MercadoLibre's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Start Time: 16:30

End Time: 17:15

MercadoLibre, Inc. (MELI)

Q2 2012 Earnings Call

August 2, 2012 04:30 p.m. ET

Executives

Alex de Aboitiz – Head – IR

Marcos Galperín – CEO

Pedro Arnt – CFO

Osvaldo Gimenez – SVP

Analysts

Mark Miller – William Blair

Gene Munster – Piper Jaffray

Nat Brogadir – Stifel Nicolaus

Marcelo Santos – JP Morgan

Stephen Ju – Credit Suisse

Rudy Martin – Latin Capital Market

Zack – Morgan Stanley

Robert Larity – Rose Advisors

Presentation

Operator

Welcome, ladies and gentlemen, to the MercadoLibre Second Quarter Earnings Conference Call. (Operator Instructions) Later we will hold a question-and-answer session and instructions will follow at that time. (Operator Instructions) And as a reminder, this call is being recorded.

I would like to turn the conference over to the company management. Please go ahead.

Alex de Aboitiz

Hello, everyone, and welcome to the MercadoLibre earnings conference call for the quarter ended June 30, 2012. My name is Alex de Aboitiz and I am the Head of Investor Relations for MercadoLibre. Our senior manager presenting today is Pedro Arnt, Chief Financial Officer. Additionally, Marcos Galperín, Chief Executive Officer, 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 the 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 in this call for a variety of reasons, including those described in the Forward-Looking Statements and Risk Factor sections of our 10-K 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 Pedro.

Pedro Arnt

Thank you. Welcome and thanks for joining us on our recap of MercadoLibre’s second quarter of 2012. Having closed a strong first half of the year, I’d like to start by reviewing some of the drivers behind the solid performance across all our business units, both at the top and bottom lines as revenue grew 47% in local currencies, 28% in U.S. dollars and net income grew 91% in local currencies, 71% in U.S. dollars during the quarter.

To start out let me note that having posted these solid financial results despite significant currency headwinds and signs of slowing economies throughout the region confirms our understanding that sustained positive e-commerce trends and solid internal execution continue to be determinant drivers of our company’s growth. Accordingly, capturing market growth through innovation on our platforms is where we remain focused, conscious of the great mid- to long-term prospects of technology enterprises in rapidly developing regions such as Latin America.

Internet penetration continues on the rise and better connections are allowing Internet users to become increasingly engaged online. A growing middle class is therefore adapting its shopping habits in the countries where we operate and the search for convenience, competitive prices and unmatched variety leads them to MercadoLibre. As e-commerce gains share of retail, we continue to benefit from the strong top of mind presence that we’ve built and from our commitment to deploying the best user-facing products and technologies, offering the right solution for each user’s needs and thus increasing the relevance and ubiquity of the services we offer.

To quantify the success we believe we are having, here is a quick over view of key operational metrics that illustrate the underlying foreign exchange neutral growth of our business. During the second quarter, 3.7 million new users were registered and confirmed on our site, 31% more than in the second quarter of 2011, bringing out total confirmed registered users to 73.2 million. Successful items were 15.8 million, a 36% year-over-year growth. Total number of payments were 5.5 million, 78% year-over-year growth. GMVe was $1.299 billion, a 37% year-over-year growth in local currencies. TPV was $411.6 million, a 64% year-over-year growth in local currencies.

These strong operational metrics translated well into financial performance. Specifically during the second quarter of 2012 net revenues grew 28% in U.S. dollars to $88.8 million, a 47% growth in local currencies. Gross profit margin was 73.1% versus 75.6% in the second quarter of 2011 and 74.8% in the first quarter of 2012 driven principally by the growth of our lower-margin Payments business.

Income from operations grew 48% to $31.9 million with an operating income margin of 35.9% versus 31.1% in the first quarter of 2011. In local currencies, operating income grew 66% year-on-year. Net income before income asset tax expenses grew 56% year-on-year to $35.1 million. In local currencies, pre-tax income grew 77%. Net income was $25.4 million, growing 71% year-on-year. This represents a 28.6% net income margin versus 21.4% a year earlier. When measured in local currencies, net income grew 91% year-on-year during the second quarter.

Now I would like to dive into further detail on how we achieved these results. Let me start with our core marketplace, which today represents approximately 70% of our revenues. Our rate of GMVe growth for the quarter, excluding the impact of foreign exchange, continued to be we believe above market rates.

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