DLO

• Overall Business Traction

  • TPV growth has stayed above 50% year-over-year for seven consecutive quarters, with the last three quarters above 70% growth, reaching the highest year-over-year rate in over four years.
  • Over 760 leading global merchants partner with dLocal, including 4 of the largest ride-hailing companies, 5 of the top 10 e-commerce platforms, all 5 top video streaming platforms, and 7 of the 10 largest remittance companies operating in emerging markets.
  • Several large Tier Zero merchants had significant volume ramp-ups in core markets Brazil and Argentina this quarter, demonstrating remaining large growth opportunities even in established markets, and merchants continue rapid expansion into new geographies.

• Core Strategic Priorities

  1. Broaden product offerings and continuously invest in platform performance through optimization capabilities, which management identifies as the most important driver of long-term growth.
  2. Embed AI and automation across all business functions: over 60% of company code is now AI-generated, doubling engineering deployment volume year-over-year and reducing software development lead times, supporting 80%+ H1 TPV growth with broadly stable overall headcount. Management expects cost structure improvements from automation to become increasingly visible in H2 2026.
  3. Expand value-added services to create new revenue streams: the upcoming DMORE merchant of record solution will act as the legal seller for clients, enabling a more comprehensive go-to-market offering, and the Buy Now Pay Later offering is now live in 8 markets and continues to expand.

• Operational Updates

  • The company has repurchased 6.9 million Class A shares for $86 million under the $300 million share repurchase program authorized in March 2026, all of which have been cancelled.
  • Headcount remained broadly stable sequentially, with gross profit per employee increasing. No material headcount increases are expected for the full year 2026.
  • The normalized effective tax rate for H1 2026, excluding one-off adjustments, is 15%. The OECD Pillar 2 framework is expected to put upward pressure on the effective tax rate starting in 2027, though the ultimate impact cannot yet be quantified.

• Management raised full-year 2026 TPV growth guidance to 60% to 70% year-over-year, up from the prior range, reflecting stronger-than-expected broad-based momentum across verticals and geographies.
• Management also raised full-year 2026 gross profit growth guidance to 25% to 30% year-over-year, driven by stronger than forecast volume growth and large merchant ramp-ups.
• Full-year 2026 operating profit growth guidance is maintained at 27.5% to 32.5% year-over-year. Management notes that the guidance would have been raised if adjusting for the $4.4 million non-recurring prior year tax item booked in Q1 and unexpected FX headwinds that impact full year results, so the current range reflects a cautious approach to balancing near-term cost discipline and long-term investment needs.
• Management expects operating leverage improvements to become increasingly visible in H2 2026, as front-loaded H1 investments fade and automation/AI initiatives are fully deployed.

dLocal reports overall Q2 2026 Total Payment Volume (TPV) of $17.7 billion, up 92% year-over-year. Gross profit reached $127 million, up 29% year-over-year and 7% sequentially. Operating profit hit $64 million, up 15% year-over-year and 22% sequentially, representing 50% of gross profit (up 6 percentage points quarter-over-quarter). Net income was $55 million, up 28% year-over-year, with diluted EPS of 18 cents. Adjusted free cash flow was $69 million, up 41% year-over-year, with 125% conversion of net income to adjusted free cash flow in Q2 and 86% conversion for H1 2026.

By region:

• Brazil: Record gross profit of $40 million, driven by ride-hailing and travel merchant ramp-up and sustained e-commerce growth.
• Argentina: Record gross profit of $20 million, driven by broad-based growth across e-commerce, ride-hailing, and on-demand delivery, plus lower advancement costs.
• Rest of Latin America: Gross profit grew 6% sequentially and 32% year-over-year; Mexico saw strong TPV growth but modest sequential gross profit decline due to mix shift to local-to-local volumes and large merchants moving to lower tiered pricing, plus higher processing costs as a percentage of TPV.
• Africa and Asia: Gross profit declined sequentially.

By business mix: Local-to-local flows reached 61% of TPV, up 6 percentage points from Q1, driven primarily by growth in ride-hailing and on-demand delivery, which are inherently local-to-local businesses. By vertical, ride hailing was the largest contributor to sequential growth, with one large global merchant as a key driver, plus meaningful expansion from multiple ride hailing and on-demand delivery merchants. Travel, remittances, e-commerce, SaaS, and advertising also contributed to growth, while financial services saw modest growth impacted by seasonal trends for LATAM travel-related merchants.

• TPV growth acceleration creates more difficult year-over-year comparisons in H2 2026 and 2027, which may slow reported growth rates relative to the exceptionally strong Q2 2026 performance.
• Emerging markets have inherent macroeconomic and currency volatility that creates unpredictable swings in FX spreads and profitability across regional markets, with unexpected pockets of volatility impacting results quarter-to-quarter.
• There is ongoing regulatory uncertainty related to the OECD Pillar 2 global minimum tax across dLocal's operating markets, and it is too early to quantify the ultimate impact on future effective tax rates.
• Cost discipline carries inherent risk, and management chose to maintain operating profit guidance rather than raise it to avoid overestimating near-term leverage improvements.
• Mexico is currently facing cost pressure that has caused gross profit growth to lag strong revenue growth, requiring targeted cost management to improve margins.

Q: The 92% year-over-year TPV growth was much higher than expected, what drove this surprise, and what is the floor for take rate after this large volume growth from lower take rate local-to-local business? / A: The exceptionally strong growth primarily came from very rapid expansion and share of wallet gains at a few large global ride-hailing merchants, who rapidly moved to higher volume tiers that have lower contracted take rates. When excluding that single large merchant ramp-up, take rates would have been flat sequentially. This confirms that incremental TPV growth at incremental gross profit, rather than a fixed headline take rate, is the core of dLocal's financial model, and the large volume growth is still strongly accretive to overall profits, even as it lowers the average take rate. The shape of take rate declines is becoming increasingly asymptotic, with no expected accelerating take rate decline into the end of 2026.

Q: If dLocal slows cost growth in H2 2026, could that hurt the strong top-line growth momentum the company is currently seeing? How should we think about the investment-growth tradeoff? / A: Most of the H2 cost reduction comes from non-recurring H1 items that do not impact top-line growth: the non-recurring Q1 prior year tax charge, and front-loaded marketing spend for dLocal's World Cup sponsorship that will not repeat in H2. The remaining cost leverage comes from AI and automation that increases development and operational efficiency without cutting growth-focused investment. There is no expected negative impact on top-line growth from the slower H2 cost trajectory.

Q: With the much stronger 2026 H1 momentum that will lead to strong operating leverage exiting 2026, how should we model 2027 performance from this higher base? / A: It is premature to provide formal 2027 guidance, but investors should avoid extrapolating the Q4 2026 exit margin linearly across all of 2027. 2026 has an unusual skew of higher spending in H1 that creates outsized leverage in H2, while 2027 will have a more even spread of planned annual investment. Management remains committed to consistent operating leverage expansion for full-year 2027, but the Q4 2026 exit rate will not be the baseline for the full year.

Q: Why was gross profit down sequentially in Mexico despite strong TPV and revenue growth, and what are the prospects for margin improvement there? / A: Mexico continues to deliver very strong top-line performance, with 64% year-over-year revenue growth. The sequential gross profit decline is primarily a cost issue: processing costs as a percentage of TPV have risen slightly, rather than a decline in pricing power. As dLocal scales further and negotiates better terms with processing partners, management expects to improve cost management and align gross profit growth more closely with the region's strong top-line growth, and is confident this improvement will be delivered.