MercadoLibre, Inc. Second Quarter 2023 Letter to Shareholders
- Record quarter in Q2’23
- Strong financial performance
- Broad-based profit growth across geographies
- Positive momentum in smaller markets
- Increasing consumer preference and market share in Brazil
- Strong financial results with income from operations doubling year-on-year
- Challenging macro environment in Argentina impacting demand for goods
- Impact of continued depreciation of the Argentine Peso on income and cash flow
- Significant FX losses related to share repurchases in Argentina market
- Slowed Fintech revenue growth
Net Revenues of
Income from operations of
MONTEVIDEO, Uruguay, Aug. 02, 2023 (GLOBE NEWSWIRE) -- MercadoLibre, Inc. (Nasdaq: MELI) (http://www.mercadolibre.com), Latin America’s leading e-commerce technology company, today reported financial results for the quarter ended June 30, 2023.
To our Shareholders
MercadoLibre had another record quarter in Q2’23, demonstrating our increasing ability to drive leverage in our financial model. Income from operations of
Brazil
In Q2’23, MercadoLibre’s independently measured top-of-mind and brand consideration scores reached 2-year and all-time highs (respectively) in Brazil, which is a reflection of the strength of our value proposition and market position. This ever increasing consumer preference is what drives the growth in our GMV, which was
We are seeing solid results from the cohorts of Mercado Pago credit cards that were issued in recent months in Brazil. This gives us confidence that our underwriting for this product has improved, and is enabling us to increase issuance of cards. Our other credit products in Brazil delivered healthy levels of profitability and delinquency, still driven by a continued cautious approach to originations. Credit is an important piece of the value proposition of our digital account, but we are also seeing some encouraging data from other services. For example, the number of people using our remunerated account - which pays interest at
Our Acquiring business in Brazil continues to grow at a healthy rate, albeit a little slower than the prior quarter. We saw a pick-up in the FX-neutral TPV growth of our Merchant Services and QR products, which offset some of the impact of weaker market growth for POS services. That said, POS TPV growth remains robust and based on available data, we believe to have outperformed the market in Q2’23.
Mexico
In Q2’23, Mexico surpassed Argentina as our second-largest Commerce market measured by GMV, even though it has been our second largest market in items sold since the end of 2020. Mexico continues to deliver higher growth in items sold than any of our six largest markets, and this metric accelerated again to reach +
Our credit business in Mexico continues to perform very well, with broadly stable profitability and delinquency in the consumer book, which is growing at an accelerated pace. The penetration of our own credit as a means of payment on the marketplace in Mexico is well above the average of other countries, demonstrating the synergy between our Commerce and Fintech platforms. This helps us develop a deeper understanding of the buyer and their ability to repay, which is useful as we begin the process of developing our credit card product in Mexico following its launch in Q1’23. In Q2’23, we also enabled the purchase of extended warranty insurance products for cross-border purchases.
Our Merchant Services and POS payments processing services in Mexico are growing at high double- and triple- digit rates respectively. TPV per device doubled year-on-year, which reflects our strategy of moving upmarket to serve larger merchants, and higher take-up of a more sophisticated device that attracts merchants with greater transactionality than the more basic devices. Scaling the payments processing business is an important piece of the wider strategy in Mexico to be one of the leaders in the digitalization of cash, which we are pursuing from both the merchant and the individual sides of transactions.
Argentina
The challenging macro environment in Argentina is reducing demand for, and tightening the supply of, goods in the short-term; as such, our Commerce business saw items sold grow by just
Other Countries
We are seeing encouraging signs in some of our smaller markets as a consequence of the investments we have been making to lay the foundations for future growth. In Chile, brand consideration is at its highest level ever, and was market-leading for the second successive quarter. Fulfillment in Chile is enabling same- and next-day deliveries above the MercadoLibre average, and in Q2’23 its penetration reached a new high, with plenty of room for additional growth. Our Acquiring business in Chile continues to scale on the back of the Redelcom acquisition with triple-digit TPV growth (FX-neutral), and we expect to be able to begin the process of offering merchants the full suite of Mercado Pago services following regulatory clearance to proceed with its full integration. All of these points give us confidence that momentum is building in Chile, both in Commerce and in Fintech, and that the country has the potential to be a sizable business for MercadoLibre in the long-term.
Consolidated Results
Our Advertising business had another strong quarter in Q2’23, with FX-neutral revenue growth above
We are pleased with our financial results for Q2’23. Consolidated revenue growth was
Income from operations reached a new quarterly record of
At the country level, direct contribution (DC) growth was particularly strong in Mexico (
Below the income from operations line, interest income rose significantly year-on-year to
With regards to the continued depreciation of the Argentine Peso: if we were to simulate the effect of a devaluation of
US dollars (in millions) | Six Months Ended June 30, 2023 | Twelve Months Ended June 30, 2023 | ||
Net revenues | 1,492 | 2,880 | ||
Cost of net revenues and operating expenses | 1,103 | 2,106 | ||
Looking Ahead
We are pleased to see that our top line growth and profit expansion are broad-based across geographies and business lines. This highlights the tremendous leverage in our financial model as the business scales. Given our optimism about the many growth opportunities that still lie ahead of us, we intend to use some of the headroom created by this operating leverage to lean into certain areas of the business during the second half of the year. We believe that a core component of our success has been our commitment to allocating capital with a long term view. Our goal is to deliver consistent margin improvements, while making sure we are also deploying capital so as to continuously drive above market top line growth that enhances our future scale potential, improves our user’s experience, and seeds future engines of growth. Consequently, we view in a positive light our disciplined approach to re-investing short term margin gains so as to strengthen MercadoLibre’s long-term competitive position. This is another indication of our belief that the best is yet to come.
The following table summarizes certain key performance metrics for the six and three-month periods ended June 30, 2023 and 2022.
Six Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||
(in millions, except percentages) (*) | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Unique active users | 135 | 107 | 109 | 84 | ||||||||||||
Gross merchandise volume | $ | 19,939 | $ | 16,216 | $ | 10,506 | $ | 8,551 | ||||||||
Number of items sold | 634 | 542 | 325 | 275 | ||||||||||||
Number of items shipped | 620 | 518 | 319 | 264 | ||||||||||||
Total payment volume | $ | 79,051 | $ | 55,513 | $ | 42,064 | $ | 30,194 | ||||||||
Total volume of payments on marketplace (**) | $ | 21,024 | $ | 17,090 | $ | 11,074 | $ | 9,019 | ||||||||
Total payment transactions | 4,007 | 2,353 | 2,132 | 1,262 | ||||||||||||
NIMAL (***) | 33.8 | % | 28.0 | % | 36.8 | % | 29.8 | % | ||||||||
Capital expenditures | $ | 203 | $ | 237 | $ | 114 | $ | 100 | ||||||||
Depreciation and amortization | $ | 254 | $ | 184 | $ | 128 | $ | 100 |
(*) Figures have been calculated using rounded amounts. Growth calculations based on this table may not total due to rounding. |
(**) As from January 1, 2022, we no longer disclose our total volume of payments on marketplace net of shipping and financing fees. Given the growth of our shipping and fintech businesses, management believes that including shipping and financing fees in the calculation of total volume of payments on marketplace results in a more accurate indicator of that performance on a go-forward basis. Consequently, total volume of payment on marketplace for the six and three month periods ended June 30, 2022 has been recast to include shipping and financing fees. |
(***) Net interest margins after losses (“NIMAL”) represents the annualized ratio between the total credits revenues less funding costs and provision for doubtful accounts for the period and total average gross loans receivable of the period. Management uses NIMAL to monitor how effectively we are pricing and managing the credit products relative to their risk and setting targets. Accordingly, we believe NIMAL provides useful information to investors and others related to the Company’s risk appetite through the different periods and showing how effectively we are pricing risk. |
Year-over-year USD Revenue Growth Rates by Quarter
Consolidated Net Revenues | Q2’22 | Q3’22 | Q4’22 | Q1’23 | Q2’23 | |||||||||
Brazil | 53 | % | 35 | % | 36 | % | 26 | % | 23 | % | ||||
Argentina | 62 | % | 72 | % | 50 | % | 39 | % | 30 | % | ||||
Mexico | 65 | % | 60 | % | 55 | % | 62 | % | 64 | % | ||||
Commerce | 23 | % | 20 | % | 22 | % | 31 | % | 38 | % | ||||
Fintech | 113 | % | 94 | % | 73 | % | 40 | % | 24 | % |
Gross Merchandise Volume | Q2’22 | Q3’22 | Q4’22 | Q1’23 | Q2’23 | |||||||||
Brazil | 28 | % | 20 | % | 29 | % | 29 | % | 24 | % | ||||
Argentina | 33 | % | 35 | % | 13 | % | 15 | % | 12 | % | ||||
Mexico | 30 | % | 22 | % | 35 | % | 41 | % | 52 | % |
Total Payment Volume | Q2’22 | Q3’22 | Q4’22 | Q1’23 | Q2’23 | |||||||||
On-Platform | 25 | % | 22 | % | 23 | % | 23 | % | 23 | % | ||||
Off-Platform | 105 | % | 71 | % | 58 | % | 57 | % | 46 | % | ||||
Year-over-year Local Currency Revenue Growth Rates by Quarter
Consolidated Net Revenues | Q2’22 | Q3’22 | Q4’22 | Q1’23 | Q2’23 | |||||||||
Brazil | 42 | % | 35 | % | 28 | % | 26 | % | 23 | % | ||||
Argentina | 104 | % | 140 | % | 143 | % | 151 | % | 156 | % | ||||
Mexico | 66 | % | 62 | % | 46 | % | 48 | % | 45 | % | ||||
Commerce | 23 | % | 33 | % | 36 | % | 54 | % | 65 | % | ||||
Fintech | 107 | % | 115 | % | 93 | % | 64 | % | 48 | % |
Gross Merchandise Volume | Q2’22 | Q3’22 | Q4’22 | Q1’23 | Q2’23 | |||||||||
Brazil | 19 | % | 20 | % | 22 | % | 28 | % | 25 | % | ||||
Argentina | 66 | % | 87 | % | 83 | % | 107 | % | 119 | % | ||||
Mexico | 30 | % | 23 | % | 28 | % | 28 | % | 34 | % |
Total Payment Volume | Q2’22 | Q3’22 | Q4’22 | Q1’23 | Q2’23 | |||||||||
On-Platform | 42 | % | 39 | % | 44 | % | 48 | % | 53 | % | ||||
Off-Platform | 135 | % | 122 | % | 121 | % | 121 | % | 129 | % | ||||
Conference Call and Webcast
The Company will host an earnings video as well as a conference call and audio webcast for any questions that investors may have on August 2nd, 2023, at 5:00 p.m. Eastern Time.
In order to access our video webcast and the live audio, investors, analysts and the market in general, may access the following link at https://edge.media-server.com/mmc/p/zrgzoi9j and register to attend the live event.
To participate in our conference call, investors, analysts and the market in general may access the following link at https://register.vevent.com/register/BI3eb2a110fbb24146aacfe5423d272068 to be provided with the dial-in number and personal pin code to join the conference call.
Access to our video webcast and the live audio will be available in the investor relations section of the Company’s website, at http://investor.mercadolibre.com. An archive of the webcast will be available for one week following the conclusion of the conference call.
Definition of Selected Operational Metrics
Unique Active User – New or existing user who performed at least one of the following actions during the reported period: (1) made one purchase, or reservation, or asked one question on MercadoLibre Marketplace or Classified Marketplace (2) maintained an active listing on MercadoLibre Marketplace or Classified Marketplace (3) maintained an active account in Mercado Shops (4) made a payment, money transfer, collection and/or advance using Mercado Pago (5) maintained an outstanding credit line through Mercado Credito or (6) maintained a balance of more than
Unique Fintech User – Users who engage in at least one of the following services within the quarter: wallet payments online, in app or in store; transfers; withdrawals; consumer or merchant credit borrowers; card users; fintech sellers; and fintech active products such as asset management and insurtech users.
Foreign Exchange (“FX”) Neutral – Calculated by using the average monthly exchange rate of each month of 2022 and applying it to the corresponding months in the current year, so as to calculate what the results would have been had exchange rates remained constant. Intercompany allocations are excluded from this calculation. These calculations do not include any other macroeconomic effect such as local currency inflation effects or any price adjustment to compensate local currency inflation or devaluations.
Gross merchandise volume – Measure of the total U.S. dollar sum of all transactions completed through the Mercado Libre Marketplace, excluding Classifieds transactions.
Total payment transactions – Measure of the number of all transactions paid for using Mercado Pago.
Total volume of payments on marketplace – Measure of the total U.S. dollar sum of all marketplace transactions paid for using Mercado Pago.
Total payment volume – Measure of total U.S. dollar sum of all transactions paid for using Mercado Pago, including marketplace and non-marketplace transactions.
MPOS – Mobile point-of-sale is a dedicated wireless device that performs the functions of a cash register or electronic point-of-sale terminal wirelessly.
Commerce – Revenues from core marketplace fees, shipping fees, first-party sales, ad sales, classified fees and other ancillary services.
Fintech – Revenues includes fees from off-platform transactions, financing fees, interest earned from merchant and consumer credits and sale of MPOS.
Items sold – Measure of the number of items that were sold/purchased through the Mercado Libre Marketplace, excluding Classifieds items.
Items shipped – Measure of the number of items that were shipped through our shipping service.
G&A - General and administrative expenses
Local Currency Growth Rates – Refer to FX Neutral definition.
Net income margin – Defined as net income as a percentage of net revenues.
Operating margin – Defined as income from operations as a percentage of net revenues.
Net Interest Margins After Losses (NIMAL) – NIMAL is the spread between credit revenues and the expenses associated with provisions for doubtful accounts and funding costs, and usually expressed as a percentage of the average portfolio for the period.
Non-performing loan (NPL) ratio - Shows the percentage of the loan portfolio that is not being paid on-time.
About MercadoLibre
Founded in 1999, MercadoLibre is the largest online commerce ecosystem in Latin America, serving as an integrated regional platform and as a provider of the necessary digital and technology-based tools that allow businesses and individuals to trade products and services in the region. The Company enables commerce through its marketplace platform which allows users to buy and sell in most of Latin America.
The Company is listed on NASDAQ (Nasdaq: MELI) following its initial public offering in 2007.
For more information about the Company visit: http://investor.mercadolibre.com
The MercadoLibre, Inc. logo is available at https://resource.globenewswire.com/Resource/Download/6ab227b7-693f-4b17-b80c-552ae45c76bf?size=0
Forward-Looking Statements
Any statements herein regarding MercadoLibre, Inc. that are not historical or current facts are forward-looking statements. These forward-looking statements convey MercadoLibre, Inc.’s current expectations or forecasts of future events. Forward-looking statements regarding MercadoLibre, Inc. involve known and unknown risks, uncertainties and other factors that may cause MercadoLibre, Inc.’s actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Certain of these risks and uncertainties are described in the “Risk Factors,” “Forward-Looking Statements” and “Cautionary Note Regarding Forward-Looking Statements” sections of MercadoLibre, Inc.’s annual report on Form 10-K for the year ended December 31, 2022, and any of MercadoLibre, Inc.’s other applicable filings with the Securities and Exchange Commission. Unless required by law, MercadoLibre, Inc. undertakes no obligation to publicly update or revise any forward-looking statements to reflect circumstances or events after the date hereof.
MercadoLibre, Inc. - Interim Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022
(In millions of U.S. dollars, except par value) (Unaudited)
June 30, 2023 | December 31, 2022 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 1,860 | $ | 1,910 | |||
Restricted cash and cash equivalents | 1,964 | 1,453 | |||||
Short-term investments | 2,839 | 2,339 | |||||
Accounts receivable, net | 160 | 130 | |||||
Credit card receivables and other means of payments, net | 2,835 | 2,946 | |||||
Loans receivable, net of allowances of | 2,051 | 1,704 | |||||
Prepaid expenses | 55 | 38 | |||||
Inventories | 236 | 152 | |||||
Customer crypto-assets safeguarding assets | 21 | 15 | |||||
Other assets | 269 | 266 | |||||
Total current assets | 12,290 | 10,953 | |||||
Non-current assets: | |||||||
Long-term investments | 149 | 322 | |||||
Loans receivable, net of allowances of | 76 | 32 | |||||
Property and equipment, net | 1,090 | 993 | |||||
Operating lease right-of-use assets | 779 | 656 | |||||
Goodwill | 166 | 153 | |||||
Intangible assets, net | 22 | 25 | |||||
Deferred tax assets | 348 | 346 | |||||
Other assets | 323 | 256 | |||||
Total non-current assets | 2,953 | 2,783 | |||||
Total assets | $ | 15,243 | $ | 13,736 | |||
Liabilities | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | 1,831 | $ | 1,393 | |||
Funds payable to customers | 3,734 | 3,454 | |||||
Amounts payable due to credit and debit card transactions | 585 | 483 | |||||
Salaries and social security payable | 394 | 401 | |||||
Taxes payable | 447 | 414 | |||||
Loans payable and other financial liabilities | 2,286 | 2,131 | |||||
Operating lease liabilities | 166 | 142 | |||||
Customer crypto-assets safeguarding liabilities | 21 | 15 | |||||
Other liabilities | 152 | 129 | |||||
Total current liabilities | 9,616 | 8,562 | |||||
Non-current liabilities: | |||||||
Amounts payable due to credit and debit card transactions | 56 | 5 | |||||
Loans payable and other financial liabilities | 2,481 | 2,627 | |||||
Operating lease liabilities | 595 | 514 | |||||
Deferred tax liabilities | 112 | 106 | |||||
Other liabilities | 131 | 95 | |||||
Total non-current liabilities | 3,375 | 3,347 | |||||
Total liabilities | $ | 12,991 | $ | 11,909 | |||
Commitments and contingencies | |||||||
Equity | |||||||
Common stock, | $ | — | $ | — | |||
Additional paid-in capital | 2,309 | 2,309 | |||||
Treasury stock | (1,138 | ) | (931 | ) | |||
Retained earnings | 1,376 | 913 | |||||
Accumulated other comprehensive loss | (295 | ) | (464 | ) | |||
Total Equity | 2,252 | 1,827 | |||||
Total Liabilities and Equity | $ | 15,243 | $ | 13,736 | |||
MercadoLibre, Inc.
Interim Condensed Consolidated Statements of Income
For the six and three-month periods ended June 30, 2023 and 2022
(In millions of U.S. dollars, except for share data) (Unaudited)
Six Months Ended June 30, | Three Months Ended June 30, | ||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||
Net service revenues | $ | 5,814 | $ | 4,329 | $ | 3,051 | $ | 2,332 | |||||||
Net product revenues | 638 | 516 | 364 | 265 | |||||||||||
Net revenues | 6,452 | 4,845 | 3,415 | 2,597 | |||||||||||
Cost of net revenues | (3,196 | ) | (2,488 | ) | (1,695 | ) | (1,313 | ) | |||||||
Gross profit | 3,256 | 2,357 | 1,720 | 1,284 | |||||||||||
Operating expenses: | |||||||||||||||
Product and technology development | (749 | ) | (496 | ) | (368 | ) | (262 | ) | |||||||
Sales and marketing | (766 | ) | (583 | ) | (383 | ) | (296 | ) | |||||||
Provision for doubtful accounts | (474 | ) | (557 | ) | (222 | ) | (303 | ) | |||||||
General and administrative | (369 | ) | (332 | ) | (189 | ) | (173 | ) | |||||||
Total operating expenses | (2,358 | ) | (1,968 | ) | (1,162 | ) | (1,034 | ) | |||||||
Income from operations | 898 | 389 | 558 | 250 | |||||||||||
Other income (expenses): | |||||||||||||||
Interest income and other financial gains | 349 | 77 | 188 | 46 | |||||||||||
Interest expense and other financial losses | (186 | ) | (129 | ) | (92 | ) | (73 | ) | |||||||
Foreign currency losses, net | (269 | ) | (63 | ) | (182 | ) | (60 | ) | |||||||
Net income before income tax expense and equity in earnings of unconsolidated entity | 792 | 274 | 472 | 163 | |||||||||||
Income tax expense | (332 | ) | (85 | ) | (210 | ) | (39 | ) | |||||||
Equity in earnings of unconsolidated entity | 3 | (1 | ) | — | (1 | ) | |||||||||
Net income | $ | 463 | $ | 188 | $ | 262 | $ | 123 |
Six Months Ended June 30, | Three Months Ended June 30, | ||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||
Basic earning per share | |||||||||||
Basic net income | |||||||||||
Available to shareholders per common share | $ | 9.23 | $ | 3.73 | $ | 5.22 | $ | 2.43 | |||
Weighted average of outstanding common shares | 50,203,652 | 50,386,519 | 50,162,687 | 50,364,529 | |||||||
Diluted earning per share | |||||||||||
Diluted net income | |||||||||||
Available to shareholders per common share | $ | 9.12 | $ | 3.73 | $ | 5.16 | $ | 2.43 | |||
Weighted average of outstanding common shares | 51,193,920 | 50,386,519 | 51,152,955 | 50,364,529 | |||||||
MercadoLibre, Inc.
Interim Condensed Consolidated Statements of Cash Flows
For the six-month periods ended June 30, 2023 and 2022 (In millions of U.S. dollars) (Unaudited)
Six Months Ended June 30, | |||||||
2023 | 2022 | ||||||
Cash flows from operations: | |||||||
Net income | $ | 463 | $ | 188 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Equity in earnings of unconsolidated entity | (3 | ) | 1 | ||||
Unrealized foreign currency losses, net | 305 | 134 | |||||
Impairment of digital assets | — | 11 | |||||
Depreciation and amortization | 254 | 184 | |||||
Accrued interest income | (147 | ) | (65 | ) | |||
Non cash interest expense, convertible notes amortization of debt discount and amortization of debt issuance costs and other charges | 117 | 154 | |||||
Provision for doubtful accounts | 474 | 557 | |||||
Results on derivative instruments | 21 | 22 | |||||
Long term retention program (“LTRP”) accrued compensation | 83 | 35 | |||||
Deferred income taxes | 24 | (67 | ) | ||||
Changes in assets and liabilities: | |||||||
Accounts receivable | (38 | ) | (32 | ) | |||
Credit card receivables and other means of payments | 200 | (642 | ) | ||||
Prepaid expenses | (14 | ) | (36 | ) | |||
Inventories | (66 | ) | 81 | ||||
Other assets | (33 | ) | (81 | ) | |||
Payables and accrued expenses | 308 | 32 | |||||
Funds payable to customers | 119 | 119 | |||||
Amounts payable due to credit and debit card transactions | 127 | 80 | |||||
Other liabilities | (47 | ) | (55 | ) | |||
Interest received from investments | 124 | 54 | |||||
Net cash provided by operating activities | 2,271 | 674 | |||||
Cash flows from investing activities: | |||||||
Purchases of investments | (10,046 | ) | (6,190 | ) | |||
Proceeds from sale and maturity of investments | 9,923 | 5,043 | |||||
Payments from settlements of derivative instruments | (14 | ) | (7 | ) | |||
Purchases of intangibles assets | — | (1 | ) | ||||
Changes in principal loans receivable, net | (866 | ) | (1,170 | ) | |||
Investments of property and equipment | (203 | ) | (236 | ) | |||
Net cash used in investing activities | (1,206 | ) | (2,561 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from loans payable and other financial liabilities | 12,317 | 7,315 | |||||
Payments on loans payable and other financing liabilities | (12,569 | ) | (6,646 | ) | |||
Payments of finance lease obligations | (13 | ) | (9 | ) | |||
Common Stock repurchased | (207 | ) | (74 | ) | |||
Net cash (used in) provided by financing activities | (472 | ) | 586 | ||||
Effect of exchange rate changes on cash, cash equivalents, restricted cash and cash equivalents | (132 | ) | (94 | ) | |||
Net increase (decrease) in cash, cash equivalents, restricted cash and cash equivalents | 461 | (1,395 | ) | ||||
Cash, cash equivalents, restricted cash and cash equivalents, beginning of the period | 3,363 | 3,648 | |||||
Cash, cash equivalents, restricted cash and cash equivalents, end of the period | $ | 3,824 | $ | 2,253 | |||
Financial results of reporting segments
Three Months Ended June 30, 2023 | |||||||||||||||||||
Brazil | Argentina | Mexico | Other Countries | Total | |||||||||||||||
(In millions) | |||||||||||||||||||
Net revenues | $ | 1,780 | $ | 771 | $ | 703 | $ | 161 | $ | 3,415 | |||||||||
Direct costs | (1,331 | ) | (436 | ) | (524 | ) | (148 | ) | (2,439 | ) | |||||||||
Direct contribution | 449 | 335 | 179 | 13 | 976 | ||||||||||||||
Operating expenses and indirect costs of net revenues | (418 | ) | |||||||||||||||||
Income from operations | 558 | ||||||||||||||||||
Other income (expenses): | |||||||||||||||||||
Interest income and other financial gains | 188 | ||||||||||||||||||
Interest expense and other financial losses | (92 | ) | |||||||||||||||||
Foreign currency losses, net | (182 | ) | |||||||||||||||||
Net income before income tax expense and equity in earnings of unconsolidated entity | $ | 472 |
Three Months Ended June 30, 2022 | |||||||||||||||||||
Brazil | Argentina | Mexico | Other Countries | Total | |||||||||||||||
(In millions) | |||||||||||||||||||
Net revenues | $ | 1,451 | $ | 594 | $ | 428 | $ | 124 | $ | 2,597 | |||||||||
Direct costs | (1,198 | ) | (372 | ) | (363 | ) | (117 | ) | (2,050 | ) | |||||||||
Direct contribution | 253 | 222 | 65 | 7 | 547 | ||||||||||||||
Operating expenses and indirect costs of net revenues | (297 | ) | |||||||||||||||||
Income from operations | 250 | ||||||||||||||||||
Other income (expenses): | |||||||||||||||||||
Interest income and other financial gains | 46 | ||||||||||||||||||
Interest expense and other financial losses | (73 | ) | |||||||||||||||||
Foreign currency losses, net | (60 | ) | |||||||||||||||||
Net income before income tax expense and equity in earnings of unconsolidated entity | $ | 163 | |||||||||||||||||
Non-GAAP Measures of Financial Performance
To supplement our unaudited interim condensed consolidated financial statements presented in accordance with U.S. GAAP, we present earnings before interest income and other financial gains, interest expense and other financial losses, foreign currency losses, income tax expense, depreciation and amortization and equity in earnings of unconsolidated entity (“Adjusted EBITDA”), net debt and foreign exchange (“FX”) neutral measures as non-GAAP measures. Reconciliation of these non-GAAP financial measures to the most comparable U.S. GAAP financial measures can be found in the tables below.
These non-GAAP measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with U.S. GAAP. These non-GAAP financial measures should only be used to evaluate our results of operations in conjunction with the most comparable U.S. GAAP financial measures.
We believe that reconciliation of these non-GAAP measures to the most directly comparable GAAP measure provides investors an overall understanding of our current financial performance and its prospects for the future.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that represents our net income, adjusted to eliminate the effect of depreciation and amortization charges, interest income and other financial gains, interest expense and other financial losses, foreign currency losses, income tax expense and equity in earnings of an unconsolidated entity. We have included this non-GAAP financial measure because it is used by our Management to evaluate our operating performance and trends, make strategic decisions and the calculation of leverage ratios. Accordingly, we believe this measure provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our Management. In addition, it provides a useful measure for period-to-period comparisons of our business, as it removes the effect of certain items.
The following table presents a reconciliation of net income to Adjusted EBITDA for the period indicated (in millions of U.S. dollars):
Three Months Ended June 30, | |||||||
2023 | 2022 | ||||||
Net income | $ | 262 | $ | 123 | |||
Adjustments: | |||||||
Depreciation and amortization | 128 | 100 | |||||
Interest income and other financial gains | (188 | ) | (46 | ) | |||
Interest expense and other financial losses | 92 | 73 | |||||
Foreign currency losses, net | 182 | 60 | |||||
Income tax expense | 210 | 39 | |||||
Equity in earnings of unconsolidated entity | — | 1 | |||||
Adjusted EBITDA | $ | 686 | $ | 350 | |||
Net debt
We define net debt as total debt which includes current and non-current loans payable and other financial liabilities and current and non-current operating lease liabilities, less cash and cash equivalents, short-term investments and long-term investments, excluding foreign government debt securities held in guarantee, securitization transactions and equity securities held at cost. We have included this non-GAAP financial measure because it is used by our Management to analyze our current leverage ratios and set targets to be met, which will also impact other components of the Company’s balance sheet, cash flows and income statement. Accordingly, we believe this measure provides useful information to investors and other market participants in showing the evolution of the Company’s indebtedness and its capability of repayment as a means to, alongside other measures, monitor our leverage based on widely-used measures.
The following table presents a reconciliation of net debt for each of the periods indicated (in millions of U.S. dollars):
June 30, 2023 | December 31, 2022 | ||||
Current Loans payable and other financial liabilities | $ | 2,286 | $ | 2,131 | |
Non-current Loans payable and other financial liabilities | 2,481 | 2,627 | |||
Current Operating lease liabilities | 166 | 142 | |||
Non-current Operating lease liabilities | 595 | 514 | |||
Total debt | $ | 5,528 | $ | 5,414 | |
Less: | |||||
Cash and cash equivalents | $ | 1,860 | $ | 1,910 | |
Short-term investments (1) | 1,440 | 1,120 | |||
Long-term investments (2) | 68 | 245 | |||
Net debt | $ | 2,160 | $ | 2,139 |
(1) Excludes foreign government debt securities held in guarantee and investments held in VIEs as a consequence of securitization transactions.
(2) Excludes investments held in VIEs as a consequence of securitization transactions and equity securities held at cost.
FX neutral
We believe that FX neutral measures provide useful information to both Management and investors by excluding the foreign currency exchange rate impact that may not be indicative of our core operating results and business outlook.
The FX neutral measures were calculated by using the average monthly exchange rates for each month during 2022 and applying them to the corresponding months in 2023, so as to calculate what our results would have been had exchange rates remained stable from one year to the next. The table below excludes intercompany allocation FX effects. Finally, these measures do not include any other macroeconomic effect such as local currency inflation effects, the impact on impairment calculations or any price adjustment to compensate local currency inflation or devaluations.
The following table sets forth the FX neutral measures related to our reported results of the operations for the three-month periods ended June 30, 2023 (in millions of U.S. dollars, except for percentages):
Three Months Ended June 30, | ||||||||||||||||||||||
As reported | FX Neutral Measures | As reported | ||||||||||||||||||||
(In millions, except percentages) | 2023 | 2022 | Percentage Change | 2023 | 2022 | Percentage Change | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||
Net revenues | $ | 3,415 | $ | 2,597 | 31.5 | % | $ | 4,083 | $ | 2,597 | 57.2 | % | ||||||||||
Cost of net revenues | (1,695 | ) | (1,313 | ) | 29.1 | % | (1,973 | ) | (1,313 | ) | 50.3 | % | ||||||||||
Gross profit | 1,720 | 1,284 | 34.0 | % | 2,110 | 1,284 | 64.3 | % | ||||||||||||||
Operating expenses | (1,162 | ) | (1,034 | ) | 12.4 | % | (1,422 | ) | (1,034 | ) | 37.5 | % | ||||||||||
Income from operations | $ | 558 | $ | 250 | 123.2 | % | $ | 688 | $ | 250 | 175.2 | % | ||||||||||
CONTACT: MercadoLibre, Inc.
Investor Relations
investor@mercadolibre.com
http://investor.mercadolibre.com
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