美卡多 (MELI) 2017 Q1 法說會逐字稿

Hello, everyone, and welcome to the MercadoLibre Earnings Conference Call for the quarter ended March 31, 2017.

I am Federico Sandler, Head of Investor Relations for MercadoLibre.

Our Senior Manager presenting today is Pedro Arnt, Chief Financial Officer.

Additionally, Marcos Galperin, Chief Executive Officer; and Osvaldo Giménez, Executive Vice President of Payments will be available during today's Q&A session.

This conference call is also been broadcasted 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 under our current assumptions, expectations and projections of our future events.

While we believe that our assumptions, expectations and projections are reasonable in view of the current available information, you are cautioned not to place undue reliance on these forward-looking statements.

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

Finally, I would like to remind you that during the course of this conference call, we may discuss some non-GAAP measures.

A reconciliation of those measures to the nearest comparable GAAP measures can be found on our first quarter 2017 earnings press release available on our Investor Relations website.

Now, let me turn the call over to Pedro.

Thanks, Federico.

Hello to everyone, and welcome to our first quarter conference call for 2017.

We've kicked off the year with a strong first quarter sustaining the momentum from 2016, which was one of the best years in history.

The consistent pace of execution this quarter is a direct reflection of our relentless drive to deliver disruptive technology solutions to our users across platforms, devices and countries where we operate.

We remain focused on transforming commerce and financial services through product innovation, fostering entrepreneurship and delivering best-in-class user experiences.

And thus, cementing our leadership position in technology, online payments and e-commerce throughout Latin America.

We're excited to see how the business has continued to outperform market growth rates in a consistent manner, as we render the value proposition of our enhanced marketplace more complete in terms of quality, quantity and reach of value-added services available both on and off our marketplaces.

Before I dive into financial results, let's quickly take a look at some of the KPIs that underscore our strong performance during the first quarter of 2017.

Units sold grew 38.6% year-on-year to $53.2 million.

Maintaining the strong momentum in unit volumes, we observed all through the 4 quarters of last year.

Gross merchandise volume reached $2.3 billion accelerating by 20 percentage points, sequentially, to 31% year-on-year in U.S. dollars.

While on an FX neutral basis, gross merchandise volume accelerated for the third consecutive quarter to 61.4% year-over-year.

Total payment volume grew 81.3% on an FX neutral basis, reaching $2.6 billion, while total payment transactions grew 60.1% to $44.1 million payments processed.

All this led to solid revenue growth both on an FX neutral basis and in U.S. dollars, growing 78.3% and 73.8%, respectively.

The latter is the fastest pace of U.S. dollar revenue growth in over 5 years.

Finally, we continue to grow our user base as registered users were up 20.3% year-on-year, reaching 182 million after we added 8.1 million new users during the quarter.

These are some of the headlines, but what best showcases our strong first quarter performance is the consistent progress we have made in delivering a transformative user experience to our buyers and sellers through our enhanced marketplace, while complementing it with our growing financial technology solutions.

Starting on the marketplace, let me take a closer look at the building blocks that facilitate growth in this business unit: engagement and retention, vibrancy of trade, monetization and supply.

We continue to make strides on the user engagement and retention front.

Unique buyers grew by 20% year-over-year and maintained a solid pace of demand growth, observed over the course of last year.

Engagement rates are also moving in the right direction as items purchased per unique buyer grew by 15% versus the same quarter a year ago.

So we're seeing growth-on-growth, more active users and more purchases per active user.

The performance of our Brazilian marketplace was noteworthy as well, as we witnessed firsthand, how the virtuous cycle of full penetration of our enhanced marketplace offering delivers solid rates of growth and vibrancy, even on top of tough comparisons from last year and a still challenging macro environment.

The resilience of our Brazilian business and the type of results it is delivering this quarter have been extraordinary from a unit volume and GMV perspective.

Units sold achieved the fourth consecutive quarter of growth in excess of 50% year-over-year.

On an FX neutral basis, GMV grew 12% above its 2-year compound annual growth rate at 39%, also maintaining a strong momentum during 2016.

Additionally, during the first quarter of this year, items growth in Brazil was 52.7% year-on-year, 26 percentage points above its 2-year CAGR.

Demand metrics and conversion rates in Brazil are giving us the conviction that we are taking the right approach to attract and retain buyers on our ecosystem.

Unique buyers in Brazil accelerated year-on-year, while purchase frequency continued to grow to record highs.

GMV from repeat buyers is also at record levels, being this a leading indicator of how much the improved user experience we are delivering is driving better engagement among our users.

Mexico was also a highlight during the quarter.

Gross merchandise volume on an FX neutral basis accelerated for the seventh consecutive quarter to 33% year-over-year, the fastest pace of GMV growth in 4 years.

On the units sold front, results are even more encouraging and they grew at a multiyear high of 71% year-over-year, reaching 4.5 million items.

That's the sixth consecutive quarter of acceleration in unit volumes in Mexico.

As a result of our free shipping strategy and investments in customer acquisition in Mexico, we reignited unique buyer growth as well.

Unique buyers accelerated for the third consecutive quarter to 18%, the fastest pace of growth in 4 years.

I also would like to point out that this quarter in Mexico, we improved purchase frequency per unique buyer by 45%, delivering the highest purchase frequency growth rate on record in that country.

Not coincidentally and confirming that onboarding payments and shipping are key drivers to accelerate the marketplace, 79% of new buyers in Mexico made their first purchase with MercadoPago and MercadoEnvios.

When looking at monetization levels, results are also encouraging for us as it continues to improve.

On an FX neutral basis, revenues in Mexico, Brazil and Argentina are all growing above 55% year-on-year as we see the pickup of the enhanced marketplace, with shipping, credit and payment processing revenues penetrating GMV at a rapid clip.

Mexico is worth noting here as its FX neutral revenue growth rate was the highest in over 5 years during this quarter.

These figures I have just walked you through for Brazil and Mexico, starkly contrast with physical retail sales in those countries, which are growing less than 5%.

Figures like these are the ones that not only give us confidence that there is still significant room to continue gaining share from online retail as well as offline retail, but also that secular tailwinds continue to trump macroeconomic headwinds for our business.

On the supply side, we are successfully onboarding more inventory as product assortment continues to deepen on our platform.

Live listings being offered on MercadoLibre marketplace, grew 58% during the first quarter of 2017, reaching 85 million live listings.

In line with that, we are also gaining incremental share of wallet as we become the go-to destination for online buyers throughout the continent.

Case-in-point, verticals such as fashion and apparel grew GMV 50% versus a year ago, while auto parts and home and garden, each grew GMV at over 30% year-on-year, respectively.

On a not so positive note, Argentina continues to offset the strength we saw throughout other countries for the marketplace business during the first quarter of 2017.

Despite still delivering solid top line growth, results there decelerated across many important operational metrics.

Moving onto the payments front, MercadoPago's strong results this quarter demonstrate that we are well on track to consolidate our payments business as a regional leader in OAuth 2.0 digital payment platforms.

We continue to build our strategies for democratizing the moment in management of money from cash to digital payments placing our millions of users in a position to benefit from the mobile revolution and to migrate to an all-digital retail and payments platform.

Penetration of MercadoPago on our platform showed solid gains, as it continues to reduce friction, build trust, improve purchase frequency and the overall user experience for our buyers and sellers.

As a result, on platform, Total Payment Volume reached $2 billion, growing at a fast clip both on an FX neutral basis at 77.3% year-on-year, and in U.S. dollars, at an even stronger 84.1% year-on-year.

During the first quarter, penetration of MercadoPago was up by 21 percentage points from 56% a year ago.

On a country-per-country basis, Colombia, Uruguay, and Chile are delivering promising results as well with year-on-year penetration gains of 27, 29 and 33 percentage points, respectively.

Our merchant service businesses has consolidated as one of our fastest-growing segments within MercadoLibre, and becoming an increasingly important component of our FinTech value proposition.

During the first quarter, Total Payment Volume grew 81.3% year-on-year on an FX neutral basis, while revenue growth for merchant services, the name we gave to payments processed away from our marketplace, came in at a solid 79% year-on-year on an FX neutral basis.

As the strength and reliability of our 2-sided network engages both merchants and consumers, the stronger our network effect becomes as we grow our scale's advantages.

As a result, the size of our merchant base is becoming a competitive advantage, increasingly harder to replicate the larger we grow.

In this sense, during the quarter, we made progress on this respect, as we continue to onboard large and well-established merchants.

Some of these include online travel and tourism vertical Despegar in Argentina, Assist Card, one of the largest travel assistance plans in Argentina, Mexico and Colombia, and Copel, one of the leading Mexican department store chains.

We have also made progress in our mobile payments initiatives.

We are content to report that our MercadoPago mobile wallet app is delivering encouraging results in Brazil and Argentina, as we build more repeat usage cases around it, making it more convenient for our users to pay for goods and services with a simple tap or scan from their mobile devices.

Although still in an early seed stage, we are excited to see strong pickup in active payers and total payments volume, driven by utility and bill payment services as well as continued growth in our mobile top-up offerings.

Adoption of our mobile point-of-sale systems by real world physical merchants in Brazil also continues to gain traction.

Within less than 2 years since launching the product, it has already become one of the largest contributors to off platform Total Payment Volume in Brazil.

Argentina is beginning to show positive results on that front as well, growing rapidly, but from a small base, since the product was only launched in the last quarter of 2016.

One last point in the payments segment is our fraud prevention efforts.

As a consequence of our investment in machine learning and AI to prevent and detect fraud on our payment platforms over the last few years, we have achieved historic highs in approval rates, while maintaining fraud loss provision ratios at all-time lows, while also reducing the number of manually reviewed payments consistently quarter-over-quarter.

This is important for us as it signals that not only are we delivering to our merchants leading ratios on the key factors of approval rates and low fraud loss provisions, which are significant drivers in the merchant selection process of a payments processor, but also, we are saving costs and scaling as we further automate our internal fraud monitoring processes.

Our shipping initiatives are playing a determinant role in accompanying and driving the fast pace of growth of our marketplace, growing items shipped through MercadoEnvios by 59% year-on-year to over 27 million units.

During the quarter, we also reached an important milestone in our shipping business unit, as we processed over 10 million orders for the first time in 1 month since we launched the service 4 years ago.

MercadoEnvios in Mexico continues to advance on a firm trajectory as drop shipping penetration increased by 29 percentage points versus last year, reaching 59 percentage points as a result of the success of free shipping.

Within just 6 months of launch, free shipping already accounts for 67% of items sold and 87% of GMV.

Colombia and Chile are also delivering solid and sustained growth both in unit volumes and revenues, while also quickly growing Envios penetration.

As a percentage of items, Chile grew 13 percentage points to 14% within a year of launch of the shipping solution, while Colombia reached 41%, gaining 26 percentage points versus the first quarter of 2016.

Moving on, we are also pleased with the shape of our classifieds business.

As it maintains vibrancy and healthy growth rates, as we evolve into a model that monetizes listing fees, principally, to professional clients, such as car dealerships and realtors.

Professional active clients are at multiyear highs, growing 29% versus last year and topping 21,000 in motors and real estate.

Supply is growing triple digits year-on-year, reaching an all-time high of nearly 4 million listings.

Lastly, I'm happy to report that as a result of investments we have made in enhancing the classifieds product, we are seeing our lead generation volume grow 79% year-on-year, highlighting the increased liquidity and value we are driving to dealers and realtors.

And with regard to customer experience, overall, we continue to improve on how quickly and effectively we respond to our users, as our Net Promoter Score rose once again during the first quarter of 2017.

Providing our users consistently higher rates of immediate access to customer service representatives through real-time online and phone channels is resulting in shorter wait queues, and most importantly is playing a determinant factor in reducing overall contact rates and improving satisfaction levels.

With that, let's review how these operational highlights, I have just walked you through have impacted our financials during the quarter.

Net revenue accelerated for the fourth consecutive quarter to $273.9 million, a growth rate of 78.9% on an FX neutral basis and the ninth quarter in a row of growth about 50% in topline.

In U.S. dollar results, we have also seen a very strong quarter, as net revenues accelerated for the third consecutive quarter to 73.8%, also, the fastest pace of growth in U.S. dollar revenues in over 5 years, driven in part by currency stability like we have not seen for some time.

On a country-by-country basis, revenue growth for the first quarter of 2017 was as follows: Argentina 58.5%; Brazil 66.4%; Mexico 55.2%; Colombia 33.3%; and Chile 30.2%; All of these on an FX neutral basis.

Once again, we observed robust marketplace revenue growth as unit volumes in Mexico and Brazil continue to grow at a fast clip, and consequently, were the most significant contributors to the strong results the segment delivered during the quarter.

On an FX neutral basis, total marketplace revenues accelerated to 85.8% year-on-year, delivering the sixth consecutive quarter of growth above 60%.

Core marketplace revenues in dollars delivered the fastest pace of growth in over 4 years, coming in at 68.4% year-on-year.

We continue to experience solid growth rates in our non-marketplace revenue segment as well.

On an FX neutral basis, non-marketplace revenues grew 68.6% and in U.S. dollars an equally solid 81.8%.

In order of relevance, the main contributors to this growth were as follows: MercadoPago payment processing revenue accelerating to 78.8% year-on-year on an FX neutral basis, driven by the growth of payment volume in off platform.

Brazil was a highlight here, as it has delivered 8 consecutive quarters of revenue growth north of 90%.

Financing fees growing on an FX neutral basis 42.4% year-on-year aided by the adoption of installment purchases in Brazil, Mexico and Chile.

This was partially offset by a slowdown in financing revenues in Argentina due to changes in the regulatory environment for consumer financing.

And finally, shipping revenue more than doubled to 182.2% year-on-year on an FX neutral basis, propelled by adoption of our shipping and logistics solutions in Brazil, Argentina and Colombia.

Moving down our income statement, gross profit was $168.9 million.

Gross profit margin was 61.6% of revenues versus 64.8% a year ago, and 63.5% in the fourth quarter of 2016.

These 318 basis points of year-on-year margin contraction are attributable to investments in hosting, representing around 50 basis points of contraction, and 210 basis points of contraction that stems from higher investments in free shipping initiatives in Mexico, higher collection fees and sales taxes due to the incremental adoption of our enhanced marketplace.

Cost of goods sold related to the sale of our mobile POS payment devices accounted for the remaining 60 basis points of gross margin contraction.

Operating expenses totaled a $105.5 million, up by 47.2% from last year's first quarter, a 695 basis point margin improvement on an as-reported basis.

Breaking down these OpEx lines, sales and marketing grew 43.6% year-on-year to $46.9 million, growing less than revenues and representing 17.1% of sales.

The 360 basis points year-on-year leverage was attributed for the most part to cost savings in buyer protection, bad debt and salary and wages, which were partially offset by marketing spend.

Product development expenses grew less than revenues at 38.1% to $30.3 million, representing 11.1 percentage of revenues, notwithstanding, having grown the engineering headcount by 37% versus the first quarter of 2016.

General & administrative expenses grew 66% year-on-year to $28.3 million, growing less than revenues, and representing 10.3% of sales.

Salaries and wages explained most of the G&A expense growth, driven for the most part by accruals to our long-term retention plan.

As a result of this, on an as-reported basis, operating income for the quarter was $63.3 million, up 107.7% versus last year.

Below operating income, we saw $6.5 million in financial expenses, mostly corresponding to the interest accrual on the convertible bond we issued in June of 2014.

Further down, interest income was $12.2 million, up 67.7% year-on-year, explained by higher interest rates on a larger investment base, as our MercadoPago store balances have increased versus the first quarter of last year.

Our ForEx line was $663,000 during the quarter as we compare against the appreciation of our U.S. dollar balances held by our Argentine subsidiary as a result of the strong devaluation of the peso during the same period last year.

Income tax expense was $21.1 million during the quarter.

The blended tax rate for the period was 30.4%.

The increase in the tax rate is attributed to tax loss carryforwards gained in Venezuela last year, as a result of the devaluation of the bolivar and the lower concentration of pretax profit in Argentina, where we are beneficiaries of a software law tax holiday.

Consequently, as reported net income came in at $48.5 million, we delivered 17.7% of net income margin during the quarter, which resulted in a basic net income per common share of $1.10.

Purchases of property, equipment, intangible assets and advances for property and equipment totaled $12.8 million.

For the period that ended on the 31st of March of 2017, free cash flow, defined as cash flow from operating activities less payments for the acquisition of property, equipment, intangible assets, advances for property and equipment, net of financial liabilities, was $92 million versus negative $29.1 million in the same period last year.

Cash, short-term investments and long-term investments at the end of the quarter, thus totaled $736.9 million.

Wrapping up, we declared a quarterly dividend of $6.6 million or $0.15 per share payable on July 14, 2017, to shareholders of record as of the close of business on June 30, 2017.

To close, and as the quarter results clearly attest, we continue to execute against our strategic vision in a disciplined, yet ambitious manner.

We are fortunate to operate in one of the world's most exciting and dynamic industries, which energize and inspire our team every day.

We still have a lot of work and heavy lifting ahead of us, but I'd like to take a moment and thank all the employees at MercadoLibre for another quarter of hard work and dedication on behalf of our users.

It really is making a difference in the value that we are adding to our clients and our shareholders.

And with that, we'd like to take your questions now.

(Operator Instructions) Our first question comes from Robert Ford with Bank of America.

With respect to Mexico and the acceleration there, Pedro, can you talk a little bit about the margin pressure?

And given the growth that you're seeing, how do you expect the business in Mexico to scale as we go forward?

Bob, so the focus right now is on continuing to deliver the service that we've been delivering to our users, continue to drive top line growth and sustain our leadership position and not focus so much on short-term margin.

We're pretty convinced that if we continue to roll out the kind of services we're rolling out, that do generate margin pressure in the short term, these are mid- to long-term scale-sensitive services, particularly, shipping.

And if we continue to grow the the business, eventually, we'll be able to start focusing more on scaling and on margins.

Right now, that's not where the focus is.

And you made some changes in terms of shipping, right?

So I think, right now, we haven't made any significant changes.

We are obviously -- we're seeing very, very strong results of the shipping initiative.

I would say, across the board in terms of customer satisfaction, in terms of driving acceleration, repeat usage.

And so there is a lot of dynamism around what we're doing with shipping, operationally, in terms of pricing.

So I think it's constantly in flux.

There hasn't been anything significant over the last quarter that comes to mind right now.

And -- but I think, you will continue to see us significantly involved and aggressive on the shipping front.

Our next question comes from Stephen Ju with Crédit Suisse.

This is Chris Ford on for Stephen.

Two questions, if I may.

Any further update on the rollout of free shipping in Brazil?

And should we expect this to roll out kind of gradually with certain higher-priced items coming first?

And then secondarily, any high-level commentary on what you guys changed in the customer acquisition strategy in Mexico that was effective?

So we've communicated to our community that we will start our free shipping program in Brazil in early May, so over the course of the next few weeks.

And remember that, with shipping and this is what I was referring to before and that it's fluid and dynamic, we control a lot of the levers in terms of prices, at which you get free shipping, seller profiles, buyer profiles.

So this is something that we can launch it one way and then see what kind of returns we're getting and how the business is performing.

And it's something that we can dial up or down -- dial down levers according to what we think is best for the business and for our users.

And just adding on to the previous answer, I think, also part of the way we're trying to manage the financial model, is not focusing too much on specific segment profitability, but rather looking at the business as a whole and understanding what our consolidated financial models would look like.

And then based on that being very aggressive investing in regions or in businesses that we think require a faster pace of investment right now and maybe in other segments we will have more long-term investment approach and derive more margin for those short-term.

Second part of your question was customer acquisition strategy in Mexico.

I would say that, as we've seen improving engagement and return metrics from our users, I think, we're increasingly more comfortable investing more behind user acquisition, lifetime values are improving.

And we're just more confident that long-term health of newer cohorts that we're acquiring, look increasingly better.

So I don't think that there necessarily has been a change in execution, but rather just incremental investment because we are able to feel comfortable about both mid- to long-term return of those new user cohorts.

Our next question comes from Deepak Mathivanan with Barclays.

Two questions from me.

So first, it looks like listings for seller, if you do the math is up like 40%.

Is that because you're bringing in more high-volume sellers recently over the last few quarters and bringing in more selection to the platform?

What would you call out as a reason for that?

Is it in any specific category?

Is it across the board?

And then second question on OpEx.

The leverage in 1Q was pretty strong, seems like sales and marketing and then you called out, buyer protection cost savings into it.

Is that something we can expect as a trend to continue for the rest of the year?

So on the selection front, I think it's a continuation of a trend that has been going on for quite some quarters now.

As sellers are able to sell more on the platform, they grow increasingly comfortable listing more and more inventory.

API integrations are becoming more and more frequent.

So it's also -- sellers also are more efficiently uploading larger catalogs.

And I think in overall, it's part of the virtuous cycle that you begin to generate when your demand metrics continue to grow as healthfully as ours have and supply will follow that.

We also think it's part of strengthening the network effect of a marketplace business.

So essentially, it's a continuation of a trend we've been seeing for quite some quarters now.

And I think it's very positive.

We believe that we continue to be by far, the deepest selection of inventory across Latin America online.

And then in terms of margin going forward, as you know, we don't guide.

And again, I think we're focused on delivering a healthy consolidated financial model with priority right now being placed on top line growth and continuing to drive scale gains and continuing to defend the leadership position we have in terms of GMV and size among e-commerce players in the region.

Our next question comes from Marcelo Santos from JPMorgan.

Two of those.

First, just wonder if you could provide us some updates on the logistics front?

How are your cross-docking initiatives ramping up?

And the second question is just to explore a little bit better the Argentina situation.

So just if you could explain a little bit more the drivers of the deceleration are, the buyers, a few not accepting that well to the Pago adoption?

Or is it more deceleration on the financing front?

So just some comment on there would be good.

So cross-docking still continues to be very important to us going forward.

It's still a small portion of shipped units in most countries, Argentina is still the one that has the highest penetration of cross-docking.

And that's about 1/5 of total shipped items.

We're beginning to focus in Brazil in growing our number of cross-docking points.

So hopefully, going forward, that will drive increased penetration of cross-docking, but it's still very small.

And in Mexico, the focus is more on fulfillment by MercadoLibre and also on cross-docking, that's also still relatively small but also trending very well.

And it's -- a lot of our focus over the next few years will be on scaling out those fulfillment and cross-docking initiatives that are still quite early-stage.

Argentina, I think when we look at the Argentine business, there are probably a few drivers behind it not reaccelerating.

Argentina, we believe is still growing at a healthy pace when you look at revenues, but it certainly has decelerated.

In one area, in one aspect, Argentina continues to have some of the longest shipping delivery times.

And so as we improve and focus more and more on the efficiency of our logistics, that could potentially be a catalyst for reacceleration.

There have been changes on the financing front, driven by some changes in regulation that have also made us change how we offer financing.

And that's probably also generated some negative demand elasticity.

We think that eco's pace is already something that's been a few quarters now and probably most users have become increasingly accustomed to that.

So I think, we're attributing more of the current deceleration than the other 2 factors at this point.

Our next question comes from Irma Sgarz of Goldman Sachs.

Two questions.

One a little bit more philosophical and one more short-term and practicality-oriented.

Firstly, on the competitive mode, there has been little bit more noise or interest in the potential uptick of competition from both local as well as international entrants and it's something that you're already battling within Mexico, obviously, but that's obviously concern that something similar could be replicated in Brazil and in Argentina.

Could you just talk a little bit, without having to comment directly about these competitors or potential competitors, could you just talk a little bit about how you see the competitive mode?

What do you see sort of as the 3 key areas?

And I think you -- earlier you mentioned, it's big platform of deep inventory and sellers, obviously, this networking effect but what else could you mention in terms of the key competitive drivers that you feel are really hard for any other company to replicate and where you're already seeing that local competitors are struggling to sort of get into the business?

And then second question.

On the Brazil business, in terms of just an update on the situation with Correios, I think these recent strikes that may be impacting your operation.

Can you just talk about them?

Sort of how you're seeing this quarter shape up in terms of logistics and whether there's been any disruption in your Brazilian business?

Great.

So let me get the short-term one out of the way first.

We haven't seen any significant impact from last week's strike.

I think it hasn't been prolonged enough to really disrupt things significantly.

In terms of competition, I think, if we continue to focus on what we're doing and on the many, many levers we still have to improve the user experience in our business.

I think we'll be in great shape, and we're seeing that in Mexico where regardless of what's happening.

And at a competitive level, I think we've been investing in the right areas and executing quite well and we're seeing the results in many aspects.

We do have a business that does have network externalities.

So I think as we continue to scale that works to our advantage, we build out pipelines and we build out relationships with financial institutions with carriers over 17 years and that's not necessarily something that's easy to replicate short term.

These integrations are not easy to do efficiently.

We continue to think that on the technology and products front, we have an outstanding world-class team, and we believe more than ever that this is about great products and really focusing on technology.

And I think finally, when you look at the scale we're beginning to reach and the margin structure that we have, we really are investing very significant amounts of money back into the business in Latin America year-on-year.

If you look at what our revenue run rate for this year could be, and what our margin structure is looking like, you'll realize that the investment back into the business is quite, quite substantial for an annual period.

So I think scale also is something that will help us very much going forward.

Our next question comes from Richard Cathcart with Bradesco.

Just a couple of questions.

First one, you mentioned the cross-docking centers in Brazil.

Could you just give us bit of an update on where you're up to regarding the fulfillment center, kind of where it is in the stage of development and when that might come online?

And then the second question is, you mentioned the rise in NPS score and some of that being driven by the improvements in customer service.

Can you just give us a bit more information on kind of what exactly has driven those improvements?

And you mentioned lower wait lines, has this been a function of kind of hiring more people in the contact center or is it primarily new technologies?

And also can you just give a little bit of color on whether that Net Promoter Score is coming through across the board?

Or is it a particular country doing well within that?

Great.

So on the fulfillment piece in Brazil, we're still building the innards of that service.

So we're still building the WMS working with our warehouse provider partner to build-out the actual on-site warehouse and the technology that will run it.

So it's not a product that's live yet.

It's something that we'd like to launch this year, but we haven't announced any specific date either.

In terms of Net Promoter Scores, I would say that, foremost, what's driving the improvement is the combination of shipping, payments and being able to control the purchase and sale experience end-to-end.

When we look at the Net Promoter Scores on transactions that use the full ecosystem, there are significantly higher than those that don't use any of the services or only partially uses the services.

So that's the biggest driver.

I think incrementally, we've also opened more channels, particularly, phone and live chat, which tend to help in terms of speed of answering.

And for certain queues are more efficient than traditional e-mail.

We've done more and more work around automation.

So there were many tasks that consumers or users could actually do for themselves if we provide the right tools for them.

And that's immediate solution of the problem rather than having to interact or wait for a back-and-forth with a customer service rep.

So those automation efforts are also yielding very positive results.

And then, finally, I think it's just better execution, better tools, better training of our existing people and we are growing that business.

I mean, with revenues growing the way they've been growing, they still scale.

But when we look at incremental headcount and incremental investments behind customer experience and customer service, they are very, very solid in year-on-year growth in how much we are investing behind that area.

Our next question comes from Tom Champion with Cowen.

I'd like to pick up on the previous logistics questions.

I'm curious if you could comment on what the asset footprint will look like by year-end in terms of fulfillment centers and sortation centers?

And perhaps if you could talk about the longer-term objectives?

And then second, you've got about $740 million in cash on the balance sheet.

I'm curious if you could just update us on your thoughts about the use of cash?

Great.

Again, I think conceptually, what we're doing is we're moving from feeling increasingly comfortable with the drop-ship solutions that we've rolled out to most markets, but still need to grow penetration of those.

There are many markets where it's still sub-50% and we'd like to get those to as close to 100% as we can.

And now we're increasingly beginning to focus on how we can also build-out sortation center capabilities for drop-ship.

So picking up inventory at our merchants' warehouses, and then sorting at these cross-docking stations and having them on their way to the consumer with utmost an overnight stop at the DC.

And also a fulfillment product where we will actually store the inventory for our merchants.

That's the vision that we were building out over the next many, many, many years.

And depending on different product types, buyer, seller types or geographies, we will have one of those 3 flavors of delivery in place.

We also believe that the combination is what allows us to scale out the logistics operation most efficiently and quicker, given how rapid our business has been growing.

On specifics of where we intend to be by year-end, I think, we'd rather update you on a quarterly basis on what we build-out rather than give any forward-looking guidance.

And then in terms of use of cash, I think, remember that part of that cash is cash that is stored balance that has a matching liability, which is the user's interest in withdrawing that cash from their public accounts.

Still significant amount of that cash is not stored balance.

And no short-term commitments on how to use that.

I think there are a lot of areas we can invest, fulfillment, financing is a business that's growing very nicely as well.

And we also run a cash-positive and cash-generative business for now and we like it that way.

But as we grow out logistics and as we grow out our FinTech services, we will have areas in which we can invest that cash.

And I'm not showing any further questions at this time.

I would like to turn the call back to our hosts.

Great.

Thank you, everyone, as always, for attending, and we will speak again, in a few months when we announce the next quarter.

For us it's back to work.

Bye-bye.

Ladies and gentlemen, that concludes today's presentation.

You may now disconnect, and have a wonderful day.