美卡多 (MELI) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the MercadoLibre second quarter earnings conference call. (Operator Instructions). As a reminder, this conference call is being recorded. I would now like to turn the conference over to the company.

Welcome, everyone to MercadoLibre's earnings conference call for the quarter ended June 30th, 2011. Company management presenting today are Marcos Galperin, Chief Executive Officer, and Pedro Arnt, Chief Financial Officer. Additionally, Hernan Kazah, our former CFO, and Osvaldo Gimenez, Senior Vice President of MercadoPago, will be available during today's Q&A session.

This conference call is also being broadcast over the Internet and is available through the investor relations section of our website.

I remind you that 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 currently available information, you are cautioned not to place undue reliance on these forward-looking statements.

Our actual results may differ materially from those discussed on this call for a variety of reasons, including those described in the forward-looking statements and risk factors sections of our 10K and other filings with the Securities and Exchange Commission, which are available on our investor relations website.

Now, let me turn the call over to Marcos.

Thank you. I would like to welcome all of you to today's conference call. MercadoLibre's second quarter of 2011 proved the continuation of the strong momentum we have been experiencing for our entire business. As the quarter advanced, this was increasingly the case, as our unit volume grew progressively stronger and gross merchandise volume saw an additional boost resulting from strong currencies and strong macroeconomic context, leading to increased consumption.

I would like to start by sharing a few key growth rates that give a natural sense of our strong performance this quarter and how this flowed into our financial results. I will follow this with a description of our latest developments and the thinking behind them, as our second quarter came with many optimizations to the services we provide, all of them in line with the strategy we have laid out and anticipated for you on previous occasions. This will provide the proper context to update you on some of the exciting changes we are bringing to our platform, our technology revamping efforts, or New World project as we call it.

Please bear in mind that the growth rates I will call out today are year on year, unless I specify otherwise. In the quarter, confirmed registered users were up 23%. Items sold grew 26%. Gross merchandise volume grew 34%, reaching 1,068,000,000 in the quarter, and the number of payments performed from MercadoPago grew 140%, adding up to a total payment volume of $295.8 million.

As you can see, MercadoPago continued to gain share of our marketplace, even as our gross merchandise volume accelerated in the quarter. As we will see in a moment, the rest of our adjacencies also experienced important growth, contributing to the following financial results.

In the second quarter, our company generated revenues of $69.4 million, an increase of 32%. Income from operations of $21.6 million, an increase of 15%, and net income of $14.8 million, an increase of 27%, resulting in $0.34 of earnings per share. I would like to remind you that this is the final quarter that our year on year revenue comparisons are negatively impacted by the change in MercadoPago financing operations, as revenues generated from installment-related financing charges are now reported net of the cost of discounting credit card receivables, with no affect on our bottom line.

Our financing receivables also been resold in the second quarter of 2010, respective year on year growth in net revenues would have been 43%, and net income from operations would have been 36%.

Now, I will review how we achieved these results by addressing each of our business units. Starting with our core marketplace, in the second quarter we grew 42% in new listings, 26% in items sold, and 34% in GMVE. Gross merchandise volume accelerated despite a deceleration in items sold, which experienced a slow start in April, as our introduction of site upgrades, based on the new technology platform, encountered some initial bugs and instabilities but then picked up in the remaining months of the quarter as we quickly iterated and stabilized the launches of new versions of our home and view item pages.

Our new platform architecture has greatly enhanced our ability to make rapid changes to our site. A more intelligent search box, sensitive to our users' history of prior purchases, a streamlining of product categories, greater integration with social platforms, and special deals with idea placement that have increased awareness and clicks on hot items are some of the improvements that our buyers saw as the quarter progressed.

Registration and activation were greatly improved in the second quarter, as we simplified the steps and the fields that a new user must complete to transact on our platform. While our old registration had the feel of being detached from the actual shopping experience, we have moved towards a more intuitive process that blends it into our improved line flow. As a result, the number of new users that registered on our site performed a visible step function in the second half of the quarter, reaching 2.8 million for the full three months, a peak not seen since Q3 of last year, and slightly above it. I think we still have a great opportunity to continue streamlining key aspects of our buying and registration flows.

Our core marketplace remains a good example of how we look to run our entire business, constantly expanding on what is already the broadest range of choice in our region's ecommerce, while maintaining a constant focus on improving the user experience we provide.

In this context, our 37% growth in live listings for the quarter continues to show the sustained traction of initiatives we have taken over the last years to expand our supply base, as many new sellers have joined the ranks of those who already operate on MercadoLibre on a regular basis. Our [free leasing] alternative continued to attract a great number of first-time sellers in the second quarter, while the most substantial portion of our GMVE growth came from paid listing types.

Wrapping up my review of our core marketplace in the second quarter, we have done a great deal to perfect our user experience with the specific improvements I have mentioned. We have a better platform than three months back. Our home pages now have social, fresh, and personalized content, search is considerably faster, has better suggestions and auto corrections, our view item page is faster, has large pictures, and better information architecture. We have new, user-friendly features, a better zoom in our listed products, better deals, and product suggestions for our users.

Better yet, we saw a material acceleration in successful items after these launches and the momentum remains intact. Our second quarter was the first to surpass the 1 billion mark in GMV, as it accelerated for the third consecutive quarter, posting 34% growth versus 30% in the first quarter, 26% in the fourth quarter of 2010, and 12% growth in the third quarter of 2010. We look forward to this continued momentum, as we keep driving our own success by generating a great user experience in our core marketplace.

Now turning to our classifieds marketplace, I am extremely pleased with the steps we have taken to maintain our leadership in this business, re-energizing our offerings with well-timed initiatives. Our premium model has definitely appealed to individuals, and our [free] listings for the quarter more than doubled versus one year ago. They continued to bring in record amounts of new users, and a record amount of upgrades to paid-for ads as well.

But perhaps the most exciting part of this business is its gradual bid for a considerable, professional market with enormous potential to [spill] online in the near future. Our listings from broker dealers now represent an all-time high of 30% our total [motors] listings. The value of our site to all of these users is increasingly evident, not only for the unparalleled source of Internet traffic it represents, but also for the user experience and simplicity of use it provides.

In the second quarter, we launched new [booking] sites home pages for autos in all our countries, and an entirely new look and feel for the Tu Carro home page specifically. We also initiated a content partnership with Autos (inaudible) supplying motors-relevant news to our users in Brazil.

We achieved all this while doubling our efforts to promote our enhanced services, as in the quarter we launched radio campaigns in Brazil, Venezuela, and Colombia. And so practically, classifieds showed an excellent revenue growth in the quarter versus one year ago, even outpacing GMVE growth.

Now, I would like to discuss our advertising business. Recently, this has implied a review of the fast pace at which Mercado Clicks has consolidated itself as the foremost means of advertising on our site. Once again, the second quarter saw an excellent year on year growth rate for our search advertising solution, as display banners continued to be phased out of our site as much of the advertising revenues at the end of the quarter allotted 62% to Mercado Clicks and 38% to display banners, versus 28% and 72%, respectively, in the second quarter of 2010.

Last quarter, I had the chance to discuss our rationale behind this move in great detail, stressing the strategic logic of advancing in this space, which generates increasing [endorsement] from the largest players in the retail world, online and offline. To us, it represents a highly scalable, high-margin business that complements the services we already provide. To our clients, it represents a valuable, increasingly indispensible investment in the largest source of online shoppers in Latin America. To us and to them, it represents a more precise form of advertising priced as a function of the results it brings. The equation is proving favorable to an increasing number of large-scale players, from the world of physical retail.

In the second quarter, we added Procter & Gamble and the Argentine retail chain [Garavino] to our distinguished list of clients. That these prominent brand names only invest a small portion of their marketing budgets in Mercado Clicks to date makes us clearly aware of the opportunity this represents. Mercado Clicks has been immensely successful so far as a service geared at large-scale retailers and as a source of revenues that continued its triple-digit growth rate in the most recent quarter. And what remains more impressive by far -- the potential this business has going forward.

And now for a look at our payments business. You may recall that on April 15th, we launched Mercado Power 3.0 in Mexico. We made this coincide with the initiation of our bundled pricing scheme for that country. The rollout was off to a very positive start, as was the case in Brazil in the third quarter of last year. Mexican sellers have had no trouble adapting to this new system, which no longer charges a separate fee for the use of Pago, and makes it automatically offered on all listings. As a result of this move in Mexico, adoption of Mercado Pago and total MercadoLibre listings reached a new high of 88% in the second quarter, versus 84% in the first quarter of this year.

Let me remind you that adoption of MercadoPago refers to the percentage of listings offering that means of payment, but it remains up to the buyer to select the payment method for each purchase. Therefore, the important increase in payments done through Mercado Pago in Mexico during the quarter is a promising indication that buyer preference accompanies this initiative.

Mexico definitely contributed to what was a thriving quarter for MercadoPago throughout our countries. Total TPV accelerated to $295.8 million, 100% growth. TPV penetration for share of total GMVE reached 28% versus 26% last quarter and 19% a year ago. Definitely more users are opting for this quick and expedient payment system that ensures the best possible purchase experience on our site. We look forward to further leaps in user engagement in this regard.

Hand in hand with total payment volume, finance volume on our site saw an impressive year on year leap, as more buyers opted to pay for their purchases in installments. As we have explained in the past, we do not provide the finance and credit risk ourselves, but rather pass along credit card financing options to our buyers. MercadoPago's off-platform business continues to surpass our ambitious expectations, as its growth is even faster than the growth of MercadoPago on-platform.

During the second quarter, we continued our strong growth in the number of merchants that offer MercadoPago on their sites as well as the total number of transactions and payments processed. We hope this impressive dynamic shown by payments as a whole is fueled even further by the many initiatives for growth we are preparing to deploy and the many optimizations similar to those in our core marketplace that are already underway. All in all, I can only stress what an excellent quarter this was for payments and our optimism about how things look going forward.

I would now like to update you on our New World project and how it fits in with the next steps we have in mind for our business. We keep transferring key parts of our platform to New World. The APIs that part of our platform is already running on led to real time improvements to our formats and our registration process as I have already described.

Last time I spoke of the better time to market implicit in New World and these developments provide a good example. With regards to what lies ahead, we still have a huge list of improvements to deploy as well as innovations that will change the look and feel of our marketplace business, making us better suited for vertical product categories, catalog integration, greater integration with shipping providers, specific solutions for mobile and [tablet] devices, while enabling third party developers to develop innovative solutions on top of our platform.

New World continues to pave the way for great improvements in our operations today while giving us the flexibility to pursue our strategy going forward. With that, I will now turn the call over to Pedro for an in-depth look at our financials.

Thanks, Marcos. As we've just seen, the second quarter saw very healthy growth in our business. Volume continued to be the main driver behind this growth as items sold increased by 26% and led to our first quarter ever to surpass the $1 billion mark in gross merchandise volume as the metric grows to $1,068,000,000. This is a 34% increase in US dollars and a 24% increase in constant dollars, both figures accelerating versus the prior quarter.

Within this total, Brazil grew 32% in items sold versus 34% in the previous quarter. Brazil's local currency GMV accelerated slightly versus the prior quarter to 17% year on year. US dollar GMV growth for Brazil was 31% year on year, also accelerating versus 26% in the prior quarter. The growth rates of items sold, US dollar volume and Brazilian Real volume, point to four relevant trends in our Brazilian business that I'd like to highlight. Continued solid items sold growth, continued strength of the Brazilian Real over the US dollar, a high share of dollar priced goods on our platform that generate slower local currency growth rates, and the continued expansion of our marketplace into newer, faster growing, lower ticket categories. The combination of these factors leaves us optimistically regarding the sustained success of our largest operating going forward.

Now, before addressing our financials in greater detail, I'd like to remind you once again that the changes in MercadoPago's financing operations that became effective since the second half of last year continue to affect our year on year comparisons in terms of revenues, operating income, and margins over revenues. What I'll do, therefore, is I'll call out comparable apples to apples growth rates for these lines as I go over them.

During the second quarter, we generated solid growth in all of the key financial metrics. Specifically, net revenues grew 32% in US dollars to $69.4 million, 22% growth in local currencies. Making revenues for the period comparable to last year by subtracting $3.9 million of costs directly associated with MercadoPago financing, growth was 43% in US dollars and 32% in local currencies.

Gross profit margin came in at 75.6% versus 76.7% in the first quarter of 2011, and 78.3% in the second quarter of last year. Income from operations grew 15% to $21.6 million with an operating income margin of 31.1% versus 35.8% in the second quarter of 2010. On a comparable basis, however, operating income margin for that period would have been 32.6%, and year on year income from operations growth would have been 36%.

Net income before income and asset tax expenses for the second quarter 2011 was $22.5 million, representing 37% growth in US dollars. Finally, net income was $14.8 million, a 27% growth year on year representing a 21.4% net income margin versus 22.2% one year earlier. Let me now walk you through the most relevant drivers behind each one of these results.

Year on year revenue growth came primarily from our GMV growth and from our bundled pricing that captures through price increases the added value we are generating to our sellers by processing an increased volume of their transactions through MercadoPago as our total volume grew by 100% year over year during the quarter. With these higher payment volumes, financing on our site has also continued to grow as we have a much larger base of MercadoPago transactions to which we can cross sell credit leading to significantly higher revenues derived from our consumer financing offering.

Classifieds and advertising were both accretive to revenue growth as both these business units continued to outpace the rate of growth of the core marketplace. These two units combined with the consumer financing revenues I just addressed now represent almost one-quarter of our total revenues, underlying the continued diversification of our revenue streams.

On a reported segment basis, consolidated top line performance breaks down by main countries as follows. In local currencies on a country basis, consolidated net revenue growth was 16% for Brazil, 37% for Argentina, 7% for Mexico, and 39% for Venezuela.

In US dollars, consolidated net revenues grew 30% for Brazil, 31% for Argentina, 15% for Mexico, and 62% for Venezuela. Don't forget that Brazil's revenue growth is the most impacted by the change in our financing operations involving the presale of MercadoPago financing receivables. Had we presold receivables in the second quarter of 2010, revenue growth for Brazil on a comparable basis would have been 44% in US dollars and 28% in local currencies year over year.

Consolidated take rate was 6.50% versus 6.58% in the second quarter of last year and 6.44% in the prior quarter of this year. Last year's second quarter take rate, however, would have been 6.08% had we presold financing receivables back then. Therefore, take rate rose 42 basis points on an apples to apples basis from last year to this year. This rise in take rate has come primarily as a result of increased MercadoPago penetration that was contemplated in our bundled pricing points as well as a fast pace of growth of our consumer financing, classifieds, and advertising businesses I just covered.

Now, turning to a detailed look at our cost structure during the quarter, gross profit grew 28% to $52.4 million, representing 75.6% gross profit margin, declining from 78.3% in the second quarter of 2010. These 270 basis points of gross margin contraction are entirely attributable to increased penetration of MercadoPago transactions and the interchange fees associated with processing this added payment volume. In other words, the contraction in margins is a consequence of a mix shift towards a lower margin business that is nonetheless generating significant incremental revenues and profit.

Additionally, as we have stated in the past, we believe there is room to offset this mix shift drag on margins, at least partially, going forward through a combination of price increases, reduced interchange fees, and continued growth from other, higher margin, adjacent businesses we operate.

Operating expenses for the period were 44.5% of revenues, down from 45.9% in the same period last year if we compare them on an apples to apples basis. These 140 basis points of improvement in leverage underlie our continued focus on driving growth in operating expenses at a lower rate than growth in top line. In absolute terms, operating expenses totaled $30.9 million, a 39% increase over the same period in 2010.

Looking specifically at some of the line items, sales and marketing remained the largest one, increasing 36% for the quarter to $15.6 million. As a percentage of revenues, sales and marketing was 22.5% versus 21.8% for the same period last year.

Let me call out a few relevant details however. Quarterly sales and marketing expenses included a one-off cost related to payments that were erroneously processed by one of our banks in Brazil generating a $1.6 million charge that we have decided to flow through our P&L entirely this quarter. Charge backs related to the rapidly increasing Mercado volume we process totaled $0.9 million more this quarter than the equivalent quarter last year.

Our customer acquisition related marketing costs were nearly flat when compared to the previous year quarter reflecting our increasing capacity to grow our user base organically and leverage the customer acquisition portions of our sales and marketing investments.

Product and technology expenses grew 39% to $5.5 million compared with $4 million for the second quarter of 2010 mainly through increased investments in headcount as we continue to expand and strengthen our IT team which is essential to the success of our business going forward.

G&A expenses grew 42% year over year to $9.7 million in the second quarter of 2011 mainly due to headcount related costs which increased by $1.3 million versus last year as we faced the combination of wage inflation in Argentina and Venezuela as well as our decision to continue investing in attracting and retaining talent. Bear in mind that headcount in numbers grew by only 7% year over year to slightly above 1,600 employees.

Increases in G&A were also attributed to increases of about $1 million in outside services as we invest in improving our legal, tax, reporting, control, and compliance efforts and teams.

Operating income for the second quarter of 2011 was $21.6 million. Operating income margin for the quarter was 31.1% versus our reported 35.8% in the second quarter of 2010. However, had there been discounting of receivables during the second quarter of 2010, operating income margin for that period would have been 32.6% and not the reported 35.8%. Also, as I've already disclosed, remember that this contraction in operating income margin is a direct consequence of the gross margin compression that's being brought about by the mix shift towards our lower margin payment business.

Below operating income, we benefited from $2.2 million of interest income aided by the higher cash balances that we decided to hold in Brazil as well as higher interest rate yields in that country.

Pre-tax income was $22.5 million, 37% higher than in the same quarter last year. Tax expenses were $7.6 million in the second quarter of 2011 representing a higher tax rate than usual due to the nondeductible nature of the one time expense associated with the payments processing error which I outlined earlier. This resulted in a blended tax rate of 34% versus 29% in the second quarter of 2010 and 30% in the first quarter of 2011.

Net income for the three months ended June 30, 2011, was $14.8 million, reflecting an increase of 27% when compared with the $11.7 million we delivered during the same period of 2010. This represents a 21.4% net income margin and resulted in basic net income per common share of $0.34.

Turning to our balance sheet now, property, equipment and intangible asset purchases for the quarter totaled $10.4 million including the purchase of new offices in Venezuela which accounted for $6.6 million of those $10.4 million. Consequently, for the period ended June 30, 2011, net cash provided by operating activities less property and equipment and intangible asset purchases totaled $8.2 million or 55.3% of net income and free cash flow.

Cash, short-term investments and long-term investments at the end of the quarter totaled $166.8 million underlying the consistently increasing strength of our balance sheet.

On a final note, I'd like to briefly remind you that our quarterly dividend payment was made on July 15th, 2011 to all stockholders of record as of the close of business on June 30, 2011 in the amount of $0.08. We remain strongly committed to continue our quarterly dividend program and to increase dividend amounts in the future in line with our growing capacity to generate earnings.

All in all, I'd like to wrap up by saying that we believe the company is in excellent financial shape We have a business model that continues to deliver strong margins, adding to our solid cash position and allowing us to pursue further growth while rewarding our shareholders along the way. I am definitely looking forward to the second half of this year as we see the effects of all the initiatives that we have underway and the new ones that we will add to these in an ecommerce context that could not be more favorable to us. With that, we'd now like to take your questions. Operator?

(Operator Instructions). Ross Sandler. Gene Munster.

Good afternoon and congratulations. Pedro, you went through some of those numbers kind of fast. Can you just recap the local currency growth in Brazil, Argentina and Mexico?

Hi, Gene. So Brazil in local currency revenues -- just a second.

So 15.5% year on year for Brazil. This is Marcos. Hi, Gene. Argentina, 37.2% local currency revenues year on year growth. And Mexico 7.4% year on year local currency growth.

Okay, and then I guess from a --

Clearly it is important to note that this has the impact of the change in MercadoPago processing. If we do apples to apples, then it's obviously higher for Brazil.

Brazil is 28% local currency on apples to apples basis.

Okay. And then I guess on that front competitively, I know that's been a big topic over the last six months. Are you seeing things shifting in Brazil in particular? And then I've got a follow up question.

No, we haven't seen much change competitively in Brazil or anywhere in the region. As you know, we face a lot of competition from different players. Brazil there's a lot of ecommerce activity, mostly from retailers We don't see them as competitors. We see them as clients of ours. As a market basically what we do is put buyers and sellers together and we're seeing lots of new buyers and lots of new retailers and sellers coming into the marketplace. We provide solutions for them either on our market base or we provide payment solutions for them on their own platforms. And increasingly we're also providing traffic to them through Mercado Clicks and even to smaller players who are providing them their ecommerce solution through Mercado Shops that has been growing also very rapidly.

Okay, and then a question in terms of the take rate. It obviously -- it went up a little bit but not enough to offset the increase shift to Pago and then it had an overall negative impact on margins. The way I've been thinking about it is that you'd be maybe moving up the take rate at a corresponding rate of the increase in Pago usage. It doesn't seem that that's happening. Is there going to be some form of a catch up I guess in terms of the take rate relative to the Pago adoption in the next several quarters?

So I think, Gene, what we decided is we need to optimize between the financial model in terms of margins but also the market share gains in growth. And so what we're trying to manage here is both continuing [technical difficulty] as well as other areas of the financial model where we can gain leverage so that we don't have to transfer all of that to pricing. And going forward, I think that continues to be the intention. [Technical difficulty].

Ladies and gentlemen, please stand by, we are experiencing technical difficulties. Once again, ladies and gentlemen, please stand by.

Sorry, so we got dropped off there, Gene. I think the summary to the question you had asked is, we will continue to increase prices, but not necessarily to offset the margin compression. We will also work aggressively on the COGS structure in negotiating interchange fees to try to reduce the margin compression. And at the end of the day, that's the balancing act that we need to carry forward. We don't want to increase prices to fully offset the margin compression because we think that could have a negative impact on growth which is the driver we prioritize.

Ross Sandler, RBC Capital Markets.

Okay, let's try this again. Can you guys hear me? So just a clarification, Pedro, if we back out the $1.6 million one timer in sales and marketing, your EBITDA margin would have been 35.9% That's kind of the apples to apples way to think about it and that's up from last year's 33.9% I believe. Is that true? And then I've got a couple of follow ups.

Fair enough. There are a couple of other one timers that worked to our benefit this quarter that are smaller and don't deserve an independent call out. So the overall impact netting out both the positive and the negative one timers is slightly less than the $1.6 million. But directionally, you're correct.

Can you give us the items growth for Argentina, Mexico, and Venezuela in the second quarter?

So Argentina, items sold growth was 22%. Mexico was 16%. Venezuela was 34%. And Brazil was 32%.

Thanks, okay. And then lastly, can you guys just talk about -- so the new platform upgrade, obviously it's having some significant improvements. It sounded like it was a little bit of a transition at the beginning of the quarter in April per your comments earlier, but what kind of conversion rate improvement are you seeing on the new platform and can you give us just a little bit of color on where items growth was at the end of the quarter, closer to June or even into July in terms of -- what was the linearity of that 26%? Did you start at 20% and end at 35%? Or a little bit of color on how that progressed throughout the quarter. Thanks.

Well as mentioned on our prepared remarks, the quarter was off to a slow start as in April we launched several new releases and faced some instabilities, some bugs. Fortunately we were able to quickly iterate and stabilize the platform, so we started the quarter significantly below the 26% rate and we ended the quarter well above.

Great. Thanks, guys.

Aaron Kessler, ThinkEquity. (Operator Instructions). Steve Weinstein, Pacific Crest

Great. Thanks for taking my question. I think we're trying to understand the momentum which ended Q2 to help us with our forecasts for kind of Q3 and Q4. I was wondering if you can give us a little more clarity I guess around how much growth change, or maybe what the exit rate for the quarter was in terms of growth. And also, the slower growth you talked about in April, I was wondering if you could say, was that across the platform or was that in any particular market? And what were the major platform issues or things you saw that caused that? Thank you.

Hi, Steve. So basically we are launching an entirely new platform and obviously in an ecosystem that already has its sights on the growth that ours has. We are bound to find unexpected problems and that's basically what happened. It's technical issues that the new platform encountered more traffic than what we thought. We thought it could handle it and it couldn't. But basically we were able to work our way around it and as mentioned during our prepared remarks, we gained growth in May and in June. So we don't want to give any projections for future growth because you know that's not our style. We simply wanted to make it clear that the growth rate that we're showing for transactions of the quarter is an average of lower growth rate in the first half of the quarter and higher growth rate during the second half of the quarter.

Okay, thank you.

Aaron Kessler, ThinkEquity.

Hi, can you guys hear me now? Sorry about that. Just a couple of questions. First on the VAT issue, the taxes, can you give us an update there? I think you've had a few months in Argentina with that, maybe a month or so in Brazil. Any history so far? And also, the total payment transaction volume, or actually the number of transactions, appeared to grow much faster than actually total payment volume. I don't know if there's any color behind that? Thank you.

Sure. So on the tax issue, I'd say we continue to hold the same position we have throughout and the data continues to show the same thing. We increasingly work together with tax authorities in Argentina and Brazil and haven't seen any significant seller churn or negative impact on our business as a consequence of that. And we'll continue to monitor this closely going forward and give you call outs. But so far, really again, no significant impact on the business.

In terms of the spread between payments volume and payments in number, that's primarily a consequence of some very good work that our payments team has been carrying out in capturing off-platform business. Many of these Groupon clone type sites or smaller merchants have lower average payment processing products than on-platform. Specifically, the daily deal sites that deal in much lower ASPs. And the generates the divergence between TPN and TPV. I think it's a trend we probably will continue to see as we grow our merchant services business aggressively over the next few quarters and years.

Great. And finally, CapEx has been a little elevated this year I guess part of your re-platforming. Can you give us a sense maybe where you'd be long term CapEx as a percentage of revenues?

Sure, so the CapEx this year I think in addition to the platforming or even more so than the platforming, it's really the investments in offices and real estate that we've carried out primarily. I think traditionally we've said that we view this as a business long term where the investment in CapEx, mainly in technology, should hover around 5% to 7% of revenues. And I think that probably is the way we think about this longer term barring these one offs like office purchases or other, again, one off capital expenditures.

Great. Thank you.

Thank you, sir. And with no further questions, that does conclude today's program. Thank you all for your participation. You may now disconnect.