupted supply chains and created significant volatility in global financial markets. The COVID-19 pandemic has resulted in the temporary or permanent closure of many businesses, and has required adjustments in how many businesses operate, including our merchants. These factors have adversely impacted certain companies and industries, including certain of our merchants, particularly those in the ride hailing and travel industries, and have severely disrupted economic conditions generally.

 

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While we believe that our business has thus far seen a net benefit from the shift from in-store shopping and traditional payment methods towards e-commerce and digital payments, the ultimate extent of the impact of COVID-19 or any other epidemic, pandemic or other health crisis on our business, financial condition and results of operations will depend on future developments, including the condition and the dynamics of the global economy after the pandemic, shifts in purchasing behavior, new virus variants (which are highly uncertain and cannot be predicted), new information that may emerge concerning the severity of the pandemic or other health crisis and actions taken to contain or prevent their further spread, among others. These and other potential impacts of an epidemic, pandemic or other health crisis, such as the COVID-19 pandemic, could have a material adverse effect on our business, financial condition and results of operations, and it may also have the effect of heightening many of the other risks described in this “Risk Factors” section. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key factors affecting our performance—Impacts of the COVID-19 pandemic.”

Risks Relating to the Countries in which we Operate

A substantial portion of our business is primarily concentrated in Latin America, exposing us to disproportionate risk to the political, regulatory, economic and social conditions in this region.

We carry out substantially all of our business for merchants operating in emerging market countries, primarily Brazil, Mexico, Argentina, Chile, Colombia and India. Our operations provided to merchants in Latin America account for a substantial portion of our business. Such operations accounted for 89% and 94% of our revenues, and 93% and 88% of our TPV, respectively, for the three months ended March 31, 2021 and 2020, and 89% and 92% of our revenues, and 90% and 94% of our TPV, respectively, for the years ended December 31, 2020 and 2019. The concentration of the services we provide to merchants in these countries exposes us to risks related to the political, regulatory, economic and social conditions in these countries. For example, in Argentina (which represented 9% and 13% of our TPV in the three months ended March 31, 2021 and 2020, respectively, and 12% and 15% of our TPV in 2020 and 2019, respectively) the economy has historically experienced very high rates of inflation that have undermined the Argentine economy and the Argentine government’s ability to foster conditions for stable growth. High rates of inflation in Argentina have adversely affected economic activity and employment levels, real salaries, consumption and interest rates. In addition, as the Argentine fiscal deficit has increased and Argentine Central Bank reserves have decreased, the Argentine government has responded by increasing tax rates, and by reinstating on foreign exchange controls, to which we may be subject in the emerging markets in which we operate. Moreover, in the past Argentina has experienced social and political turmoil, including civil unrest, riots, strikes and street demonstrations. Although we have generally been able to offset the heightened foreign exchange and exchange control risks in Argentina with higher overall fees on transactions conducted through our Argentine operations, the persistently poor economic conditions in Argentina, in particular the significant foreign exchange rate volatility of the Argentine peso and uncertainty regarding exchange control measures could have an adverse effect on our business, financial condition and results of operations. In addition, in Brazil (which represented 28% and 24% of our TPV in the three months ended March 31, 2021 and 2020, respectively, and 28% and 26% of our TPV in 2020 and 2019, respectively), recent economic and political instability has led to a negative perception of the Brazilian economy, which could adversely affect us given the significant concentration of our TPV transacted by our merchants in Brazil. Political crises have affected and continue to affect the confidence of investors and the general public, which have historically resulted in economic deceleration in Brazil. The recent economic instability in Brazil has contributed to a decline in market confidence in the Brazilian economy as well as to a deteriorating political environment. In addition, various ongoing investigations into allegations of money laundering and corruption being conducted by the Office of the Brazilian Federal Prosecutor, including the largest such investigation, known as “Operação Lava Jato,” have negatively impacted the Brazilian economy and political environment. Because a significant share of our business is carried out in Argentina and Brazil, ongoing political and social unrest and poor economic conditions and government measures taken in response thereto in Argentina and in Brazil could have an adverse effect on our business, financial condition and results of operations.

 

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The governments of the countries in which we operate have exercised, and continue to exercise, significant influence over the countries’ economy. This involvement as well as the political and economic conditions in these countries could harm us and the price of our Class A common shares.

The governments of the countries in which we operate frequently exercise significant influence over such countries’ economies and occasionally make significant changes in policy and regulations. Government actions, policies and regulations have often involved, among other measures, increases or decreases in interest rates, changes in fiscal policies and rates, wage and price controls, foreign exchange controls, blocking access to bank accounts, currency devaluations and capital controls. We have no control over and cannot predict what measures or policies such governments may take in the future. We and the market price of our Class A common shares may be harmed by changes in such governments’ policies, as well as general economic factors, including, without limitation:

 

   

growth or downturn of the economy of the countries in which we operate;

 

   

interest rates and monetary policies;

 

   

exchange rates and currency fluctuations;

 

   

restrictions on capital and funds expatriation;

 

   

inflation;

 

   

liquidity of the domestic capital and lending markets;

 

   

exchange control policies and restrictions on remittances abroad and payments of dividends;

 

   

modifications to laws and regulations, sometimes radical changes, according to political, social and economic interests;

 

   

fiscal policy, monetary policy and changes in tax laws or rates;

 

   

economic, political and social instability, including general strikes, mass demonstrations and civil strikes;

 

   

high levels of unemployment and underemployment;

 

   

labor and social security regulations;

 

   

public health crises, such as the ongoing COVID-19 pandemic;

 

   

limited infrastructure, including access to telecommunications and internet services;

 

   

energy and water shortages and rationing;

 

   

expropriations;

 

   

commodity prices;

 

   

high levels of organized crime activity;

 

   

natural disasters;

 

   

government intervention in the private sector, including through potential nationalization of private enterprises, and

 

   

other political, diplomatic, social and economic developments in or affecting the countries in which we operate.

Uncertainty over whether the governments of the countries in which we operate will implement reforms or changes in policy or regulation affecting these or other factors in the future may affect economic performance and contribute to economic uncertainty in those countries, which may have an adverse effect on our activities and consequently our results of operations. In addition, the political environment of the countries in which we operate

 

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have historically influenced, and continues to influence, economic performance in such countries. Political crises have affected and continue to affect the confidence of investors and the general public, which have historically resulted in economic deceleration and heightened volatility in the securities offered by companies with significant operations in those countries. Recent economic instability in a number of the countries in which we operate has contributed to a decline in market confidence in the respective economies as well as to a deteriorating political environment. The occurrence of adverse events that create additional political uncertainty in any of these countries could harm the economy of the countries in which we operate and, consequently, our business, and could adversely affect our financial condition, results of operations and the price of our Class A common shares.

Developments and the perceptions of risks in emerging markets, the United States and Europe, may harm the economies of the countries in which we operate and the price of our Class A common shares.

The market for securities offered by companies like us with significant operations in emerging market countries is influenced by economic and market conditions in other similar emerging market countries, as well as market conditions in the United States and Europe. To the extent the conditions of the global markets or economy deteriorate, the business of companies like us with significant operations in emerging markets may be harmed. The weakness in the global economy has been marked by, among other adverse factors, lower levels of consumer and corporate confidence, decreased business investment and consumer spending, increased unemployment, reduced income and asset values in many areas, reduction of China’s growth rate, currency volatility and limited availability of credit and access to capital. Developments or economic conditions in emerging market countries have at times significantly affected the availability of credit to companies with significant operations in these countries and resulted in considerable outflows of funds from these countries, decreasing the amount of foreign investments.

Crises and political instability in emerging market countries, the United States, European countries, or other countries, including increased international trade tensions and protectionist policies, could decrease investor demand for our Class A common shares. These developments, as well as potential crises and forms of political instability arising therefrom or any other as of yet unforeseen development, may harm our business and the price of our Class A common shares.

Infrastructure and internet connectivity in the countries in which we operate may impact economic growth and have a material adverse effect on us.

Our performance depends on the overall health and growth of the countries in which we operate, which is limited by inadequate infrastructure, including potential energy shortages and deficient telecommunication sectors, lack of Internet connectivity and bandwidth, general strikes, the lack of a qualified labor force, and the lack of private and public investments in these areas, which limit productivity and efficiency. Additionally, despite the business continuity and crisis management policies currently in place, travel restrictions or potential impacts on personnel due to the COVID-19 pandemic may disrupt our business and the expansion of our client base. Any of these factors could lead to labor market volatility and generally impact income, purchasing power and consumption levels, which could limit growth and ultimately have a material adverse effect on us.

Our business and results of operations may be adversely affected by political, economic and social instability risks, currency restrictions and devaluation, and various local laws associated with doing business in countries in Africa and Asia.

We derive a portion of our revenue from our transactions in countries in Africa and Asia, and we expect to continue to grow our operations in these regions. As such, our business is subject to the various political, social, economic, fiscal and monetary policies and factors that affect companies operating in Africa and Asia, which could have a significant effect on our business, financial condition, results of operations and prospects. While certain African and Asian countries feature developed and sophisticated business sectors and financial and legal infrastructure at the core of their economy, they are also affected by socio-economic challenges such as high

 

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levels of unemployment, poverty and crime and large parts of the population in African and Asian countries, particularly in rural areas, do not have access to adequate education, health care, housing and other services, including water and electricity. Government policies aimed at alleviating and redressing the disadvantages suffered under previous governments of countries in the region may increase the costs and reduce the profitability of our business. These problems or proposed solutions may impede fixed inward investment into Africa and Asia and increase emigration of skilled workers and as a result, we may have difficulties retaining qualified employees.

Our business model relies on an increase in internet penetration and digital literacy in Africa and Asia. Even though the main urban centers of Africa and Asia typically offer reliable wired internet service, a substantial portion of the population are inhabitants of rural areas, which largely depend on mobile networks. Internet penetration in the markets in which we operate or may operate in the future may not reach the levels seen in more developed countries or other emerging markets for reasons that are beyond our control, including the lack of necessary network infrastructure or delayed implementation of performance improvements or security measures. The internet infrastructure in the markets in which we operate or may operate in the future may not be able to support continued growth in the number of users, their frequency of use or their bandwidth requirements. Delays in telecommunication and infrastructure development or other technology shortfalls may also impede improvements in internet reliability. If telecommunications services are not sufficiently available to support the growth of the internet, response times could be slower, which would reduce internet usage and harm our platform. Internet penetration in our target markets in Africa and Asia may even stagnate or decline. In addition, digital illiteracy among many consumers and vendors in Africa and Asia presents obstacles to e-commerce growth. If internet penetration and digital literacy do not increase in our current and future markets of operation in Africa and Asia, it could have a material adverse effect on our business, financial condition, results of operations and prospects in the region.

It is difficult to predict the future political, social and economic direction of African and Asian countries or the manner in which any future governments will attempt to address regional inequalities. It is also difficult to predict the impact that addressing these inequalities will have on our business. Furthermore, there has been regional, political and economic instability in Africa and Asia generally, which could materially and adversely affect our business, results of operations and financial condition. While we believe that economic conditions in Africa and Asia will improve, poverty in Africa and Asia will decline and the purchasing power of African and Asian consumers will increase in the long term, there can be no assurance that these expected developments will actually materialize. The development of African and Asian economies, markets and levels of consumer spending are influenced by many factors beyond our control, including consumer perception of current and future economic conditions, acts of warfare and civil clashes, political uncertainty, employment levels, social and labor unrest due to economic and political factors, arbitrary interference with private ownership of rights in respect of land, inflation or deflation, real disposable income, poverty rates, wealth distribution, interest rates, taxation, currency exchange rates and weather conditions. An economic downturn, whether actual or perceived, currency volatility, a decrease in economic growth rates or an otherwise uncertain economic outlook in any region of Africa or Asia could have a material adverse effect on our business, financial condition, results of operations and prospects in the region.

Additionally, the African and Asian countries in which we operate may impose or tighten foreign currency exchange control restrictions, taxes or limitations with regard to repatriation of earnings and investments from these countries. If exchange control restrictions, taxes or limitations are imposed or tightened, our ability to receive dividends or other payments from affected jurisdictions could be reduced, which could have an adverse effect on our business, financial condition and results of operations. In addition, corporate, contract, property, insolvency, competition, securities and other laws and regulations in many of the African and Asian countries in which we operate have been, and continue to be, substantially revised. Therefore, the interpretation and procedural safeguards of the new legal and regulatory systems are in the process of being developed and defined, and existing laws and regulations may be applied inconsistently. Also, in some circumstances, it may not be possible to obtain the legal remedies provided for under these laws and regulations in a reasonably timely

 

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manner, if at all. Any of the foregoing factors could have a material adverse effect on our business, financial condition, results of operations and prospects in the region.

Credit rating downgrading of the countries in which we operate could reduce the trading price of our Class A common shares.

We may be harmed by investors’ perceptions of risks related to sovereign debt credit rating of the countries in which we operate. Rating agencies regularly evaluate those countries and their sovereign credit ratings, which are based on a number of factors including macroeconomic trends, fiscal and budgetary conditions, indebtedness metrics and the perspective of changes in any of these factors.

Risks Relating to Our Class A common shares and the Offering

There is no existing market for our Class A common shares, and we do not know whether one will develop to provide you with adequate liquidity. If the trading price of our Class A common shares fluctuates after this offering, you could lose a significant part of your investment.

Prior to this offering, there has not been a public market for our Class A common shares. If an active trading market does not develop, you may have difficulty selling any of our Class A common shares that you buy. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the Nasdaq, or otherwise or how liquid that market might become. The initial public offering price for the common shares will be determined by negotiations between us, the selling shareholders and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell our Class A common shares at prices equal to or greater than the price paid by you in this offering. In addition to the risks described above, the market price of our Class A common shares may be influenced by many factors, some of which are beyond our control, including:

 

   

announcements by us or our competitors of significant contracts or acquisitions;

 

   

increase in competition in our markets;

 

   

significant impacts in cross-border flows between countries;

 

   

political crises in the countries in which we operate;

 

   

technological innovations by us or competitors;

 

   

the failure of financial analysts to cover our Class A common shares after this offering or changes in financial estimates by analysts;

 

   

actual or anticipated variations in our results of operations;

 

   

changes in financial estimates by financial analysts, or any failure by us to meet or exceed any of these estimates, or changes in the recommendations of any financial analysts that elect to follow our Class A common shares or the shares of our competitors;

 

   

future sales of our shares; and

 

   

investor perceptions of us and the industries in which we operate.

In addition, the stock market in general has experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of our Class A common shares, regardless of our operating performance. In the past, following periods of volatility in the market price of certain companies’ securities, securities class action litigation has been instituted against these companies. This litigation, if instituted against us, could adversely affect our financial condition or results of operations. If a market does not develop or is not maintained, the liquidity and price of our Class A common shares could be seriously harmed.

 

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Following this offering, our existing shareholders will together own 90.0% of our outstanding common shares and 96.7% of corresponding voting rights, and will have the power, as a group, to elect a majority of the members of our board of directors, which means that our existing shareholders, when acting in concert, will have significant influence over matters requiring shareholder approval. This concentration of ownership and voting power limits your ability to influence corporate matters.

Immediately following this offering, our existing shareholders will beneficially own 90.0% of our outstanding common shares and 96.7% of corresponding voting rights (or 88.5% of our outstanding common shares and 96.1% of corresponding voting rights if the underwriters’ option to purchase additional common shares is exercised in full) and all of our outstanding Class B common shares. As a result, our existing shareholders will, when acting in concert, exercise significant influence over all decisions at our shareholders’ meetings. In addition, for so long as they hold our Class B common shares, such holders shall be entitled to appoint at least a majority of the members of our board of directors. They will also, when acting in concert, have significant influence to direct our actions in areas such as business strategy, financing, distributions, acquisitions and dispositions of assets or businesses. For example, our existing shareholders may exercise their voting power in a manner to cause us to make acquisitions that increase the amount of our indebtedness or outstanding common shares, sell revenue-generating assets or inhibit change of control transactions that may benefit other shareholders. The decisions of our existing shareholders on these matters may be contrary to your expectations or preferences, and they may take actions that could be contrary to your interests. They may, when acting in concert, be able to prevent any other shareholders, including you, from blocking these actions. For further information regarding shareholdings in our company, see “Principal and Selling Shareholders.”

We have granted holders of our Class B common shares preemptive rights to acquire shares that we may sell in the future, which may impair our ability to raise funds.

Under our Articles of Association, each holder of our Class B common shares is entitled to preemptive rights to purchase additional Class B common shares in the event that additional Class A common shares are issued, upon the same economic terms and at the same price, in order to maintain their proportional ownership interests, which will be approximately 50.8% of our outstanding shares immediately after this offering. The exercise by holders of our Class B common shares of preemptive rights may impair our ability to raise funds, or adversely affect the terms on which we are able to raise funds, as we may not be able to offer to new investors the quantity of our shares that they may desire to purchase.

Common shares eligible for future sale (including Class A common shares issuable upon conversion of Class B common shares) may cause the market price of our Class A common shares to drop significantly.

The market price of our Class A common shares may decline as a result of sales of a large number of our Class A common shares in the market after this offering (including Class A common shares issuable upon conversion of Class B common shares) or the perception that these sales may occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

Following the completion of this offering, we will have outstanding 144,222,131 Class A common shares and 148,693,634 Class B common shares (or 146,952,814 Class A common shares and 145,962,951 Class B common shares if the underwriters exercise in full their option to purchase additional shares). Subject to the lock-up agreements described below, the common shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act by persons other than our affiliates within the meaning of Rule 144 of the Securities Act.

Our shareholders or entities controlled by them or their permitted transferees will, subject to the lock-up agreements described below, be able to sell their common shares in the public market from time to time without registering them, subject to certain limitations on the timing, amount and method of those sales imposed by regulations promulgated by the SEC. If any of our shareholders, the affiliated entities controlled by them or their

 

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respective permitted transferees were to sell a large number of their common shares, the market price of our Class A common shares may decline significantly. In addition, the perception in the public markets that sales by them might occur may also cause the trading price of our Class A common shares to decline.

We have agreed with the underwriters, subject to certain exceptions, not to offer, sell or dispose of any shares in our share capital or securities convertible into or exchangeable or exercisable for any shares in our share capital during the 180-day period following the date of this prospectus. Our directors, executive officers and all of our principal existing shareholders and selling shareholders have agreed to substantially similar lock-up provisions. However, a portion of the shares held by our current shareholders are subject to automatic release from the lock-up agreements upon the occurrence of certain conditions at certain dates substantially earlier than such date. See “Underwriting.” Moreover, J.P. Morgan Securities LLC, Goldman Sachs & Co. LLC, Citi Global Markets, Inc. and Morgan Stanley & Co. LLC, the “Representatives,” may, in their sole discretion and without notice, release all or any portion of the shares from the restrictions in any of the lock-up agreements described above. In addition, these lock-up agreements are subject to the exceptions described in “Underwriting,” including the right for our company to issue new shares if we carry out an acquisition or enter into a merger, joint venture or strategic participation.

Sales of a substantial number of our Class A common shares upon expiration of the lock-up agreements (including Class A common shares issuable upon conversion of Class B common shares), the perception that such sales may occur, or early release of these lock-up periods, could cause our market price to fall or make it more difficult for you to sell your Class A common shares at a time and price that you deem appropriate.

Our Articles of Association contain anti-takeover provisions that may discourage a third-party from acquiring us and adversely affect the rights of holders of our Class A common shares.

Our Articles of Association contain certain provisions that could limit the ability of others to acquire our control, including a provision that grants authority to our board of directors to establish and issue from time to time one or more series of preferred shares without action by our shareholders and to determine, with respect to any series of preferred shares, the terms and rights of that series. These provisions could have the effect of depriving our shareholders of the opportunity to sell their shares at a premium over the prevailing market price by discouraging third parties from seeking to obtain our control in a tender offer or similar transactions.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our Class A common shares and our trading volume could decline.

The trading market for our Class A common shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no or too few securities or industry analysts commence coverage of our company, the trading price for our Class A common shares would likely be negatively affected. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our Class A common shares or publish inaccurate or unfavorable research about our business, the price of our Class A common shares would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our Class A common shares could decrease, which might cause the price of our Class A common shares and trading volume to decline.

We may not pay any cash dividends in the foreseeable future.

The declaration, payment and amount of any future dividends will be made at the discretion of our board of directors and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as our board of directors considers relevant. In addition, our holding company structure makes us dependent on the operations of our subsidiaries. See “—Risks Relating to Our Business and Industry—Our holding company structure makes us dependent on the operations of our

 

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subsidiaries.” There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend. See “Dividends and Dividend Policy.”

Our dual class capital structure means our shares will not be included in certain indices. We cannot predict the impact this may have on the trading price of our Class A common shares.

In 2017, FTSE Russell, S&P Dow Jones and MSCI announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices to exclude companies with multiple classes of shares of common stock from being added to such indices. FTSE Russell announced plans to require new constituents of its indices to have at least five percent of their voting rights in the hands of public stockholders, whereas S&P Dow Jones announced that companies with multiple share classes, such as ours, will not be eligible for inclusion in the S&P 500, S&P MidCap 400 and S&P SmallCap 600, which together make up the S&P Composite 1500. MSCI also opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from its ACWI Investable Market Index and U.S. Investable Market 2500 Index; however, in October 2018, MSCI announced its decision to include equity securities “with unequal voting structures” in its indices and to launch a new index that specifically includes voting rights in its eligibility criteria. We cannot assure you that other stock indices will not take a similar approach to FTSE Russell, S&P Dow Jones and MSCI in the future. Under the announced policies, our dual class capital structure would make us ineligible for inclusion in any of these indices and, as a result, mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track these indices will not invest in our stock. It continues to be somewhat unclear what effect, if any, these policies will have on the valuations of publicly traded companies excluded from the indices, but in certain situations they may depress these valuations compared to those of other similar companies that are included. Exclusion from indices could make our Class A common shares less attractive to investors and, as a result, the market price of our Class A common shares could be adversely affected.

The dual class structure of our common stock has the effect of concentrating voting control with Andres Bzurovski Bay (directly and indirectly through Emerald Bay 24 LLC), IZBA SA, Aqua Crystal Investments Ltd., Sebastián Kanovich (indirectly through Ledlife SA) and Jacobo Singer as the beneficial owners of the entirety of our Class B common shares; this will limit or preclude your ability to influence corporate matters.

Each Class A common share, which are the shares being sold in this offering, will entitle its holder to one vote per share and each Class B common share will entitle its holder to five votes per share, so long as the total outstanding Class B common shares represent at least 10% of the total number of common shares (Class A and Class B) then outstanding. The beneficial owners of all of our Class B common shares are Andres Bzurovski Bay (directly and indirectly through Emerald Bay 24 LLC), IZBA SA, Aqua Crystal Investments Ltd., Sebastián Kanovich (our CEO (indirectly through Ledlife SA)) and Jacobo Singer (our President). See “Principal Shareholders.” Due to the five-to-one voting ratio between our Class B and Class A common shares, Andres Bzurovski Bay, IZBA SA, Aqua Crystal Investments, Sebastián Kanovich and Jacobo Singer will continue to exercise disproportionate voting power of our common shares and therefore be able to maintain significant influence over matters submitted to our shareholders so long as the total outstanding Class B common shares represent at least 10% of the total number of common shares (Class A and Class B) then outstanding.

In addition, our Articles of Association provide that at any time when there are Class A common shares in issue, additional Class B common shares may only be issued pursuant to (1) a share split, subdivision of shares or similar transaction or where a dividend or other distribution is paid by the issue of shares or rights to acquire shares or following capitalization of profits; (2) a merger, consolidation, or other business combination involving the issuance of Class B common shares as full or partial consideration; or (3) an issuance of Class A common shares, whereby a holder of the Class B common shares is entitled to purchase a number of Class B common shares that would allow such holder to maintain its proportional ownership interests in us (following an offer by us to each holder of Class B common shares to issue to such holder, upon the same economic terms and at the same price, such number of Class B common shares as would ensure such holder may maintain a proportional ownership interest in us pursuant to our Articles of Association).

 

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In light of the above provisions relating to the issuance of additional Class B common shares, as well as the five-to-one voting ratio of our Class B common shares and Class A common shares, holders of our Class B common shares will in many situations continue to maintain disproportionate influence over matters requiring shareholder approval. This concentrated voting interest will limit or preclude your ability to influence corporate matters for the foreseeable future. For a description of our dual class structure, see “Description of Share Capital—Voting Rights.”

We are a Cayman Islands exempted company with limited liability. The rights of our shareholders, including with respect to fiduciary duties and corporate opportunities, may be different from the rights of shareholders governed by the laws of U.S. jurisdictions.

We are a Cayman Islands exempted company with limited liability. Our corporate affairs are governed by our Articles of Association and by the laws of the Cayman Islands. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights of shareholders and responsibilities of directors in companies governed by the laws of U.S. jurisdictions. In particular, as a matter of Cayman Islands law, directors of a Cayman Islands company owe fiduciary duties to the company and separately a duty of care, diligence and skill to the company. Under Cayman Islands law, directors and officers owe the following fiduciary duties: (1) duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole; (2) duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose; (3) directors should not properly fetter the exercise of future discretion; (4) duty to exercise powers fairly as between different sections of shareholders; (5) duty to exercise independent judgment; and (6) duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal interests. Our Articles of Association have varied this last obligation by providing that a director must disclose the nature and extent of his or her interest in any contract or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the Nasdaq, and unless disqualified by the chairman of the relevant meeting, such director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting. Conversely, under Delaware corporate law, a director has a fiduciary duty to the corporation and its stockholders (made up of two components) and the director’s duties prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. See “Description of Share Capital—Principal Differences between Cayman Islands and U.S. Corporate Law.”

New investors in our Class A common shares will experience immediate and substantial book value dilution after this offering.

The initial public offering price of our Class A common shares will be substantially higher than the pro forma net tangible book value per share of the outstanding common shares immediately after this offering. Based on the initial public offering price of US$21.00 per share and our net tangible book value as of March 31, 2021, if you purchase our Class A common shares in this offering you will pay more for your shares than the amounts paid by our existing shareholders for their shares and you will suffer immediate dilution in net tangible book value of US$20.3497 per share to new investors purchasing Class A common shares in this offering. As a result of this dilution, investors purchasing shares in this offering may receive significantly less than the full purchase price that they paid for the shares purchased in this offering in the event of a liquidation. See “Dilution.”

Participation in this offering by the cornerstone investor could reduce the public float for our Class A common shares.

Prior to the date hereof, the cornerstone investor has indicated an interest in purchasing up to 20% of our Class A common shares sold in this offering (excluding the underwriters’ option to purchase additional shares) at the initial public offering price. Because this indication of interest is not a binding agreement or commitment to purchase, the cornerstone investor could determine to purchase more, less, or no shares in this offering or the underwriters could determine to sell more, less, or no shares to the cornerstone investor. The underwriters will receive the same discount on any of our shares of Class A common shares purchased by the cornerstone investor as they will from any other shares of Class A common shares sold to the public in this offering.

 

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If the cornerstone investor is allocated all or a portion of the Class A common shares in which it has indicated an interest in this offering or more, and purchase any such shares, such purchase could reduce the available public float for our Class A common shares if the cornerstone investor holds these shares long term.

We may need to raise additional capital in the future by issuing securities or may enter into corporate transactions with an effect similar to a merger, which may dilute your interest in our share capital and affect the trading price of our Class A common shares.

We may need to raise additional funds to grow our business and implement our growth strategy through a public or private issuance of common shares or securities convertible into, or exchangeable for, our Class A common shares, which may dilute your interest in our share capital or result in a decrease in the market price of our Class A common shares. In addition, we may also enter into mergers or other similar transactions in the future, which may dilute your interest in our share capital or result in a decrease in the market price of our Class A common shares. Any fundraising through the issuance of shares or securities convertible into or exchangeable for shares, or the participation in corporate transactions with an effect similar to a merger, may dilute your interest in our capital stock or result in a decrease in the market price of our Class A common shares.

The conversion of Class B common shares into Class A common shares and the exercise of warrants may have a dilutive effect on your percentage ownership and may result in a dilution of your voting power and an increase in the number of shares of Class A common shares eligible for future resale in the public market, which may negatively impact the trading price of our shares of Class A common shares.

Our Class B common shares are convertible at any time as follows: (1) at the option of the holder, a Class B common share may be converted at any time into one Class A common share or (2) upon the election of the holders of a majority of the then outstanding Class B common shares, all outstanding Class B common shares may be converted into a like number of Class A common shares. In addition, each Class B common share will convert automatically into one Class A common share upon any transfer, whether or not for value, except for certain transfers described in our Articles of Association, including transfers to affiliates, transfers to and between the existing holders of Class B common shares. Furthermore, each Class B common share will convert automatically into one Class A common share and no Class B common shares will be issued thereafter if, at any time, the outstanding Class B common shares represent less than 10% of the total number of all Class A common shares and Class B common shares then outstanding. If any such conversions occur, the total number of Class A common shares issued and outstanding will be increased and be dilutive to our other shareholders.

In addition, as of the date of this prospectus, after giving effect to the Share Contribution and the Share Split, we had warrants outstanding issued to an affiliate of one of our merchant customers to acquire up to 17,345,000 of our outstanding Class A common shares exercisable through January 24, 2026 at a purchase price per share of either (1) US$0.5726 or (2) upon any reorganization (including any change of control) of the Company, the lesser of (i) US$0.5726 and (ii) sixty percent (60%) of the price per share paid in or implied by such transaction. The warrants limit such customer’s beneficial ownership to 4.999% of our outstanding Class A common shares unless such customer waives this limit upon 61 days’ notice. If any such existing or future warrants are exercised, the Class A common shares issued will increase the total number of Class A common shares issued and outstanding and thus be dilutive to our other shareholders.

If any of these newly issued Class A common shares are offered for sale in the public market, the sales could adversely affect the prevailing market price by lowering the bid price of our Class A common shares. In addition, issuance of Class A common shares pursuant to the conversion of Class B common shares or pursuant to existing or future warrant or option agreements may also materially impair our ability to raise capital through the future sale of equity securities because the issuance of the Class A common shares would cause further dilution of our securities. In addition, in the event of any change in the outstanding number of our Class A common shares by reason of any recapitalization, share sub-division, reverse share consolidation, stock dividend, reorganization consolidation, combination or exchange of shares, merger or any other changes in our corporate or capital structure or our Class A common shares, the number and class of shares covered by the warrants or options and/or the exercise price of the warrants and options may be adjusted as set forth in the relevant agreements.

 

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The interests of our management team may be focused on the short-term market price of our Class A common shares, which may not coincide with your interests.

Our directors and officers, among others, own restricted share units, or RSUs, and shares in the Company, and are also beneficiaries under our share-based compensation plan. We implemented our share-based compensation plan. Due to the issuance of share options to members of our management team, a portion of their compensation is closely tied to our results of operations and, more specifically to the trading price of our Class A common shares, which may lead such individuals to direct our business and conduct our activities with an emphasis on short-term profit generation. As a result of these factors, the interests of our management team may not coincide with the interests of our other shareholders that have longer-term investment objectives.

We have approved share-based incentive plans for our managers and employees. Some of these plans provide for the granting of share options to participants. Once the options have been exercised by the participants, our board of directors will determine whether our share capital should be increased through the issuance of new shares to be subscribed by participants, or if they will be settled through shares held in treasury. In the event settlement occurs through the issuance of new shares, our shareholders will suffer dilution of their interests in our share capital and in the value of their investments.

In case of new option grants under our existing plan, our shareholders will be subject to additional dilution. For additional information on our stock option plan, see “Management—Compensation of Directors and Officers” for additional information.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our Class A common shares. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, financial condition and results of operations. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value. See “Use of Proceeds.”

Our transformation into a public company may increase our costs and disrupt the regular operations of our business.

This offering will have a significant transformative effect on us. We historically have operated as a privately-owned company, and we expect to incur significant additional legal, accounting, reporting and other expenses as a result of having publicly traded Class A common shares. We will also incur costs which we have not incurred previously, including, but not limited to, increased directors’ and officers’ insurance, investor relations, and various other costs of a public company.

We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as rules implemented by the SEC and Nasdaq. We expect these rules and regulations to increase our legal and financial compliance costs and make some management and corporate governance activities more time-consuming and costly, particularly after we are no longer an “emerging growth company.” These rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. This could have an adverse impact on our ability to recruit and bring on a qualified independent board.

The additional demands associated with being a public company may disrupt regular operations of our business by diverting the attention of some of our senior management team away from revenue producing activities to management and administrative oversight, adversely affecting our ability to attract and complete business opportunities and increasing the difficulty in both retaining professionals and managing and growing our businesses. Any of these effects could harm our business, financial condition and results of operations.

 

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As a foreign private issuer and an “emerging growth company” (as defined in the JOBS Act), we will have different disclosure and other requirements than U.S. domestic registrants and non-emerging growth companies.

As a foreign private issuer and emerging growth company, we will be subject to different disclosure and other requirements than domestic U.S. registrants and non-emerging growth companies. For example, as a foreign private issuer, in the United States, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports on Form 10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable to domestic U.S. registrants under Section 16 of the Exchange Act. In addition, we intend to rely on exemptions from certain U.S. rules which will permit us to follow Cayman Islands legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants. See “Description of Share Capital—Principal Differences between Cayman Islands and U.S. Corporate Law.”

We will follow Cayman Islands laws and regulations that are applicable to Cayman Islands companies. However, Cayman Islands laws and regulations applicable to Cayman Islands companies do not contain any provisions comparable to the U.S. proxy rules, the U.S. rules relating to the filing of reports on Form 10-Q or 8-K or the U.S. rules relating to liability for insiders who profit from trades made in a short period of time, as referred to above.

Furthermore, foreign private issuers are required to file their annual report on Form 20-F within 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information, although we will be subject to Cayman Islands laws and regulations having, in some respects, a similar effect as Regulation Fair Disclosure. As a result of the above, even though we are required to file reports on Form 6-K disclosing the limited information which we have made or are required to make public pursuant to Cayman Islands law, or are required to distribute to shareholders generally, and that is material to us, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. company.

The JOBS Act contains provisions that, among other things, relax certain reporting requirements for emerging growth companies. Under this act, as an emerging growth company, we will not be subject to the same disclosure and financial reporting requirements as non-emerging growth companies. For example, as an emerging growth company we are permitted to, and intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Also, we will not have to comply with future audit rules promulgated by the U.S. Public Company Accounting Oversight Board, or PCAOB, (unless the SEC determines otherwise) and our auditors will not need to attest to our internal controls under Section 404(b) of the Sarbanes-Oxley Act. We may follow these reporting exemptions until we are no longer an emerging growth company. As a result, our shareholders may not have access to certain information that they deem important. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual revenues of at least US$1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A common shares that is held by non-affiliates exceeds US$700.0 million as of the prior June 30, or (2) the date on which we have issued more than US$1.0 billion in non-convertible debt during the prior three-year period. Accordingly, the information about us available to you will not be the same as, and may be more limited than, the information available to shareholders of a non-emerging growth company. We could be an “emerging growth company” for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our Class A common shares held by non-affiliates exceeds US$700 million as of any June 30 (the end of our second fiscal quarter) before that time, in which case we would no longer be an “emerging growth company” as of the following December 31 (our fiscal year end). We cannot predict if investors will find our Class A common shares less

 

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attractive because we may rely on these exemptions. If some investors find our Class A common shares less attractive as a result, there may be a less active trading market for our Class A common shares and the price of our Class A common shares may be more volatile.

As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain Nasdaq corporate governance standards applicable to U.S. issuers, including the requirement that a majority of an issuer’s directors consist of independent directors. This may afford less protection to holders of our Class A common shares.

The Section 5605 of the Nasdaq equity rules require listed companies to have, among other things, a majority of their board members be independent, and to have independent director oversight of executive compensation, nomination of directors and corporate governance matters. As a foreign private issuer, however, we are permitted to, and we will, follow home country practice in lieu of the above requirements. See “Description of Share Capital—Principal Differences between Cayman Islands and U.S. Corporate Law.”

We may lose our foreign private issuer status, which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.

In order to maintain our current status as a foreign private issuer, either (a) more than 50% of our Class A common shares must be either directly or indirectly owned of record by non-residents of the United States or (b)(i) a majority of our executive officers or directors may not be U.S. citizens or residents; (ii) more than 50% of our assets cannot be located in the United States; and (iii) our business must be administered principally outside the United States. If we lose this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and Nasdaq rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the costs we will incur as a foreign private issuer.

Our shareholders may face difficulties in protecting their interests because we are a Cayman Islands exempted company.

Our corporate affairs are governed by our Articles of Association, by the Companies Act and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as that from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less exhaustive body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more fulsome and judicially interpreted bodies of corporate law than the Cayman Islands.

While Cayman Islands law allows a dissenting shareholder to express the shareholder’s view that a court sanctioned reorganization of a Cayman Islands company would not provide fair value for the shareholder’s shares, Cayman Islands statutory law does not specifically provide for shareholder appraisal rights in connection with a court sanctioned reorganization (by way of a scheme of arrangement). This may make it more difficult for you to assess the value of any consideration you may receive in a merger or consolidation (by way of a scheme of arrangement) or to require that the acquirer gives you additional consideration if you believe the consideration offered is insufficient. However, Cayman Islands statutory law provides a mechanism for a dissenting shareholder in a merger or consolidation to apply to the Grand Court of the Cayman Islands for a determination of the fair value of the dissenter’s shares if it is not possible for the company and the dissenter to agree on a fair price within the time limits prescribed.

 

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Shareholders of Cayman Islands exempted companies (such as us) have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders. Our directors have discretion under our Articles of Association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

Subject to limited exceptions, under Cayman Islands’ law, a minority shareholder may not bring a derivative action against the board of directors. Class actions are not recognized in the Cayman Islands, but groups of shareholders with identical interests may bring representative proceedings, which are similar.

United States civil liabilities and certain judgments obtained against us by our shareholders may not be enforceable.

We are a Cayman Islands exempted company and substantially all of our assets are located outside of the United States. In addition, the majority of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside of the United States. As a result, it may be difficult to effect service of process within the United States upon these persons. It may also be difficult to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors who are not resident in the United States and the substantial majority of whose assets are located outside of the United States.

Further, it is unclear if original actions predicated on civil liabilities based solely upon U.S. federal securities laws are enforceable in courts outside the United States, including in the Cayman Islands. The Grand Court of the Cayman Islands may not, in an original action in the Cayman Islands, recognize or enforce judgments of U.S. courts predicated upon the civil liability provisions of the securities laws of the United States or any state of the United States on the grounds that such provisions are penal in nature. Although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the Grand Court of the Cayman Islands will recognize and enforce a foreign judgment of a court of competent jurisdiction if such judgment is final, for a liquidated sum, provided it is not in respect of taxes or a fine or penalty, is not inconsistent with a Cayman Islands’ judgment in respect of the same matters, and was not obtained in a manner which is contrary to the public policy of the Cayman Islands. In addition, the Grand Court of the Cayman Islands may stay proceedings if concurrent proceedings are being brought elsewhere.

Our Class A common shares may not be a suitable investment for all investors, as investment in our Class A common shares presents risks and the possibility of financial losses.

The investment in our Class A common shares is subject to risks. Investors who wish to invest in our Class A common shares are thus subject to asset losses, including loss of the entire value of their investment, as well as other risks, including those related to our Class A common shares, us, the sector in which we operate, our shareholders and the general macroeconomic environment in the countries in which we operate, among other risks.

Each potential investor in our Class A common shares must therefore determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:

 

   

have sufficient knowledge and experience to make a meaningful evaluation of our Class A common shares, the merits and risks of investing in our Class A common shares and the information contained in this prospectus;

 

   

have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in our Class A common shares and the impact our Class A common shares will have on its overall investment portfolio;

 

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have sufficient financial resources and liquidity to bear all of the risks of an investment in our Class A common shares;

 

   

understand thoroughly the terms of our Class A common shares and be familiar with the behavior of any relevant indices and financial markets; and

 

   

be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.

There can be no assurance that we will not be a passive foreign investment company for any taxable year, which could subject United States investors in our Class A common shares to significant adverse U.S. federal income tax consequences.

Under the Internal Revenue Code of 1986, as amended, or the Code, we will be a passive foreign investment company, or PFIC, for any taxable year in which, after the application of certain look-through rules with respect to subsidiaries, either (1) 75% or more of our gross income consists of “passive income;” or (2) 50% or more of the average quarterly value of our assets consists of assets that produce, or are held for the production of, “passive income.” Passive income generally includes dividends, interest, certain non-active rents and royalties, and capital gains. Based on our current operations, income, assets and certain estimates and projections, including as to the relative values of our assets, including goodwill, which is based on the expected price of our Class A common shares, we do not expect to be a PFIC for our 2021 taxable year or to become one in the foreseeable future. However, there can be no assurance that the Internal Revenue Service, or the IRS, will agree with our conclusion. In addition, whether we will be a PFIC in 2021 or any future year is uncertain because, among other things, (1) we will hold a substantial amount of cash following this offering, which is generally categorized as a passive asset; and (2) our PFIC status for any taxable year will depend on the composition of our income and assets and the value of our assets from time to time (which may be determined, in part, by reference to the market price of our Class A common shares, which could be volatile). Accordingly, there can be no assurance that we will not be a PFIC for any taxable year.

If we are a PFIC for any taxable year during which a U.S. investor holds Class A common shares, we generally would continue to be treated as a PFIC with respect to that U.S. investor for all succeeding years during which the U.S. investor holds Class A common shares, even if we ceased to meet the threshold requirements for PFIC status. Such a U.S. investor may be subject to adverse U.S. federal income tax consequences, including (1) the treatment of any gain on disposition of the Class A common shares as ordinary income; (2) the application of a deferred interest charge on any such gain and the receipt of certain dividends; and (3) compliance with certain reporting requirements. A “mark-to-market” election may be available that will alter the consequences of PFIC status if our Class A common shares are regularly traded on a qualified exchange. For further discussion, see “Taxation—U.S. Federal Income Tax Considerations.”

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

All references to “U.S. dollars,” “dollars,” “US$” or “$” are to the U.S. dollar. All references to “IFRS” are to International Financial Reporting Standards, as issued by the International Accounting Standards Board, or the IASB.

Corporate Events

Our Incorporation

We are a Cayman Islands exempted company incorporated with limited liability on February 10, 2021 for purposes of facilitating our initial public offering.

Our Corporate Reorganization

On April 14, 2021, all of the then-existing shareholders of dLocal Malta contributed all of their shares in dLocal Malta to us. In return for this contribution, we issued new ordinary A shares to the existing shareholders of dLocal Malta in a one-to-one exchange for the shares of dLocal Malta contributed to us, or the Share Contribution. In addition and following the Share Contribution, in connection with this offering, we are implementing a one-to-500 share split, effective upon the pricing of our initial public offering, or the Share Split. Prior to this offering, we expect to redesignate the ordinary A shares held by Andres Bzurovski Bay (directly and indirectly through Emerald Bay 24 LLC), IZBA SA, Aqua Crystal Investments, Sebastián Kanovich (our CEO) and Jacobo Singer (our President) as Class B common shares and the remaining issued ordinary A shares as Class A common shares. Shares sold in this offering by holders of Class B common shares will convert automatically into Class A common shares upon the transfer of the shares. Until the Share Contribution, we had not commenced operations and had only nominal assets and liabilities and no material contingent liabilities or commitments.

After accounting for the new Class A common shares that will be issued and sold by us in this offering, we will have a total of 292,915,765 common shares issued and outstanding immediately following this offering, 148,693,634 of these shares will be Class B common shares, and 144,222,131 of these shares will be Class A common shares beneficially owned by the other prior shareholders of dLocal Malta and investors purchasing in this offering. See “Principal and Selling Shareholders.”

The following chart shows our simplified corporate structure, after giving effect to the Share Contribution and this offering:

 

LOGO

 

 

(1)

Includes Class B common shares beneficially owned by Andres Bzurovski Bay (directly and indirectly through Emerald Bay 24 LLC), IZBA SA, Aqua Crystal Investments, Sebastián Kanovich (our CEO (indirectly through Ledlife SA)) and Jacobo Singer (our President).

 

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(2)

Includes Class A common shares beneficially owned by each of the other existing shareholders. See “Principal and Selling Shareholders.”

Financial Statements

dLocal, the company whose Class A common shares are being offered in this prospectus, was incorporated on February 10, 2021, as a Cayman Islands exempted company with limited liability, duly registered with the Cayman Islands Registrar of Companies. Until the contribution of dLocal Malta shares to it on April 14, 2021, dLocal had not commenced operations and had only nominal assets and liabilities and no material contingent liabilities or commitments. Accordingly, our consolidated financial statements have been omitted from this prospectus. Our consolidated financial statements as of and for the year ended December 31, 2021 will be presented using the values from the consolidated financial statements of dLocal Malta, of which the share capital will be equivalent to dLocal’s. dLocal’s share capital will include amounts in equity from the consolidated financial statements of dLocal Malta, such as retained earnings and cumulative translation reserves, and the resulting difference will be recognized as a component of equity. In accordance with IFRS, the corporate reorganization and the share contribution did not qualify as a business combination, and will be treated as dLocal Malta’s capital reorganization. Following this offering, dLocal Malta will no longer present consolidated financial statements.

Unless otherwise noted, the consolidated financial information presented in this prospectus relates to dLocal Malta and is derived from dLocal Malta’s unaudited consolidated condensed financial statements as of March 31, 2021 and for the three months ended March 31, 2021 and 2020, and audited consolidated financial statements as of and for the years ended December 31, 2020 and 2019, together with the notes thereto. All references herein to “our financial statements,” “our unaudited interim consolidated financial information,” and “our audited consolidated financial statements” are to dLocal Malta’s consolidated financial statements included elsewhere in this prospectus. The consolidated financial statements of dLocal Malta were prepared in accordance with IFRS as issued by the IASB and are presented in U.S. dollars, dLocal Malta’s presentation currency.

This financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, included elsewhere in this prospectus.

dLocal Malta’s and our fiscal year ends on December 31. References in this prospectus to a fiscal year, such as “fiscal year 2019,” or “fiscal year 2020,” relate to our fiscal year ended on December 31 of that calendar year.

Segment Information

We manage our business under a single operating segment, which is payment processing. We have adopted IFRS 8 (Operating Segments), which requires operating segments to be identified on the basis of internal reports regarding components of our business that are regularly reviewed by our management, including our chief operating decision maker, in order to allocate resources and to assess their performance. See note 5, (Segment Reporting), to our audited consolidated financial statements, included elsewhere in this prospectus.

Special Note Regarding Adjusted EBITDA and Adjusted EBITDA Margin

We only have one operating segment. We measure our operating segment’s performance by our Adjusted EBITDA and Adjusted EBITDA Margin, and we use these metrics to make decisions about allocating resources.

We define Adjusted EBITDA as the profit from operations before financing and taxation for the year or period, as applicable, before depreciation of property, plant and equipment, amortization of right-of-use assets

 

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and intangible assets, and further excluding the changes in fair value of financial assets and derivative instruments carried at fair value through profit or loss, impairment gains/(losses) on financial assets, transaction costs, share-based payment non-cash charges, secondary offering expenses, transaction expenses and inflation adjustment. We calculate Adjusted EBITDA Margin by dividing Adjusted EBITDA by our revenues.

Although Adjusted EBITDA and Adjusted EBITDA Margin may be commonly viewed as non-IFRS measures in other contexts, pursuant to IFRS 8, (“Operating Segments”), Adjusted EBITDA and Adjusted EBITDA Margin are herein treated as IFRS measures in the manner in which we utilize these measures. Nevertheless, our Adjusted EBITDA and Adjusted EBITDA Margin metrics should not be viewed in isolation or as a substitute for our net income for the periods presented under IFRS. We also believe that our Adjusted EBITDA and Adjusted EBITDA Margin metrics are useful metrics used by analysts and investors, although these measures are not explicitly defined under IFRS. Additionally, the way we calculate our operating segment’s performance measures may be different from the calculations used by other entities, including competitors, and therefore, our performance measures may not be comparable to those of other entities. See “Selected Financial and Other Information” for a reconciliation of our Adjusted EBITDA and Adjusted EBITDA Margin to net income.

TPV

This prospectus presents TPV, which is an operating metric of the aggregate value of all payments successfully processed through our payments platform. Because our revenue depends significantly on the total value of transactions processed through our platform, we believe that TPV is an indicator of the success of our global merchants, the satisfaction of their end users, and the scale and growth of our business.

Market Share and Other Information

This prospectus contains data related to economic conditions in the market in which we operate. The information contained in this prospectus concerning economic conditions is based on publicly available information from third-party sources that we believe to be reasonable. Market data and certain industry forecast data used in this prospectus were obtained from internal reports and studies, where appropriate, as well as estimates, market research, publicly available information (including information available from the United States Securities and Exchange Commission website) and industry publications. We obtained the information included in this prospectus relating to the industry in which we operate, as well as the estimates concerning market shares, through internal research, and public information and publications on the industry prepared by official public sources.

Industry publications generally state that the information they include has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Although we have no reason to believe any of this information or these reports are inaccurate in any material respect and believe and act as if they are reliable, neither we, the underwriters, nor their respective agents have independently verified it. Governmental publications and other market sources, including those referred to above, generally state that their information was obtained from recognized and reliable sources, but the accuracy and completeness of that information is not guaranteed. In addition, the data that we compile internally and our estimates have not been verified by an independent source. Except as disclosed in this prospectus in respect of the AMI report that was commissioned by us, none of the publications, reports or other published industry sources referred to in this prospectus were commissioned by us or prepared at our request. Except as disclosed in this prospectus, we have not sought or obtained the consent of any of these sources to include such market data in this prospectus.

Rounding

We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains statements that constitute forward-looking statements. Many of the forward-looking statements contained in this prospectus can be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “estimate” and “potential,” among others.

Forward-looking statements appear in a number of places in this prospectus and include, but are not limited to, statements regarding our intent, belief or current expectations. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified under the section entitled “Risk Factors” in this prospectus. These risks and uncertainties include factors relating to:

 

   

our ability to adapt to the rapid pace of technological changes in the payments processing industry;

 

   

competition in the payments processing industry;

 

   

our ability to implement our business strategy;

 

   

the reliability, performance, functionality and quality of our payments processing platform;

 

   

fluctuations in interest, inflation and exchange rates in any of the countries we may serve in the future;

 

   

the availability of government authorizations or exemptions on terms and conditions and within periods acceptable to us;

 

   

our compliance with, and changes to, government laws, regulations and tax matters that currently apply to us;

 

   

general economic, financial, political, demographic and business conditions in the countries we serve and their impact on our business;

 

   

our ability to manage operations at our current size or manage growth effectively;

 

   

our ability to successfully expand into new products and new markets;

 

   

our ability to pursue and successfully carry out strategic acquisitions or investments;

 

   

our ability to continue attracting and retaining new appropriately-skilled employees;

 

   

the potential effects of the COVID-19 pandemic and its potential to have an ongoing adverse impact on global, regional and national economies;

 

   

the interests of our principal shareholders;

 

   

changes in merchant or consumer demands regarding payment processing services and our ability to innovate to respond to such changes;

 

   

the availability and effective operation of management information systems and other technology;

 

   

our ability to comply with applicable cybersecurity, privacy and data protection laws and regulations;

 

   

other factors that may affect our financial condition, liquidity and results of operations; and

 

   

other risk factors discussed under “Risk Factors.”

Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

 

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USE OF PROCEEDS

We estimate that the net proceeds from our issuance and sale of our Class A common shares in this offering will be approximately US$86.4 million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

We expect to use the net proceeds from this offering as follows:

 

   

to accelerate investments in technology to complement our product portfolio and address current and future merchant needs;

 

   

to manage potential working capital needs that may result from offering advanced payments to our merchants before we collect payments from acquirers, processors, or collection agents;

 

   

to pursue opportunities that allow us to expand our footprint more rapidly and roll out our services to new emerging markets faster, including through the acquisition of cross-border payment processing companies, software development companies or other payment related companies; and

 

   

for general corporate purposes.

We will have broad discretion in allocating the net proceeds from this offering. Although we currently anticipate that we will use the net proceeds from this offering as described above, there may be circumstances where a reallocation of funds is necessary. Any acquisitions, if pursued, would be based on strategic opportunities to grow our business, including by expanding our merchant base, geographic footprint or product offerings. Currently, we are not actively targeting any acquisition opportunities as part of our business strategy. The amounts and timing of our actual expenditures will depend upon numerous factors, including the factors described under “Risk Factors” in this prospectus. Accordingly, our management will have flexibility in applying the net proceeds from this offering. An investor will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use the proceeds.

Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities. No assurance can be given that we will invest the net proceeds from this offering in a manner that produces income or that does not result in a loss in value.

We will not receive any proceeds from the sale of shares by the selling shareholders.

 

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DIVIDENDS AND DIVIDEND POLICY

We have not adopted a dividend policy with respect to future distributions of dividends. The payment of dividends in the future will be within the discretion of our board of directors at such times. The amount of any distributions will depend on many factors such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our board of directors and, where applicable, our shareholders.

In 2020 and 2019, dLocal Malta paid dividends totaling US$15.0 million and US$10.0 million, respectively. See note 13, “Capital Management, (c) Retained Earnings”, to our audited consolidated financial statements included elsewhere in this prospectus.

Certain Cayman Islands Legal Requirements Related to Dividends

Under the Companies Act and our Articles of Association, a Cayman Islands company may pay a dividend out of either its profit or share premium account, but a dividend may not be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. According to our Articles of Association, dividends can be declared and paid out of funds lawfully available to us, which include the share premium account. Dividends, if any, would be paid in proportion to the number of common shares a shareholder holds. For further information, see “Taxation—Cayman Islands Tax Considerations.”

Additionally, please refer to “Risk Factors—Risks Relating to Our Business and Industry—Our holding company structure makes us dependent on the operations of our subsidiaries.” Our ability to pay dividends is directly related to positive and distributable net results from our subsidiaries. We depend on dividend distributions by our subsidiaries, and we may be adversely affected if the performance of our subsidiaries is not positive. If, for any legal reasons due to new laws or bilateral agreements between countries, our subsidiaries are unable to pay dividends to Cayman Islands companies, or if a Cayman Islands company becomes incapable of receiving them, we may not be able to make any dividend payments in the future.

 

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CAPITALIZATION

The table below sets forth our total capitalization (defined as long-term debt and total equity) as of March 31, 2021:

 

   

historical financial information of dLocal Malta on an actual basis;

 

   

historical financial information of dLocal, as adjusted to give effect to the Share Contribution, the Share Split and the delivery of shares in connection with share based payments (see “Presentation of Financial and Other Information—Corporate Events—Our Corporate Reorganization” and note 1.1.b) to our unaudited consolidated condensed financial statements);

 

   

historical financial information of dLocal, as further adjusted to give effect to (1) the Share Contribution, the Share Split and the delivery of shares in connection with share based payments (see “Presentation of Financial and Other Information—Corporate Events—Our Corporate Reorganization” and note 1.1.b) to our unaudited consolidated condensed financial statements); and (2) the issuance and sale by us of the common shares in this offering, and the receipt of approximately US$86.4 million in estimated net proceeds, after deduction of the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with this offering, and the use of proceeds therefrom.

Investors should read this table in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus, with the sections of this prospectus entitled “Selected Financial and Other Information,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with other financial information contained in this prospectus.

 

    As of March 31, 2021  
    dLocal Malta, actual     dLocal (after giving effect to
the Share Contribution, the
Share Split and share-based
payments)
    dLocal, as further adjusted
for this offering
 
    (US$)     (US$)     (US$)  
    (in thousands)  

Long-term debt, excluding current portion

    —         —        
—  
 

Equity:

     

Old Share capital

    628       —        
—  
 

Newly issued shares

          577 (2)(3)      586 (2) 

Share premium

    49,535       70,079 (4)      156,498  

Capital reserve

    9,926       6,271 (4)      6,271  

Reserves

    279       279       279  

Retained earnings

    48,712       48,712       48,712  

Total Equity Attributable to owners of the Group

    109,080       125,918       212,346  

Non-controlling interest

    12       12       12  
 

 

 

   

 

 

   

 

 

 

Total equity

    109,092       125,930       212,358  

Total capitalization (1)

    109,092       125,930       212,358  
 

 

 

   

 

 

   

 

 

 

 

(1)

Total capitalization consists of long-term debt (excluding current portion) plus total equity.

(2)

Excludes 45,000 Class A common shares (post Share Split) issued as an employee share grant on May 18, 2021.

(3)

Includes (i) an increase of US$19 thousand corresponding to the shares delivered in April 2021 for share based payments as explained in Note 1.1.b) to our unaudited consolidated condensed financial statements (that were granted before the Share Contribution) and (ii) a US$70 thousand decrease corresponding to the

 

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  decrease in par value from US$1.1211 to US$1.00 in connection with the Share Contribution. The share capital is disclosed as “Newly issued shares” to reflect that the Share Contribution was completed.
(4)

Gives effect to (i) the shares delivered in April 2021 for share based payments (that were granted before the Share Contribution) that resulted in an increase to Share Premium of US$16.8 million, (ii) the decrease in par value from US$1.1211 to US$1.00 in connection with the Share Contribution that resulted in a US$70 thousand reclassification between newly issued shares and share premium and (iii) the reclassification from Capital Reserve to Share Premium for an amount of US$3.7 million related to the share based compensation expense that was recorded for the shares delivered in April 2021, following the guidance in IFRS 2 – Share-based payment.

 

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DILUTION

Immediately prior to this initial public offering and after the Share Contribution and the Share Split, the prior shareholders of dLocal Malta will hold all of our issued and outstanding shares, and we will hold all of the issued and outstanding shares in dLocal Malta.

We have presented the dilution calculation below on the basis of dLocal Malta’s net tangible book value as of March 31, 2021 because (1) until the contribution of dLocal Malta shares to it, dLocal had not commenced operations and had only nominal assets and liabilities and no material contingent liabilities or commitments; and (2) the number of common shares of dLocal in issuance prior to this offering was the same as the number of shares of dLocal in issuance as of March 31, 2021, after giving effect to the Share Contribution and the Share Split.

As of March 31, 2021, dLocal Malta had a net tangible book value of US$104.0 million, corresponding to a net tangible book value of US$0.3606 per share, after giving effect to the Share Contribution and the Share Split. Net tangible book value per share represents the amount of our total assets less our total liabilities, excluding intangible assets, divided by 288,459,000, the total number of dLocal Malta shares outstanding as of March 31, 2021, after giving effect to the Share Contribution and the Share Split.

After giving effect to the Share Contribution, the Share Split and the sale of the Class A common shares offered by us in this offering, and considering an offering price of US$21.00 per Class A common share after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value estimated as of March 31, 2021 would have been approximately US$190.4 million, representing US$0.2897 per share. This represents an immediate increase in net tangible book value of US$0.6503 per share to existing shareholders and an immediate dilution in net tangible book value of US$20.3497 per share to new investors purchasing Class A common shares in this offering. Dilution for this purpose represents the difference between the price per Class A common shares paid by these purchasers and net tangible book value per Class A common share immediately after the completion of this offering.

If you invest in our Class A common shares, your interest will be diluted to the extent of the difference between the initial public offering price per Class A common share and the pro forma net tangible book value per Class A common share after accounting for the issuance and sale of new common shares in this offering.

Because the Class A common shares and Class B common shares of dLocal have the same dividend and other rights, except for voting and preemption rights, we have counted the Class A common shares and Class B common shares equally for purposes of the dilution calculations below.

The following table illustrates this dilution to new investors purchasing common shares in this offering, assuming none of the currently existing warrants or stock options are exercised.

 

Net tangible book value per share as of March 31, 2021 (after giving effect to the Share Contribution and the Share Split)

  US$ 0.3606  

Increase in net tangible book value per share attributable to the existing shareholders

  US$ 0.2897  

Pro forma net tangible book value per share immediately after this offering (after giving effect to the Share Contribution and the Share Split)

  US$ 0.6503  

Dilution per Class A common share to new investors

  US$ 20.3497  

Percentage of dilution in net tangible book value per Class A common share for new investors

    96.90

 

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The following table sets forth, on a pro forma basis, as of March 31, 2021, the number of common shares purchased from us, the total consideration paid, or to be paid, and the average price per share paid, or to be paid, by the existing shareholders and by the new investors, at the initial public offering price of US$21.00 per share, before deducting estimated underwriting discounts and commissions and offering expenses payable by us.

 

     Shares Purchased     Total Consideration     Average Price  
     Number      Percent     Amount      Percent     Per Share  

Existing shareholders

     288,504,000        98.5   US$ 63,936,385        46.0   US$ 0.22  

New investors

     4,411,765        1.5   US$ 92,647,065        59.2   US$ 21.00  

Total

     292,915,765        100.0   US$ 156,583,450        100.0   US$ 0.53  

The foregoing tables assume no exercise of the underwriters’ option to purchase additional shares.

To the extent that we grant options in the future and those options are exercised or other issuances of common shares are made, there will be further dilution to new investors. See “Management—Employee Share Incentive Plan.”

 

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MARKET INFORMATION

Prior to this offering, there has been no public market for our Class A common shares. We cannot assure that an active trading market will develop for our Class A common shares, or that our Class A common shares will trade in the public market subsequent to this offering at or above the initial public offering price.

 

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SELECTED FINANCIAL AND OTHER INFORMATION

The following tables set forth, for the periods and as of the dates indicated, our selected financial and operating data. This information should be read in conjunction with “Presentation of Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, included elsewhere in this prospectus.

The selected statements of financial position as of March 31, 2021 and December 31, 2020 and 2019, and the statements of income for the three months ended March 31, 2021 and 2020 and years ended December 31, 2020 and 2019, have been derived from the unaudited consolidated condensed financial statements and audited consolidated financial statements of dLocal Malta included elsewhere in this prospectus, prepared in accordance with IFRS, as issued by the IASB prior to the consummation of the Share Contribution and the Share Split. See “Presentation of Financial and Other Information—Corporate Events—Our Corporate Reorganization.”

Statement of Comprehensive Income

 

     For the Three Months Ended
March 31,
    For the Year Ended
December 31,
 
         2021             2020         2020     2019  
     (in thousands of US$,
except amounts per common share)
 

Revenues

     40,256       17,995       104,143       55,289  

Costs of services

     (16,989     (6,993     (44,065     (19,413
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     23,267       11,002       60,078       35,876  
  

 

 

   

 

 

   

 

 

   

 

 

 

Technology and development expenses

     (520     (346     (2,005     (1,347

Sales and marketing expenses

     (1,042     (658     (2,852     (2,057

General and administrative expenses

     (5,762     (9,535     (22,188     (14,101

Net impairment gain/(losses) on financial assets

     (54     943       808       (807

Other operating gain/(loss)

     2,896       (83     (2,896     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     18,785       1,323       30,945       17,564  

Finance income

     18       35       502       279  

Finance costs

     (463     (3     (67     (30

Inflation adjustment

     (34     16       38       10  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other results

     (479     48       473       259  
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income tax

     18,306       1,371       31,418       17,823  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense

     (1,379     (818     (3,231     (2,221
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the period

     16,927       553       28,187       15,602  
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit attributable to:

        

Owners of the group

     16,920       555       28,184       15,602  

Non-controlling interest

     7       (2     3       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the period

     16,927       553       28,187       15,602  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share (in US$)

        

Basic earnings per share

     31.2       1.0       52.7       29.3  

Diluted earnings per share

     28.8       1.0       49.7       28.3  

Earnings per share pro forma (in US$)

        

Basic earnings per share pro forma

     0.06       0.00       0.10       0.06  

Diluted earnings per share pro forma

     0.06       0.00       0.10       0.06  

Other comprehensive income

        

Items that may be reclassified to profit or loss

     —         —         —         —    

Exchange difference on translation on foreign operations

     212       (711     37       27  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income for the year, net of tax

     212       (711     37       27  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the year

     17,139       (158     28,224       15,629  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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     For the Three Months Ended
March 31,
    For the Year
Ended
December 31,
 
         2021              2020         2020     2019  
     (in thousands of US$,
except amounts per common share)
 

Total comprehensive income for the year attributable to:

         

Owners of the group

     17,123        (156     28,231       15,629  

Non-controlling interest

     16        (2     (7     —    

Statement of Financial Position

 

     As of
March 31,
     As of December 31,  
     2021      2020      2019  
     (in thousands of US$)  

Assets

        

Current assets

        

Cash and cash equivalents

     127,501        111,733        34,765  

Restricted cash

     149,411        —          —    

Financial assets at fair value through profit or loss

     1,261        8,319        15,399  

Trade and other receivables

     92,946        72,785        25,939  

Other assets

     41,249        2,017        1,113  
  

 

 

    

 

 

    

 

 

 

Total current assets

     412,368        194,854        77,216  
  

 

 

    

 

 

    

 

 

 

Non-current assets

        

Deferred tax assets

     137        216        16  

Property, plant and equipment

     1,297        913        191  

Right-of-use assets

     151        188        370  

Intangible assets

     4,941        4,153        1,803  

Other assets

     —          143        —    
  

 

 

    

 

 

    

 

 

 

Total non-current assets

     6,526        5,613        2,380  
  

 

 

    

 

 

    

 

 

 

Total Assets

     418,894        200,467        79,596  
  

 

 

    

 

 

    

 

 

 

Liabilities

        

Current liabilities

        

Trade and other payables

     299,837        142,865        52,977  

Lease liabilities

     170        201        180  

Tax liabilities

     8,013        7,788        893  

Derivative financial instruments

     —          2,896        —    

Provisions

     1,360        1,393        798  

Total current liabilities

     309,380        155,143        54,848  
  

 

 

    

 

 

    

 

 

 

Non-current liabilities

        

Deferred tax liabilities

     422        259        —    

Lease liabilities

     —          17        219  
  

 

 

    

 

 

    

 

 

 

Total non-current liabilities

     422        276        219  
  

 

 

    

 

 

    

 

 

 

Total Liabilities

     309,802        155,419        55,067  
  

 

 

    

 

 

    

 

 

 

Equity

        

Share Capital

     628        602        602  

Share Premium

     49,535        —          —    

Capital Reserve

     9,926        12,582        5,287  

Reserves

     279        119        14  

 

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     As of
March 31,
     As of December 31,  
     2021      2020     2019  
     (in thousands of US$)  

Retained Earnings

     48,712        31,749       18,460  
  

 

 

    

 

 

   

 

 

 

Total equity attributable to owners of the group

     109,080        45,052       24,363  

Non-controlling interests

     12        (4     166  
  

 

 

    

 

 

   

 

 

 

Total Equity

     109,092        45,048       24,529  
  

 

 

    

 

 

   

 

 

 

Other Performance Metrics

 

     For the Three Months Ended
March 31,
    For the Year Ended
December 31,
 
         2021             2020         2020     2019  
     (in thousands of US$, except percentages)  

TPV(1)

     925,874       388,155       2,064,789       1,287,713  

Revenues

     40,256       17,995       104,143       55,289  

Adjusted EBITDA(2)

     17,841       7,433       41,931       20,070  

Adjusted EBITDA Margin(3)

     44.3     41.3     40.3     36.3

 

(1)

We define total payment value, or TPV, as the aggregate value of all payments successfully processed through our payments platform. See “Presentation of Financial and Other Information—TPV.”

(2)

We define Adjusted EBITDA as the profit from operations before financing and taxation for the year or period, as applicable, before depreciation of property, plant and equipment, amortization of right-of-use assets and intangible assets, and further excluding the changes in fair value of financial assets and derivative instruments carried at fair value through profit or loss, impairment gains/(losses) on financial assets, transaction costs, share-based payment non-cash charges, secondary offering expenses, transaction expenses and inflation adjustment. See “Presentation of Financial and Other Information—Special Note Regarding Adjusted EBITDA and Adjusted EBITDA Margin.”

(3)

We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenues. See “Presentation of Financial and Other Information—Special Note Regarding Adjusted EBITDA and Adjusted EBITDA Margin.”

We have included below a reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin to profit for the periods presented.

 

     For the Three Months
Ended March 31,
     For the Year Ended
December 31,
 
         2021              2020          2020      2019  
     (in thousands of US$, except percentages)  

Profit for the period

     16,927        553        28,187        15,602  

Income tax expense

     1,379        818        3,231        2,221  

Inflation adjustment

     34        (16      (38      (10

Interest charges on leases

     3        5        20        30  

Other financial income

     —          —          (50      (6

Interest income on financial assets at FVPL

     (26      (66      (443      (217

Fair value losses/(gains) on financial assets at FVPL

     8        (32      (9      (56

Other operating (gain)/loss

     (2,896      83        2,896        —    

Other finance expense

     460        2        47     

Impairment loss/(gain) on financial assets

     54        (943      (808      807  

Depreciation and amortization

     515        126        992        409  

 

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     For the Three Months
Ended March 31,
    For the Year Ended
December 31,
 
         2021             2020         2020     2019  
     (in thousands of US$, except percentages)  

Secondary offering expenses(1)

     705       —         453       574  

Transaction costs(2)

     113       —         158       —    

Share-based payment charges

     565       6,903       7,295       716  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     17,841       7,433       41,931       20,070  
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

     40,256       17,995       104,143       55,289  
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA Margin

     44.3     41.3     40.3     36.3

 

(1)

Corresponds to expenses assumed by dLocal in relation to secondary offerings of its shares.

(2)

Corresponds to costs related to the acquisition of assets of Primeiropay as more fully explained in note 1.1, “Significant events during the period,” to our unaudited consolidated condensed financial statements included elsewhere in this prospectus.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements as of and for the years ended December 31, 2020 and 2019 and the notes thereto, included elsewhere in this prospectus, as well as the information presented under “Presentation of Financial and Other Information,” “Summary Financial and Other Information” and “Selected Financial and Other Information.”

The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of events may differ materially from those expressed or implied in such forward-looking statements as a result of various factors, including those set forth in “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”

Overview

dLocal is focused on making the complex simple, redefining the online payments experience in emerging markets. Through one direct API, one technology platform, and one contract, which we collectively refer to as the One dLocal model, we enable global enterprise merchants to get paid (pay-in) and to make payments (pay-out) online in a safe and efficient manner. Merchants on our platform consistently benefit from improving acceptance and conversion rates, reduced friction, and improved fraud prevention, leading to enhanced potential interaction with nearly 2 billion combined internet users in the countries we serve (excluding China). Our proprietary, fully cloud-based platform has the ability to power both cross-border and local-to-local transactions in 29 countries as of the date of this prospectus (which includes seven new countries where we have recently made our services available but have not yet processed volume). Our solutions are built to be both payment method-agnostic and user friendly. We enable global merchants to connect with over 600 local payment methods (some of which are financial institutions) across our different geographies, thus expanding their addressable markets. Furthermore, our proprietary technology architecture is highly scalable and flexible, allowing us to constantly and rapidly innovate in response to market demand, expand to new countries and enhance our value proposition for our merchant clients. Agility is in our DNA. We believe our product offering makes us the most comprehensive online payments infrastructure currently available for global enterprise merchants operating across emerging markets.

We are an enterprise-focused company, targeting large global merchants that operate in different verticals and geographies. Our key verticals include retail, streaming, ride hailing, financial institutions, advertising, SaaS, travel, e-learning and gaming. We have built our global platform from the ground up to be accessible through a single direct API and to meet the rapidly evolving needs of these fast-growing global merchants. We believe simplicity, scalability, transparency, agility and innovation are keys to our continued success. We partner with over 330 merchants, including leading global enterprises such as Amazon, Didi, Microsoft, Spotify, Mailchimp, Wix, Wikimedia and Kuaishou. In addition, we cater to the needs of leading marketplaces to help their SMB clients and partners expand their geographic reach. Our global merchants benefit from maintaining direct relationships with their end users while facilitating a faster, safer, more reliable and compliant payments experience. On average, our global merchants used dLocal’s platform in nearly six different countries and 44 payment methods in 2020 and in five countries and 35 payment methods in 2019, in each case for merchants with at least US$6 million of annual TPV on our platform. Such merchants comprised 92% of our TPV in 2020 and 93% in 2019. As a result, we believe that dLocal has become a trusted partner forging resilient relationships with global enterprise merchants.

We benefit from an attractive business model with improving economies of scale. We are often subject to rigorous vetting processes with global enterprise merchants that invest significant time and resources in the selection, diligence, and on-boarding of technology and payments providers. This on-boarding process can often take several months as these merchants assess our technological capabilities, ability to comply with their data

 

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security protocols, and adherence to regulatory, tax and compliance requirements. However, once we establish a direct connection (meaning there are no third party intermediaries between us and the merchant in the payment flow and technical integration), global merchants have the ability to access the full breadth of our solutions and the countries where we have a presence instantly through one direct API and one contract. Merchants can also choose to route all or a portion of their applicable pay-in and pay-out volume through us. Our direct connections with merchants serve as a strong competitive advantage and barrier to entry for competing providers, and makes incremental volume that flows through our platform highly margin accretive for dLocal.

Our single integrated platform provides a merchant-friendly alternative to the numerous legacy providers that global merchants were previously forced to rely upon for their payments needs in emerging markets. The breadth of our online payments infrastructure and expertise, allowing merchants to transact in 29 markets as of the date of this prospectus, the direct connections with global merchants, our relationships with APMs, local financial institutions and acquirers, our understanding of the countries in which we operate, and our differentiated compliance, tax, and fraud management capabilities are attributes that in combination are difficult for competitors to replicate and create strong barriers to entry. Our technology DNA (we have been a “technology-first” business from inception), execution-driven culture and agile innovation mindset keep us at the forefront of the industry.

We generate revenue through fees charged to our merchants in connection with payment processing services for cross-border and local payment transactions in emerging markets. These fees are primarily generated on a per approved transaction basis as either a fixed percentage per transaction or a fixed fee per transaction. The fees include an MDR to compensate us for our services, which may include processing; settlement; fraud prevention; split payments; tax, anti-money laundering, and regulatory compliance; among others. We also charge an FX service fee on cross-border payments involving conversion and expatriation of funds to and from various currencies, including the U.S. dollar and the Euro.

Our success-based business model is predicated upon the premise that we only earn revenue when our global merchants are enabled to transact (either get paid or make payments). We are fully focused on our merchant customers and on our desire to provide them the best payment solutions so their users can have a frictionless payment process. Upon initiating the relationship with a global merchant, we establish a flat fee contract as a percentage of transaction value or, in certain instances, as a fixed amount per transaction. In addition, we may require certain merchants to make minimum volume commitments to incentivize the use of our platform at the time of on-boarding and pay for the fixed expenses assumed to maintain the connection.

Our TPV was US$925.9 million and US$388.2 million for the three months ended March 31, 2021 and 2020, respectively, and US$2.1 billion and US$1.3 billion for 2020 and 2019, respectively, representing a growth rate of 138.5% when comparing the three months ended March 31, 2021 to the three months ended March 31, 2020 and a growth rate of 60.3% when comparing 2020 to 2019. Our total revenues were US$40.3 million and US$18.0 million for the three months ended March 31, 2021 and 2020, respectively, and US$104.1 million and US$55.3 million for 2020 and 2019, respectively, representing a growth rate of 123.7% when comparing the three months ended March 31, 2021 to the three months ended March 31, 2020 and a growth rate of 88.4% when comparing 2020 to 2019. Our strong profitability and cash flow generation is due in large part to our solving of the complex payments problems on behalf of our merchants in underserved geographies. Our Adjusted EBITDA Margin was 44.3% and 41.3% for the three months ended March 31, 2021 and 2020, respectively, and 40.3% and 36.3% for 2020 and 2019, respectively. The revenue growth attributable to new merchants was 38% for the three months ended March 31, 2021 when compared to the three months ended March 31, 2020, and 17% for 2020 when compared to 2019. Our NRR was 186% and 216% for the three months ended March 31, 2021 and 2020, respectively, and 171% for the year ended December 31, 2020. Excluding the effect in 2019 of a warrant with a merchant, the NRR for 2020 would have been 159%. The NRR includes the merchants that generated revenues in the same period of the prior year. For the year 2020, 167 merchants were included, and for the three month period ended March 31, 2021 and 2020, 179 and 135 merchants were included, respectively.

 

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Key business metrics

We review the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions:

 

     For the Three Months Ended
March 31,
    For the Year Ended
December 31,
 
           2021                 2020           2020     2019  
     (in thousands of US$)  

TPV(1)

     925,874       388,155       2,064,789       1,287,713  

Revenues

     40,256       17,995       104,143       55,289  

Adjusted EBITDA(2)

     17,841       7,433       41,931       20,070  

Adjusted EBITDA Margin(3)

     44.3     41.3     40.3     36.3

 

(1)

For information on how we define TPV, see “Presentation of Financial and Other Information— TPV.”

(2)

For information on how we define Adjusted EBITDA, see “Presentation of Financial and Other Information— Certain Financial Measures.” For a reconciliation of Adjusted EBITDA to our profit for the period, see “Selected Financial and Other Information—Other performance metrics.”

(3)

For information on how we define Adjusted EBITDA Margin, see “Presentation of Financial and Other Information— Certain Financial Measures.” For a reconciliation of Adjusted EBITDA Margin to our profit for the period, see “Selected Financial and Other Information—Other performance metrics.”

TPV

We believe that TPV is an indicator of the success of our global merchants, the satisfaction of their end users, and the scale and growth of our business. As our global merchants increase their transaction volume on our platform, our TPV will also grow. Our revenue depends significantly on the total value of transactions processed through our platform.

dLocal’s TPV growth is directly impacted by secular trends, including the ongoing shift to digital payments, the growth of our merchants’ business in emerging markets, as well as the continued traction gained by e-commerce. Furthermore, a large, growing, and increasingly complex payments ecosystem continues to drive demand for an integrated and comprehensive online payments infrastructure such as dLocal’s.

Our ability to maintain and expand strong relationships with existing global merchants, as well as to attract new ones into our platform, also drives our TPV. For the year ended December 31, 2020, global merchants who were on-boarded and have transacted on our platform for more than two years generated 80% of our TPV. From 2016 through 2020, we have successfully added on average nearly six new pay-in merchants per month and one new pay-out merchant per month.

In the three months ended March 31, 2021, we recorded a TPV of US$925.9 million, representing a growth of 138.5% when compared to the three months ended March 31, 2020. In the year ended December 31, 2020, we recorded a TPV of US$2.1 billion, representing a year-over-year growth of 60.3%, despite the global challenges posed by the COVID-19 pandemic. Furthermore, we grew TPV at a 93% CAGR from 2018 to 2020.

 

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The following chart sets forth the evolution of our TPV for the periods indicated.

TPV (in US$ millions)

 

LOGO

Pay-in TPV is generated in transactions where we enable global merchants to receive payments from their customers located in emerging markets for the sale of goods or services. We process the payments locally in the emerging markets where the merchants’ consumers are located and after expatriating the funds we settle the payments in the jurisdiction and currency of preference of our global merchants, which is typically in North America, Europe or China, and generally in U.S. dollars or Euros. We refer to these transactions as cross-border. However, when the merchants have a local presence in the countries where their consumers are located, we offer our merchants the possibility to settle transactions in the local currencies of such countries, which we call local-to-local transactions.

Pay-out TPV is generated in transactions where we enable global merchants to make payments, both cross-border and local-to-local, to their vendors, contractors, partners, drivers, apartment renters, marketplace sellers, and refund recipients, some of which can be paid in their partners’ (i.e., the ultimate recipients’) preferred method for receipt of payment by type of account or type of method, such as transfer to bank accounts or payment to digital wallets, while the merchant retains control over the overall interface. While the volume generated from our marketplace solution is primarily from pay-out transactions, we may also process pay-in volume based on the applicable agreement with the merchant or its sellers.

Pay-in and pay-out transactions (cross-border and local-to-local in both cases) each involve different transaction counterparties, payment flows, and services, as well as distinct overall pricing dynamics.

Revenues

Our revenues are derived on a per approved transaction basis as either a fixed percentage per transaction or a fixed fee per transaction. Revenue is a key metric of focus for our management team as it directly reflects the scale, growth, and trajectory of our business, as well as the strength and structure of our merchant relationships and the stability of our pricing.

Revenues deriving from pay-ins and pay-outs depend on the agreed-upon rates we negotiate with each global merchant, and may ultimately vary, depending on the amount of volume such merchants process, the markets where they use our services, the type of payment methods we facilitate, and whether such payment relates to cross-border or local transactions. We manage our merchant accounts on an overall dollar profitability

 

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basis, in order to ensure maximizing revenues from each merchant customer, and not particularly on each of the products, payment methods or geographies in which we process payments for them. Revenues may be generated by existing merchants, which we measure by means of our NRR, or from new merchants.

Adjusted EBITDA

We define Adjusted EBITDA as the profit from operations before financing and taxation for the year or period, as applicable, before depreciation of property, plant and equipment, amortization of right-of-use assets and intangible assets, and further excluding the changes in fair value of financial assets and derivative instruments carried at fair value through profit or loss, impairment gains/(losses) on financial assets, transaction costs, share-based payment non-cash charges, secondary offering expenses, transaction expenses and inflation adjustment. We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by consolidated revenue.

For the three months ended March 31, 2021, we recorded Adjusted EBITDA of US$17.8 million, equivalent to an Adjusted EBITDA Margin of 44.3%, compared to Adjusted EBITDA of US$7.4 million and Adjusted EBITDA Margin of 41.3% for the three months ended March 31, 2020. For the year ended December 31, 2020, we recorded Adjusted EBITDA of US$42.0 million, equivalent to an Adjusted EBITDA Margin of 40.3%. For the year ended December 31, 2019, the Adjusted EBITDA was US$20.1 million equivalent to an Adjusted EBITDA Margin of 36.3%. See “Presentation of Financial and Other Information—Special Note Regarding Adjusted EBITDA and Adjusted EBITDA Margin.” See “Selected Financial and Other Information” for a reconciliation of our Adjusted EBITDA and Adjusted EBITDA Margin to net income.

Growth from existing and new merchants

Given the success-based nature of our business model, our growth is driven by our ability to land, retain, and expand our relationships with our merchants. The success of their business in emerging markets directly impacts our performance. Our merchants’ own growth, our experience and expertise in upselling and cross-selling new products, and our ability to expand the number of markets in which we serve them, determines our revenue from existing clients. Furthermore, our team’s demonstrated ability to add new merchants on an ongoing basis to our platform complements our overall growth.

The below chart presents a summary of our revenue growth by existing and new merchants.

Revenue growth in 2020 from existing and new merchants (in US$ millions)

 

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Existing Merchants represent the increase in revenues in 2020 attributable to merchants that were customers the prior year. New Merchants represents the increase in revenues in 2020 attributable to selling services to new merchants added during 2020. Our NRR was 171% for the year ended December 31, 2020 and the revenue growth attributable to new merchants was 17%. Excluding the effect in 2019 of a warrant with a merchant, the NRR would have been 159%.

Key factors affecting our performance

We believe our operating and business performance is driven by various factors that affect the global economy and the economies of the countries in which we operate, trends affecting digital payments markets, the broader financial technology solutions industry, and the specific markets and customer base that we target. The following key factors may affect our future performance.

Retention and growth of our existing global merchant base

We believe our long-term revenue growth is correlated with the growth of our existing global enterprise merchants and PSP partners. We strive to maintain industry-leading customer service levels and platform capabilities to maximize client success and retention. Our revenue grows partially in line with the volume of transactions processed through our platform. As global merchants engage with more end users and increase the level of volume processed through our platform, we are able to increase our revenues. We continually evaluate the ongoing relationship we have with our existing global merchants, as well as opportunities to engage with them in new markets where we have a presence, both of which allow us to sustain and drive further growth.

Increasing our merchant base

To continue growing our revenues, we intend to increase the number of global merchants using our platform. We believe we are positioned to grow significantly through our own sales and marketing initiatives, including through our demonstrated ability to win competitive RFPs. We believe our current clients will continue to be our best advocates, helping us to continue growing our global merchant base across multiple attractive verticals. We may also seek to expand our merchant base through selective acquisitions of cross-border payment processing companies.

Evolution and adoption of our products and ecosystem

A key part of our strategy is to keep improving our payment solutions through innovation and relentless focus on our clients, helping us continuously provide more efficient and effective means for settling cross-border and local-to-local payment transactions. We intend to grow revenue by developing new and complementary solutions and capabilities to our existing product portfolio, expanding the value and scope of existing partnerships, selling and marketing payment solutions to our seller base, and acquiring and cultivating high-value relationships with new clients. We believe our cloud-based platform, our e-commerce-focused solutions, and our dedication to continuously offer the best possible customer service and most innovative capabilities are the foundation of our relationship with our global merchants.

Successful international expansion

Our operations in emerging markets in Latin America, Asia, and Africa have grown rapidly since the commencement of our business. We intend to further expand our operations in the countries in which we operate in the coming years, as well as to commence operations in new countries in these regions. Our expansion has also been driven in by the needs and at the request of our merchant customers. For each new country where we seek to establish a presence, we focus on understanding the needs of the local market and investment to develop partnerships with local APMs and financial institutions, while gaining an appreciation for the appropriate local regulatory and compliance frameworks. Over time, we believe we will be able to develop a presence and offer a comprehensive and integrated offering across all emerging markets which are relevant for our global enterprise merchants and our partners.

 

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Fluctuations in direct processing costs

Our cost of services includes fees that financial institutions charge us, typically as a percentage of the transaction value. Such costs vary from one institution to another, and usually depend on the settlement period contracted with each such institution and the payment method used. We are unable to predict if or when financial institutions will increase or decrease their fees or what the amount of any such variations may be. Our ability to adjust our pricing remains subject to a variety of factors, including competition from other payment providers, market conditions and, in certain cases, direct price negotiations with the merchant. As a result, at times, we might not be able or willing to pass through all increases or decreases in direct processing costs to our global merchants.

Realizing operating leverage from our investments

We have made significant investments in our cloud-based platform and our global infrastructure, which we believe will yield future operating leverage and profit margin expansion. Given the nature of our non-variable cost of services, we believe we will achieve operating leverage by expanding the use of our platform and increasing the volume of transactions that we process. We believe we will be able to run our business more efficiently as we continue to grow operating scale.

Macroeconomic environment of the markets where we have a presence

We operate across a number of emerging economies in Latin America, Asia, and Africa. As a result, our revenues and profitability are affected by political and economic developments in these countries and the effect that these factors have on the availability of credit, disposable income, employment rates, and average wages in these countries. Our operations are sensitive to changes in economic conditions in each of the countries in which we operate.

The volume of digital payments transactions is also influenced by general economic conditions. As examples, during recessionary periods, economic downturns, or periods of high inflation or high currency volatility, consumers may experience a reduced ability to spend and card issuers may reduce credit limits and new issuance authorizations, both of which can have a negative impact on the overall transaction payment volume.

While the above-mentioned shifts in general economic conditions may have a negative impact on payment volume, the ongoing secular shift from cash to card and digital payments, along with the ongoing shift to online commerce, as well as the growth of tech related global merchants, may partially offset this impact.

Changes in and increasing complexity of regulatory environments

An ever evolving global, local, and industry-specific regulatory environment has a direct impact on how global merchants conduct business in emerging markets. Furthermore, such changes continue to directly impact overall tax compliance, which varies materially from jurisdiction to jurisdiction.

While we remain committed to continue to invest in ensuring we retain the utmost up-to-date understanding of all applicable regulatory frameworks that may be relevant for the markets in which we have a presence, such future changes may impact the way in which we engage with global merchants, how we establish our overall contracts, and the way in which we earn revenue.

Impacts of the COVID-19 pandemic

There are no comparable recent events that provide guidance as to the effect that the spread of COVID-19 as a global pandemic may have. We have taken several measures to monitor and mitigate the effects of the

 

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COVID-19 virus on our operations, including implementing safety and health measures for our employees such as having all employees work from home, promoting online live events and holding periodical online meetings with employee groups.

As of the date of this prospectus, the impact of the COVID-19 pandemic on our operations has had a different impact across our different product offerings and the different verticals we serve, with certain industries benefiting from increased adoption (e.g., online retail, online gaming, online streaming) while others suffering from decreased usage (e.g., travel, ride hailing).

We believe that our business has thus far exhibited a net benefit from the shift from in-store shopping and traditional payment methods towards e-commerce and digital payments (and overall higher exposure to industries benefiting from increased adoption) as a result of the COVID-19 pandemic. We expect these effects to persist for the duration of the pandemic, though there can be no assurance such effects will continue as vaccine campaigns expand and lock-down measures are potentially lifted. Notwithstanding, as pandemic restrictions are eased, we would expect the increased ability to travel and/or use of ride hailing that favors our merchants that provide such services would offset any decrease in e-commerce. Moreover, the pandemic has not had an adverse impact on our capital and financial resources or our overall liquidity position, as we have not historically relied on third-party financing or revolving credit to fund our operations, and our cash from operations has been consistent and has even increased during the COVID-19 pandemic with the increased adoption of e-commerce and digital payment methods. Our assets have not been adversely impacted, as our current assets consist primarily of cash and cash equivalents and trade and other receivables, and our non-current assets consist primarily of intangible assets, all of which have increased during the pandemic. We also have not experienced supply chain issues due to the nature of our business.

However, the ultimate extent to which the COVID-19 pandemic impacts our business, financial condition, and results of operations will depend on future developments, which are highly uncertain, difficult to predict, and subject to change, including, but not limited to, the duration, scope, severity, and geographic spread of the outbreak, its impact on the global economy, actions taken to contain or limit the impact of COVID-19, such as the availability of effective vaccines or treatments, geographic variation in how countries and states are handling the pandemic, the appearance of new variants of the virus, and how quickly and to what extent normal economic and operating conditions may potentially resume. As of the date of this prospectus, we cannot predict the full extent of the impact of COVID-19 going forward. See “Risk Factors—Certain Risks Relating to Our Business and Industry— The COVID-19 pandemic and other actual or threatened epidemics, pandemics, outbreaks, or other public health crises, could have an adverse impact on our business.”

Factors Affecting the Comparability of our Results of Operations

On March 11, 2021, we signed an agreement to acquire certain assets from a payment service provider that provides local payment services in certain emerging markets in Latin America with an effective date of April 1, 2021. See note 1.1 to our unaudited consolidated condensed financial statements.

Description of Principal Line Items

The following is a summary of the principal line items comprising our consolidated statements of comprehensive income.

Revenues

We generate revenues from fees charged to our merchant customers in connection with our payment processing services for cross-border and local payment transactions. These fees are primarily generated on a per approved transaction basis. Our sources of revenues are:

 

  (i)

Transaction revenues consist of transaction fees, defined either as percentage of the transaction value or a fixed amount per transaction, as well as foreign exchange service fee, usually established as a

 

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  percentage of the transaction value. These fees are recognized as revenue at a point in time when a payment transaction has been processed.

 

  (ii)

Other revenues, mainly comprised of minor fees, such as initial setup fees, installment fees, minimum monthly fees, chargebacks fees, refund fees and small transfer fees. Other revenues are recognized as revenue at a point in time when the respective performance obligation is satisfied.

Cost of services

Our cost of services consists of amounts related to the fees that financial institutions (e.g. banks, local acquirers, or payment methods) charge us, which are typically a percentage of the transaction value, but in some instances may also include a fixed fee, and are related to payment processing, cash advances and installment payments. Such costs vary from one institution to another, and usually depend on the settlement period contracted with each such institution and the payment method used. In addition, cost of services includes hosting expenses of our payment platform, salaries and wages of employees and contractors, directly involved in the day-to-day operations and amortization of intangible assets related to internally-developed software.

Technology and development expenses

Technology and development expenses consist primarily of salaries and wages, technology development infrastructure, information security, software licenses and services and other technology expenses.

 

  (i)

Salaries and wages: consist primarily of the compensation to full time equivalents, or FTEs, in technology-related roles.

 

  (ii)

Software licenses: consist of software licenses used by the technology development department for the development of the platform.

 

  (iii)

Infrastructure expenses: corresponds to information technology costs to support our infrastructure and back-office operations.

 

  (iv)

Information and technology security expenses: comprises expenses of overall monitoring and security of our network and platform.

Sales and marketing expenses

Our sales and marketing expenses consist of the amounts spent on sales, marketing and related expenses. Such amounts are broken down into salaries and wages, and marketing expenses.

 

  (i)

Salaries and wages: related to full-time equivalents engaged in the Sales and Marketing department of the group.

 

  (ii)

Marketing expenses: related to the distribution and production of our marketing and advertising, public relations expenses, commissions to third-party sales force and partners and expenses incurred in relation to trade marketing at events.

General and administrative expenses

General and administrative expenses consist primarily of salaries and wages, third-party services, office expenses, travel and accommodation expenses, amortization and depreciation and other operating expenses as described below.

 

  (i)

Salaries and wages: consist primarily of the compensation of our administrative employees and contractors.

 

  (ii)

Third-party services: include Advisors’ fees, Legal fees, Auditors’ fees and Human resources fees. Third-party services also include Secondary offering expenses and Transaction costs.

 

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  (iii)

Office expenses: consist of office rent and related expenses.

 

  (iv)

Travel and accommodation expenses: include costs associated with traveling for the purpose of conducting business-related activities.

 

  (v)

Amortization and depreciation: related to right-of-use assets, and property, plant and equipment.

 

  (vi)

Other operating expenses: mainly includes expenses related to bank charges, taxes and other operating expenses.

Other operating gain/(loss)

Other operating gain and loss is composed primarily of fair value gains and losses of derivative financial instruments, which consists of fair value movements related to an option agreement that dLocal Malta had in place with one shareholder and was extinguished during the quarter ended on March 31, 2021.

Net impairment loss on financial assets

Net impairment loss on financial assets refers to impairment recorded based on the difference between the cash flows contractually due and all the cash flows that the Company expects to receive from Trade and other receivables. For further information related to expected credit losses under IFRS 9, see notes 2.5. “Financial instruments—initial recognition and subsequent measurement, ii) Impairment of financial assets” and 16 “Trade and Other Receivables” to our audited consolidated financial statements, included elsewhere in this prospectus.

Other results

Other results can be broken down according to the following categories:

 

  (i)

Finance income mainly corresponds to interests and fair value gains from financial assets measured at fair value through profit and loss and from our investments in debt instruments.

 

  (ii)

Finance costs are composed mainly of interest expenses and interest charges for lease liabilities according to the application of IFRS 16 Leases. The interest charges for lease liabilities are recognized over the lease period so as to produce a constant periodic rate of interests on the remaining balance of the liability for each period. The interest rate consists of a discount using the interest rate implicit in the lease.

 

  (iii)

Inflation adjustment is made in accordance with IAS 29 requirements in connection with operations in Argentina, which is considered to be a hyperinflationary economy. We restate the financial statements of our subsidiary DLocal Argentina to reflect the purchasing power of the currency and therefore a gain on net monetary position arose.

Income tax expense

We are subject to income taxes in various jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. Our consolidated tax expense is affected by the mix of our taxable income between those various jurisdictions and permanent items, among others.

 

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Results of Operations

Three months ended March 31, 2021 compared to Three months ended March 31, 2020

The following table sets forth our income statement data for the periods indicated.

 

     For the Three Months
Ended March 31,
 
         2021              2020      
     (in thousands of US$)  

Revenues

     40,256        17,995  

Cost of services

     (16,989      (6,993
  

 

 

    

 

 

 

Gross profit

     23,267        11,002  

Technology and development expenses

     (520      (346

Sales and marketing expenses

     (1,042      (658

General and administrative expenses

     (5,762      (9,535

Net impairment (losses)/gain on financial assets

     (54      943  

Other operating gain/(loss)

     2,896        (83

Operating profit

     18,785        1,323  

Finance income

     18        35  

Finance costs

     (463      (3

Inflation adjustment

     (34      16  

Other results

     (479      48  
  

 

 

    

 

 

 

Profit before income tax

     18,306        1,371  
  

 

 

    

 

 

 

Income tax expense

     (1,379      (818
  

 

 

    

 

 

 

Profit for the period

     16,927        553  
  

 

 

    

 

 

 

Revenues

Revenues for the three months ended March 31, 2021 were US$40.3 million, an increase of US$22.3 million, or 123.7%, from US$18.0 million for the three months ended March 31, 2020, which is primarily attributable to the growth in revenues from existing merchants, demonstrated by our NRR of 186% for the three months ended March 31, 2021 and, to a lesser extent, to the growth in revenues from new merchants, which accounted for 38% of our revenues for the same period of 2020.

Cost of services

Cost of services for the three months ended March 31, 2021 were US$17.0 million, an increase of US$10.0 million, or 142.9%, from US$7.0 million for the three months ended March 31, 2020, primarily driven by the increase in processing costs associated with our 138.5% TPV growth comparing the three months ended March 31, 2021 to the three months ended March 31, 2020.

Gross profit

For the reasons described above, our gross profit for the three months ended March 31, 2021 was US$23.3 million, an increase of US$12.3 million or 112.6% from US$11.0 million for the three months ended March 31, 2020.

Technology and development expenses

Technology and development expenses for the three months ended March 31, 2021 were US$0.5 million, an increase of US$0.2 million, or 50.3%, from US$0.3 million for the three months ended March 31, 2020, which

 

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was primarily attributable to an increase in salaries and wages of our full-time equivalents, or FTEs, primarily as a result of higher information technology headcount to support our growth strategy.

Sales and marketing expenses

Sales and marketing expenses for the three months ended March 31, 2021 were US$1.0 million, an increase of US$0.4 million, or 58.4%, from US$0.7 million for the three months ended March 31, 2020, which was primarily attributable to an increase of US$0.4 million in salaries and wages related to sales and marketing FTEs.

General and administrative expenses

General and administrative expenses for the three months ended March 31, 2021 were US$5.8 million, a decrease of US$3.8 million, or 39.6%, from US$9.5 million for the three months ended March 31, 2020, which was primarily attributable to a decrease of US$4.6 million in salaries and wages mainly related to a share-based compensation expense in the first quarter of 2020 and US$0.5 million in travel and accommodation expenses primarily due to the restrictions imposed on travel during 2021 due to the COVID-19 pandemic, which was partially offset by an increase of US$0.8 million related to third-party services, which includes, for the three-month period ended March 31, 2021, US$705 thousand of secondary offering expenses and US$113 thousand of transaction costs.

Net impairment (losses)/gain on financial assets

Impairment losses on financial assets for the three months ended March 31, 2021 were US$54 thousand, primarily attributable to an increase in allowance for trade receivables for said amount. Impairment gains on financial assets for the three months ended March 31, 2020 amounted to US$0.9 million due to a reversal of a provision of US$1.0 million, partially offset by an increase in allowance for trade receivables.

Other operating gain/(loss)

Other operating gain for the three months ended March 31, 2021 was US$2.9 million, an increase of US$3.0 million from a loss of US$0.1 million for the three months ended March 31, 2020, primarily attributable to the extinguishment of an option agreement that dLocal Malta had in place with one shareholder that took place in March 2021.

Operating profit

For the reasons described above, our operating profit for the three months ended March 31, 2021 was US$18.8 million, an increase of US$17.5 million from US$1.3 million for the three months ended March 31, 2020.

Finance income

Our finance income for the three months ended March 31, 2021 was US$18 thousand, a decrease of US$17 thousand, or 48.6%, from US$35 thousand for the three months ended March 31, 2020, primarily attributable to a decrease in the average balance of our investment portfolio.

Finance costs

Our finance costs for the three months ended March 31, 2021 was US$463 thousand, an increase of US$460 thousand, from US$3 thousand for the three months ended March 31, 2020, primarily attributable to an increase in interest expenses.

 

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Inflation adjustment

Inflation adjustment was a US$34 thousand loss for the three months ended March 31, 2021, a decrease of US$50 thousand, from a gain of US$16 thousand for the three months ended March 31, 2020, primarily attributable to the application of IAS 29 in our subsidiaries in hyperinflationary economies (specifically Argentina).

Profit before income tax

For the reasons described above, our profit before income tax for the three months ended March 31, 2021 was US$18.3 million, an increase of US$16.9 million from US$1.4 million for the three months ended March 31, 2020.

Income tax expense

Our income tax expense for the three months ended March 31, 2021 was US$1.4 million, an increase of US$0.6 million, or 68.6%, from US$0.8 million for the three months ended March 31, 2020. This increase was primarily attributable to higher profit before taxes in 2021 compared to 2020, partially offset by a lower overall effective income tax rate. For the three months ended March 31, 2021 and March 31, 2020 our effective income tax rate was 7.5% and 59.7%, respectively. In the first quarter of 2020, the tax rate was affected by a non-deductible stock-based compensation expense, as detailed in General and administrative expenses above.

Profit for the period

For the reasons described above, our profit for the three months ended March 31, 2021 was US$16.9 million, an increase of US$16.4 million from US$0.6 million for the three months ended March 31, 2020.

Year Ended December 31, 2020 compared to Year Ended December 31, 2019

The following table sets forth our income statement data for the periods indicated.

 

     For the Year Ended December 31,  
           2020                  2019        
     (in thousands of US$)  

Revenues

     104,143        55,289  

Cost of services

     (44,065      (19,413
  

 

 

    

 

 

 

Gross profit

     60,078        35,876  

Technology and development expenses

     (2,005      (1,347

Sales and marketing expenses

     (2,852      (2,057

General and administrative expenses

     (22,188      (14,101

Net impairment gain/(losses) on financial assets

     808        (807

Other operating loss

     (2,896      —    

Operating profit

     30,945        17,564  

Finance income

     502        279  

Finance costs

     (67      (30

Inflation adjustment

     38        10  

Other results

     473        259  
  

 

 

    

 

 

 

Profit before income tax

     31,418        17,823  
  

 

 

    

 

 

 

Income tax expense

     (3,231      (2,221
  

 

 

    

 

 

 

Profit for the year

     28,187        15,602  
  

 

 

    

 

 

 

 

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Revenues

Revenues for the year ended December 31, 2020 were US$104.1 million, an increase of US$48.9 million, or 88.4%, from US$55.3 million for the year ended December 31, 2019, which is primarily attributable to the growth in revenues from existing merchants, demonstrated by our NRR of 171%, and to a lesser extent, to the growth in revenues from new merchants, which accounted for 17% of the prior year’s revenues. Excluding the effect in 2019 of a non-cash contra revenue of $4.3 million related to a warrant with a merchant, the NRR would have been 159%. See “—Revenue growth in 2020 from existing and new merchants (in US$ millions)” for a summary of our revenue growth in 2020 by new and existing merchants.

Cost of services

Cost of services for the year ended December 31, 2020 were US$44.1 million, an increase of US$24.7 million, or 127.0%, from US$19.4 million for the year ended December 31, 2019, primarily driven by the increase in processing costs associated with our 60.3% TPV growth. Average processing costs taken as a percentage of TPV increased by 41.7%, which is mainly due to a change of mix in payment methods, and, to a lesser extent, to the increase in hosting expenses, salaries, and wages directly related to the day-to-day operations of our company, as well as the amortization of intangible assets.

Gross profit

For the reasons described above, our gross profit for the year ended December 31, 2020 was US$60.0 million, an increase of US$24.2 million or 67.5% from US$35.9 million for the year ended December 31, 2019.

Technology and development expenses

Technology and development expenses for the year ended December 31, 2020 were US$2.0 million, an increase of US$0.7 million, or 48.8%, from US$1.3 million for the year ended December 31, 2019, which was primarily attributable to an increase in salaries and wages of our full-time equivalents, or FTEs, primarily as a result of higher information technology headcount to support our growth strategy.

Sales and marketing expenses

Sales and marketing expenses for the year ended December 31, 2020 were US$2.9 million, an increase of US$0.8 million, or 38.6%, from US$2.1 million for the year ended December 31, 2019, which was primarily attributable to an increase of US$0.9 million in salaries and wages related to sales and marketing FTEs, partially offset by a US$0.1 million decrease in marketing expenses as a consequence of reduced participation in public corporate events during the COVID-19 pandemic.

General and administrative expenses

General and administrative expenses for the year ended December 31, 2020 were US$22.2 million, an increase of US$8.0 million, or 57.4%, from US$14.1 million for the year ended December 31, 2019, which was primarily attributable to an increase of US$7.3 million in salaries and wages related to administrative FTE, which was partially offset by a decrease of US$1.1 million related to office rent expenses and US$1.9 million of travel and accommodation expenses primarily due to the restrictions imposed on travel during 2020 due to the COVID-19 pandemic.

Net impairment gain/(losses) on financial assets

Impairment gains on financial assets for the year ended December 31, 2020 were US$0.8 million, primarily attributable to a write-off reversal of trade receivables of US$1.0 million, which was partially offset by an

 

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increase of US$0.2 million thousand in allowance for trade receivables. Impairment losses on financial assets for the year ended December 31, 2019 amounted to US$0.8 million due to a write-off of uncollectible trade receivables of US$0.6 million and an allowance in trade receivables of US$0.2 million.

Other operating loss

Other operating loss for the year ended December 31, 2020 was US$2.9 million, an increase of US$2.9 million from none for the year ended December 31, 2019, primarily attributable to fair value movements related to an option agreement that dLocal Malta has in place with one shareholder.

Operating profit

For the reasons described above, our operating profit for the year ended December 31, 2020 was US$31.0 million, an increase of US$13.4 million or 76.2% from US$17.6 million for the year ended December 31, 2019.

Finance income

Our finance income for the year ended December 31, 2020 was US$0.5 million, an increase of US$0.2 million, or 79.9%, from US$0.3 million for the year ended December 31, 2019, primarily attributable to an increase in the average balance of our investment portfolio.

Finance costs

Our finance costs for the year ended December 31, 2020 was US$67 thousand, an increase of US$37 thousand, from US$30 thousand for the year ended December 31, 2019, primarily attributable to an increase in interest expenses.

Inflation adjustment

Inflation adjustment was a gain of US$38 thousand for the year ended December 31, 2020, an increase of US$28 thousand or 280%, from a gain of US$10 thousand for the year ended December 31, 2019, primarily attributable to the application of IAS 29 in our subsidiaries in hyperinflationary economies (specifically Argentina).

Profit before income tax

For the reasons described above, our profit before income tax for the year ended December 31, 2020 was US$31.4 million, an increase of US$13.6 million or 76.9% from US$17.3 million for the year ended December 31, 2019.

Income tax expense

Our income tax expense for the year ended December 31, 2020 was US$3.2 million, an increase of US$1.0 million, or 45.5%, from US$2.2 million for the year ended December 31, 2019. This increase was primarily attributable to higher profit before taxes in 2020 compared to 2019, partially offset by a lower overall effective income tax rate. For the year ended December 31, 2020 and December 31, 2019 our effective income tax rate was 10.3% and 12.5%, respectively.

Profit for the year

For the reasons described above, our profit for the year ended December 31, 2020 was US$28.2 million, an increase of US$12.6 million, or 80.7%, from US$15.6 million for the year ended December 31, 2019.

 

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Quarterly Financial Data (Unaudited)

The following table sets forth certain of our financial information for the periods indicated:

 

     For the Three Months Ended  
     March
31, 2021
    December
31, 2020
    September
30, 2020
    June
30, 2020
    March
31, 2020
    December
31, 2019
    September
30, 2019
    June
30, 2019
    March
31,2019
 
     (in thousands of US$)  

Revenues

     40,256       34,653       30,850       20,645       17,995       17,823       15,751       13,958       7,757  

Cost of services

     (16,989     (13,981     (13,969     (9,122     (6,993     (5,791     (4,893     (4,492     (4,237
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     23,267       20,672       16,881       11,523       11,002       12,032       10,858       9,466       3,520  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Technology and development expenses

     (520     (750     (528     (381     (346     (389     (329     (284     (345

Sales and marketing expenses

     (1,042     (830     (739     (625     (658     (574     (544     (491     (448

General and administrative expenses

     (5,762     (6,526     (3,469     (2,658     (9,535     (6,098     (3,119     (2,777     (2,107

Net impairment gain/(losses) on financial assets

     (54     (45     (45     (45     943       (687     (40     (40     (40
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other operating gain/(loss)

     2,896       (65     (2,760     12       (83     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     18,785       12,456       9,340       7,826       1,323       4,284       6,826       5,874       580  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Finance income

     18       148       219       100       35       (6     144       27       114  

Finance costs

     (463     (7     (14     (43     (3     (13     (7     (24     14  

Inflation adjustment

     (34     4       9       9       16       4       1       3       2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other results

     (479     145       214       66       48       (15     138       6       130  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income tax

     18,306       12,601       9,554       7,892       1,371       4,269       6,964       5,880       710  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense

     (1,379     (1,000     (932     (481     (818     (671     (732     (346     (472
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the period

     16,927       11,601       8,622       7,411       553       3,598       6,232       5,534       238  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liquidity and Capital Resources

As of March 31, 2021, we had US$127.5 million in cash and cash equivalents, and as of December 31, 2020, we had US$111.7 million in cash and cash equivalents. We believe that our current available cash and cash equivalents and the cash flows from our operating activities will be sufficient to meet our working capital requirements and capital expenditures in the ordinary course of business for the next 12 months.

 

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The following table shows the generation and use of cash for the periods indicated:

 

     For the Three Months
Ended March 31,
     For the Year Ended
December 31,
 
         2021              2020              2020              2019      
     (in thousands of US$)  

Cash Flow Data

           

Net cash from/(used in) operating activities

     3,395        (102      88,486        30,723  

Net cash (used in)/from investing activities

     (33,244      (2,778      3,650        118  

Net cash from/(used in) financing activities

     45,828        (46      (15,198      (19,342

Our cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid financial instruments with original maturities of three months or less. We classify as cash equivalents a financial instrument that can be immediately converted into a known amount of cash and the fair value approximates the carrying value. Cash and cash equivalents are measured at amortized cost and are included in current assets due to their short-term nature. For more information, see note 14, “Cash and cash equivalents” to our unaudited consolidated condensed financial statements included elsewhere in this prospectus.

Operating Activities

The vast majority of our operating cash flow represents merchant’s funds (corresponding to the line items “Trade and other receivables” and “Trade and other payables” in our Statements of Financial Position) that are held by us for a short period before being paid out to the merchant. Our net cash from operating activities increased by US$3.5 million, from net cash used in operating activities of US$0.1 million in the three months ended March 31, 2020 to net cash from operating activities of US$3.4 million in the corresponding period of 2021, primarily as a result of net cash provided from working capital, which totaled an outflow of US$13.2 million compared to an outflow of US$6.5 million for the three months ended March 31, 2021 and 2020, respectively. The decrease in inflow from changes in working capital was mainly driven by an increase in the balance of “Trade and other payables,” which increased US$7.6 million in the three months ended March 31, 2021, as compared with a decrease of US$12.6 million in the three months ended March 31, 2020 and was partially offset by an increase in the balance of “Trade and other receivables” of US$22.1 million in the three months ended March 31, 2021, as compared with a decrease of US$6.0 million in the three months ended March 31, 2020.

Our net cash from operating activities increased by US$57.8 million, from US$30.7 million in 2019 to US$88.5 million in 2020, primarily as a result of net cash provided from working capital, which totaled an inflow of US$90.7 million compared to an inflow of US$32.4 million for the years December 31, 2020 and 2019, respectively. The increase in inflow from changes in working capital was mainly driven by an increase in the balance of “Trade and other payables,” which increased US$90.4 million in 2020, as compared with an increase of US$20.3 million in 2019 and was partially offset by an increase in the balance of “Trade and other receivables,” which increased US$47.4 million in 2020, as compared with an increase of US$11.0 million in 2019.

Investing Activities

Our net cash used in investing activities increased by US$30.5 million from US$2.8 million in the three months ended March 31, 2020 to cash used in investing activities of US$33.2 million in the three months ended March 31, 2021, mainly due to a US$38.7 million increase in advanced payments for asset acquisition and an increase of US$0.6 million of additions to intangible assets, partially offset by a US$9.2 million increase in net collections of debt and other instruments classified as financial assets at fair value through profit or loss.    

Our net cash from investing activities increased by US$3.5 million from US$0.1 million in 2019 to cash from investing activities of US$3.7 million in 2020, mainly due to a US$5.5 million increase in net collections of

 

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debt and other instruments classified as financial assets at fair value through profit or loss and US$0.2 million of interests collected from financial instruments, partially offset by an increase of US$1.5 million of additions to intangible assets and a US$0.7 million increase in acquisitions of property, plant and equipment.

Financing Activities

Our net cash from financing activities increased by US$45.9 million, from US$46 thousand in the three months ended March 31, 2020 to US$45.8 million in the three months ended March 31, 2021, mainly due to a US$46.3 million increase from proceeds related to the issuance of shares. Also, in the three months ended March 31, 2021, we recorded an increase in restricted cash for US$149.4 million, offset by the proceeds received from transactions between shareholders in the same amount.

Our net cash used in financing activities decreased by US$4.1 million, or 21.4%, from US$19.3 million in 2019 to US$15.2 million in 2020, mainly due to a US$9.2 million decrease in repayment of loans advanced by shareholders which was partially offset by a US$5.0 million increase in higher dividends paid to shareholders. See “Dividends and Dividend Policy.”

Indebtedness

As of March 31, 2021, we had no long-term indebtedness. As of December 31, 2020 and 2019, we had US$17 thousand and US$219 thousand, respectively, in lease liabilities. As of such dates, we did not have any other long-term indebtedness.

Capital Expenditures

For the three months ended March 31, 2021 and 2020 we made capital expenditures of US$1.3 million and US$0.7 million, respectively. For the years ended December 31, 2020 and 2019, we made capital expenditures of US$3.9 million and US$1.7 million, respectively. Total capital expenditures as a percentage of revenue were 3.2% and 4.0% in the three months ended March 31, 2021 and 2020, respectively, and 3.7% and 3.1% in 2020 and 2019, respectively. These capital expenditures mainly include expenditures related to capitalized software development and investments in computer hardware.

Tabular Disclosure of Contractual Obligations

The following table shows a summary of our contractual obligations as of December 31, 2020:

 

     Payments Due By Period as of December 31, 2020  
       Total              Less than    
1 year
         1-3 years              3-5 years              More than    
5 years
 
     (US$ millions)  

Lease liabilities

     0.2        0.2        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     0.2        0.2        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Off-Balance Sheet Arrangements

Other than as set forth above, we did not have any off-balance sheet arrangements as of March 31, 2021 nor as of December 31, 2020.

Critical Accounting Estimates and Judgments

Our consolidated financial statements are prepared in conformity with IFRS as issued by IASB. In preparing our consolidated financial statements, we make assumptions, judgments and estimates that can have a significant

 

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impact on amounts reported in our consolidated financial statements. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. We regularly reevaluate our assumptions, judgments and estimates. Our significant accounting estimates and judgments are described in note 3, “Accounting estimates and judgments” to our consolidated financial statements included elsewhere in this prospectus.

Recent Accounting Pronouncements

For information about recent accounting pronouncements that will apply to us in the near future, see note 2.16, “New accounting pronouncements,” to our audited consolidated financial statements included elsewhere in this prospectus.

JOBS Act

We are an emerging growth company under the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company”, we choose to rely on such exemptions we may not be required to, among other things; (1) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404; (2) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (3) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); and (4) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our initial public offering or until we are no longer an “emerging growth company,” whichever is earlier.

Quantitative and Qualitative Disclosure About Market Risk

We are exposed to market risks in the ordinary course of our business, including the effects of interest rate changes and foreign currency fluctuations. Information relating to quantitative and qualitative disclosures about these market risks is described below and in note 27, “Financial risk management”, to our audited consolidated financial statements included elsewhere in this prospectus.

Interest Rate Risk

This risk arises from the possibility of incurring losses due to fluctuations in interest rates in respect of fair value of future cash flows of a financial instrument. Our cash flows are not exposed to interest rate risk since there are no financial instruments with variable interest rate and debt instruments are measured at fair value through profit and loss.

Credit Risk

Credit risk is the risk of financial loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. We are exposed to credit risk primarily in respect of our trade and other receivables, including from agents and third-party processors, acquirers and collection agents for payment settlements. We are obligated to settle pay-in and pay-out transactions regardless of whether we receive payment from the payment processors (including in the event of bankruptcy or other insolvency of payment processors). See “Risk Factors—We are subject to chargeback and refund liability risk when our merchants refuse to or cannot reimburse chargebacks and refunds resolved in favor of their customers. Any increase in chargebacks and refunds not paid by our merchants may adversely affect our business, financial condition or results of

 

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operations.” We carry out credit reviews of new and existing customers before entering into contracts. Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. Our policy is to deposit our cash with financial institutions having a high credit rating.

Exposure to credit risk

The carrying amount of our financial assets represents our maximum credit exposure. Our maximum credit exposure as of December 31, 2020 and 2019 is shown in the following table.

 

     As of December 31,  
     2020      2019  
     (US$)  
     (in thousands)  

Cash and cash equivalents

     111,733        34,765  
  

 

 

    

 

 

 

Financial assets at fair value through profit or loss

     8,319        15,399  

Trade and other receivables

     72,785        25,939  

Other assets

     2,017        1,113  
  

 

 

    

 

 

 

Total

     194,854        77,216  
  

 

 

    

 

 

 

Impairment of financial assets

Our trade and other receivables are our only type of financial asset subject to the expected credit loss model. While cash and cash equivalents are also subject to measurement for impairment under IFRS 9, the impairment identified was immaterial.

We apply the IFRS 9 simplified approach to measure expected credit losses, which uses a lifetime expected loss allowance for all trade and other receivables. To measure the expected credit losses, trade and other receivables have been grouped based on shared credit risk characteristics and the number of days past due. Finally, historical loss experience is adjusted to reflect information about current conditions and reasonable forecasts of future economic conditions.

On that basis, the loss allowance for trade and other receivables as of March 31, 2021 was determined to be US$395 thousand, compared to US$206 thousand as of March 31, 2020. The loss allowance for trade and other receivables as of December 31, 2019 was determined to be US$807 thousand, compared to US$341 thousand as of December 31, 2020.

Liquidity Risk

Liquidity risk relates to maintaining sufficient cash and securities through an adequate amount of committed credit facilities to meet obligations when due and to close out market positions. Our approach to managing liquidity risk is to ensure, to the extent possible, that we maintain sufficient liquidity to meet our liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to our reputation. We invest surplus cash in interest-bearing financial investments, choosing instruments with appropriate maturity or enough liquidity to provide adequate margin as determined by the forecasts. For a presentation of the contractual maturities of our financial obligations, see “—Tabular Disclosure of Contractual Obligations.”

Market Risk

Market risk is the risk that changes in market prices, such as foreign currency and the fair value or future cash flows of a financial instrument fluctuations will affect our income or the value of our holdings of financial instruments. Our objective in market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing returns.

 

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Foreign Currency Risk

We are exposed to currency risk on our balances of monetary amounts denominated in a currency other than the functional currency (U.S. dollar), mainly the Argentinian Peso, Chilean Peso, Euro and the Brazilian Real.

The following table presents our exposure to foreign currency risk in respect of balances of our monetary amounts as well as a sensitivity to a reasonably possible change in U.S. dollar, with all other variables held constant. The impact on our profit before tax is due to changes in the fair value of monetary assets and liabilities.

 

     As of December 31,  
     2020*     2019*  

Cash and cash equivalents

     8,543       6,441  

Trade and other receivables

     37,023       25,331  

Net monetary position

     45,566       31,772  

Exchange rate change

     10.0     10.0

Impact on profit before tax

     4,557       3,177  

 

*

Exposure is presented in thousands of U.S. dollars and relates to monetary items in foreign currency of each entity of dLocal, considering each individual functional currency.

Fraud Risk

Our transactions are susceptible to fraud or improper sales. In order to manage fraud risk we monitor transactions through dLocal Defense, which is a local data-driven prevention program to maximize fraud detection and minimize false positives. This process reviews transactions at the time of authorization, legitimates them and uses external tools that are revised on a periodic basis. In addition, we also use a supplemental process to detect chargebacks and disputes.

Capital management

Our board of directors has established a policy aimed at maintaining a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of our business. The objective of our board of directors is to safeguard the ability of the business to continue as a going concern, so that we can continue to provide returns for shareholders and benefit other stakeholders and to maintain an optimal capital structure to reduce our cost of capital. In order to maintain or adjust the capital structure, we may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Our board of directors monitors our return on capital as well as the level of dividends to ordinary shareholders.

 

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REGULATORY OVERVIEW

We are subject to regulatory authorizations or registration in the jurisdictions in which we operate and conduct our activities, including (i) the jurisdictions of our merchants, the majority of which are located in the European Economic Area, or EEA, or in the United States and/or (ii) the jurisdictions of our merchant’s customers, the majority of which are located in the principal jurisdictions in which we operate, including Brazil, Mexico, Argentina, Chile, Colombia and India. We hold a number of regulatory licenses or registration in several jurisdictions in which we operate. In certain jurisdictions, we have obtained legal and regulatory guidance from regulators or local law firms confirming that no specific regulatory license is required in respect of our operations. In other jurisdictions, we continue to work with regulators to determine whether registration is required or whether an exemption is available. Because the regulation of payment service providers is complex and subject to continuous change, we are subject to a number of risks associated with ongoing regulatory compliance. See “Risk Factors—Risks Relating to Our Business and Industry—Because we are a multinational company conducting a complex business in many markets worldwide, we are subject to legal and operational risks related to staffing and management, as well as a broad array of local legal and regulatory requirements that could adversely affect our operations.,” “Risk Factors—Risks Relating to Our Business and Industry—We may not be able to obtain or maintain the relevant regulatory licenses, permissions or registrations to carry out our business in the various jurisdictions in which we operate, which may subject us to fines, penalties or force us to discontinue operations in such jurisdictions, any of which could have a material adverse effect on our business, financial condition and results of operations,” “Risk Factors—Risks Relating to Our Business and Industry —Complex and enhanced regulatory oversight in the banking and financial services industry could adversely affect our operations or our relationships with our banking partners.,” “Risk Factors—Risks Relating to Our Business and Industry —We are subject to complex and evolving tax regimes in the countries in which we operate and failure to accurately interpret applicable tax laws, or changes in tax laws or changes in existing interpretations of tax laws, could have a material adverse effect on our business and financial condition.”

EEA Regulatory Matters

In the EEA, we are licensed and regulated by the Malta Financial Services Authority (MFSA) as an Electronic Money Issuer, or EMI, and Payment Institution, or PI, which permits us to engage in payments services and the issuance of electronic money under Directive (EU) 2015/2366, commonly referred to as the Payment System Directive 2 (PSD2).

We can currently service EU / EEA merchants (including merchants in the UK) given its so-called “passporting” rights obtained as an EU/ EEA-regulated EMI and PI. In connection with Brexit, there is a risk that we may lose our ability to rely on our license from Malta to serve our UK-based merchants. We have already sought and obtained permission from, the FCA, the UK regulator, to maintain its business in the UK under a temporary permissions regime in place in the UK which enables EEA-based firms currently passporting into the UK to continue new and existing regulated business within the scope of their current permissions in the UK for a period of time. See also “Risk Factors—Risks Relating to Our Business and Industry—The United Kingdom’s departure from the European Union could adversely affect us.”

United States Regulatory Matters

In the United States, our subsidiary dLocal Corp LLP is registered as a Money Services Business, or MSB, with the Financial Crimes Enforcement Network, or FinCEN, at the federal level, and we are therefore subject to a range of regulations in the United States, including anti-money laundering laws and regulations, such as the Bank Secrecy Act, as amended by the USA PATRIOT Act, referred to collectively as the BSA. The BSA, among other things, requires money services businesses to develop and implement risk-based anti-money laundering programs, report large cash transactions and suspicious activity, and maintain transaction records. We are also subject to regulatory oversight and enforcement by FinCEN. We have developed and continue to enhance compliance programs and policies to monitor and address related legal and regulatory requirements and developments relating to the BSA and other anti-money laundering laws.

 

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We do not currently hold any U.S. state-level licenses. At the state level, we generally rely on the “agent of the payee,” or AOTP, or similar “payment processor” exception from the licensing and/or registration requirements applicable at the state level under state laws corresponding to the jurisdictions of our merchants in the United States. In some states, however, the AOTP exception is not expressly established by statute, regulation or regulatory guidance, or such statute, regulations, and guidance are subject to changes and evolving interpretations and applications. In certain U.S. states, but not all, we have obtained specific waivers from the local state regulators to operate our business as presently conducted without obtaining a state license or registration, and in the remainder of U.S. states we have otherwise determined under a risk-based approach that registration as a money transmitter is not currently a mandatory requirement. In some cases, we may use structural arrangements (including by partnering with third-party service providers) designed to prevent us from receiving or controlling our customers’ funds in the United States and therefore mitigate the risk of our activities being subject to U.S. state money transmitter regulation. Prior to commencing operations in such states, we have sought regulatory guidance from local counsel or local regulators regarding our ability to operate in such states without obtaining a license.

Regulatory Matters in the Principal Jurisdictions in which We Operate

We believe we follow the relevant regulatory frameworks in the local jurisdictions in which we operate and have conducted reviews of the regulatory frameworks in the principal jurisdictions in which we operate, including Brazil, Mexico, Argentina, Chile, Colombia and India. In certain of these markets, we are required to maintain a sub-agent that satisfies certain organizational and set up requirements (such as in Brazil), in others, we are required to obtain a regulatory license or registration (such as in Chile, Argentina and Mexico) and, in others, we are required to comply with certain rules.

Argentina

Regulatory licensing

The Argentine Financial Entities Law, or the FEL, regulates “financial intermediation” and empowers the Argentine Central Bank, or BCRA, to regulate financial institutions. However, the FEL only regulates credit intermediation, where depositors or investors raise funds for lending. Because we do not raise money from depositors but instead, only process payments, our Argentine counsel have advised that we do not engage in “financial intermediation” and consequently our operations in Argentina are not required to obtain a license from the BCRA. Also, regulated payment service providers, or PSPs, that offer their customers freely available accounts to make and/or receive payments through specific proprietary payment systems which may transact with banks or other PSPs’ accounts, must be licensed by the BCRA. Because Dlocal Argentina’s operations do not include offering freely available payment accounts, our Argentine counsel have advised that we are not required to obtain a license from the BCRA.

Foreign exchange regulations

Under Argentine law, only banks and “exchange companies” licensed by BCRA are permitted to engage in foreign exchange transactions. Dlocal Argentina conducts any and all conversions of Argentine pesos to a settlement currency through such banks and exchange companies.

Anti-money laundering regulations in Argentina

Our Argentine subsidiary is duly registered with the Financial Information Unit (Unidad de Información Financiera) as a Reporting Entity, under the scope of its Resolution No. 76/2019, since it collects funds on behalf of the Merchants by means of credit and debit card companies.

 

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Brazil

Regulatory licensing

The payments industry in Brazil is regulated by Law No. 12,865, enacted in 2013, and overseen by the Brazilian Central Bank, or BACEN.

Under the applicable BACEN regime, our local entities in Brazil have been organized to provide services in five separate capacities: (1) payment arrangement; (2) payment institution; (3) Brazilian Instant Payments System, or PIX, (4) sub-acquirer and (5) international payment facilitator. The first four listed capacities involve transactions between Brazilian customers and Brazilian merchants. When acting as an international payment facilitator, however, this involves Brazilian customers acquiring goods and services from non-Brazilian merchants.

Currently, we operate with two legal entities in Brazil: (1) Dlocal Brasil Pagamento Ltda., or “Dlocal Brazil”, which acts as a payment arranger, Brazilian PIX payment provider, sub-acquirer, and payment institution, and (2) Demerge Brasil Facilitadora de Pagamento Ltda., or “Demerge Brazil”, which acts as an international payment facilitator.

Payment Arrangement Authorization

Dlocal Brazil is currently set up as a payment arrangement.

Under BACEN regulations, a payment arrangement provides money transfer services by debiting an internal account of a payor and crediting another internal account of a payee.

Dlocal Brazil has been set up as a closed payment arrangement in accordance with the applicable BACEN regulation and related guidelines. Specifically, Dlocal Brazil has adapted its organizational documents to the applicable regulation and has adopted respective policies intended to comply with such BACEN regulation applicable to payment arrangements.

Dlocal Brazil’s activity has not exceeded the payment arrangement thresholds, consequently Dlocal Brazil has not yet obtained or sought BACEN authorization. When any of those requirements are met, BACEN regulation allows Dlocal Brazil to continue processing transactions while its request for authorization is pending.

Payment Institution Authorization

As of the date of this prospectus, Dlocal Brazil is a payment institution in accordance with the requirements of applicable BACEN regulations and related guidelines, but its licensing process remains pending. Specifically, Dlocal Brazil has adapted its organizational documents to the applicable requirements, and has adopted policies intended to facilitate compliance with BACEN rules applicable to payment institutions. Under BACEN regulations, Dlocal Brazil, as a payment institution, (1) creates a payment account for its users, issuing electronic currency and enabling them to carry out prepaid transactions, based on the funds contributed to the user’s account; (2) credits merchants or sellers (receivers) for acceptance of the payment instrument issued by it, and (3) issues and processes payment transactions executed by means of bank slips, as applicable. BACEN regulations permit Dlocal Brazil to continue processing transactions while it is in the licensing process.

A payment institution must be authorized by BACEN to conduct its business when in a consecutive 12-month period, (1) it processes more than R$500 million in payments or (ii) it maintains R$50 million or more in funds in its customer payment accounts. Dlocal Brazil reached the payment institution thresholds on July, 30, 2019, and it timely submitted to BACEN requesting for a formal authorization on October, 30, 2019. Dlocal Brazil is currently waiting for such authorization and such process is taking its normal course.

 

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International Payment Facilitator (Foreign Exchange Transactions)

Demerge Brazil is currently set up as international payment facilitator. This activity, consisting of a foreign exchange model for merchants, does not require a license to operate in Brazil.

Under BACEN regulation, an international payment facilitator enables a customer to purchase goods and services from merchants outside of Brazil by transferring funds to such merchants from the customer’s bank account or credit or debit card, by means of the international payment facilitator, to the non-Brazilian merchant.

BACEN does not require that international payment facilitators obtain any authorization to conduct their business. In its capacity as an international payment facilitator, Demerge Brazil serves only non-Brazilian merchants or marketplaces. On that basis, our Brazilian counsel have advised us that Demerge Brazil is not required to obtain any license from BACEN.

Brazilian Instant Payment Scheme, or PIX

Instant payments are electronic money transfers in which the payment messaging and funds availability for the payee are carried out in real time. The PIX’s centralized and sole settlement infrastructure is the instant payment system, or SPI, which is operated and managed by BACEN. There are two types of participants in SPI: “direct participants”, which settle transactions directly on the settlement platform; and “indirect participants”, whose transactions must be settled by means of a direct participant.

As a payment institution, Dlocal Brazil requested authorization to participate in PIX. On November 16, 2020, Dlocal Brazil received approval to operate within PIX and operates in the SPI as an indirect participant. Such authorization is subject to the development, by Dlocal Brazil, of an app that is authorized by the Brazilian Central Bank by June 1, 2021 and, if Dlocal Brazil is unsuccessful in such development, the company will not be able to operate within PIX. Dlocal Brazil may be a direct participant upon obtaining an authorization as Payment Institution from BACEN.

Sub-acquirer

A sub-acquirer is a participant of the payment arrangement of the card network that enables the receiving end-user to accept a payment instrument issued by a payment institution or by a financial institution participating in the same payment arrangement, but does not participate in the process of settlement of payment transactions as creditor to the issuer.

Dlocal Brazil also acts as a sub-acquirer, processing payments and transmitting the generated data to the other participants in the payment flow, as an intermediary between acquirer and the merchant.

Chile

Regulatory licensing

Under Chilean law, the collection of funds on behalf of merchants that sell digital goods and/or services online to end-users and the delivery of funds on their behalf are permitted activities without the need of getting a special license as we have been advised by our Chilean counsel.

Anti-money laundering regulations in Chile

In order to prevent money laundering and terrorist financing crimes in Chile, the legislation imposes on certain individuals and legal entities the obligation to inform the Financial Analysis Unit, or the UAF, about suspicious operations identified by regulated entities during the exercise of their activities.

 

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In 2019, our entities operating in Chile, or Dlocal Chile, requested the UAF’s opinion on the obligation of Dlocal Chile to register and to report to the UAF, to which the UAF replied that there was only obligation from Dlocal Chile to register and report operations related to local payments service. Accordingly, Dlocal Chile is currently registered with the UAF and reporting transactions (when required).

Foreign exchange

Chilean law requires that any remission of funds abroad or the receipt of foreign funds must be conducted through commercial banks or other regulated financial institutions to the extent that the remission or receipt involves amounts of greater than US$10,000. Dlocal Chile complies with these requirements.

Colombia

Regulatory licensing

Our operations in Colombia, or Dlocal Colombia, do not require any special license as a participant in the financial sector, securities market or insurance sector. Our operations in Colombia do not constitute financial activities because they are not related to the management, use and/or investment or funds procured from the public in a professional manner.

Regulation and supervision of payment gateway administrators in Colombia

Dlocal Colombia acts as payment gateway administrator (entidad administradora de pasarela de pagos) or payment service provider (proveedor de servicios de pago) –both terms are used under Colombian regulations-, under the cumulative model (modelo agregador), in order to be able to store, process and/or transmit payments or transfers made within the low value payment system (sistema de pago de bajo valor) by Colombian residents, either from their deposit products (prepaid or debit cards, e-wallets or ACH Colombia’s Secure Online Payments Button Service) or credit quotas (credit cards), for online sales transactions made to them by merchants, as well as to be able to collect on such merchants behalf the funds resulting from payment orders or transfer of funds in their favor, and to provide such merchants with access technologies that enable the use by Colombian residents of payment instruments in digital environments.

Although payment gateway administrators do not perform financial activities, and are not considered financial institutions nor subject to direct supervision by the Colombian Financial Superintendence, or the SFC, they are subject to the so-called indirect supervision set forth in the basic legal resolution issued by the SFC, which applies to low value payment system administrators (entidades administradoras del sistema de pago de bajo valor) and/or credit institutions (establecimientos de crédito) that enter into an agreement with them in relation to the low value payment system. To exercise such indirect supervision, low value payment system administrators and/or credit institutions must include in the applicable agreement a series of covenants to be complied with by Dlocal Colombia. Low value payment system administrators and credit institutions are financial institutions subject to the regulation and supervision of the SFC. Pursuant to the foregoing, Dlocal Colombia is subject to such indirect supervision, as a payment gateway administrator. Our Colombian counsel have advised us that Dlocal Colombia is not directly bound in its capacity as a payment gateway administrator by any of the provisions of the basic legal resolution, as it is not considered a financial institution subject to direct supervision by the SFC. From a Colombian financial regulatory perspective, the low value payment system administrators and/or the credit institutions that have entered into contracts or agreements with Dlocal Colombia in relation to the low value payment system, are the only parties responsible for compliance with the provisions of the basic legal resolution in relation to payment gateway administrators, and could be subject to fines or other administrative sanctions by the SFC for their noncompliance.

 

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Foreign exchange

Colombian law requires any remittance of funds abroad or the receipt of foreign funds to be (1) reported to the Colombian Central Bank and (2) conducted through commercial banks or other regulated financial institutions. Dlocal Colombia only performs the remittance or receipt of free market funds.

Mexico

Regulatory licensing

As of the date of this prospectus, our Mexican entity, Demerge Mexico, S.A de C.V. or Demerge Mexico, is in the process of being registered as an aggregator with the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores) and the Mexican Central Bank (Banco de México), under which Demerge Mexico will continue providing services to enable payment receivers (Mexican merchants) to accept payments with credit and debit cards, in compliance with the Means of Disposal Networks (Disposiciones de carácter general aplicables a las Redes de Medios de Disposición) and the Transparency and Regulation of Financial Services Law (Ley para la Transparencia y Ordenamiento de los Servicios Financieros).

Our Mexican counsels have advised us that Demerge Mexico does not need a license to be able to operate in Mexico for merchants that market products and services online.

Foreign exchange

Demerge Mexico does not conduct foreign exchange transactions in Mexico. All foreign exchange transactions are carried out through commercial banks and other regulated financial institutions.

India

Regulatory Licensing (System Providers)

Payment and settlement systems in India are regulated by the Payment and Settlement System Act of 2007, or the PSS Act, and the regulator for this purpose is the Reserve Bank of India, or the RBI. The PSS Act generally requires the “system provider” of a “payment system” to obtain authorization from the RBI to function, except for cases where an agent is acting on behalf of a person to whom payment is due. Because our local entity, Depansum, is acting as an agent of Dlocal when collecting funds, it is exempt from obtaining such authorization or a license.

Depansum, acts as our collection and paying agent, and/or for our merchant customers, and it is exempt from obtaining any authorization or license under the PSS Act.

Regulatory Licensing (Payment Aggregators and Intermediaries)

The RBI, as the regulator of payment and settlement systems, has further issued directions and guidelines to regulate online payments. Directions for opening and operation of accounts and settlement of payments for electronic payment transactions involving intermediaries, known as the intermediary’s directions, were issued by the RBI on November 24, 2009, followed by guidelines on regulation of payment aggregators and payment gateways issued by the RBI on March 17, 2020. The latter provides for obtaining authorization to operate as a payment aggregator.

Depansum does not collect money from India residents directly, nor does it transfer money to merchants. It is not involved in any end-user facing verticals of a payment system. It performs the limited function of a payment and collection agent, which is not included in the definition of an “intermediary” as under the intermediary’s directions.

 

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Also, Depansum’s business model relies on payment aggregators, which collect and disburse payments and transact with the end-users on its behalf. Depansum has no dealings directly with the end-users, and it is not considered as a “payment aggregator” or “payment gateway” in terms of payment aggregators and payment gateways guidelines.