MercadoLibre, Inc. Reports Third Quarter 2019 Financial Results

Thursday, 31. October 2019 21:01

Net Revenues of $603.0 million, up 90.5% YoY on an FX neutral basis

$7.6 billion Total Payment Volume, up 94.5% YoY on an FX neutral basis

$3.6 billion Gross Merchandise Volume, up 36.8% YoY on an FX neutral basis

BUENOS AIRES, Argentina, Oct. 31, 2019 (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 September 30, 2019.

Pedro Arnt, Chief Financial Officer of MercadoLibre, Inc., commented, “We continue to make significant inroads in our key strategic initiatives and reached important milestones this quarter both in FinTech and logistics. As we move into the fourth quarter and 2020, we will continue to focus on delivering an ever-improving user experience, adding functionalities to our user base and leveraging our ecosystem’s unique competitive advantages.”

Third Quarter 2019 Business Highlights1

  • Total payment volume (“TPV”) through Mercado Pago reached $7.6 billion, a year-over-year increase of 66.2% in USD and 94.5% on an FX neutral basis. Total payment transactions increased 118.5% year-over-year, totaling 227.0 million transactions for the quarter.
  • Mercado Pago delivered successful execution in off-platform payments (online and offline) through merchant services, mobile point-of-sale (“MPOS”) devices and its mobile wallet business. On a consolidated basis, off-platform TPV grew 140.4% year-over-year in USD and 189.6% on an FX neutral basis.
  • For the first time ever, quarterly off-platform TPV surpassed on-platform TPV, reaching almost $4.0 billion in transactions and 158.3 million payments.
  • Our MPOS business continues to be one of the fastest growing non-marketplace business units. On a consolidated basis, MPOS TPV grew 141.2% year-over-year on an FX neutral basis.
  • Mobile wallet reached almost $1.0 billion in transactions on a consolidated basis. Our mobile wallet consumer base grew by 34.9% compared to the second quarter, reaching 6.1 million active payers during the quarter. TPV from mobile wallet in Argentina, Brazil and Mexico continues to grow by triple digits year-over-year.
  • Our asset management product, Mercado Fondo, is available in Argentina and Brazil, where we offer our entire suite of FinTech solutions: MPOS devices, QR code in-store payments, mobile wallet and asset management. Mercado Fondo has invested over 80% and 50% of customer funds in Mercado Pago in Brazil and Argentina, respectively.
  • Gross merchandise volume (“GMV”) increased, again surpassing the $3 billion mark and reaching $3.6 billion, representing a 21.6% and 36.8% increase in USD and on an FX neutral basis, respectively.
  • Items sold reached 98.0 million, growing 17.3% year-over-year.
  • Unique buyers numbers continue to accelerate, growing 25.7% year-over-year versus 20.8% in the second quarter.
  • Live listings offered on MercadoLibre’s marketplace reached 243.0 million, a 44.5% year-over-year increase.
  • Mobile gross merchandise volume grew 32.4% year-over-year on an FX neutral basis, reaching 65.4% of GMV.
  • Items shipped through Mercado Envios reached 81.2 million, a 47.5% year-over-year increase, driven primarily by optimizations in our free shipping program.

             1 Percentages have been calculated using whole amounts rather than rounded amounts.

The tables below present our gross billings and amounts paid by us in connection with our free shipping service.

The Company presents net revenues net of amounts paid in connection with the Company’s free shipping initiative, when the Company acts as an agent, rather than including these amounts in the cost of net sales, as previously recorded. For the three-month period ended September 30, 2019 the Company incurred $69.9 million of shipping subsidies that have been netted from revenues.

       
   In Millions (*)
    Q3 2019   Q3 2018
 Brazil$441.9 $309.0
GrossArgentina$125.2 $91.2
BillingsMexico$77.9 $39.1
 Others$27.9 $23.6
 Total$672.9 $462.8


       
   In Millions (*)
    Q3 2019   Q3 2018
 Brazil$ (51.9) $ (88.2)
Free ShippingArgentina$ (9.0) $ (7.5)
service costMexico$ (6.6) $ (10.1)
 Others$ (2.4) $ (1.8)
 Total$ (69.9) $ (107.6)


       
       
   In Millions (*)
    Q3 2019   Q3 2018
 Brazil$389.9 $220.8
NetArgentina$116.2 $83.7
RevenuesMexico$71.4 $29.0
 Others$25.5 $21.8
 Total$603.0 $355.3


*The tables above may not total due to rounding.

Third Quarter 2019 Financial Highlights

  • Net revenues for the third quarter were $603.0 million, a year-over-year increase of 69.7% in USD and 90.5% on an FX neutral basis.
  • Enhanced marketplace revenues increased 70.9% year-over-year in USD and 123.9% on an FX neutral basis, while non-marketplace revenues increased 68.6% year-over-year in USD and 120.8% on an FX neutral basis.
  • Gross profit was $284.3 million with a margin of 47.2%, compared to 47.8% in the third quarter of 2018.
  • Total operating expenses were $366.3 million, an increase of 102.7% year-over-year in USD. As a percentage of revenues, operating expenses were 60.7%, compared to 50.9% during the third quarter of 2018. Of the 848 bps of margin compression in operating expenses, 689 bps were the result of an increase in marketing and branding investments and 194 bps were the result of an increase in bad debt from our credits business in Brazil.
  • Our marketing expenses alone increased $51.3 million QoQ during the quarter. The vast majority, $46.2M incremental dollars QoQ were deployed to branding initiatives allocating 60% behind Marketplace and 39% behind Payments.
  • Loss from operations was $81.9 million, compared to a loss of $11.0 million during the third quarter of 2018. As a percentage of revenues, the loss from operations reached 13.6%.
  • Interest income was $28.5 million, a 229.5% increase year-over-year, as a result of the proceeds of the 2028 Convertible Notes and equity offering in 2019, which generated more invested volume and interest gain, and  higher float in Brazil and Argentina.
  • The Company incurred $14.5 million in financial expenses this quarter, mainly attributable to interest expense related to the 2028 Convertible Notes and financial guarantees in Argentina.
  • Foreign exchange gain this quarter was $1.0 million, as a result of the strengthening of the U.S. dollar over our Argentine Peso net liability position in Argentina during the third quarter of 2019.
  • Net loss before taxes was $66.9 million, up from a loss of $14.3 million during the third quarter of 2018.
  • Income tax loss was $79.2 million, mainly as a result of valuation allowances accounted for on certain deferred tax assets in Mexico and Colombia.
  • Net loss was $146.1 million, resulting in basic net loss per share of $2.96, due not only to the increased investment in marketing, but also a valuation allowance on deferred tax assets in Mexico and Colombia which accounted for $91.5 million and $7.2 million, respectively.
  • Operating cash flow was $206.9 million. Net increase in cash, cash equivalents, restricted cash and cash equivalents was $328.6 million, driven by higher proceeds from operating activities and lower proceeds used in investing activities.

The following table summarizes certain key performance metrics for the nine and three months periods ended September 30, 2019 and 2018.

            
  Nine-month Periods Ended
 September 30,(*)
  Three-month Periods Ended
 September 30,(*)
(in millions) 20192018  20192018
            
Number of confirmed registered users at end of period   306.0   248.9    306.0    248.9 
Number of confirmed new registered users during period   38.6   36.7    13.8    14.0 
Gross merchandise volume $ 10,126.1 $ 9,271.8  $ 3,640.7  $ 2,995.2 
Number of successful items sold   269.4   249.1    98.0    83.5 
Number of successful items shipped   214.3   159.6    81.2    54.3 
Total payment volume $ 19,721.7 $ 13,153.8  $ 7,565.2  $ 4,552.4 
Total volume of payments on marketplace $ 9,393.7 $ 8,324.1  $ 3,377.6  $ 2,720.3 
Total payment transactions   552.5   263.7    227.0    103.9 
Unique buyers   36.9   31.5    22.4    17.9 
Unique sellers   9.2   8.9    4.4    4.3 
Capital expenditures $ 100.8 $ 72.1  $ 29.4  $ 25.3 
Depreciation and amortization $ 52.5 $ 33.9  $ 19.5  $ 11.3 

(*) Figures have been calculated using rounded amounts. Growth calculations based on this table may not total due to rounding.

Year-over-year USD Revenue Growth Rates by Quarter

             
             
Consolidated Net Revenues Q3’18  Q4’18 Q1’19 Q2’19 Q3’19 
             
Brazil 25 % 34 %64 %74%77%
             
Argentina (8) % (16) %(8) %14%39%
             
Mexico 152 % 157 %220 %267%146%
             


Year-over-year Local Currency Revenue Growth Rates by Quarter

             
             
Consolidated Net Revenues Q3’18  Q4’18 Q1’19 Q2’19 Q3’19 
             
Brazil 56% 58%91%89%77%
             
Argentina 68% 77%83%115%119%
             
Mexico 168% 170%227%261%153%
             

Conference Call and Webcast

The Company will host a conference call and audio webcast on October 31st, 2019 at 4:30 p.m. Eastern Time. The conference call may be accessed by dialing (877) 303-7209 / (970) 315-0420 (Conference ID –1183947–) and requesting inclusion in the call for MercadoLibre. The live conference call can be accessed via audio webcast at 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

Gross Billings - Total accrued fees, commissions, interest, and other sales received from users.

Foreign Exchange (“FX”) Neutral – Calculated by using the average monthly exchange rate of each month of 2018 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 MercadoLibre 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, excluding shipping and financing fees.

Total payment volume– Measure of total U.S. dollar sum of all transactions paid for using Mercado Pago, including marketplace and non-marketplace transactions.

Enhanced Marketplace - Revenues from the Enhanced Marketplace service, include the final value fees and shipping fees charged to the Company’s customers.

Items sold – Measure of the number of items that were sold/purchased through the MercadoLibre Marketplace, excluding Classifieds items.

Items shipped – Measure of the number of items that were shipped through our shipping service.

Local Currency Growth Rates – Refer to FX Neutral definition.

Net income margin – Defined as net income as a percentage of net revenues.

New confirmed registered users – Measure of the number of new users who have registered on the MercadoLibre Marketplace and confirmed their registration, excluding Classifieds users.

Operating margin – Defined as income from operations as a percentage of net revenues.

Total confirmed registered users – Measure of the cumulative number of users who have registered on the MercadoLibre Marketplace and confirmed their registration, excluding Classifieds users.

Unique Buyers – New or existing users with at least one purchase made in the period, including Classifieds users.

Unique Sellers – New or existing users with at least one new listing in the period, including Classifieds users.

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 online 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 (including online classifieds for motor vehicles, vessels, aircraft, services and real estate), 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, 2018, 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.
Consolidated Balance Sheets
(In thousands of U.S. dollars, except par value)

    
 September 30, December 31,
  2019   2018 
Assets   
Current assets:   
Cash and cash equivalents$ 1,419,934  $ 440,332 
Restricted cash and cash equivalents  37,031    24,363 
Short-term investments (371,572 and 284,317 held in guarantee)  1,726,189    461,541 
Accounts receivable, net  35,791    35,153 
Credit cards receivable, net  288,588    360,298 
Loans receivable, net  176,074    95,778 
Prepaid expenses  17,898    27,477 
Inventory  10,132    4,612 
Other assets  68,993    61,569 
Total current assets  3,780,630    1,511,123 
Non-current assets:   
Long-term investments  3,595    276,136 
Property and equipment, net  220,854    165,614 
Operating lease right-of-use assets  175,022    — 
Goodwill  86,114    88,883 
Intangible assets, net  15,114    18,581 
Deferred tax assets  108,551    141,438 
Other assets  49,461    37,744 
Total non-current assets  658,711    728,396 
Total assets$ 4,439,341  $ 2,239,519 
Liabilities   
Current liabilities:   
Accounts payable and accrued expenses$ 342,433  $ 266,759 
Funds payable to customers  708,716    640,954 
Salaries and social security payable  92,452    60,406 
Taxes payable  39,230    31,058 
Loans payable and other financial liabilities  108,908    132,949 
Operating lease liabilities  17,441    — 
Other liabilities  75,630    34,098 
Total current liabilities  1,384,810    1,166,224 
Non-current liabilities:   
Salaries and social security payable  27,393    23,161 
Loans payable and other financial liabilities  623,114    602,228 
Operating lease liabilities  159,001    — 
Deferred tax liabilities  96,925    91,698 
Other liabilities  11,081    19,508 
Total non-current liabilities  917,514    736,595 
Total liabilities$ 2,302,324  $ 1,902,819 
    
Commitments and Contingencies   
    
Redeemable convertible preferred stock, $0.001 par value, 40,000,000 shares   
authorized, 100,000 shares issued and outstanding at September 30, 2019$ 98,843  $ — 
    
Equity   
    
Common stock, $0.001 par value, 110,000,000 shares authorized,   
49,709,955 and 45,202,859 shares issued and outstanding at September 30,   
2019 and December 31, 2018$ 50  $ 45 
Additional paid-in capital  2,075,693    224,800 
Treasury stock  (720)   — 
Retained earnings  377,590    503,432 
Accumulated other comprehensive loss  (414,439)   (391,577)
Total Equity  2,038,174    336,700 
Total Liabilities, Redeemable convertible preferred stock and Equity$ 4,439,341  $ 2,239,519 


MercadoLibre, Inc.

Consolidated Statements of Income
For the nine and three-month periods ended September 30, 2019 and 2018
(In thousands of U.S. dollars, except for share data)

         
  Nine Months Ended September 30, Three Months Ended September 30,
   2019   2018   2019   2018 
Net revenues $ 1,622,043  $ 1,011,634  $ 603,031  $ 355,281 
Cost of net revenues   (828,267)   (519,410)   (318,689)   (185,563)
Gross profit   793,776    492,224    284,342    169,718 
Operating expenses:        
Product and technology development   (165,787)   (107,311)   (59,495)   (35,478)
Sales and marketing   (564,271)   (342,382)   (252,903)   (110,443)
General and administrative   (147,992)   (111,195)   (53,869)   (34,800)
Total operating expenses   (878,050)   (560,888)   (366,267)   (180,721)
Loss from operations   (84,274)   (68,664)   (81,925)   (11,003)
         
Other income (expenses):        
Interest income and other financial gains   86,590    27,746    28,462    8,636 
Interest expense and other financial losses   (44,689)   (39,805)   (14,451)   (15,869)
Foreign currency (losses) gains   (1,899)   22,102    987    3,924 
Net loss before income tax (loss) gain   (44,272)   (58,621)   (66,927)   (14,312)
         
Income tax (loss) gain   (73,729)   24,372    (79,155)   4,234 
Net loss $ (118,001) $ (34,249) $ (146,082) $ (10,078)


         
  Nine Months Ended September 30, Three Months Ended September 30,
   2019   2018   2019   2018 
Basic EPS        
 Basic net loss        
 Available to shareholders per common share $ (2.60) $ (0.77) $ (2.96) $ (0.23)
Weighted average of outstanding common shares   48,350,165    44,302,724    49,710,723    44,588,704 
Diluted EPS        
Diluted net loss        
Available to shareholders per common share $ (2.60) $ (0.77) $ (2.96) $ (0.23)
Weighted average of outstanding common shares   48,350,165    44,302,724    49,710,723    44,588,704 
         



MercadoLibre, Inc.
Consolidated Statement of Cash Flows
For the nine-month periods ended September 30, 2019 and 2018

     
  Nine Months Ended September 30,
   2019   2018 
   
Cash flows from operations:    
Net loss $ (118,001) $ (34,249)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Unrealized devaluation loss, net   45,857    9,262 
Depreciation and amortization   52,518    33,861 
Accrued interest   (39,550)   (11,258)
Non cash interest, convertible notes amortization of debt discount and amortization of debt issuance costs and other charges   69,769    18,386 
Stock-based compensation expense — restricted shares   214    — 
LTRP accrued compensation   48,313    27,706 
Deferred income taxes   29,640    (75,275)
Changes in assets and liabilities:    
Accounts receivable    1,464    (14,891)
Credit card receivables   65,968    121,896 
Prepaid expenses   9,338    (6,810)
Inventory   (5,939)   (6,015)
Other assets   (24,259)   (17,463)
Payables and accrued expenses   88,918    50,979 
Funds payable to customers   95,079    82,909 
Other liabilities   18,113    6,077 
Interest received from investments   35,375    10,986 
Net cash provided by operating activities   372,817    196,101 
Cash flows from investing activities:    
Purchase of investments   (3,262,637)   (1,814,416)
Proceeds from sale and maturity of investments   2,240,468    1,964,480 
Payment for acquired businesses, net of cash acquired   —    (2,281)
Purchases of intangible assets   (50)   (217)
Advance for property and equipment   —    (4,426)
Changes in principal of loans receivable, net   (150,442)   (55,860)
Purchases of property and equipment   (100,732)   (65,133)
Net cash (used in) provided by investing activities   (1,273,393)   22,147 
Cash flows from financing activities:    
Funds received from the issuance of convertible notes   —    880,000 
Transaction costs from the issuance of convertible notes   —    (16,264)
Purchase of convertible note capped call   (88,362)   (137,476)
Unwind of convertible note capped call   —    121,703 
Payments on convertible notes   (25)   (348,123)
Proceeds from loans payable and other financial liabilities   171,603    156,075 
Payments on loans payable and other financing liabilities   (104,062)   (78,705)
Payment of finance lease obligations   (1,416)   — 
Dividends paid   —    (6,624)
Common Stock repurchased   (720)   — 
Dividends paid of preferred stock   (1,844)   — 
Proceeds from issuance of convertible redeemable preferred stock, net   98,688    — 
Proceeds from issuance of common stock, net   1,867,215    — 
Net cash provided by financing activities   1,941,077    570,586 
Effect of exchange rate changes on cash, cash equivalents, restricted cash and cash equivalents   (48,231)   (99,364)
Net increase in cash, cash equivalents, restricted cash and cash equivalents   992,270    689,470 
Cash, cash equivalents, restricted cash and cash equivalents, beginning of the period $ 464,695  $ 388,260 
Cash, cash equivalents, restricted cash and cash equivalents, end of the period $ 1,456,965  $ 1,077,730 

Financial results of reporting segments

             
   Three Months Ended September 30, 2019
   Brazil Argentina Mexico  Other Countries Total
   (In thousands)
Net revenues $ 389,941   $ 116,203   $ 71,364    $ 25,523   $ 603,031  
Direct costs  (370,704)  (88,542)  (103,517)   (25,845)  (588,608)
Direct contribution  19,237   27,661   (32,153)   (322)  14,423 
             
Operating expenses and indirect costs of net revenues           (96,348)
Loss from operations           (81,925)
             
Other income (expenses):           
 Interest income and other financial gains           28,462 
 Interest expense and other financial losses           (14,451)
 Foreign currency gains           987 
Net loss before income tax loss          $ (66,927)
             


             
   Three Months Ended September 30, 2018
   Brazil Argentina Mexico  Other Countries Total
   (In thousands)
Net revenues $ 220,828   $ 83,714   $ 28,962    $ 21,777   $ 355,281  
Direct costs  (190,172)  (60,409)  (35,229)   (18,822)  (304,632)
Direct contribution  30,656   23,305   (6,267)   2,955   50,649 
             
Operating expenses and indirect costs of net revenues           (61,652)
Loss from operations           (11,003)
             
Other income (expenses):           
 Interest income and other financial gains           8,636 
 Interest expense and other financial losses           (15,869)
 Foreign currency gains           3,924 
Net loss before income tax gain          $ (14,312)


Non-GAAP Financial Measures

To supplement our consolidated financial statements presented in accordance with U.S. GAAP, we use foreign exchange (“FX”) neutral measures.

This non-GAAP measure 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, this non-GAAP measure is 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. This non-GAAP financial measure should only be used to evaluate our results of operations in conjunction with the most comparable U.S. GAAP financial measures.

Reconciliation of this non-GAAP financial measure to the most comparable U.S. GAAP financial measures can be found in the tables included in this quarterly report.

The Company believes that reconciliation of FX neutral measures to the most directly comparable GAAP measure provides investors an overall understanding of our current financial performance and its prospects for the future. Specifically, we believe this non-GAAP measure 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 2018 and applying them to the corresponding months in 2019, 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, this measure does 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 period ended September 30, 2019:

             
  Three-month Periods Ended
September 30, (*)
  As reported FX Neutral Measures As reported  
(In millions, except percentages)  2019   2018  Percentage
Change
  2019   2018  Percentage
Change
  (Unaudited)   (Unaudited)  
Net revenues $ 603.0  $ 355.3  69.7% $ 676.9  $ 355.3  90.5%
Cost of net revenues   (318.7)   (185.6) 71.7%   (364.7)   (185.6) 96.5%
Gross profit   284.3    169.7  67.5%   312.2    169.7  83.9%
             
Operating expenses   (366.3)   (180.7) 102.7%   (432.6)   (180.7) 139.4%
Loss from operations   (81.9)   (11.0) 644.5%   (120.5)   (11.0) 994.7%

(*) The table above may not total due to rounding.

CONTACT: MercadoLibre, Inc.

Investor Relations

investor@mercadolibre.com

http://investor.mercadolibre.com

 

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