美卡多 (MELI) 2007 Q3 法說會逐字稿

Good day and welcome to the MercadoLibre Third Quarter 2007 Earnings Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Pedro Arnt. Please go ahead sir.

Thank you. Good afternoon and welcome to MercadoLibre's earnings release conference call for the third quarter of 2007. The management team presenting today are Marcos Galperin, our CEO; and Nicolas Szekasy, our Chief Financial Officer. The conference call is also being broadcast on the Internet and is available through the Investor Relations section of our Website.

Before handing the conference over to Marcos and Nicolas, let me remind you that during today's call, management may make forward-looking statements relating to such matters as continued growth prospects for the Company, industry trends, and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations, and projections about future events. While we believe that our assumptions, expectations, and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on our forward-looking statements. Our actual results may differ materially from those discussed in this call for a variety of reasons including, the market for the sale of goods over the Internet is developing Latin America, and our business depends on the continued growth of online commerce. Our future success depends on our ability to expand and adapt our operations to meet rapidly changing industry and technology standards in a cost-effective and timely manner. Internet regulation in the countries where we operate is scare and several legal issues related to the Internet are uncertain. Our business is an Internet platform for commercial transactions in which all commercial activity depends on our users and is therefore largely outside of our control. We could face liability for the sale of regulated and prohibited items, unpaid items or undelivered purchases and the sale of items that infringe on the intellectual property rights of others. We have only recently achieved profitability in a new and rapidly evolving market and we cannot assure you that we will continue to be profitable.

You can find more information about factors that could affect our results on the Form 10-Q we will soon file and that will be available on our Investor Relations Web site. Having said that, let me now turn the call over to our CEO, Marcos Galperin.

Thank you, Pedro. Thank you for joining us. I will start with an overview of our performance during the third quarter before the call over to our CFO Nicolas Szekasy. Q3 2007 was a record quarter for MercadoLibre with accelerating top growth in all of our lines of business, record profitability margins, the launch of key product initiatives, and the completion of a successful IPO in the month of August with strong investor demand. We are particularly pleased to see an acceleration of our top line in all of our business units. In the core marketplace, in classifieds and in advertising, which are included in our marketplace segment, and also in our payments segment.

Total marketplace revenues are accelerated Q-on-Q fueled by several factors. First, the continuous improvement in monetization of GMV excluding cards, real estate and services, that the sorting algorithm, which was launched in January '07 has provided relative to last year. Second, the strong growth in listings and monetization that our classifieds business segments continued to show as we scale our team, increase prices, and improve our products for these categories.

Third, strong growth in advertising revenue that was still less than 1% of total revenues, are showing strong traction. Payments revenues also accelerated Q-on-Q driven by the launch of 12 installments via credit card financing in Brazil, that has increased adoption and penetration of MercadoPago in that market.

Currency appreciation, particularly in Brazil, increased our top line by 270 basis points relative to Q2, implying a 70% year-on-year growth rate for the net revenues during Q3 net of currency appreciations. These accelerated revenues flowed to our bottom line nicely and resulted in increased profitability for the quarter. Strong improvements in bad debt, both in our payment and marketplace businesses and scaling in our overall expenses helped drive operating margins to record levels.

Operationally, while we are seeing declining growth rate of successful items on GMV, these are mainly the consequence of the change in the sorting algorithm of sellers that are having high conversion of GMV to revenues, are favored in our listings over these sellers who are having low conversion of GMV to revenues. Those sellers that successfully convert the bids they receive on our platform into closed transactions, provide buyers with a significantly better shopping experience in addition to providing more revenues to the Company.

Looking at our platform, we launched several improvements during the quarter. In addition to the new version of MercadoPago, MercadoPago 3.0 launched in Chile in mid-September, we launched our new version of motors, Motors 3.0 with improved local navigation, user generated content, catalog-based content, better search technology, and improved sorting algorithm and an overall improved buyer navigation. We also launched in Colombia and Mexico, our free insertion fee listing option for individual sellers that complement our E-shops solution, where large sellers can also list without paying insertion fees. To provide sellers with a better marketing tools and buyers with a better buying experience, we incorporated videos into our sell you item process. Finally, we were awarded the ISO 9001 certification for our testing processes by Bureau Veritas.

Wrapping up, during Q3, MercadoLibre continued to grow all its key metrics as the number of Internet users, broadband connections and PC penetration continued to grow across Latin America. We expect this trend to continue as we finish 2007 and in the coming years, recognizing the vast opportunities that this still largely untapped market represent for MercadoLibre. I will now turn it over to Nicolas for a more detailed review of our financial performance.

Thanks, Marcos. I will now go over our Q3 financial performance. Overall, we had a very good quarter. We delivered solid and accelerating revenue growth, improved our gross margins, achieved economies of scale in our expenses, and therefore, generated robust operating margins. Specifically, our business generated record net revenues of $22.8 million, growing 72% year-over-year. We achieved gross margins of 77% and we delivered record operating income of $6 million, which represented a 26% operating income margin.

Let me now talk about our progress in key metrics in more detail. During Q3, we added 1.7 million new confirmed registered users, bringing the total to more than 23 million. Marketplace gross merchandized volume in Q3 was $395 million, a growth of 39% versus the same period last year. Successful items were 4.6 million across over 2,000 product categories and the payments segment, total payment volume was $44 million, which represented an 89% increase over the same period last year.

Revenue growth was driven primarily by the growth in these key metrics, combined with an improvement in our take rate, which is measured by revenues as a percentage of GMV. Take rate increased during Q3 to 5.8% versus 4.7% for the same period last year as a result of several factors. First, in the marketplace segment, take rates increased driven mainly by the upgrades in the sorting algorithm implemented in '07, which were described by Marcos a few minutes ago.

In addition, marketplace take rate increased due to the pricing structure changes, executed in Q1 of this year, whereby we increased final value fees, and lowered insertion fees on low rotation, high margin categories that require longer listing durations and did the inverse for the high rotation, lower margin consumer practical categories. And also, solid growth in classifieds and advertising revenues drove the marketplace monetization upwards. The marketplace take rate increased to 4.6% from 4% in Q3 of last year.

Looking at the payments segment, take rate increased driven mostly by the introduction of 12 installments via credit card financing in MercadoPago, Brazil, an initiative that has increased volume and increased the average commission that we charge there. The payments take rate increased to 10.7% in Q3 this year from 8.5% in the third quarter of 2006. And last, the consolidated take rate has also increased due to the fact that payments has been growing faster than the marketplace, thus driving the average take rate upwards.

The 72% year-over-year revenue growth in the quarter represented an acceleration versus the Q2 growth rate of 53%. We had a positive ForEx impact in Q3 '07 versus Q2 of '07. If we excluded the impact of currency and calculated Q3 '07 top line using Q2 '07 exchange rates, the year-over-year growth would have been 70%. Importantly, both the marketplace and payment segments accelerated their growth rate year-over-year versus Q2. Our marketplace grew 61% to $16.1 million and payments increased 14.2% to $4.7 million. And as a result, the marketplace represented 80% of revenues and payments 20% in Q3 of this year versus an 85%-15% breakdown in the same quarter of last year.

Gross profit grew 75% to $17.6 million, representing 77% of revenues, an improvement versus 76% for the same period one year earlier. Improvements during Q3 in COGS in both the marketplace and the payments segments more than offset the higher rate of growth in payments as compared to the marketplace. COGS was lower year-over-year driven mostly by leverage achieved in our customer support operation.

Total operating expenses for the period totaled $11.6 million, a 30% increase year-over-year. These expenses represented 51% of revenues versus 67% in Q3 of '06 as the business continued to show significant economies of scale. All product and technology development, sales and marketing and general and administrative expenses grew versus -- grew at a rate lower than the rate of growth of revenues versus the same quarter of last year. Reduction in bad debt, which is accounted for as part of sales and marketing expenses, was an important contributor to this reduction of expenses as a percentage of revenues.

As a result of the robust revenue growth, combined with the significant leverage of expenses and improvements in bad debt that we described, income from operations grew 422% to $6 million, representing a 26% operating margin, an impressive increase from 9% from the same quarter last year.

Net income for the three months ending September 30, 2007 was $2.8 million, compared with $38,000 during the same period of 2006. Important to highlight, Q3 2007 net income included a $1 million non-cash expense accrued to reflect the increase in the fair value of warrants versus a $200,000 charge in Q3 of '06. The total amount of warrants outstanding we had prior to our IPO were exercised at the time of the IPO.

Net cash provided by operating activities for the nine-month period ended September 30, 2007 was $7.7 million, representing a year-over-year growth of 110%. Strong operating cash flows in our marketplace segment were partially offset by working capital requirements in our payments segment.

Purchases of property and equipment remained modest and totaled $2.1 million for the first nine months of 2007, an increase of 45% from the same period one year earlier.

In summary, I wanted to wrap up, putting another strong quarter in perspective. In Q3, we made $22.8 million in revenues, growing 72% year-over-year and accelerating our rate of growth for the second consecutive quarter. We improved gross margins to 77% from 76% in the third quarter of '06, in spite of the fact that payments, which has a lower gross margin increased its share of total revenue mix from 15% in Q3 of '06 to 20% in Q3 of '07. And last but not least, we increased our income from operations, a very strong 422% achieving a 26% operating margin.

So now we would be pleased to answer your questions.

(OPERATOR INSTRUCTIONS) We will have our first question from Imran Khan, JP Morgan.

Yes, hi. Thank you for taking my questions. Couple of questions. First of all, I was trying to better understand what drove the take rate improvement on the marketplace business.

And second question is in the -- like in terms of what do you expect to have -- when do you expect to have MercadoPago opened up to the third-party sellers?

Hi, Imran. The increase in take rate happened in the marketplace due to a series of factors. First of all, the sorting algorithm, whereby we give priority to sellers that have better service or providers and also a better history of paying fees to us. So that has resulted in an increase in our take rate. Also, we did a pricing restructuring at the beginning of '07, which also has had an impact throughout this year as compared to last year. And last, within our marketplace segment, we include classifieds and advertising, and those have been growing strongly and those have also been accretive to our take rate. The second question was when we are releasing the open platform MercadoPago?

Yes.

Yes. We have already launched that in Chile in mid-September. So, it's quite recent and we are monitoring the results and the performance there. We are getting ready to launch in Colombia, which is our second test market shortly. And following that, we will continue the rollout with remainder of the countries.

Okay. A question for Marcos, maybe. Marcos, in terms of the -- obviously, your organic growth is very strong. But in terms of looking at the competitive landscape, what kind of M&A opportunities do you see? Are you entertaining any kind of M&A opportunities, if you are seeing a right price? What's your view on that? Thank you.

We see some very healthy organic growth. Actually there was organic acceleration in revenues in our core marketplace excluding advertising and excluding classifieds. So, we are satisfied with the organic growth we are seeing. Definitely if there are opportunities at the right price in the areas that are strategic for us, we will execute on them. There aren't that many either.

Great, thank you.

Thank you.

We will go next to Steven Wolfe, Platinum Partners.

Marcos, congratulations on a good quarter. Certainly interested in understanding the -- where you see growth over the next kind of 12 months with respect to -- it doesn't have to be guidance per se, but where do you see growth over the landscape?

This is Nicolas. I think -- as when we say, we see that the internet in the region is in its very early stages with e-commerce and broadband and user penetration growing very strongly. I would say that we see opportunities across all our business segments, the marketplace, our core segment. Classifieds and advertising, and obviously, payments as we move on to the next phase with the open platform.

Okay. And as far as competition, I mean have you see any increased competition from local market competitors like Submarino and some of the other players in other markets?

Yes. We see Submarino as a large retailer, mostly as a potential client since we put buyers and sellers together and they are a large seller on line. We haven't seen much competition in terms of market based businesses. We have seen continuous strong market position from us and we haven't seen increased competition in that area.

Okay. And then, help me understand, I mean where do you have kind of in a steady state model, where would you like to see your gross margins and your EBIT margins?

Yes. We think that e-commerce and broadband will be growing, steady state over the next three, five years at 30% to 40%. So, we should be growing at those rates over the next three to five years. And in terms of margins, we always benchmarked against some of the companies that are in more mature markets, that have been doing this for more years than we have. For example, eBay and they have EBITDA margins above 35%. So, we think we should be somewhere within 30% and 35%, a steady state once we achieve a larger scale.

Okay, and then the last question. Certainly you have so much growth and the business is doing well across the different regions. Help us understand in terms of CapEx and maybe SG&A, what kind of investments do you need to make in the business to continue the growth and the effect on margins?

CapEx in our chart of accounts is mostly the servers and the hardware and some of the software licenses that we buy. It has been less than 5% of revenues for some time and we think that's a good approximation for where we see it in the next years. With respect to SG&A, we have seen a very significant scaling, a leverage since we achieved profitability a couple of years. We think that we can continue to grow revenues at a faster rate of growth than the rate of growth of these expenses, while investing in everything that the business requires and this will be the largest driver towards increasing our operating margins.

Okay, thank you very much.

Thank you.

We will go next to Jordan Rohan, RBC Capital Markets.

Good afternoon gentlemen. It's Stephen Jue for Jordan. The take rates on the payment increased for the second quarter in a row, I guess, 10.5% around that ball park. How sustainable is that going into the future? Also, the tax rate seems to have come in a little bit below our expectations at I guess around 33%. What tax rate should we be using on a go-forward basis? I'll stop there for the time being.

Yes. The take rate from MercadoPago has two components, one is what we call the processing fee and depending on the country, it is an average between 6% and 7%. And then, we have the financing component that we charge on top of that and it was adding last year around 2 percentage points. But, particularly, as we added 12 installments in Brazil and this has had great traction, that is what has been driving the take rate for MercadoPago upwards.

So, what we sense is that the processing fee is going to remain at about this level even as we migrate to the new open platform. But, we believe that as we add financing alternatives that the take rate could stay where it is or it could even go upwards, but it's too early to tell that. But, it is important to understand that the growth comes mostly from the credit card financing that we are currently offering through MercadoPago, mostly in Brazil.

With respect to the tax rate, our tax rate for the last couple of years has been complicated or difficult to read because we still had loss carry-forwards from the early stages and we had a complex deferred tax accounting. We are almost completely -- completing the utilization of these tax losses. So, we move forward, the tax rate in most of the countries where we operate is around 35%. So, we believe that between 35% and 40% is a reasonable tax rate to use in the modeling.

Okay, thank you.

We will have our next question from Ricardo Fernandez, Banca d'Italia.

Hi, how is everybody? First question is MercadoPago financing. You mentioned in the call that you needed to take on more working capital. Can you give me an idea what level of working capital you need to take to continue to finance or keep up pace with the penetration of MercadoPago and whether you are not -- you are -- if I understand this correctly, are you taking the risk for this financing and providing the financing yourself or are you going through a partner at this point, a bank or what have you?

Yes, hi, this is Marcos. Let me take the financing risk question and Nicolas will answer the working capital question. We are not taking any financing risk, we are transferring to MercadoPago users the financing that the credit cards are offering in the various markets that we operate. So, once the credit cards offered 12 installments in Brazil through us and we transferred that financing to the buyers. They are taking the financing risk.

Yes, and just as a reminder, we are still on phase one of financing in Brazil. What we are doing now is what we have been doing for the last three years which is offer financing through credit cards. As you might remember, we are also in the process of finding a financing partner in Brazil and offer better financing alternatives and not only for those users that have credit cards. So, we are still working on that. When we move on to phase number two, it will be the financing partner also the one that will take the credit risk.

With respect to working capital, the way that credit cards pay merchants like us in Brazil, this is only in Brazil, in the other countries it is different, but if you offer three installments, they will pay you over three months. They pay us as the merchant. If we offer six installments, they pay us over six months. And if we offer 12 installments, they pay us over 12 months. So, as we have introduced 12 month installments, the payment terms from credit cards to us have extended over those additional months, and that has created the working capital differential that we were expressing before.

We believe that as we move towards the phase two and we have a financing partner, we will probably cannibalize part or a big part of this financing that goes through the credit cards, and we will be doing that through our financing partner. What we expect is that at that stage, we will be getting the cash upfront and not over such a long period of time.

Okay. But, so if you don't take the risk then how do you charge for -- you just charged for the time of the -- for the time that it takes for the banks or the credit cards companies to pay you back?

Once the transaction is approved, and if we need to get R$10 per month over 12 months, we get those amounts regardless of whether the user of the card pays the credit card or not.

Okay. But, how are you -- well, how are you generating a fee on that?

We are charging, for example, on 12 installments, we are charging the buyer 19.99% for this transaction and we are paying the credit card, the processing fee and then we get paid over time. If we want, we can advance those funds from the credit card or from a bank and then we would be reducing the -- part of the profit that we do and in most cases, we do that. We do advance funds from the credit cards or from a bank.

So, in order for this to really become a larger percentage of the merchandizing volumes, you really need a partner because you are not going to be able to fund $100 million worth of product over --?

It makes a lot of sense for us to have a financing -- a partner in this project.

Okay. Okay, that was it. Thanks a lot.

Great, thanks.

We will go next to Steve Weinstein, Pacific Crest.

Great, thank you very much. Couple of questions, first just want to make sure I understand, how many markets now offer the 12 installment financing option?

I can answer that. It's only Brazil.

Only in Brazil now, okay. Then, I haven't had a chance to go through the numbers yet, so maybe it will be obvious as we work on it, but what happened to kind of transaction volumes as you deployed this, what was -- how did you change the rate of growth within the transaction volume, the GMV growth, and how was that kind of -- how was that -- how was it at the time of initiation and how is it trending today?

I think it is very hard to do the exact correlation. We know that financing is very prevalent in the countries where we operate, and as we offer more attractive financing, it also accelerates trading on the platform as more people have access to goods on more accessible terms. So, I think it's hard at this point to give an exact correlation on what the numerical effect is on one or the other.

The overall sense clearly is the financing helps drive higher ASPs and increases penetration of MercadoPago on our marketplace and adoption of MercadoPago on behalf of sellers. We cannot give you an exact number though.

Okay. Well, that's good. Thank you.

We will go next to Bob Ford, Merrill Lynch.

Hi, good evening everybody and congratulations on the quarter guys. I had a couple of questions, one was with respect to the bad debt trends, both at the marketplace as well as Pago. Can you give us a sense of what the reduction was year-on-year, Nicolas, would you anticipate trending towards for the foreseeable future?

Yes, a year ago, our levels were above 10%. It were -- they were depending on when you looked at this, but they were around 12% and now we are closer to 7%, 8%. So, we think that we reached a very good level and then we will continue to work on reducing the levels and we might have some further opportunities. But, we -- I think we made very, very good progress I would say over the last two or three years, but particularly this year versus last year. And we have bad debt in both the marketplace and the payment segments.

On the marketplace, we implemented a tool that we developed ourselves about three years ago, a credit policy. It's an automated tool and we have been improving the parameters within that tool and we did another upgrade at the beginning of '07 and we believe that has been very helpful.

On the MercadoPago segment, we have had charge-backs in the past and over this year in particular. In the first semester, we had a very significant improvement in our fraud and charge-back detection engines. We increased our teams there, we upgraded our systems and also as I was saying, the teams. So, that was very helpful towards this. And, last but not least, we always talk about our sorting algorithm. And by giving a prevalence or a priority to the better quality sellers, we believe that that has also improved our bad debt ratios.

Great, thank you, Nicolas. And the comparison that you gave, 12% to 7% or 8% in terms of bad debt, is that for the marketplace?

That's consolidated.

Okay.

Yes, it's -- yes.

All right. And then, with respect to the new buyer -- or I am sorry, seller pays Pago platform in Chile, can you talk a little bit about how that acceptance is evolving? We have been trying to track the proportion of power sellers that accept Pago, but can you give us a sense of how many -- or how the evolution of Pago is behaving in Chile versus the initial introduction of Pago in other marketplaces?

Hi, Bob, this is Marcos. The evolution is good, it is very positive, we are excited about it. Important to note, we are using Chile as a test market because it's a relatively smaller market for us in terms of power seller, it's clearly the market that has the least concentration of GMV on power sellers. So, it's hard to draw conclusions out of Chile. But, what we like what we see. The evolution is good, the adoption is growing on a weekly basis. So, we are happy and overall the product and the back-end tools to prevent fraud and charge-backs are working well. So, we are happy with what we are seeing and we are going to continue with the rollout plan hopefully to launch in Colombia before the end of the year.

Have your power sellers in Brazil seen or are they becoming aware that the model is changing a little bit in Chile and are they -- is there any -- have there been any focus groups or are there indications what the reception might be like for this in Brazil?

No, not really.

Okay, thank you very much.

Thank you.

We will go next to Jeff Nevins, Neuberger Berman.

Good afternoon and thanks for taking my question, just had one question. One of the local Brazilian ISPs launched an auction site that seems to be somewhat competitive to yours. I am just curious if you saw any impact on your business or if you had any opinion in terms of their offerings, this is UOL, I am talking about. Thanks.

Yes, hi. No, we didn't see any impact on our business, they actually had a competitive platform to ours in the past which they operated for a couple of years and they shut it down. So, this is actually a reentry for them and we see them as such as another player. It's more a classified than a trading platform in the sense that buyers and sellers can [track ]before placing a transaction, et cetera. But, we haven't seen any impact on our business. We believe that we have reached good scale, particularly in Brazil, and we are seeing good growth there. Next question?

We will go next to Tony Tsang, Lusight Research.

Hi, good afternoon. Thanks for taking my questions. Just a question about GMV mix and when are you having 80% GMV coming from the marketplace and looks like you need to have it the other way around, just wanted to know, looking in the future, how should we be looking at the mix? Do you see like maybe half and half in the future, or how should we project this?

I am not sure I understood the question. You said 80% of the GMV coming from?

Coming from your marketplace, like $20 million coming from payment systems.

Okay, yes. 80% of our revenues come from the marketplace and 20% from payments, and payments has been growing at a faster pace than the marketplace for the last three years, since payments was launched. As a reference or as a benchmark in the case of eBay, payments has been growing strongly and it has been approaching half of their business. So, we are in the process of re-launching our payments platform doing a very significant upgrade which is what we were discussing before. We started with Chile and then we will roll it to the remainder of the countries.

So, we believe payment is a very significant opportunity and we believe it's going to continue growing as a percentage of total revenues. But, it's very hard for us at this point to say what percentage it will become eventually. We believe overall payments can be as big as the marketplace, but it is hard at this stage, it's a very early stage for us to have hard data on.

Okay. Also, one question is like your agreement with eBay has expired. Do you see any chance like eBay will actually enter the Latin American market?

Yes, hi, this is Marcos. We -- eBay is a large shareholder of MercadoLibre. They have 18.5% of the Company and the agreement expired over a year ago and we continue to have a very good relationship with them. That is all we can say and all we know about. The rest you should ask them.

Okay. So, from your side, you don't see any signal right now, right?

We continue to have a very good working relationship with eBay that's a large shareholder of MercadoLibre.

Okay. Okay, that's great. Thanks.

Thank you.

(OPERATOR INSTRUCTIONS) We will go next to Tim Boyd, American Technology Research.

Thank you. I was wondering if you could talk a little bit about the mix in particular verticals on the sites, which verticals you find are growing the fastest and perhaps anything you -- any shift you might expect going into the holiday season here? And also, I was wondering if you could talk about the mix of fixed price versus auction format and where you see that going over the next year?

Yes. So, classifieds, particularly motors has been growing very nicely for us, growing faster than the other categories. And overall, as MercadoPago increased penetration and the sorting algorithm brought better sellers more prominently to buyers, ASPs went up. Other than that, the rest of the categories have had normal fluctuations we have seen in the past years. And the ratio of fixed price to auctions continues to be overwhelmingly fixed price, over 90% fixed price. It hasn't changed much at all.

Can you just give a little color on the kinds of product verticals that you are seeing the biggest growth in on the major sites?

So, we don't break it up on a per category basis. I will say classifieds in general, particularly motors has been growing faster than the rest and the higher ASP categories have done better. But, that's basically the breakout that we typically give.

Okay, thank you.

(OPERATOR INSTRUCTIONS) We will go next to Steve Weinstein with Pacific Crest.

Great, thank you. Just a question on how you are thinking about your operating margins here. Obviously on a year-over-year basis, they've expanded a lot. I am wondering if the rate of expansion is in line with what you were planning for or is it -- if you are getting some revenue upside and that's just what's leading to margin expansion?

And then, how should we think about that over the next couple of quarters? Are there investments you want to make to maybe slow the pace of expansion? Is this quarter good run rate to be working off going forward or would you be making investments or maybe move margins back down, say, in Q4 or Q1, or should they continue to steadily move up from here up into the 30% plus range?

I think we have always done all the investments that we thought the business needed at every stage. We are continuing to do that. So, we are investing in marketing and we are investing in product development and we are doing everything that we believe the business requires for current performance, but also to sustain future growth. So, I think we are not thinking of any particular step-up in spending in the few quarters in particular. So, that's to your second question.

And the first one, can you remind me of exactly what it was?

I think you basically answered it, I was just -- the pace of margin expansion is significant and I was wondering if that was on track with your planning or if you were just getting more top line growth than maybe you thought and that's what is flowing through?

I think it's been tracking quite well what we were expecting. Every quarter, we tend to miss on a few of the things that we were expecting on the positive and a few in the negative. But, in this case, they are washing out and I think overall, this year, we are performing quite in line with what we were expecting, and we have seen a very significant leverage of our infrastructure over the last couple of years. Once we achieved profitability, we continued driving our revenues up, we have as I said invested in everything that we believe is required for the business to continue evolving. But, the -- more of the revenues have been flowing through the bottom line.

Well, then, I will just I guess ask a little more directly. So, should operating margins be up in Q4 from the Q3 level?

As you know, we don't provide guidance, but when we were asked in the past about seasonality, this is obviously a business that has a big retail component and Q4 is typically our strongest quarter.

Great, thank you.

We have no further questions in the queue at this time. I will turn the conference back over to Mr. Marcos Galperin for additional or closing remarks.

Thank you very much everyone for your questions and for your time, and we look forward to speaking to you again in the next quarter. Thank you.

That concludes today's conference. You may disconnect at this time.