Buenos Aires — This Tuesday, shares of Uruguay’s dLocal (DLO), a fintech company focused on cross-border payments in emerging markets, had closed approximately 30% below their price in December 2022, when Muddy Waters, a US hedge fund, made public a short position in the company.
That’s almost the same percentage by which it surged yesterday, following the announcement that former MercadoLibre CFO, Pedro Arnt, would be joining the dLocal.
The Muddy Waters short isn’t the only controversy that the technology company, founded in 2016 by Sergio Fogel and Andrés Bzurovski, has had to face over the last year. In May, Argentine tax authorities revealed they would probe into dLocal’s alleged capital flight maneuvers from the country.
Fogel, who has categorically denied both accusations on balance sheet inconsistencies by Muddy Waters and any wrongdoing in Argentina, announced in June that he would take on a broader managerial role in the company. In his words, adding his “experience to management” would serve as a “guarantee for customers and investors.”
With dLocal looking to move on, on Tuesday the company reported its second-quarter earnings results with a special announcement: Arnt would be joining as co-CEO, only a week after confirming his resignation after 11 years MercadoLibre’s CFO. The executive will form a new leadership duo in the Uruguayan firm alongside Sebastián Kanovich, who was appointed in 2016.
“What I have learned in these years of interacting with capital markets, first and foremost, is that you have to let your results speak for you,” Arnt affirmed in a joint interview with Fogel.
During the second quarter of 2023, dLocal reported a Total Payment Volume of $4.4 billion, up 80% year-over-year and 22%, quarter-on-quarter. Revenue was $161 million, or 59% more than in the year-ago period, as wekk ass a 17% increase from the previous quarter. Additionally, the adjusted EBITDA was $52 million, marking a 36% year-over-year increase and a 14% increase from the January-March period.
But there’s more news on dLocal this week: Bloomberg News reported Monday that the company is assessing acquisition offers. On this matter, the executives chose not to comment, only stating that they would assess proposals if they arise.
The following interview has been edited for length and clarity.
How long had you been talking to Pedro about bringing him into this role, and why did you seek him out?
Sergio Fogel: Not long, about a month and a bit. Originally, the plan was different, but when we started interacting with him, we saw everything he could bring to the company, all the experience he had in scaling to a much larger size than ours, and we saw how well we interacted and how well we could work together. Obviously, we knew each other from before, and at one point, we said, “He might be the person we need to strengthen our senior management team.”
What will be your main objectives in this new phase for dLocal?
Pedro Arnt: dLocal is a company that is performing incredibly well. Look at the results we announced today [on Tuesday, August 15th]. Our largest market, Brazil, doubled year over year. Some of the newer markets, like our Africa-Asia geography, grew 2.5x. So, the challenge here is not, as some mistakenly think, that something needs fixing. What needs to be done here is preparing this organization for its own success, for sustained growth at these levels. And I believe that in the last 24 years, I had the privilege of building and witnessing how technology scaled up like few others have in the region. That’s my main mandate: to ensure that all the good dLocal is doing in terms of results for our clients can scale 2x, 5x, 10x in volume.
Your move, after such a long time at MercadoLibre, was quite surprising. What attracted you to dLocal?
P.A: When one looks at this asset, as a former CFO who analyzes companies extensively, this one has an addressable market that is enormous, and in the digital world, nothing will grow more in the coming years than the emerging markets where we operate. It has a client portfolio that includes many of the largest technology companies in the world, and that tells me two things: there’s a lot of growth potential, but more importantly – and this is often overlooked – dLocal’s technology is used by the most demanding merchants in the world, and very few of them leave us. It has a culture highly focused on doing whatever it takes to help our merchants grow, and that was very appealing to me. Lastly, it has a financial model that’s quite rare nowadays, characterized by high growth, high margins, and high cash generation. This asset is truly a gem.
And how will you divide your roles as co-CEOs with Sebastián Kanovich? It’s not very common to have two CEOs. Can we call this a transition?
P.A: We haven’t discussed a transition. When you look at our profiles, you quickly realize that we are very complementary, and that has been confirmed throughout this process. There’s a lot to do at dLocal, so we’re not short on tasks. Precisely because of our complementarity and chemistry, we realized that this isn’t a matter of titles or organizational structures, but about rolling up our sleeves together to continue building the best possible company. So, we are comfortable that the co-CEO model is the best for dLocal for now.
Since December, when Muddy Waters shorted you and practically accused your business model of being fraudulent, your stock has fallen more than30% as of today [Tuesday, August 15]. Do you believe you have regained the trust of investors after that incident and the investigation in Argentina?
P.A.: What I’ve learned over the years of interacting with the capital markets is that, first, you have to let your results speak for themselves. And the results of this company over the last year have been stellar. Second, trust is built in the long term, strategies are built in the long term, and that’s what we’re going to do. I don’t know if we have regained trust or not, but I trust that if we continue to deliver the results we’ve been delivering, that’s what matters to an investor. And above all, what matters most to us is the trust of our clients. As we always say here, our clients are using more and more services and asking us to accompany them in growing their businesses in more and more countries.
General Atlantic is one of your shareholders and is buying another company that was listed on the Nasdaq. Could something similar happen with you?
S.F: I mean, if options like that come up, we will evaluate them. I can’t comment more than that.
P.A: We have a fiduciary obligation to our shareholders, but it’s like any other public company.
Could you comment on the rumors of a sale that emerged yesterday [Monday, August 14]?
S.F: As a policy, we don’t comment on rumors.
You’ve had sustained growth over the last three years, despite a rising interest rate cycle that is now starting to close. Is it possible to see some kind of slowdown in that pace? S.F: We have four different growth vectors. One is that our clients grow in the markets they are in, and the volume they transact grows. So, if I didn’t do anything, I should keep growing alongside my clients. In addition to that, obviously, we have a sales force that adds more and more clients. The third factor, the third dimension of growth we have, is adding new geographies as our clients request them. And the fourth growth factor is adding new products. So, in comparison with these four growth-driving factors, what might go up or down based on interest rates or exchange rates, economic cycles, at this stage, not yet.
So, you don’t foresee a slowdown in the pace of growth you’ve been experiencing?
P.A: We maintained our annual guidance that we had provided, which implies that we believe we will reach the numbers we had forecasted at the beginning of the year. We haven’t changed our annual guidance.
