UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2021
-OR-
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________to _________
Commission file number 001-33647
MercadoLibre, Inc.
(Exact name of Registrant as specified in its Charter)
Delaware | 98-0212790 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
Arias 3751, 7thPasaje Posta 4789, 6th Floor
Buenos Aires, C1430CRG, Argentina, C1430EKG
(Address of registrant’s principal executive offices)
(+5411) 4640-8000
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: | ||||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, $0.001 par value per share | MELI | Nasdaq Global Select Market | ||
2.375% Sustainability Notes due 2026 | MELI26 | The Nasdaq Stock Market LLC | ||
3.125% Notes due 2031 | MELI31 | The Nasdaq Stock Market LLC |
Indicate by check mark whether the Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒x No ☐¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.files). Yes ☒x No ☐¨
Indicate by check mark whether the Registrantregistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitiondefinitions of “large accelerated filer”,filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act:
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Non-accelerated filer | ¨ | Smaller reporting company | ¨ | |||
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐¨ No ☒x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
44,157,36449,852,319 shares of the issuer’s common stock, $0.001 par value, outstanding as of November 1, 2017.May 4, 2021.
MERCADOLIBRE, INC.
PART I. FINANCIAL INFORMATION | |
Item 1 — Unaudited Interim Condensed Consolidated Financial Statements | |
1 | |
2 | |
3 | |
4 | |
5 | |
Notes to Interim Condensed Consolidated Financial Statements (unaudited) | 6 |
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations | 31 |
Item 3 — Qualitative and Quantitative Disclosures About Market Risk | 52 |
55 | |
56 | |
56 | |
56 | |
57 | |
58 | |
58 |
Interim Condensed Consolidated Financial Statements
as of September 30, 2017 and December 31, 2016
and for the nine and three-month periods
ended September 30, 2017 and 2016
Interim Condensed Consolidated Balance Sheets
As of September 30, 2017March 31, 2021 and December 31, 20162020
(In thousands of U.S. dollars, except par value)
(Unaudited)
March 31, | December 31, | ||
2021 | 2020 | ||
Assets | |||
Current assets: | |||
Cash and cash equivalents | $ 862,720 | $ 1,856,394 | |
Restricted cash and cash equivalents | 325,636 | 651,830 | |
Short-term investments (634,067 and 636,949 held in guarantee - see Note 4) | 980,076 | 1,241,306 | |
Accounts receivable, net | 64,815 | 49,691 | |
Credit cards receivable and other means of payments, net | 883,670 | 863,073 | |
Loans receivable, net | 416,600 | 385,036 | |
Prepaid expenses | 43,291 | 28,378 | |
Inventory | 131,460 | 118,140 | |
Other assets | 191,923 | 152,959 | |
Total current assets | 3,900,191 | 5,346,807 | |
Non-current assets: | |||
Long-term investments | 175,601 | 166,111 | |
Loans receivable, net | 18,849 | 16,619 | |
Property and equipment, net | 458,640 | 391,684 | |
Operating lease right-of-use assets | 345,313 | 303,214 | |
Goodwill | 82,830 | 85,211 | |
Intangible assets, net | 20,271 | 14,155 | |
Deferred tax assets | 124,272 | 134,916 | |
Other assets | 71,888 | 67,615 | |
Total non-current assets | 1,297,664 | 1,179,525 | |
Total assets | $ 5,197,855 | $ 6,526,332 | |
Liabilities | |||
Current liabilities: | |||
Accounts payable and accrued expenses | $ 612,206 | $ 767,336 | |
Funds payable to customers and amounts due to merchants | 1,527,971 | 1,733,095 | |
Salaries and social security payable | 193,166 | 207,358 | |
Taxes payable | 240,167 | 215,918 | |
Loans payable and other financial liabilities | 514,540 | 548,393 | |
Operating lease liabilities | 67,264 | 55,246 | |
Other liabilities | 49,635 | 108,534 | |
Total current liabilities | 3,204,949 | 3,635,880 | |
Non-current liabilities: | |||
Salaries and social security payable | 20,695 | 49,852 | |
Loans payable and other financial liabilities | 1,659,898 | 860,876 | |
Operating lease liabilities | 277,264 | 243,601 | |
Deferred tax liabilities | 41,233 | 64,354 | |
Other liabilities | 24,220 | 20,191 | |
Total non-current liabilities | 2,023,310 | 1,238,874 | |
Total liabilities | $ 5,228,259 | $ 4,874,754 | |
Commitments and Contingencies (Note 9) |
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Equity | |||
Common stock, $0.001 par value, 110,000,000 shares authorized, | |||
49,852,319 and 49,869,727 shares issued and outstanding at March 31, | |||
2021 and December 31, 2020 | $ 50 | $ 50 | |
Additional paid-in capital | 275,632 | 1,860,502 | |
Treasury stock | (80,126) | (54,805) | |
Retained earnings | 280,103 | 314,115 | |
Accumulated other comprehensive loss | (506,063) | (468,284) | |
Total Equity | (30,404) | 1,651,578 | |
Total Liabilities and Equity | $ 5,197,855 | $ 6,526,332 |
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| September 30, |
| December 31, |
| 2017 |
| 2016 |
Assets |
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Current assets: |
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Cash and cash equivalents | $ 461,198 |
| $ 234,140 |
Short-term investments | 175,165 |
| 253,321 |
Accounts receivable, net | 28,564 |
| 25,435 |
Credit cards receivables, net | 406,883 |
| 307,904 |
Loans receivable, net | 51,843 |
| 6,283 |
Prepaid expenses | 8,199 |
| 15,060 |
Inventory | 2,309 |
| 1,103 |
Other assets | 47,995 |
| 26,215 |
Total current assets | 1,182,156 |
| 869,461 |
Non-current assets: |
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Long-term investments | 45,550 |
| 153,803 |
Property and equipment, net | 136,101 |
| 124,261 |
Goodwill | 95,249 |
| 91,797 |
Intangible assets, net | 24,642 |
| 26,277 |
Deferred tax assets | 66,163 |
| 45,017 |
Other assets | 68,431 |
| 56,819 |
Total non-current assets | 436,136 |
| 497,974 |
Total assets | $ 1,618,292 |
| $ 1,367,435 |
Liabilities and Equity |
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Current liabilities: |
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Accounts payable and accrued expenses | $ 181,557 |
| $ 105,106 |
Funds payable to customers | 519,420 |
| 370,693 |
Salaries and social security payable | 61,168 |
| 48,898 |
Taxes payable | 27,923 |
| 27,338 |
Loans payable and other financial liabilities | 24,701 |
| 11,583 |
Other liabilities | 1,400 |
| 6,359 |
Dividends payable | 6,624 |
| 6,624 |
Total current liabilities | 822,793 |
| 576,601 |
Non-current liabilities: |
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Salaries and social security payable | 22,124 |
| 16,173 |
Loans payable and other financial liabilities | 309,444 |
| 301,940 |
Deferred tax liabilities | 40,435 |
| 34,059 |
Other liabilities | 17,340 |
| 9,808 |
Total non-current liabilities | 389,343 |
| 361,980 |
Total liabilities | $ 1,212,136 |
| $ 938,581 |
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Equity: |
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Common stock, $0.001 par value, 110,000,000 shares authorized, |
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44,157,364 shares issued and outstanding at September 30, |
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2017 and December 31, 2016 | $ 44 |
| $ 44 |
Additional paid-in capital | 70,674 |
| 137,982 |
Retained earnings | 612,269 |
| 550,641 |
Accumulated other comprehensive loss | (276,831) |
| (259,813) |
Total Equity | 406,156 |
| 428,854 |
Total Liabilities and Equity | $ 1,618,292 |
| $ 1,367,435 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
Interim Condensed Consolidated Statements of Income
For the nine and three-month periods ended September 30, 2017March 31, 2021 and 20162020
(In thousands of U.S. dollars, except for share data)
(Unaudited)
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| Nine Months Ended September 30 |
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| Three Months Ended September 30, | Three Months Ended March 31, | |||||||
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| 2017 |
| 2016 |
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| 2017 |
| 2016 | 2021 | 2020 | ||
Net service revenues | $ 1,230,904 | $ 639,892 | |||||||||||
Net product revenues | 147,537 | 12,199 | |||||||||||
Net revenues |
| $ 961,117 |
| $ 588,121 |
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| $ 370,661 |
| $ 230,847 | 1,378,441 | 652,091 | ||
Cost of net revenues |
| (444,879) |
| (213,993) |
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| (194,834) |
| (85,199) | (787,064) | (339,277) | ||
Gross profit |
| 516,238 |
| 374,128 |
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| 175,827 |
| 145,648 | 591,377 | 312,814 | ||
Operating expenses: |
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Product and technology development |
| (93,019) |
| (72,223) |
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| (32,380) |
| (26,066) | (126,035) | (73,435) | ||
Sales and marketing |
| (207,925) |
| (107,743) |
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| (84,139) |
| (39,723) | (288,159) | (206,507) | ||
General and administrative |
| (91,575) |
| (64,061) |
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| (31,766) |
| (26,150) | (86,339) | (62,566) | ||
Impairment of Long-Lived Assets |
| (2,837) |
| (13,717) |
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| — | ||||
Total operating expenses |
| (395,356) |
| (257,744) |
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| (148,285) |
| (91,939) | (500,533) | (342,508) | ||
Income from operations |
| 120,882 |
| 116,384 |
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| 27,542 |
| 53,709 | ||||
Income (loss) from operations | 90,844 | (29,694) | |||||||||||
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Other income (expenses): |
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Interest income and other financial gains |
| 37,020 |
| 25,192 |
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| 14,200 |
| 9,892 | 25,071 | 36,784 | ||
Interest expense and other financial losses |
| (19,686) |
| (18,807) |
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| (6,709) |
| (6,492) | ||||
Foreign currency (loss) / gain |
| (19,475) |
| (5,062) |
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| 1,622 |
| (4,823) | ||||
Net income before income tax expense |
| 118,741 |
| 117,707 |
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| 36,655 |
| 52,286 | ||||
Interest expense and other financial losses (*) | (91,289) | (23,584) | |||||||||||
Foreign currency losses | (15,089) | (186) | |||||||||||
Net income (loss) before income tax expense | 9,537 | (16,680) | |||||||||||
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Income tax expense |
| (37,241) |
| (32,690) |
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| (8,989) |
| (13,374) | (43,549) | (4,429) | ||
Net income |
| $ 81,500 |
| $ 85,017 |
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| $ 27,666 |
| $ 38,912 | ||||
Net loss | $ (34,012) | $ (21,109) |
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| Nine Months Ended September 30 |
| Three Months Ended September 30, | |||||
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| 2017 |
| 2016 |
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| 2017 |
| 2016 |
Basic EPS |
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Basic net income |
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Available to shareholders per common share |
| $ 1.85 |
| $ 1.93 |
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| $ 0.63 |
| $ �� 0.88 |
Weighted average of outstanding common shares |
| 44,157,364 |
| 44,157,215 |
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| 44,157,364 |
| 44,157,341 |
Diluted EPS |
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Diluted net income |
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Available to shareholders per common share |
| $ 1.85 |
| $ 1.93 |
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| $ 0.63 |
| $ 0.88 |
Weighted average of outstanding common shares |
| 44,157,364 |
| 44,157,215 |
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| 44,157,364 |
| 44,157,341 |
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Cash Dividends declared (per share) |
| 0.450 |
| 0.450 |
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| 0.150 |
| 0.150 |
(*) | Includes $49,247 thousands of loss on debt extinguishment and premium related to the 2028 Notes repurchase. See Note 11 to these unaudited interim condensed consolidated financial statements for further detail on 2028 Notes repurchase. |
Three Months Ended March 31, | ||||
2021 | 2020 | |||
Basic EPS | ||||
Basic net loss | ||||
Available to shareholders per common share | $ (0.68) | $ (0.44) | ||
Weighted average of outstanding common shares | 49,867,625 | 49,709,955 | ||
Diluted EPS | ||||
Diluted net loss | ||||
Available to shareholders per common share | $ (0.68) | $ (0.44) | ||
Weighted average of outstanding common shares | 49,867,625 | 49,709,955 | ||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
Interim Condensed Consolidated Statements of Comprehensive Income
For the nine and three-month periods ended September 30, 2017March 31, 2021 and 20162020
(In thousands of U.S. dollars)
(Unaudited)
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| Nine Months Ended September 30 |
| Three Months Ended September 30, | ||||
| 2017 |
| 2016 |
| 2017 |
| 2016 |
Net income | $ 81,500 |
| $ 85,017 |
| $ 27,666 |
| $ 38,912 |
Other comprehensive (loss) income, net of income tax: |
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Currency translation adjustment | (17,945) |
| (11,056) |
| (5,180) |
| (2,974) |
Unrealized net gains (losses) on available for sale investments | 340 |
| 712 |
| (1,413) |
| 1,106 |
Less: Reclassification adjustment for losses on available for sale investments | (587) |
| (672) |
| — |
| — |
Net change in accumulated other comprehensive loss, net of income tax | (17,018) |
| (9,672) |
| (6,593) |
| (1,868) |
Total Comprehensive income | $ 64,482 |
| $ 75,345 |
| $ 21,073 |
| $ 37,044 |
Three Months Ended March 31, | ||||
2021 | 2020 | |||
Net loss | $ (34,012) | $ (21,109) | ||
Other comprehensive loss, net of income tax: | ||||
Currency translation adjustment | (41,869) | (94,597) | ||
Unrealized gains on hedging activities | 3,670 | 3,981 | ||
Unrealized net gains on available for sale investments | — | 2,268 | ||
Less: Reclassification adjustment for gains from accumulated other comprehensive loss | (420) | 1,705 | ||
Net change in accumulated other comprehensive loss, net of income tax | (37,779) | (90,053) | ||
Total Comprehensive loss | $ (71,791) | $ (111,162) |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
MercadoLibre, Inc.
Interim Condensed Consolidated Statements of Cash FlowEquity
For the nine-monththree-month periods ended September 30, 2017March 31, 2021 and 20162020
(In thousands of U.S. dollars)
(Unaudited)
Accumulated | ||||||||||||||||||||
Additional | other | |||||||||||||||||||
Common stock | paid-in | Treasury | Retained | comprehensive | Total | |||||||||||||||
Shares | Amount | capital | Stock | Earnings | loss | Equity(*) | ||||||||||||||
Balance as of December 31, 2020 | 49,870 | $ | 50 | $ | 1,860,502 | $ | (54,805) | $ | 314,115 | $ | (468,284) | $ | 1,651,578 | |||||||
Stock-based compensation — restricted shares issued | — | — | 178 | — | — | — | 178 | |||||||||||||
Capped Call | — | — | (100,769) | — | — | — | (100,769) | |||||||||||||
Repurchase of 2028 Notes Conversion Option | — | — | (1,484,279) | — | — | — | (1,484,279) | |||||||||||||
Common Stock repurchased | (18) | — | — | (25,321) | — | — | (25,321) | |||||||||||||
Net loss | — | — | — | — | (34,012) | — | (34,012) | |||||||||||||
Other comprehensive loss | — | — | — | — | — | (37,779) | (37,779) | |||||||||||||
Balance as of March 31, 2021 | 49,852 | $ | 50 | $ | 275,632 | $ | (80,126) | $ | 280,103 | $ | (506,063) | $ | (30,404) | |||||||
(*) The Total Equity of the Company as of March 31, 2021 decreased from $1,651,578 thousands to $(30,404) thousands, mainly, due to the impact of 2028 Notes repurchased. See Note 11 to these unaudited interim condensed consolidated financial statements for further detail on 2028 Notes repurchase transaction.
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| Nine Months Ended September 30 | ||
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| 2017 |
| 2016 |
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Cash flows from operations: |
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Net income |
| $ 81,500 |
| $ 85,017 |
Adjustments to reconcile net income to net cash provided by operating activities: |
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Unrealized Devaluation Loss, net |
| 28,463 |
| 5,162 |
Impairment of Long-Lived Assets |
| 2,837 |
| 13,717 |
Depreciation and amortization |
| 29,953 |
| 20,698 |
Accrued interest |
| (16,391) |
| (12,643) |
Non cash interest and convertible bonds amortization of debt discount and amortization of debt issuance costs |
| 9,234 |
| 9,122 |
LTRP accrued compensation |
| 28,734 |
| 19,251 |
Deferred income taxes |
| (14,769) |
| (5,895) |
Changes in assets and liabilities: |
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Accounts receivable |
| (13,380) |
| (2,409) |
Credit Card Receivables |
| (113,514) |
| (92,811) |
Prepaid expenses |
| 6,800 |
| (272) |
Inventory |
| (1,172) |
| (1,048) |
Other assets |
| (31,528) |
| (15,865) |
Accounts payable and accrued expenses |
| 71,794 |
| 13,852 |
Funds payable to customers |
| 151,635 |
| 100,322 |
Other liabilities |
| 3,703 |
| 136 |
Interest received from investments |
| 18,490 |
| 11,348 |
Net cash provided by operating activities |
| 242,389 |
| 147,682 |
Cash flows from investing activities: |
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Purchase of investments |
| (3,180,633) |
| (2,548,060) |
Proceeds from sale and maturity of investments |
| 3,371,543 |
| 2,525,118 |
Payment for acquired businesses, net of cash acquired |
| — |
| (7,284) |
Purchases of intangible assets |
| (84) |
| (49) |
Advance for property and equipment |
| (12,777) |
| (6,129) |
Changes in principal of loans receivable, net |
| (46,951) |
| — |
Purchases of property and equipment |
| (39,280) |
| (55,510) |
Net cash provided by (used in) investing activities |
| 91,818 |
| (91,914) |
Cash flows from financing activities: |
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Proceeds from loans payable and other financial liabilities |
| 13,153 |
| 3,892 |
Payments on loans payable and other financing liabilities |
| (4,304) |
| (6,492) |
Dividends paid |
| (19,871) |
| (17,795) |
Purchase of convertible note capped call |
| (67,308) |
| — |
Net cash used in financing activities |
| (78,330) |
| (20,395) |
Effect of exchange rate changes on cash and cash equivalents |
| (28,819) |
| (14,259) |
Net increase in cash and cash equivalents |
| 227,058 |
| 21,114 |
Cash and cash equivalents, beginning of the period |
| $ 234,140 |
| $ 166,881 |
Cash and cash equivalents, end of the period |
| $ 461,198 |
| $ 187,995 |
Accumulated | ||||||||||||||||||||
Additional | other | |||||||||||||||||||
Common stock | paid-in | Treasury | Retained | comprehensive | Total | |||||||||||||||
Shares | Amount | capital | Stock | Earnings | loss | Equity | ||||||||||||||
Balance as of December 31, 2019 | 49,710 | $ | 50 | $ | 2,067,869 | $ | (720) | $ | 322,592 | $ | (406,671) | $ | 1,983,120 | |||||||
Changes in accounting standards | — | — | — | — | (4,570) | — | (4,570) | |||||||||||||
Balance as of December 31, 2019 Restated | 49,710 | $ | 50 | $ | 2,067,869 | $ | (720) | $ | 318,022 | $ | (406,671) | $ | 1,978,550 | |||||||
Stock-based compensation — restricted shares issued | — | — | 179 | — | — | — | 179 | |||||||||||||
Net loss | — | — | — | — | (21,109) | — | (21,109) | |||||||||||||
Redeemable convertible preferred stock dividend distribution ($9.99 per share) | — | — | — | — | (1,000) | — | (1,000) | |||||||||||||
Other comprehensive loss | — | — | — | — | — | (90,053) | (90,053) | |||||||||||||
Balance as of March 31, 2020 | 49,710 | $ | 50 | $ | 2,068,048 | $ | (720) | $ | 295,913 | $ | (496,724) | $ | 1,866,567 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
MercadoLibre,
MercadoLibre, Inc.
Notes to Interim Condensed Consolidated Financial Statements (unaudited)of Cash Flows
For the three-month periods ended March 31, 2021 and 2020
(In thousands of U.S. dollars)
(Unaudited)
Three Months Ended March 31, | ||||
2021 | 2020 | |||
Cash flows from operations: | ||||
Net loss | $ (34,012) | $ (21,109) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||
Unrealized devaluation loss, net | 24,772 | 18,505 | ||
Depreciation and amortization | 38,416 | 21,550 | ||
Accrued interest | (4,045) | (22,352) | ||
Non cash interest, convertible notes amortization of debt discount and amortization of debt issuance costs and other charges | 34,137 | (3,632) | ||
Bad debt charges | 83,829 | 24,419 | ||
Financial results on derivative instruments | (18,989) | (16,767) | ||
Stock-based compensation expense — restricted shares | 178 | 179 | ||
LTRP accrued compensation | 22,916 | 15,664 | ||
Deferred income taxes | 3,988 | (4,199) | ||
Changes in assets and liabilities: | ||||
Accounts receivable | 21,064 | 19,748 | ||
Credit cards receivables and other means of payments | (62,274) | (33,303) | ||
Prepaid expenses | (15,218) | 8,560 | ||
Inventory | (18,958) | (5,272) | ||
Other assets | (34,882) | (5,796) | ||
Payables and accrued expenses | (143,763) | (43,101) | ||
Funds payable to customers and amounts due to merchants | (106,866) | (21,344) | ||
Other liabilities | (62,768) | (32,206) | ||
Interest received from investments | 9,478 | 14,805 | ||
Net cash used in operating activities | (262,997) | (85,651) | ||
Cash flows from investing activities: | ||||
Purchase of investments | (2,415,091) | (1,323,631) | ||
Proceeds from sale and maturity of investments | 2,588,681 | 1,249,960 | ||
Receipts from settlements of derivative instruments | 1,585 | 3,668 | ||
Payment for acquired businesses, net of cash acquired | 0 | (7,561) | ||
Payment from settlements of derivative instruments | (3,897) | 0 | ||
Purchases of intangible assets | (7,805) | (93) | ||
Changes in principal of loans receivable, net | (148,734) | (27,250) | ||
Purchases of property and equipment | (112,672) | (45,175) | ||
Net cash used in investing activities | (97,933) | (150,082) | ||
Cash flows from financing activities: | ||||
Proceeds from loans payable and other financial liabilities | 1,839,617 | 749,617 | ||
Payments on loans payable and other financial liabilities | (704,307) | (593,497) | ||
Payments on repurchase of the 2028 Notes | (1,865,076) | 0 | ||
Payment of finance lease obligations | (3,863) | (564) | ||
Purchase of convertible note capped call | (100,769) | 0 | ||
Dividends paid of preferred stock | 0 | (1,000) | ||
Common Stock repurchased | (25,321) | 0 | ||
Net cash (used in) provided by financing activities | (859,719) | 154,556 | ||
Effect of exchange rate changes on cash, cash equivalents, restricted cash and cash equivalents | (99,219) | (104,864) | ||
Net decrease in cash, cash equivalents, restricted cash and cash equivalents | (1,319,868) | (186,041) | ||
Cash, cash equivalents, restricted cash and cash equivalents, beginning of the period | $ 2,508,224 | $ 1,451,424 | ||
Cash, cash equivalents, restricted cash and cash equivalents, end of the period | $ 1,188,356 | $ 1,265,383 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
MercadoLibre, Inc. (“MercadoLibre” or the “Company”) was incorporated in the state of Delaware, in the United States of America, in October 1999. MercadoLibre is the leading e-commerce companylargest online commerce ecosystem in Latin America, serving as an integrated regional platform and as an enablera provider of the necessary onlinedigital and technology tools tothat allow businesses and individuals to trade products and services in the region.
The Company enables commerce through its marketplace platform, (including online classifieds for motor vehicles, vessels, aircraft, services and real estate), which allows users to buy and sell in most of Latin America.
Through MercadoPago,Mercado Pago, the fintech solution, MercadoLibre enables individuals and businesses to send and receive onlinedigital payments; through MercadoEnvios,Mercado Envios, MercadoLibre facilitates the shipping of goods from the Company and sellers to buyers; through ourthe advertising products, MercadoLibre facilitates advertising services tofor large retailers and brands to promote their product and services on the web; through MercadoShops,Mercado Shops, MercadoLibre facilitatesallows users to set-up, manage, and promote their own on-line web-stores under a subscription-based business model; and through MercadoCredito,Mercado Credito, MercadoLibre extends loans to specificcertain merchants and consumers. In addition,consumers; and through Mercado Fondo, MercadoLibre develops and sells software enterprise solutionsallows users to e-commerce business clientsinvest funds deposited in Brazil.their Mercado Pago accounts.
As of September 30, 2017,March 31, 2021, MercadoLibre, through its wholly-owned subsidiaries, operated online ecommercee-commerce platforms directed towards Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Peru, Mexico, Panama, Honduras, Nicaragua, El Salvador, Portugal, Uruguay, Bolivia, Guatemala, Paraguay and Venezuela. Additionally, MercadoLibre operates an online paymentsits FinTech solution directed towardsin Argentina, Brazil, Mexico, Venezuela, Colombia, Chile, Peru and Uruguay.Uruguay, and extends loans through Mercado Credito in Argentina, Brazil and Mexico. It also offers a shipping solution directed towards Argentina, Brazil, Mexico, Colombia, Chile and Chile. In addition, the Company operates a real estate classified platform that covers some areas of State of Florida, in the United States of America.Uruguay.
2. Summary of significant accounting policies
Basis of presentation
The accompanying unaudited interim condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of the Company, and its wholly-owned subsidiaries.subsidiaries and consolidated Variable Interest Entities (“VIE”). These interim condensed consolidated financial statements are stated in U.S. dollars, except for amountswhere otherwise indicated. Intercompany transactions and balances with subsidiaries have been eliminated for consolidation purposes.
Substantially all net revenues, cost of net revenues and operating expenses are generated in the Company’s foreign operations. Operating income of foreign operations amounted to 96.7% and 99.9% of the consolidated amounts during the nine-month periods ended September 30, 2017 and 2016. Long-lived assets, Intangibleintangible assets and Goodwillgoodwill located in the foreign jurisdictions totaled $247,401$552,837 thousands and $232,314$490,464 thousands as of September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively.
These interim condensed consolidated financial statements reflect the Company’s consolidated financial position as of September 30, 2017March 31, 2021 and December 31, 2016.2020. These consolidated financial statements also showinclude the Company’s consolidated statements of income, and comprehensive income, for the nineequity and three-month periods ended September 30, 2017 and 2016; and statement of cash flows for the nine-monththree-month periods ended September 30, 2017 and 2016.March 31, 2021. These interim condensed consolidated financial statements include all normal recurring adjustments that managementManagement believes are necessary to fairly state the Company’s financial position, operating results and cash flows.
From the quarter ended March 31, 2021 the Company disclosed Net product revenues as a separate line of Net revenues following its growth in significance relative to Net service revenues. As a result, the Company has reclassified the corresponding amount of the three month period ended March 31, 2020 to the line Net product revenues for an amount of $12,199 thousands for comparative purposes.
Because all of the disclosures required by U.S. GAAP for annual consolidated financial statements are not included herein, these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2016,2020, contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”). The Company has evaluated all subsequent events through the date these condensed consolidated financial statements were issued. The condensed consolidated statements of income, of comprehensive income, equity and of cash flows for the periods presented herein are not necessarily indicative of results expected for any future period. For a more detailed discussion of the Company’s significant accounting policies, see note 2 to the financial statements in the Company’s Form 10-K.10-K for the year ended December 31, 2020. During the nine-monththree-month period ended September 30, 2017,March 31, 2021, there were no material updates made to the Company’s significant accounting policies.
Revenue recognition
MercadoLibre, Inc.Revenue recognition criteria for the services provided and goods sold by the Company are described in note 2 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Timing of revenue recognition may differ from the timing of invoicing to customers. Receivables represent amounts invoiced and revenue recognized prior to invoicing when the Company has satisfied the performance obligation and has the unconditional right to payment. Receivables are presented net of allowance for doubtful accounts, loans receivable and chargebacks of $176,912 thousands and $126,661 thousands as of March 31, 2021 and December 31, 2020, respectively.
Deferred revenue consists of fees received related to unsatisfied performance obligations at the end of the period in accordance with ASC 606. Due to the generally short-term duration of contracts, the majority of the performance obligations are satisfied in the following reporting period. Deferred revenue as of December 31, 2020 and 2019 was $32,519 thousands and $16,590 thousands, respectively, of which $9,413 thousands and $5,562 thousands were recognized as revenue during the three-month periods ended March 31, 2021 and 2020, respectively.
As of March 31, 2021, total deferred revenue was $18,556 thousands, mainly due to fees related to listing and optional feature services billed and loyalty programs that are expected to be recognized as revenue in the coming months.
Digital Assets
During the first quarter of 2021, the Company purchased an aggregate amount of $7,800 thousands in bitcoins. The Company accounts for its digital assets—bitcoins— as indefinite-lived intangible assets, in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles—Goodwill and Other. The Company has ownership of and control over its digital assets and uses third-party custodial services to store its digital assets. The Company’s digital assets are initially recorded at cost. Subsequently, they are measured at cost, net of any impairment losses incurred since acquisition.
The Company performs an analysis each quarter to identify whether events or changes in circumstances, principally decreases in the quoted prices on the active exchange, indicate that any decrease in the fair values of the digital assets below the carrying values for such assets subsequent to their acquisition will result in a recognition of impairment charges. The Company determines the fair value of its digital assets in accordance with ASC 820, Fair Value Measurement.
Impairment losses are recognized in the period in which the impairment is identified. The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for any subsequent increase in fair value. Gains (if any) are not recorded until realized upon sale. In determining the gain to be recognized upon sale, the Company calculates the difference between the sales price and carrying value of the digital assets sold immediately prior to sale.
Repurchase of 2.00% Convertible Senior Notes due 2028 - Extinguishment of debt
The derecognition of a convertible debt is based on the principle that an entity is extinguishing the liability component and reacquiring the equity component that was recognized at issuance. This approach is applied whether the debt was settled in cash, shares, other assets (or any combination), or at maturity upon conversion or upon early extinguishment. The settlement consideration is first allocated to Interim Condensed Consolidated Financial Statements (unaudited)the extinguishment of the liability component equal to the fair value of that component immediately prior to extinguishment. Any difference between that allocated amount and the net carrying amount of the liability component and unamortized debt issuance costs should be recognized as a gain or loss on debt extinguishment. Any remaining consideration is allocated to the reacquisition of the equity component and recognized as a reduction of stockholders’ equity. Any paid premium included in the repurchase price should be recognized as a loss when the debt is extinguished.
Foreign currency translation
All of the Company’s consolidated foreign operations have determineduse the local currency to beas their functional currency, except for VenezuelaArgentina, which has used the U.S. dollar as its functional currency since JanuaryJuly 1, 2010,2018. Accordingly, the foreign subsidiaries with local currency as described below. Accordingly, these foreign operating subsidiariesfunctional currency translate assets and liabilities from their local currencies into U.S. dollars by using period-endyear-end exchange rates while income and expense accounts are translated at the average monthly rates in effect during the period,year, unless exchange rates fluctuate significantly during the period, in which case the exchange rates at the date of the transaction are used. The resulting translation adjustment is recorded as a component of other comprehensive (loss) income.loss.
Argentine currency status
Pursuant to U.S. GAAP,
As of July 1, 2018, the Company has transitioned its VenezuelanArgentinian operations to highly inflationary status as from January 1, 2010, which requires that transactionsin accordance with U.S. GAAP, and balances are re-measured as if the U.S. dollar waschanged the functional currency for such operation. The cumulative three year inflation rate asArgentine subsidiaries from December 31, 2010 exceeded 100% at each period end. Thus, the Company continues to treat the economy of Venezuela as highly-inflationary.
On March 9, 2016 the Central Bank of Venezuela (“BCV”) issued the Exchange Agreement No.35. The agreement established a “protected” exchange rate (“DIPRO”) for certain transactions, such as but not limited to: imports of goods of the food and health sectors, as well as supplies associated with the production of said sectors; expenses relating to health treatments, sports, culture, scientific research, and other urgent matters defined by the exchange regulations. All foreign currency transactions not expressly provided in Exchange Agreement No.35 will be processed on the alternate foreign currency markets governed by the exchange regulations, at the floating supplementary market exchange rate (“DICOM”).
Additionally, the agreement established that the alternate foreign currency markets referred to in Exchange Agreement No.33 of February 10, 2015 (“SIMADI”) will continue to operate until replaced by others. From March 31, 2016 through June 30, 2016, the SIMADI exchange rate increased from 273 BsF per U.S. dollar to 628 BsF per U.S. dollar, a 130% increase in the exchange rate. As a consequence of the local currency devaluation, the Company recorded a foreign exchange loss of $4.9 million during the second quarter of 2016.
Considering the significant devaluation and the lower U.S. dollar-equivalent cash flows then expected from the Venezuelan business, the Company reviewed its long-lived assets (including non-current other assets), goodwill and intangible assets with indefinite useful life for impairment and concluded that the carrying value of certain real estate investments in Venezuela as of June 30, 2016 would not be fully recoverable. As a result, on June 30, 2016, the Company recorded an impairment of offices and commercial property under construction included within non-current other assets of $13.7 million. The carrying amount of offices and commercial property under construction was adjusted to its estimated fair value of approximately $12.5 million as of June 30, 2016, by using the market approach, and considering prices for similar assets.
On May 19, 2017, the BCV issued the Exchange Agreement No.38, which established a new foreign exchange mechanism under DICOM, replacing SIMADI. The new mechanism consists of auctions, administered by an auction committee, where sellers and buyers from the private sector may offer foreign currency under certain limits determined by the BCV.
In light of the disappearance of SIMADI (which closed at 728.0 per U.S. dollar), and the Company’s inability to gain accessArgentine Pesos to U.S. dollars, under SIMADI, it started requesting U.S. dollars through DICOM. As a result,which is the Company expectsfunctional currency of their immediate parent company.
Since the second half of 2019, the Argentine government instituted certain foreign currency exchange controls, which may restrict or partially restrict access to settle its transactions through DICOM going forwardforeign currency, like the US dollar, to make payments abroad, either for foreign debt or the importation of goods or services, dividend payments and concluded thatothers, without prior authorization. Those regulations have continued to evolve, sometimes making them more or less stringent depending on the DICOMArgentine government´s perception of availability of sufficient national foreign currency reserves. The above has led to the existence of an informal foreign currency market where foreign currencies quote at levels significantly higher than the official exchange rate. However, the only exchange rate should be used as from June 1, 2017 to measure its bolivar-denominated monetary assetsavailable for external commerce and liabilities and to measurefinancial payments is the revenues and expenses of the Venezuelan subsidiaries. Therefore,official exchange rate, which as of June 30, 2017, monetary assets and liabilities in Bolivares Fuertes (“BsF”) were re-measured to the U.S. dollar using the DICOM closingMarch 31, 2021 was 92.0.
The Company uses Argentina’s official exchange rate of 2640.0 BsF per U.S. dollar. As a consequence ofto record the local currency devaluation, the Company recorded a foreign exchange loss of $22.0 million during the second quarter of 2017.
Considering the significant devaluation and the lower U.S. dollar-equivalent cash flows then expected from the Venezuelan business, the Company reviewed its long-lived assets (including non-current other assets), goodwill and intangible assets with indefinite useful life for impairment and concluded that the carrying value of certain real estate investments in Venezuela as of June 30, 2017 would not be fully recoverable. As a result, on June 30, 2017, the Company recorded an impairment of offices and commercial property under construction included within non-current other assets of $2.8 million. The carrying amount of offices and commercial property under construction was adjusted to its estimated fair value of approximately $9.7 million as of June 30, 2017, by using the market approach and considering prices for similar assets. As of September 30, 2017, the DICOM exchange rate was 3,345.0 BsF per U.S. dollar.
6
Until 2010 the Company was able to obtain U.S. dollars for any purpose, including dividends distribution, using alternative mechanisms other than through the Commission for the Administration of Foreign Exchange Control (CADIVI). Those U.S. dollars, obtained at a higher exchange rate than the one offered by CADIVI, and held at U.S. bank accounts of its Venezuelan subsidiaries, were used until 2011 for dividend distributions from its VenezuelanArgentine subsidiaries. The Company has not distributed dividends from the Venezuelan subsidiaries since 2011.
The following table sets forth the assets, liabilities and net assets of the Company’s VenezuelanArgentine subsidiaries and consolidated VIEs, before intercompany eliminations, of a net liability of $29,594 thousands and $ 15,843 thousands, as of September 30, 2017March 31, 2021 and December 31, 2016 and net revenues for the nine-month periods ended September 30, 2017 and 2016:2020:
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|
|
|
|
|
|
|
|
| September 30, | ||||
|
|
| 2017 |
| 2016 |
| ||
|
|
| (In thousands) | |||||
Venezuelan operations |
|
|
|
|
|
| ||
| Net Revenues |
| $ | 38,329 |
| $ | 26,451 |
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|
|
|
|
|
| September 30, |
| December 31, |
| ||
|
|
| 2017 |
| 2016 |
| ||
|
|
| (In thousands) |
| ||||
| Assets |
|
| 62,648 |
|
| 66,165 |
|
| Liabilities |
|
| (37,269) |
|
| (22,950) |
|
| Net Assets |
| $ | 25,379 |
| $ | 43,215 |
|
March 31, | December 31, | |||
2021 | 2020 | |||
(In thousands) | ||||
Assets | $ 1,493,608 | $ 1,470,885 | ||
Liabilities | 1,154,563 | 1,230,326 | ||
Net Assets | $ 339,045 | $ 240,559 | ||
Income taxes
As of September 30, 2017, the net assets (before intercompany eliminations) of the Venezuelan subsidiaries amounted to 6.2% of consolidated net assets, and cash and investments of the Venezuelan subsidiaries held in local currency in Venezuela amounted to 2.2% of our consolidated cash and investments.
The Company’s ability to obtain U.S. dollars in Venezuela is negatively affected by the exchange regulations in Venezuela that are described above and elsewhere in these interim condensed consolidated financial statements. In addition, its business and ability to obtain U.S. dollars in Venezuela would be negatively affected by additional material devaluations or the imposition of significant additional and more stringent controls on foreign currency exchange by the Venezuelan government.
Despite the current difficult macroeconomic environment in Venezuela, the Company continues to actively manage, through its Venezuelan subsidiaries, its investment in Venezuela.
Income and asset taxes
The Company is subject to U.S. and foreign income taxes. The Company accounts for income taxes following the liability method of accounting which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are also recognized for tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets or liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company’s income tax expense consists of taxes currently payable, if any, plus the change during the period in the Company’s deferred tax assets and liabilities.
A valuation allowance is recorded when, based on the available evidence, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized. The Company’s income tax expense consists of taxes currently payable, if any, plusAccordingly, Management periodically assesses the change during the period in the Company’sneed to establish a valuation allowance for deferred tax assets considering positive and liabilities.negative objective evidence related to the realization of the deferred tax assets. In connection with this assessment, Management considers, among other factors, the nature, frequency and magnitude of current and cumulative losses on an individual subsidiary basis, projections of future taxable income, the duration of statutory carryforward periods, as well as feasible tax planning strategies that would be employed by the Company to prevent tax loss carryforwards from expiring unutilized. Based on Management’s assessment of available objective evidence and considering the future effect of the Company’s initiatives to capture long-term business opportunities, the Company accounted for a valuation allowance in certain subsidiaries in its Mexican operations of $12,176 thousands and $14,186 thousands for the three-month periods ended March 31, 2021 and 2020, respectively.
On August 17, 2011,June 10, 2019, the Argentine government issued a new software development law and on September 9, 2013 the regulatory decree was issued,enacted Law No. 27,506 (knowledge-based economy promotional regime), which established a regime that provides certain tax benefits for companies that meet specific criteria, such as companies that derive at least 70% of their revenues from certain specified activities related to the knowledge-based economy. The regime was suspended on January 20, 2020 until new requirement to become beneficiaryrules for the application of the new software development law.knowledge-based economy promotional regime were issued.
On June 25, 2020, the Chamber of Deputies passed changes to the knowledge-based economy promotional regime. The decree establishes compliance requirements with annual incremental ratios relatedChamber of Senates proposed further amendments, which were returned to exportsthe Chamber of servicesDeputies and research and development expenses that must be achieved to remain within the tax holiday.finally approved on October 7, 2020. The Company’s Argentine subsidiary has to achieve certain required ratios annually under the software development law in order to be eligible for the benefits mentioned below.approved regime is effective as of January 1, 2020 until December 31, 2029.
MercadoLibre, Inc.
NotesBased on the amended promotional regime, companies that meet new specified criteria shall be entitled to: i) a reduction of the income tax burden of 60% (60% for micro and small enterprises, 40% for medium-sized enterprises and 20% for large enterprises) over the promoted activities for each fiscal year, applicable to Interim Condensed Consolidated Financial Statements (unaudited)
On September 17, 2015, theboth Argentine Industry Secretary issued Resolution 1041/2015 approving the Company’s application for eligibility under the new software development law for the Company’s Argentinean subsidiary, Mercadolibre S.R.L. Furthermore, on September 18, 2016, the Argentine Industry Secretary issued Resolutions 93/2016source income and 97/2016 approving the Company’s application for eligibility under the new software development law for the Company’s Argentinean subsidiaries, Neosur S.RL. and Business Vision S.A. As a result, the Company’s Argentinean subsidiaries have been granted a tax holiday retroactive from September 18, 2014. A portionforeign source income, ii) stability of the benefits obtainedestablished by the knowledge-based economy promotional regime (as long as beneficiaries of the new lawbeneficiary is registered and in good standing), iii) a relief of 60% of total incomenon-transferable tax relatedcredit bond amounting to software development activities and a 70% relief(which can be up to 80% in payroll taxes related to software development activities.
The benefits to the Company under the software development law will expire on December 31, 2019. As a resultcertain specific cases) of the Company’s eligibility undercontribution to the new law, it recorded an income tax benefitsocial security regime of $17,672 thousands and $6,367 thousands during the nine and three-month periods ended September 30, 2017, respectively. Aggregate per share effect of the Argentine tax holiday amounted to $0.40 and $0.14 for the nine and three-month periods ended September 30, 2017, respectively. Furthermore, the Company recorded a labor cost benefit of $5,513 thousands and $2,016 thousands during the nine and three-month periods ended September 30, 2017, respectively. Additionally, $1,623 thousands and $587 thousands were accrued to pay software development law audit fees during the nine and three-month periods ended September 30, 2017, respectively. During the nine months period ended September 30, 2016, the Company recorded an income tax benefit of $16,018 thousands, a labor cost benefit of $4,173 thousands and $1,416 thousands were accrued to pay software development law audit fees. Additionally, during the third quarter of 2016, the Company recorded an income tax benefit of $6,823 thousands, a labor cost benefit of $2,167 thousands and $631 thousands were accrued to pay software development law audit fees. Aggregate per share effect of the Argentine tax holiday amounted to $0.46 and $0.20 for the nine and three-month periods ended September 30, 2016, respectively.
As of September 30, 2017 and December 31, 2016, the Company had included under non-current deferred tax assets the foreign tax creditsevery employee whose job is related to the dividend distributions receivedpromoted activities (caps on the number of employees are applicable). Such bonds can be used within 24 months from its subsidiariestheir issue date (which period can be extended for a total amount of $11,588 thousands and $13,515 thousands, respectively. Those foreignan additional 12 months in certain cases) to offset certain federal taxes, such as value-added tax, credits willbut they cannot be used to offset income tax.
On December 20, 2020, Argentina’s Executive Power issued Decree No. 1034/2020, which set the future domesticrules to implement the provisions of the knowledge-based economy promotional regime. Eligible companies must enroll in a registry according to the terms and conditions to be established by the Application Authority, which will verify compliance with the requirements. The Decree also set the mechanism for calculating the level of investment in research and development, the level of employee retention, exports, among others. It also establishes that exports of services from companies participating in this regime will not be subject to export duties.
On January 13, 2021, Argentina’s Ministry of Productive Development –current Application Authority of the knowledge-based economy promotional regime- issued Resolution No. 4/2021 which was followed by Disposition N° 11/2021 issued by the Under Secretariat of Knowledge Economy on February 12, 2021. Both rules establish further details on the requirements, terms, conditions, application, and compliance procedures to be eligible under the promotional regime.
MercadoLibre S.R.L. has submitted the application to be eligible to the knowledge-based economy promotional regime; such eligibility remains subject to Argentine government approval.
Fair value option applied to certain financial instruments
Under ASC 825, U.S. GAAP provides an option to elect fair value with impact on the statement of income tax payable.as an alternative measurement for certain financial instruments and other items on the balance sheet.
The Company has elected to measure certain financial assets at fair value with impact on the statement of income from January 1, 2019 for several reasons including to avoid the mismatch generated by the recognition of certain linked instruments / transactions, separately, in consolidated statement of income and consolidated statement of other comprehensive income and to better reflect the financial model applied for selected instruments.
The Company’s election of the fair value option applies to the: i) Brazilian federal government bonds and ii) U.S. treasury notes. As result of the election of the fair value option, the Company recognized gains in interest income and other financial gains of $1,173 thousands and $12,004 thousands as of March 31, 2021 and 2020, respectively.
Accumulated other comprehensive loss
The following table sets forth the Company’s accumulated other comprehensive loss as of September 30, 2017March 31, 2021 and the year ended December 31, 2016:2020:
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| September 30, |
| December 31, | March 31, | December 31, | ||
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| 2017 |
| 2016 | 2021 | 2020 | ||
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| (In thousands) | (In thousands) | |||||
Accumulated other comprehensive loss: |
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| ||||
Foreign currency translation |
| $ (277,171) |
| $ (259,226) | $ (508,438) | $ (466,569) | ||
Unrealized gains (losses) on investments |
| 518 |
| (909) | ||||
Estimated tax (loss) gain on unrealized gains (losses) on investments |
| (178) |
| 322 | ||||
Unrealized gains (losses) on hedging activities | 3,728 | (2,469) | ||||||
Estimated tax (expense) benefit on unrealized gains (losses) | (1,353) | 754 | ||||||
|
| $ (276,831) |
| $ (259,813) | $ (506,063) | $ (468,284) |
The following tables summarize the changes in accumulated balances of other comprehensive loss for the nine-month periodthree-months ended September 30, 2017:March 31, 2021:
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| Unrealized |
| Foreign |
| Estimated tax |
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| (Losses) Gains on |
| Currency |
| (expense) |
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|
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| Investments |
| Translation |
| benefit |
| Total |
|
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| (In thousands) | |||||||
Balances as of December 31, 2016 |
| $ (909) |
| $ (259,226) |
| $ 322 |
| $ (259,813) |
|
Other comprehensive loss before reclassifications adjustments for gains (losses) on available for sale investments |
| 518 |
| (17,945) |
| (178) |
| (17,605) |
|
Amount of gain (loss) reclassified from accumulated other comprehensive loss |
| 909 |
| — |
| (322) |
| 587 |
|
Net current period other comprehensive income gain (loss) |
| 1,427 |
| (17,945) |
| (500) |
| (17,018) |
|
Ending balance |
| $ 518 |
| $ (277,171) |
| $ (178) |
| $ (276,831) |
|
Unrealized | Foreign | Estimated tax | |||||||
(Losses) Gains on | Currency | benefit | |||||||
hedging activities, net | Translation | (expense) | Total | ||||||
(In thousands) | |||||||||
Balances as of December 31, 2020 | $ (2,469) | $ (466,569) | $ 754 | $ (468,284) | |||||
Other comprehensive income (loss) before reclassifications | 5,561 | (41,869) | (1,891) | (38,199) | |||||
Amount of (gain) loss reclassified from accumulated other comprehensive loss | 636 | — | (216) | 420 | |||||
Net current period other comprehensive income (loss) | 6,197 | (41,869) | (2,107) | (37,779) | |||||
Ending balance | $ 3,728 | $ (508,438) | $ (1,353) | $ (506,063) |
8
Amount of (Loss) Gain | ||||||||||
Reclassified from | ||||||||||
Details about Accumulated | Accumulated Other | |||||||||
Other Comprehensive Loss | Comprehensive | Affected Line Item | ||||||||
Components | Loss | in the Statement of Income | ||||||||
(In thousands) | ||||||||||
Unrealized losses on | $ |
| ||||||||
Estimated tax | 216 | Income tax | ||||||||
Total reclassifications for the | $ | Total, net of income taxes |
Impairment of long-lived assets
The Company reviews its long-lived assets (including non-current other assets) for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
As explained in section “Foreign Currency Translation” of the present Note to these interim condensed consolidated financial statements, Venezuelan currency experienced a steep devaluation in the second quarter of 2017 and 2016.
Considering this change in facts and circumstances and the lower U.S. dollar-equivalent cash flows expected from the Venezuelan business, and long-lived assets expected use, the Company concluded that certain real estate investments held in Caracas, Venezuela, should be impaired. The fair value of long-lived assets was estimated through market approach using level 3 inputs in the fair value hierarchy. These level 3 inputs included, but are not limited to, executed purchase agreements in similar assets and third party valuations. As a consequence, the Company estimated the fair value of the impaired long-lived assets, and recorded impairment losses of $2.8 million and $13.7 million on June 30, 2017 and June 30, 2016, respectively.
Use of estimates
The preparation of interim condensed consolidated financial statements in conformity with U.S. GAAP requires managementManagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used for, but not limited to, accounting for allowanceallowances for doubtful accounts and chargeback provisions, allowance for loans receivables, inventories valuation reserves, recoverability of goodwill, and intangible assets with indefinite useful life, useful life of long-lived assetslives and intangibledeferred tax assets, impairment of short-term and long-term investments, impairment of long-lived assets, compensation costs relating to the Company’s long term retention plan, fair value of convertible debt, note, recognitionfair value of investments, fair value of derivative instruments, income taxes and contingencies.contingencies and determination of the incremental borrowing rate at commencement date of lease operating agreements. Actual results could differ from those estimates.
Recently issued accounting pronouncements
In 2014, the FinancialAdopted Accounting Standards Board (“FASB”) issued new accounting guidance related to revenue recognition. This new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition guidance provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. In 2016,
On December 18, 2019 the FASB issued several amendments to the standard, including principal versus agent considerations when another party is involved in providing goods or services to a customer andASU 2019-12 “Income taxes (Topic 740)—Simplifying the application of identifying performance obligations. The Company has substantially completed the assessment on the adoption of this standard concluding that it is not expected to have a material measurement impact on the Company´s financial statements. However, the Company continues assessing the potential impacts regarding the presentation of certain incentives recorded as an expense under current guidanceaccounting for income taxes”. The adoption of this standard will also require to expand and include certain additional disclosures. The standard is required to be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company continues evaluating the transition method upon adoption. The Company will adopt the new revenue standard in its first quarter of 2018.
9
On February 25, 2016 the FASB issued ASU 2016-02. The amendments in this update create Topic 842, Leases, which supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognizesimplify the assets and liabilities that arise from leases. Previous GAAP did not require lease assets and lease liabilities to be recognizedaccounting for most leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy electionincome taxes by class of underlying asset not to recognize lease assets and lease liabilities. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similarremoving certain exceptions to the classification criteria for distinguishing between capital leasesgeneral principles and operating leases in the previous leases guidance. The resultalso improve consistent application by clarifying and amending existing guidance, such as franchise taxes and interim recognition of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effectenactment of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. Based on existing leases currently classified as operating leases, the Company expects to recognize on the statements of financial position right-of-use assets and lease liabilities.tax laws or rate changes. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including2020, and interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company´s financial statements.
Recently issued accounting pronouncements not yet adopted
On August 5, 2020 the FASB issued the ASU 2020-06 “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40)”. The amendments in this update address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. For convertible instruments, accounting models for specific features are removed and amendments to the disclosure requirements are included. For contracts in an entity’s own equity, simplifies the settlement assessment by removing some requirements. Additionally, the amendments in this update affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The amendments in this update are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company is assessing the effects that the adoption of this accounting pronouncement may have on the Company’s financial statements.
On June 16, 2016 the FASB issued ASU 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of credit losses on financial instruments”. This update amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, this update eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however this topic will require that credit losses be presented as an allowance rather than as a write-down. The new standard is effective for fiscal years beginning after December 15, 2019. The Company is assessing the effects that the adoption of this accounting pronouncement may have on its financial statements.
On October 24, 2016 the FASB issued “ASU 2016-16—Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory”. This update eliminates the prohibition on recognizing current and deferred income tax consequences for an intra-entity asset transfer until the asset or assets have been sold to an outside party. Consequently, this update requires recognition of the current and deferred income tax consequences of an intra-entity asset transfer when the transfer occurs. The new standard is effective for fiscal years beginning after December 15, 2017. The adoption of this standard is not expected to have a material impact on the Company´s financial statements.
3. Net incomeloss per share
Basic earnings per share for the Company’s common stock is computed by dividing, net incomeloss available to common shareholders attributable to common stock for the period by the weighted average number of common shares outstanding during the period.
On June 30, 2014,August 24, 2018 and August 31, 2018 the Company issued 2.25%an aggregate principal amount of $880 million of 2.00% Convertible Senior Notes due 20192028 (see Note 9 of11 to these interim condensed consolidated financial statements for discussion regarding these debt notes)statements). The conversion of these debt notes are included in the calculation for diluted earnings per share utilizing the “if converted” method. The effectAccordingly, conversion of that conversionthese Notes is not assumed for purposes of computing diluted earnings per share if the effect is antidilutive. Additionally, on March 29, 2019 the Company issued Preferred Stock. The conversion of Preferred Stock was included in the calculation for diluted earnings per share utilizing the “if converted” method. Accordingly, conversion of the redeemable convertible preferred stock is not assumed for purposes of computing diluted earnings per share if the effect is antidilutive.
The denominator for diluted net incomeloss per share for the nine and three-month periods ended September 30, 2017March 31, 2021 and 20162020 does not include any effect from the 2014 and 20172028 Notes Capped Call Transactions (as defined below)in Note 11) because it would be antidilutive. In the event of conversion of any or all of the 2028 Notes, the shares that would be delivered to the Company under theCapped Call Transactions (as defined in Note 11) are designed to partially neutralize the dilutive effect of the shares that the Company would issue under the Notes. See Note 9 of11 to these interim condensed consolidated financial statements and Note 17 of16 to the financial statements as offor the year ended December 31,201631, 2020, contained in the Company’s Annual Report on Form 10-K filed with the SEC for more details.
For the nine and three-month periods ended September 30, 2017March 31, 2021 and 20162020, the effects on diluted earnings per share wereof the conversion of the Notes and the redeemable convertible preferred stock would have been antidilutive and, as a consequence, they were not computed forfactored into the calculation of diluted earnings per share.
Net incomeloss per share of common stock is as follows for the nine and three-month periods ended September 30, 2017March 31, 2021 and 2016:2020:
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| Nine Months Ended September 30, |
| Three Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||||||||||||||||
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| 2017 |
| 2016 |
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| 2016 | 2021 | 2020 | |||||||||||||||||||||||||||||||
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| Basic | Diluted |
| Basic |
| Diluted |
| Basic |
| Diluted |
| Basic |
| Diluted | Basic | Diluted | Basic | Diluted | |||||||||||||||||||||
Net income per common share |
| $ 1.85 | $ 1.85 |
| $ 1.93 |
| $ 1.93 |
| $ 0.63 |
| $ 0.63 |
| $ 0.88 |
| $ 0.88 | ||||||||||||||||||||||||||
Net loss per common share | $ (0.68) | $ (0.68) | $ (0.44) | $ (0.44) | |||||||||||||||||||||||||||||||||||||
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Numerator: | Numerator: |
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Net income |
| $ 81,500 | $ 81,500 |
| $ 85,017 |
| $ 85,017 |
| $ 27,666 |
| $ 27,666 |
| $ 38,912 |
| $ 38,912 | ||||||||||||||||||||||||||
Net loss | $ (34,012) | $ (34,012) | $ (21,109) | $ (21,109) | |||||||||||||||||||||||||||||||||||||
Dividends on preferred stock | — | — | (1,000) | (1,000) | |||||||||||||||||||||||||||||||||||||
Net loss corresponding to common stock | $ (34,012) | $ (34,012) | $ (22,109) | $ (22,109) | |||||||||||||||||||||||||||||||||||||
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Denominator: | Denominator: |
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Weighted average of common stock outstanding for Basic earnings per share | Weighted average of common stock outstanding for Basic earnings per share |
| 44,157,364 |
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| 44,157,215 |
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| 44,157,364 |
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| 44,157,341 |
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| 49,867,625 | — | 49,709,955 | — | |||||||||||||||||||||
Adjusted weighted average of common stock outstanding for Diluted earnings per share | Adjusted weighted average of common stock outstanding for Diluted earnings per share |
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| 44,157,364 |
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| 44,157,215 |
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| 44,157,364 |
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| 44,157,341 | — | 49,867,625 | — | 49,709,955 |
4. Cash, cash equivalents, restricted cash and cash equivalent and investments
MercadoLibre, Inc.
NotesThe composition of cash, cash equivalents, restricted cash and cash equivalents, short-term and long-term investments is as follows:
March 31, | December 31, | |||
2021 | 2020 | |||
(In thousands) | ||||
Cash and cash equivalents | $ 862,720 | $ 1,856,394 | ||
Restricted cash and cash equivalents | ||||
Securitization Transactions | $ 100,758 | $ 249,872 | ||
Sovereign Debt Securities (Central Bank of Brazil Mandatory Guarantee) | — | 144,249 | ||
Bank account (Argentine Central Bank regulation) | 185,560 | 237,511 | ||
Bank collateral account (Secured lines of credit guarantee) | 574 | 574 | ||
Money Market Funds (Secured lines of credit guarantee) | 38,586 | 19,469 | ||
Cash in bank account | 158 | 155 | ||
Total restricted cash and cash equivalents | $ 325,636 | $ 651,830 | ||
Total cash, cash equivalents, restricted cash and cash equivalents (*) | $ 1,188,356 | $ 2,508,224 | ||
Short-term investments | ||||
Time Deposits | $ 305,746 | $ 158,818 | ||
Sovereign Debt Securities (Central Bank of Brazil Mandatory Guarantee) | 562,797 | 565,705 | ||
Sovereign Debt Securities (Secured lines of credit guarantee) | 71,270 | 71,244 | ||
Sovereign Debt Securities | 40,263 | 445,539 | ||
Total short-term investments | $ 980,076 | $ 1,241,306 | ||
Long-term investments | ||||
Sovereign Debt Securities | $ 157,023 | $ 150,054 | ||
Securitization Transactions | 1,596 | — | ||
Other Investments | 16,982 | 16,057 | ||
Total long-term investments | $ 175,601 | $ 166,111 |
(*) Cash, cash equivalents, restricted cash and cash equivalents as reported in the consolidated statements of cash flow.
Regulation issued by Central Bank of Argentina (“CBA”)
a)In January 2020, the CBA enacted regulations related to Interim Condensed Consolidated Financial Statements (unaudited)payment service providers that applies to Fintech companies that are not financial institutions, but nevertheless provide payment services in at least one of the processes of the payments system. On July 7, 2020, the CBA approved the registration of the Argentine subsidiary in the registry for payment service providers. These regulations sets forth certain rules that require payment services providers to, among other things, (i) deposit and maintain users’ funds in specific banks’ accounts, payable on demand; (ii) implement a monthly reporting regime with the CBA; (iii) segregate information related to users’ investments funds; (iv) maintain different bank accounts to segregate the Company’s funds from users’ funds; and (v) introduce clarifications on advertising and documents about the standard terms and conditions of the payment service provider. As of March 31, 2021, in accordance with the regulation, the Company held $185,560 thousands in a bank account, payable on demand.
b)In October 2020, the CBA issued a regulation that applies to non-financial loan providers. In accordance with this regulation, the Company was registered in the "Registry of other non-financial loan providers" on December 1, 2020 and complied with a periodic information report within the framework of a monthly information regime as from March 1, 2021. In turn, the CBA established that the Company must comply with the obligations established by CBA rules, regarding, among other things: (i) interest rates in loan operations; (ii) protection of users of financial services; (iii) communication by electronic means for the care of the environment.
Sovereign Debt Securities (Central Bank of Brazil Mandatory Guarantee)
On November 1, 2018, the Company obtained approval from the Central Bank of Brazil to operate as an authorized payment institution. With this authorization, Mercado Pago in Brazil is subject to the supervision of the Central Bank of Brazil and must fully comply with all obligations established by current regulations. Among other obligations, the regulations require authorized payment institutions to hold any electronic balance in a payment institution account in either a specific account of the Central Bank of Brazil that does not pay interest or Brazilian federal government bonds registered with the “Sistema Especial de Liquidacao e Custodia.” 100% of electronic funds were required to be deposited as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021 and December 31, 2020, in accordance with the regulation, the Company held $562,797 thousands and $709,954 thousands deposited in Brazilian federal government bonds, respectively, as a mandatory guarantee (the “Central Bank of Brazil Mandatory Guarantee”).
5. Loans receivable, net
The Company manages loans receivable as “On-line merchant”, “Consumer” and “In-store merchant”. As of March 31, 2021 and December 31, 2020, Loans receivable, net were as follows:
March 31, | December 31, | ||||
2021 | 2020 | ||||
(In thousands) | |||||
On-line merchant | $ | 202,146 | $ | 180,063 | |
Consumer | 296,457 | 237,956 | |||
In-store merchant | 77,273 | 61,452 | |||
Loans receivable | 575,876 | 479,471 | |||
Allowance for uncollectible accounts | (140,427) | (77,816) | |||
Loans receivable, net | $ | 435,449 | $ | 401,655 | |
The credit quality analysis of loans receivable was as follows:
March 31, | December 31, | ||||
2021 | 2020 | ||||
(In thousands) | |||||
1-30 days past due | $ | 45,623 | $ | 34,706 | |
31-60 days past due | 28,644 | 16,977 | |||
61 -90 days past due | 27,412 | 13,239 | |||
91 -120 days past due | 19,763 | 10,632 | |||
121 -150 days past due | 16,381 | 5,315 | |||
151 -180 days past due | 11,684 | 3,649 | |||
Total past due | 149,507 | 84,518 | |||
To become due | 426,369 | 394,953 | |||
Total | $ | 575,876 | $ | 479,471 | |
The following table summarizes the allowance for uncollectible accounts activity during the three-month period ended March 31, 2021 and 2020:
March 31, | |||||
2021 | 2020 | ||||
(In thousands) | |||||
Balance at beginning of year | $ | 77,816 | $ | 20,444 | |
Adoption of ASC 326 (1) | - | 4,977 | |||
Charged/credited to Net loss | 85,997 | 24,419 | |||
Charges/Utilized /Currency translation adjustments/Write-offs | (23,386) | (19,477) | |||
Balance at end of period | $ | 140,427 | $ | 30,363 | |
(1) | Cumulative pre-tax adjustments recorded to retained earnings as of January 1, 2020. |
6. Business combinations, goodwill and intangible assets
Business combinations
Acquisition of a software development company
In March 2020, the Company, through its subsidiary Meli Participaciones S.L., completed the acquisition of 100% of the equity interest of Kiserty S.A. and its subsidiaries, which is a software development company located and organized under the law of Uruguay. The objective of the acquisition was to enhance the capabilities of the Company in terms of software development.
The aggregate purchase price for the acquisition was $10,899 thousands, measured at its fair value amount, which included: (i) the total cash payment of $8,500 thousands at the time of closing; (ii) an escrow of $225 thousands and (iii) a contingent additional cash consideration up to $2,174 thousands.
The Company’s consolidated statement of income includes the results of operations of the acquired business as from March 9, 2020. The net income before intercompany eliminations of the acquired Company included in the Company’s consolidated statement of income amounted to $2,061 thousands for the period ended March 31, 2021.
In addition, the Company incurred in certain direct costs of the business combination which were expensed as incurred.
The purchase price was allocated based on the measurement of the fair value of assets acquired and liabilities assumed considering the information available as of the initial accounting date. The valuation of identifiable intangible assets acquired reflects Management’s estimates based on the use of established valuation methods.
The Company recognized goodwill for this acquisition based on Management’s expectation that the acquired business will improve the Company’s business. Arising goodwill was allocated to each of the segments identified by the Company’s Management, considering the synergies expected from this acquisition and it is expected that the acquisition will contribute to the earnings generation process of such segments. Goodwill arising from this acquisition is not deductible for tax purposes.
The results of operations for periods prior to the acquisitions, individually and in the aggregate, were not material to the Company’s consolidated statements of income and, accordingly, pro forma information has not been presented.
Goodwill and intangible assets
Goodwill and intangible assets
The composition of goodwill and intangible assets is as follows:
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| September 30, |
| December 31, | March 31, | December 31, | ||
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| 2017 |
| 2016 | 2021 | 2020 | ||
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| (In thousands) | (In thousands) | |||||
Goodwill |
| $ 95,249 |
| $ 91,797 | $ 82,830 | $ 85,211 | ||
Intangible assets with indefinite lives |
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- Trademarks |
| 13,153 |
| 12,490 | 7,628 | 7,751 | ||
- Digital assets | 7,588 | — | ||||||
Amortizable intangible assets |
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- Licenses and others |
| 6,565 |
| 8,738 | 4,797 | 4,932 | ||
- Non-compete agreement |
| 2,491 |
| 1,787 | 3,356 | 3,426 | ||
- Customer list |
| 15,215 |
| 14,580 | 13,635 | 14,010 | ||
- Trademarks |
| 1,854 |
| 993 | 7,808 | 7,879 | ||
Total intangible assets |
| $ 39,278 |
| $ 38,588 | $ 44,812 | $ 37,998 | ||
Accumulated amortization |
| (14,636) |
| (12,311) | (24,541) | (23,843) | ||
Total intangible assets, net |
| $ 24,642 |
| $ 26,277 | $ 20,271 | $ 14,155 |
Goodwill
Goodwill
The changes in the carrying amount of goodwill for the nine-monththree-month period ended September 30, 2017March 31, 2021 and the year ended December 31, 20162020 are as follows:
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| Period ended September 30, 2017 | Three Months Ended March 31, 2021 | ||||||||||||||||||||||||||||
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| Brazil |
| Argentina |
| Chile |
| Mexico |
| Venezuela |
| Colombia |
| Other Countries |
| Total | Brazil | Argentina | Mexico | Chile | Colombia | Other Countries | Total | ||||||||
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| (In thousands) | (In thousands) | ||||||||||||||||||||||||||||
Balance, beginning of the period |
| $ 27,660 |
| $ 6,587 |
| $ 17,388 |
| $ 29,342 |
| $ 5,989 |
| $ 3,643 |
| $ 1,188 |
| $ 91,797 | $ 19,762 | $ 10,594 | $ 31,697 | $ 16,996 | $ 4,390 | $ 1,772 | $ 85,211 | ||||||||
- Effect of exchange rates changes |
| 245 |
| (809) |
| 783 |
| 3,158 |
| — |
| 50 |
| 25 |
| 3,452 | |||||||||||||||
Effect of exchange rates changes | (1,360) | — | (522) | (170) | (295) | (34) | (2,381) | ||||||||||||||||||||||||
Balance, end of the period |
| $ 27,905 |
| $ 5,778 |
| $ 18,171 |
| $ 32,500 |
| $ 5,989 |
| $ 3,693 |
| $ 1,213 |
| $ 95,249 | $ 18,402 | $ 10,594 | $ 31,175 | $ 16,826 | $ 4,095 | $ 1,738 | $ 82,830 | ||||||||
Year Ended December 31, 2020 | |||||||||||||||||||||||||||||||
Brazil | Argentina | Mexico | Chile | Colombia | Other Countries | Total | |||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||||
Balance, beginning of the year | $ 29,072 | $ 6,991 | $ 32,196 | $ 14,872 | $ 3,312 | $ 1,166 | $ 87,609 | ||||||||||||||||||||||||
Business Acquisitions | — | 3,603 | 1,062 | 1,241 | 1,246 | 748 | 7,900 | ||||||||||||||||||||||||
Disposals | (3,480) | — | — | — | — | — | (3,480) | ||||||||||||||||||||||||
Effect of exchange rates changes | (5,830) | — | (1,561) | 883 | (168) | (142) | (6,818) | ||||||||||||||||||||||||
Balance, end of the year | $ 19,762 | $ 10,594 | $ 31,697 | $ 16,996 | $ 4,390 | $ 1,772 | $ 85,211 |
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| Brazil |
| Argentina |
| Chile |
| Mexico |
| Venezuela |
| Colombia |
| Other Countries |
| Total |
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| (In thousands) | ||||||||||||||
Balance, beginning of year |
| $ 18,526 |
| $ 7,430 |
| $ 16,438 |
| $ 33,834 |
| $ 5,729 |
| $ 3,437 |
| $ 1,151 |
| $ 86,545 |
- Business acquisition |
| 5,635 |
| 700 |
| — |
| 190 |
| 260 |
| 57 |
| 32 |
| 6,874 |
- Effect of exchange rates changes |
| 3,499 |
| (1,543) |
| 950 |
| (4,682) |
| — |
| 149 |
| 5 |
| (1,622) |
Balance, end of the year |
| $ 27,660 |
| $ 6,587 |
| $ 17,388 |
| $ 29,342 |
| $ 5,989 |
| $ 3,643 |
| $ 1,188 |
| $ 91,797 |
Intangible assets with definite useful life
Intangible assets with definite useful life are comprised of customer lists, non-compete and non-solicitation agreements, acquired software licenses and other acquired intangible assets including developed technologies and trademarks. Aggregate amortization expense for intangible assets totaled$1,182 $1,318 thousands and$1,144 $808 thousands for the three-month periods ended September 30, 2017March 31, 2021 and 2016, respectively, while for the nine-month periods ended at such dates amounted to$3,247thousands and$2,863thousands,2020, respectively.
12
The following table summarizes the remaining amortization of intangible assets (in thousands of U.S. dollars) with definite useful life as of September 30, 2017March 31, 2021:
For year ended 12/31/ | $ | |||||
For year ended 12/31/ | 1,242 | |||||
For year ended 12/31/ | 973 | |||||
For year ended 12/31/ | 341 | |||||
Thereafter | 49 | |||||
$ 5,055 | ||||||
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5.7. Segment reporting
Reporting segments are based upon the Company’s internal organizational structure, the manner in which the Company’s operations are managed and resources are assigned, the criteria used by managementManagement to evaluate the Company’s performance, the availability of separate financial information and overall materiality considerations.
Segment reporting is based on geography as the main basis of segment breakdown in accordance with the criteria, as determined by Management, used to reflect the evaluation ofevaluate the Company’s performance defined by the management.performance. The Company’s segments include Brazil, Argentina, Mexico Venezuela and other countries (such as(which includes Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Honduras, Nicaragua, El Salvador, Bolivia, Guatemala, Panama, Paraguay, Peru, Portugal, Uruguay and USA)the United States of America).
Direct contribution consists of net revenues from external customers less direct costs. Direct costs, which include costs of net revenues, product and technology development expenses, sales and marketing expenses and general and administrative expenses over which segment managers have direct discretionary control, such as advertising and marketing programs, customer support expenses, allowances for doubtful accounts, payroll and third partythird-party fees. All corporate related costs have been excluded from the Company’s direct contribution.
Expenses over which segment managers do not currently have discretionary control, such as certain technology and general and administrative costs are monitored by managementManagement through shared cost centers and are not evaluated in the measurement of segment performance.
The following tables summarize the financial performance of the Company’s reporting segments:
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| Nine Months Ended September 30, 2017 | Three Months Ended March 31, 2021 | |||||||||||||||||||
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| Brazil |
| Argentina |
| Mexico |
| Venezuela |
| Other Countries |
| Total | Brazil | Argentina | Mexico | Other Countries | Total | |||||
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| (In thousands) | (In thousands) | |||||||||||||||||||
Net revenues |
| $ 569,320 |
| $ 250,692 |
| $ 58,324 |
| $ 38,329 |
| $ 44,452 |
| $ 961,117 | $ 768,723 | $ 297,236 | $ 230,497 | $ 81,985 | $ 1,378,441 | |||||
Direct costs |
| (390,008) |
| (150,973) |
| (95,683) |
| (16,841) |
| (37,052) |
| (690,557) | (618,037) | (188,969) | (220,906) | (64,310) | (1,092,222) | |||||
Impairment of Long-lived Assets |
| - |
| - |
| - |
| (2,837) |
| - |
| (2,837) | ||||||||||
Direct contribution |
| 179,312 |
| 99,719 |
| (37,359) |
| 18,651 |
| 7,400 |
| 267,723 | 150,686 | 108,267 | 9,591 | 17,675 | 286,219 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Operating expenses and indirect costs of net revenues |
|
|
|
|
|
|
|
|
|
|
| (146,841) | (195,375) | |||||||||
Income from operations |
|
|
|
|
|
|
|
|
|
|
| 120,882 | 90,844 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Interest income and other financial gains |
|
|
|
|
|
|
|
|
|
|
| 37,020 | 25,071 | |||||||||
Interest expense and other financial losses |
|
|
|
|
|
|
|
|
|
|
| (19,686) | (91,289) | |||||||||
Foreign currency losses |
|
|
|
|
|
|
|
|
|
|
| (19,475) | (15,089) | |||||||||
Net income before income tax expense |
|
|
|
|
|
|
|
|
|
|
| $ 118,741 | $ 9,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
| Three Months Ended September 30, 2017 | ||||||||||||||||||
|
|
|
|
|
|
|
| Brazil |
| Argentina |
| Mexico |
| Venezuela |
| Other Countries |
| Total | ||||||||
|
|
|
|
|
|
|
| (In thousands) | ||||||||||||||||||
Net revenues |
| $ 229,475 |
| $ 91,308 |
| $ 22,604 |
| $ 9,751 |
| $ 17,523 |
| $ 370,661 | ||||||||||||||
Direct costs |
| (182,858) |
| (56,210) |
| (36,038) |
| (4,582) |
| (14,409) |
| (294,097) | ||||||||||||||
Direct contribution |
| 46,617 |
| 35,098 |
| (13,434) |
| 5,169 |
| 3,114 |
| 76,564 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Operating expenses and indirect costs of net revenues |
|
|
|
|
|
|
|
|
|
|
| (49,022) | ||||||||||||||
Income from operations |
|
|
|
|
|
|
|
|
|
|
| 27,542 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
| Interest income and other financial gains |
|
|
|
|
|
|
|
|
|
|
| 14,200 | |||||||||||||
| Interest expense and other financial losses |
|
|
|
|
|
|
|
|
|
|
| (6,709) | |||||||||||||
| Foreign currency gains |
|
|
|
|
|
|
|
|
|
|
| 1,622 | |||||||||||||
Net income before income tax expense |
|
|
|
|
|
|
|
|
|
|
| $36,655 |
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, 2016 | ||||||||||
|
|
|
|
|
|
|
| Brazil |
| Argentina |
| Mexico |
| Venezuela |
| Other Countries |
| Total |
|
|
|
|
|
|
|
| (In thousands) | ||||||||||
Net revenues |
| $131,003 |
| $69,983 |
| $11,807 |
| $6,885 |
| $11,169 |
| $230,847 | ||||||
Direct costs |
| (77,012) |
| (39,026) |
| (10,353) |
| (3,462) |
| (7,943) |
| (137,796) | ||||||
Direct contribution |
| 53,991 |
| 30,957 |
| 1,454 |
| 3,423 |
| 3,226 |
| 93,051 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses and indirect costs of net revenues |
|
|
|
|
|
|
|
|
|
|
| (39,342) | ||||||
Income from operations |
|
|
|
|
|
|
|
|
|
|
| 53,709 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Interest income and other financial gains |
|
|
|
|
|
|
|
|
|
|
| 9,892 | |||||
| Interest expense and other financial losses |
|
|
|
|
|
|
|
|
|
|
| (6,492) | |||||
| Foreign currency losses |
|
|
|
|
|
|
|
|
|
|
| (4,823) | |||||
Net income before income tax expense |
|
|
|
|
|
|
|
|
|
|
| $52,286 |
The following table summarizes the allocation of property and equipment, net based on geography:
|
|
|
|
| ||||
|
| September 30, |
| December 31, | March 31, | December 31, | ||
|
| 2017 |
| 2016 | 2021 | 2020 | ||
|
| (In thousands) | (In thousands) | |||||
US property and equipment, net |
| $ 8,445 |
| $ 9,771 | $ 1,316 | $ 586 | ||
Other countries |
|
|
|
| ||||
Argentina |
| 25,842 |
| 25,071 | 137,270 | 123,589 | ||
Brazil |
| 67,351 |
| 55,706 | 187,668 | 171,409 | ||
Mexico |
| 3,487 |
| 2,307 | 102,135 | 73,315 | ||
Venezuela |
| 21,935 |
| 21,615 | ||||
Other countries |
| 9,041 |
| 9,791 | 30,251 | 22,785 | ||
|
| $ 127,656 |
| $ 114,490 | $ 457,324 | $ 391,098 | ||
Total property and equipment, net |
| $ 136,101 |
| $ 124,261 | $ 458,640 | $ 391,684 |
The following table summarizes the allocation of the goodwill and intangible assets based on geography:
|
|
|
|
| ||||
|
| September 30, |
| December 31, | March 31, | December 31, | ||
|
| 2017 |
| 2016 | 2021 | 2020 | ||
|
| (In thousands) | (In thousands) | |||||
US intangible assets |
| $ 146 |
| $ 250 | $ 7,588 | $ — | ||
Other countries goodwill and intangible assets |
|
|
|
| ||||
Argentina |
| 6,630 |
| 7,717 | 12,022 | 12,617 | ||
Brazil |
| 30,400 |
| 31,170 | 18,523 | 19,958 | ||
Mexico |
| 41,992 |
| 38,860 | 34,579 | 35,338 | ||
Venezuela |
| 7,168 |
| 7,366 | ||||
Chile |
| 28,164 |
| 27,395 | 23,713 | 24,707 | ||
Other countries |
| 5,391 |
| 5,316 | 6,676 | 6,746 | ||
|
| $ 119,745 |
| $ 117,824 | $ 95,513 | $ 99,366 | ||
Total goodwill and intangible assets |
| $ 119,891 |
| $ 118,074 | $ 103,101 | $ 99,366 |
15
Consolidated net revenues by similar products and services for the nine and three-month periods ended September 30, 2017March 31, 2021 and 2016 2020 were as follows:
Three Months Ended March 31, | |||||
Consolidated Net Revenues | 2021 | 2020 | |||
(In thousands) | |||||
Commerce | $ 910,624 | $ 380,710 | |||
Fintech | 467,817 | 271,381 | |||
Total | $ 1,378,441 | $ 652,091 |
|
|
|
|
|
|
|
|
|
|
|
|
| Nine-months Ended September 30, |
| Three-months Ended September 30, | ||||||
|
|
|
|
|
|
|
|
|
|
|
Consolidated Net Revenues |
| 2017 |
|
| 2016 |
| 2017 |
|
| 2016 |
|
| (In thousands) |
| (In thousands) | ||||||
Marketplace |
| $ 582,475 |
|
| $ 341,749 |
| $ 227,269 |
|
| $ 134,374 |
Non-marketplace (*) (**) |
| $ 378,642 |
|
| $ 246,372 |
| $ 143,392 |
|
| $ 96,473 |
Total |
| $ 961,117 |
|
| $ 588,121 |
| $ 370,661 |
|
| $ 230,847 |
(*) Includes, among other things, Ad Sales, Classified Fees, Payment Fees, Shipping Fees and other ancillary services.
(**) Includes an amount of $232,426 thousands and $139,630 thousands of Payment Fees for the nine-month periods ended September 30, 2017 and 2016, respectively. Includes an amount of $92,254 thousands and $52,444 thousands of Payment Fees for the three-month periods ended September 30, 2017 and 2016, respectively.
6.8. Fair value measurement of assets and liabilities
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2017March 31, 2021 and December 31, 2016:2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
| Quoted Prices in |
|
|
|
|
|
|
| Quoted Prices in |
|
|
|
| Quoted Prices in | Quoted Prices in | ||||||||||||||
|
| Balances as of |
| active markets for |
| Significant other |
| Unobservable |
| Balances as of |
| active markets for |
| Significant other |
| Unobservable | Balances as of | active markets for | Significant other | Unobservable | Balances as of | active markets for | Significant other | Unobservable | ||||||||
|
| September 30, |
| identical Assets |
| observable inputs |
| inputs |
| December 31, |
| identical Assets |
| observable inputs |
| inputs | March 31, | identical Assets | observable inputs | inputs | December 31, | identical Assets | observable inputs | inputs | ||||||||
Description |
| 2017 |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| 2016 |
| (Level 1) |
| (Level 2) |
| (Level 3) | 2021 | (Level 1) | (Level 2) | (Level 3) | 2020 | (Level 1) | (Level 2) | (Level 3) | ||||||||
|
| (In thousands) | (In thousands) | |||||||||||||||||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Cash and Cash Equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Money Market Funds |
| $ 189,574 |
| $ 189,574 |
| $ — |
| $ — |
| $ 111,198 |
| $ 111,198 |
| $ — |
| $ — | $ 166,133 | $ 166,133 | $ — | $ — | $ 166,483 | $ 166,483 | $ — | $ — | ||||||||
Sovereign Debt Securities | — | — | — | — | 37,654 | 37,654 | — | — | ||||||||||||||||||||||||
Restricted Cash and cash equivalents: | ||||||||||||||||||||||||||||||||
Money Market Funds | 130,886 | 130,886 | — | — | 257,695 | 257,695 | — | — | ||||||||||||||||||||||||
Sovereign Debt Securities (Central Bank of Brazil Mandatory Guarantee) | — | — | — | — | 144,249 | 144,249 | — | — | ||||||||||||||||||||||||
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Sovereign Debt Securities (Central Bank of Brazil Mandatory Guarantee) | 562,797 | 562,797 | — | — | 565,705 | 565,705 | — | — | ||||||||||||||||||||||||
Sovereign Debt Securities |
| $ 21,786 |
| $ 21,786 |
| $ — |
| $ — |
| $ 50,703 |
| $ 50,703 |
| $ — |
| $ — | 270,152 | 270,152 | — | — | 666,837 | 666,837 | — | — | ||||||||
Corporate Debt Securities |
| 30,468 |
| 28,384 |
| 2,084 |
| — |
| 207,633 |
| 61,986 |
| 145,647 |
| — | ||||||||||||||||
Certificates of deposit |
| — |
| — |
| — |
| — |
| 35,374 |
| — |
| 35,374 |
| — | ||||||||||||||||
Other Assets: | ||||||||||||||||||||||||||||||||
Derivative Instruments | 17,477 | — | — | 17,477 | 199 | — | — | 199 | ||||||||||||||||||||||||
Total Financial Assets |
| $ 241,828 |
| $ 239,744 |
| $ 2,084 |
| $ — |
| $ 404,908 |
| $ 223,887 |
| $ 181,021 |
| $ — | $ 1,147,445 | $ 1,129,968 | $ — | $ 17,477 | $ 1,838,822 | $ 1,838,623 | $ �� — | $ 199 | ||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Contingent considerations |
| $ — |
| $ — |
| $ — |
| $ — |
| $ 4,213 |
| $ — |
| $ — |
| $ 4,213 | $ 4,684 | $ — | $ — | $ 4,684 | $ 4,622 | $ — | $ — | $ 4,622 | ||||||||
Long-term retention plan |
| 38,503 |
| — |
| 38,503 |
| — |
| 27,135 |
| — |
| 27,135 |
| — | 69,331 | — | 69,331 | — | 136,816 | — | 136,816 | — | ||||||||
Derivative Instruments | 3,708 | — | — | 3,708 | 13,964 | — | — | 13,964 | ||||||||||||||||||||||||
Total Financial Liabilities |
| $ 38,503 |
| $ — |
| $ 38,503 |
|
$ — |
| $ 31,348 |
| $ — |
| $ 27,135 |
| $ 4,213 | $ 77,723 | $ — | $ 69,331 | $ 8,392 | $ 155,402 | $ — | $ 136,816 | $ 18,586 |
16
As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the Company’s financial assets valued at fair value consisted of assets valued using i) Level 1 inputs: unadjusted quoted prices in active markets (Level 1 instrument valuations are obtained from observable inputs that reflect quoted prices (unadjusted) for identical assets in active markets) and;; ii) Level 2 inputs: obtained from readily-available pricing sources for comparable instruments as well as instruments with inactive markets at the measurement date.date; and iii) Level 3 inputs: valuations based on unobservable inputs reflecting Company assumptions. Fair value of derivative instruments are determined considering the prevailing risk free interest rate and spot exchange rate.
As of September 30, 2017March 31, 2021 and December 31, 20162020, the Company´sCompany’s liabilities were valued at fair value using levelLevel 2 inputs and levelLevel 3 inputs (valuations based on unobservable inputs reflecting Company assumptions). Fair value of contingent considerations are determined based on the probability of achievement of the performance targets arising from each acquisition, as well as the Company’s historical experience with similar arrangements. ForFair value of derivative instruments are determined considering the nine-month period ended September 30, 2017, the Company recognized in earnings a gain of $3,164 thousandsprevailing risk free interest rate and a loss of $166 thousands within other comprehensive income, in relation with contingent considerations. In addition, during the nine-month period ended September 30, 2017, the Company settled contingent considerations for an amount of $1,215 thousands.spot exchange rate.
The unrealized net gains or loss on short term and long term investments are reported as a component of other comprehensive income. The Company does not anticipate any significant realized losses associated with those investments in excess of the Company’s historical cost.
As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the carrying value of the Company’s financial assets and liabilities measured at amortized cost approximated their fair value mainly because of its short termtheir short-term maturity. These assets and liabilities included cash, cash equivalents, restricted cash and cash equivalents and short-term investments (excluding money markets funds and corporate debt security)securities), accounts receivable, credit cards receivable and other means of payment, loans receivable, funds payable to customers and amounts due to merchants, other assets (excluding derivative instruments), accounts payable, salaries and social security payable (excluding variable LTRP), taxes payable, provisions and other liabilities (excluding contingent consideration)considerations and derivative instruments). The convertible senior notesAs of March 31, 2021 and December 31, 2020, the estimated fair value of the 2028 Notes (liability component), thewhich is based on Level 2 inputs, is $333,759 thousands and $672,345 thousands, respectively, and were determined based on market interest rates. The rest of the loans payable and other financial liabilities approximate their fair value because the effective interest rates are not materially different from market interest rates. rates.
The following table summarizes the fair value level for those financial assets and liabilities of the Company measured at amortized cost as of September 30, 2017March 31, 2021 and December 31, 2016:2020:
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Balances as of |
| Significant other |
| Balances as of |
| Significant other |
|
| Balances as of | Significant other | Balances as of | Significant other | ||||
|
| September 30, |
| observable inputs |
| December 31, |
| observable inputs |
|
| March 31, | observable inputs | December 31, | observable inputs | ||||
|
| 2017 |
| (Level 2) |
| 2016 |
| (Level 2) |
|
| 2021 | (Level 2) | 2020 | (Level 2) | ||||
|
| (In thousands) |
|
| (In thousands) | |||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
| ||||||||
Time Deposits |
| $ 167,224 |
| $ 167,224 |
| $ 113,414 |
| $ 113,414 |
|
| $ 305,746 | $ 305,746 | $ 158,818 | $ 158,818 | ||||
Accounts receivable |
| 28,564 |
| 28,564 |
| 25,435 |
| 25,435 |
|
| ||||||||
Credit Cards receivable |
| 406,883 |
| 406,883 |
| 307,904 |
| 307,904 |
|
| ||||||||
Accounts receivable, net | 64,815 | 64,815 | 49,691 | 49,691 | ||||||||||||||
Credit Cards receivable and other means of payment, net | 883,670 | 883,670 | 863,073 | 863,073 | ||||||||||||||
Loans receivable, net |
| 51,843 |
| 51,843 |
| 6,283 |
| 6,283 |
|
| 435,449 | 435,449 | 401,655 | 401,655 | ||||
Other assets |
| 89,097 |
| 89,097 |
| 58,900 |
| 58,900 |
|
| 263,316 | 263,316 | 236,432 | 236,432 | ||||
Total Assets |
| $ 743,611 |
| $ 743,611 |
| $ 511,936 |
| $ 511,936 |
|
| $ 1,952,996 | $ 1,952,996 | $ 1,709,669 | $ 1,709,669 | ||||
Liabilities |
|
|
|
|
|
|
|
|
|
| ||||||||
Accounts payable and accrued expenses |
| $ 181,557 |
| $ 181,557 |
| $ 105,106 |
| $ 105,106 |
|
| $ 612,206 | $ 612,206 | $ 767,336 | $ 767,336 | ||||
Funds payable to customers |
| 519,420 |
| 519,420 |
| 370,693 |
| 370,693 |
|
| ||||||||
Funds payable to customers and amounts due to merchants | 1,527,971 | 1,527,971 | 1,733,095 | 1,733,095 | ||||||||||||||
Salaries and social security payable |
| 44,789 |
| 44,789 |
| 37,936 |
| 37,936 |
|
| 144,530 | 144,530 | 120,394 | 120,394 | ||||
Taxes payable |
| 27,923 |
| 27,923 |
| 27,338 |
| 27,338 |
|
| 240,167 | 240,167 | 215,918 | 215,918 | ||||
Dividends payable |
| 6,624 |
| 6,624 |
| 6,624 |
| 6,624 |
|
| ||||||||
Loans payable and other financial liabilities (*) |
| 334,145 |
| 334,145 |
| 313,523 |
| 313,523 |
|
| 2,174,438 | 2,205,705 | 1,409,269 | 1,479,165 | ||||
Other liabilities |
| 18,740 |
| 18,740 |
| 11,954 |
| 11,954 |
|
| 65,463 | 65,463 | 110,139 | 110,139 | ||||
Total Liabilities |
| $ 1,133,198 |
| $ 1,133,198 |
| $ 873,174 |
| $ 873,174 |
|
| $ 4,764,775 | $ 4,796,042 | $ 4,356,151 | $ 4,426,047 |
(*) The fair value of the convertible senior notes2028 Notes (including the equity component) is disclosed in Note 9.11.
As of September 30, 2017March 31, 2021 and December 31, 20162020, the Company held no0 direct investments in auction rate securities collateralized debt obligations or structured investment vehicles, and does not0t have any non-financial assets or liabilities measured at fair value.
As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the fair value of money market funds short and long-term investmentssovereign debt securities classified as available for sale securities are as follows:
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
| |||||||
|
| September 30, 2017 | March 31, 2021 | ||||||||||||
|
| Cost |
| Gross Unrealized Gains (1) |
| Gross Unrealized Losses (1) |
| Estimated Fair Value | Cost | Financial Gains | Financial Losses | Estimated Fair Value | |||
|
|
|
|
|
|
|
|
| |||||||
|
| (In thousands) | (In thousands) | ||||||||||||
Cash and cash equivalents |
|
|
|
|
|
|
|
| |||||||
Money Market Funds |
| $ 189,574 |
| $ — |
| $ — |
| $ 189,574 | $ 166,133 | $ — | $ — | $ 166,133 | |||
Total Cash and cash equivalents |
| $ 189,574 |
| $ — |
| $ — |
| $ 189,574 | $ 166,133 | $ — | $ — | $ 166,133 | |||
|
|
|
|
|
|
|
|
| |||||||
Restricted cash and cash equivalents | |||||||||||||||
Money Market Funds | $ 130,886 | $ — | $ — | $ 130,886 | |||||||||||
Total Restricted cash and cash equivalents | $ 130,886 | $ — | $ — | $ 130,886 | |||||||||||
Short-term investments |
|
|
|
|
|
|
|
| |||||||
Corporate Debt Securities |
| 7,250 |
| 1 |
| (4) |
| 7,247 | |||||||
Sovereign Debt Securities |
| 697 |
| — |
| (3) |
| 694 | |||||||
Sovereign Debt Securities (Central Bank of Brazil Mandatory Guarantee) (1) | $ 561,606 | $ 1,192 | $ (1) | $ 562,797 | |||||||||||
Sovereign Debt Securities (1) | 111,111 | 422 | — | 111,533 | |||||||||||
Total Short-term investments |
| $ 7,947 |
| $ 1 |
| $ (7) |
| $ 7,941 | $ 672,717 | $ 1,614 | $ (1) | $ 674,330 | |||
|
|
|
|
|
|
|
|
| |||||||
Long-term investments |
|
|
|
|
|
|
|
| |||||||
Sovereign Debt Securities |
| $ 21,196 |
| $ — |
| $ (104) |
| $ 21,092 | |||||||
Corporate Debt Securities |
| 23,210 |
| 43 |
| (32) |
| 23,221 | |||||||
Sovereign Debt Securities (1) | $ 159,059 | $ 86 | $ (526) | $ 158,619 | |||||||||||
Total Long-term investments |
| $ 44,406 |
| $ 43 |
| $ (136) |
| $ 44,313 | $ 159,059 | $ 86 | $ (526) | $ 158,619 | |||
|
|
|
|
|
|
|
|
| |||||||
Total |
| $ 241,927 |
| $ 44 |
| $ (143) |
| $ 241,828 | $ 1,128,795 | $ 1,700 | $ (527) | $ 1,129,968 |
(1) Measured at fair value with impact on the consolidated statement of income for the application of the fair value option. (See Note 2 – Fair value option applied to certain financial instruments.)
December 31, 2020 | |||||
Cost | Financial Gains | Estimated Fair Value | |||
(In thousands) | |||||
Cash and cash equivalents | |||||
Money Market Funds | $ 166,483 | $ — | $ 166,483 | ||
Sovereign Debt Securities (1) | 37,595 | 59 | 37,654 | ||
Total Cash and cash equivalents | $ 204,078 | $ 59 | $ 204,137 | ||
Restricted Cash and cash equivalents | |||||
Money Market Funds | $ 257,695 | $ — | $ 257,695 | ||
Sovereign Debt Securities (1) | 144,098 | 151 | 144,249 | ||
Total Restricted Cash and cash equivalents | $ 401,793 | $ 151 | $ 401,944 | ||
Short-term investments | |||||
Sovereign Debt Securities (Central Bank of Brazil Mandatory Guarantee)(1) | $ 559,487 | $ 6,218 | $ 565,705 | ||
Sovereign Debt Securities (1) | 514,894 | 1,889 | 516,783 | ||
Total Short-term investments | $ 1,074,381 | $ 8,107 | $ 1,082,488 | ||
Long-term investments | |||||
Sovereign Debt Securities (1) | $ 149,938 | $ 116 | $ 150,054 | ||
Total Long-term investments | $ 149,938 | $ 116 | $ 150,054 | ||
Total | $ 1,830,190 | $ 8,433 | $ 1,838,623 |
18(1)Measured at fair value with impact on the consolidated statement of income for the application of the fair value option. (See Note 2 – Fair value option applied to certain financial instruments.).
|
|
|
|
|
|
|
|
| December 31, 2016 | ||||||
| Cost |
| Gross Unrealized Gains (1) |
| Gross Unrealized Losses (1) |
| Estimated Fair Value |
|
|
|
|
|
|
|
|
| (In thousands) | ||||||
Cash and cash equivalents |
|
|
|
|
|
|
|
Money Market Funds | $ 111,198 |
| $ — |
| $ — |
| $ 111,198 |
Total Cash and cash equivalents | $ 111,198 |
| $ — |
| $ — |
| $ 111,198 |
|
|
|
|
|
|
|
|
Short-term investments |
|
|
|
|
|
|
|
Sovereign Debt Securities | $ 2,166 |
| $ — |
| $ — |
| $ 2,166 |
Corporate Debt Securities | 102,509 |
| 26 |
| (168) |
| 102,367 |
Certificates of deposit | 35,336 |
| 40 |
| (2) |
| 35,374 |
Total Short-term investments | $ 140,011 |
| $ 66 |
| $ (170) |
| $ 139,907 |
|
|
|
|
|
|
|
|
Long-term investments |
|
|
|
|
|
|
|
Sovereign Debt Securities | $ 48,943 |
| $ — |
| $ (406) |
| $ 48,537 |
Corporate Debt Securities | 105,632 |
| 90 |
| (456) |
| 105,266 |
Total Long-term investments | $ 154,575 |
| $ 90 |
| $ (862) |
| $ 153,803 |
|
|
|
|
|
|
|
|
Total | $ 405,784 |
| $ 156 |
| $ (1,032) |
| $ 404,908 |
|
|
The material portion of the Sovereign Debt Securities consists of U.S. Treasury Notes, which carry no significant risk.
As of September 30, 2017,March 31, 2021, the estimated fair values (in thousands of U.S. dollars) of cash equivalents, short-termmoney market funds and long-term investmentssovereign debt securities classified by their effective maturities are as follows:
One year or less | 971,349 | |
One year to two years | 149,989 | |
Two years to three years | 563 | |
Three years to four years | 7,592 | |
| 475 | |
Total | $ |
7.9. Commitments and Contingencies
Litigation and Other Legal Matters
The Company is subject to certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings. The Company accrues liabilities when it considers probable that future costs will be incurred and such costs can be reasonably estimated. The proceeding-related reserve isProceeding-related liabilities are based on developments to date and historical information related to actions filed against the Company. As of September��30, 2017,March 31, 2021, the Company had established reservesaccounted for estimated liabilities involving proceeding-related contingencies and other estimated contingencies of $6,208 thousand$8,726 thousands to cover legal actions against the Company in which its managementManagement has assessed the likelihood of a final adverse outcome as probable. Expected legal costs related to litigations are accrued when the legal service is actually provided.
In addition, as of September 30, 2017March 31, 2021, the Company and its subsidiaries are subject to certain legal actions considered by the Company’s managementManagement and its legal counsels to be reasonably possible for an estimated aggregate amount up to $6,506 thousand.
19
No$55,699 thousands. NaN loss amount hasamounts have been accrued for such reasonably possible legal actionsactions.
Brazilian preliminary injunction against the Brazilian tax authorities
On November 6, 2014, the Brazilian subsidiaries, Mercadolivre.com Atividades de Internet Ltda., Ebazar.com.br Ltda., Mercado Pago.com Representações Ltda. and the Argentine subsidiary, Mercado Libre S.R.L., filed a writ of which most significant (individually ormandamus and requested a preliminary injunction with the Federal Court of Osasco against the federal tax authority to avoid the IR (income tax) withholding over payments remitted by the Brazilian subsidiaries to MercadoLibre S.R.L. for the provision of IT support and assistance services by the latter, and requested reimbursement of the amounts improperly withheld over the course of the preceding five (5) years. The preliminary injunction was granted on the grounds that such withholding violated the convention signed between Brazil and Argentina that prevents double taxation. In August 2015, the injunction was revoked by the first instance judge in the aggregate) are described below and in note 15 isan award favorable to the financial statements infederal tax authority. The Company appealed the Form 10-K fordecision and deposited with the year ended December 31, 2016.
court the disputed amounts. As of September 30, 2017, there were 56 lawsuits pending against our Argentine subsidiary inMarch 31, 2021 the Argentine ordinary courts and 1,856 pending claims in the Argentine Consumer Protection Agencies, where a lawyer is not required to file or pursue a claim.
As of September 30, 2017, there were 10 claims pending against our Mexican subsidiaries in the Mexican ordinary courts and 248 claims pending against our Mexican subsidiaries in the Mexican Consumer Protection Agencies, where a lawyer is not required to file or pursue a claim.
As of September 30, 2017, 700 legal actions were pending in the Brazilian ordinary courts. In addition, as of September 30, 2017, there were 4,016 cases still pending in Brazilian consumer courts. Filing and pursuing of an action before Brazilian consumer courts do not require the assistance of a lawyer.
On July 12, 2017, São Paulo tax authorities assessed taxes and fines against one of our Brazilian subsidiaries (iBazar) relating to “ICMS Publicidade” for the period from July 2012 to December 2013 in antotal amount of R$ 12.2 million or $ 3.7 million according to the exchange ratedeposits were $65,563 thousands (which includes $5,918 thousands of interest). Such amounts are included in effect at that time.non-current other assets of the consolidated balance sheet. In June 2020, the Company’s appeal was dismissed. The Company will present administrative defense againstsubmitted a new remedy before the authorities’ claim. Thesame court in July 2020, which was dismissed on February 17, 2021. On March 18, 2021 the Company filed an appeal with the superior courts, which is now pending. Management’s opinion, of the Company´s management, based on the opinion of external legal counsel, is that the risk of losing the case is reasonably possible but not probable.
In mostprobable based on the technical merits of the cases filed againstCompany’s tax position and the existence of favorable decisions issued by the Federal Regional Courts. For that reason, the Company has not recorded any expense or liability for the plaintiffs asserted that the Company was responsible for fraud committed against them, or responsible for damages suffered when purchasing an item on the Company’s website, when using MercadoPago or MercadoEnvios, or when the Company invoiced them.disputed amounts.
Other third parties have from time to time claimed, and others may claim in the future, that the Company was responsible for fraud committed against them, or that the Company has infringed their intellectual property rights. The underlying laws with respect to the potential liability of online intermediaries like the Company are unclear in the jurisdictions where the Company operates. Management believes that additional lawsuits alleging that the Company has violated copyright or trademark laws will be filed against the Company in the future.
Intellectual property and regulatory claims, whether meritorious or not, are time consuming and costly to resolve, require significant amounts of management time, could require expensive changes in the Company’s methods of doing business, or could require the Company to enter into costly royalty or licensing agreements. The Company may be subject to patent disputes, and be subject to patent infringement claims as the Company’s services expand in scope and complexity. In particular, the Company may face additional patent infringement claims involving various aspects of the payments businesses.
From time to time, the Company is involved in other disputes or regulatory inquiries that arise in the ordinary course of business. The number and significance of these disputes and inquiries are increasing as the Company’s business expands and the Company grows larger.
Buyer protection program
The Company provides consumers with a buyer protection program (“BPP”) for all transactions completed through the Company’s online payment solution (“MercadoPago”Mercado Pago”). This program is designed to protect buyers in the Marketplace from losses due primarily to fraud or counterparty non-performance. The Company’s BPP provides protection to consumers by reimbursing them for the total value of the unfulfilled transaction, if a purchased item and the value of any shipping service paid if it does not arrive or does not match the seller’s description. The Company is entitled to recover from the third-party carrier companies performing the shipping service certain amounts paid under the BPP. Furthermore, in some specific circumstances (i.e. Black Friday, Hot Sale), the Company enters into insurance contracts with third partythird-party insurance companies in order to cover contingencies that may arise from the BPP.
The maximum potential exposure under this program is estimated to be the volume of payments on the Marketplace, for which claims may be made under the terms and conditions of the Company’s existing user agreements.BPP. Based on historical losses to date, the Company does not believe that the maximum potential exposure is representative of the actual potential exposure. The Company records a liability with respect to losses under this program when they are probable and the amount can be reasonably estimated.
As of September 30, 2017, management'sMarch 31, 2021 and December 31, 2020, Management’s estimate of the maximum potential exposure related to the Company’s buyer protection program is $663,139$2,283,252 thousands and $2,535,041 thousands, respectively, for which the Company recorded an allowance of $1,212$7,384 thousands and $8,364 thousands, respectively.
Commitments
The Company entered into a purchase commitment with 2 U.S. suppliers in relation to the purchase of cloud platform services as follows:
a)for a total amount of that date.$240,500 thousands to be fully paid off between June 1, 2020 and May 31, 2024. As of March 31, 2021, the Company paid $62,860 thousands in relation thereto; and
b)for a total amount of $30,000 thousands to be fully paid off between November 24, 2019 and March 23, 2023. As of March 31, 2021, the Company paid $7,670 thousands in relation thereto.
20
8.10. Long term retention planprogram (“LTRP”)
On April 3, 2017, the Board of Directors, upon the recommendation of the Compensation Committee, adopted the 2017 Long-Term Retention Plan (“2017 LTRP”). In addition to the annual salary and bonus of each employee, certain employees (“Eligible Employees”) are eligible to participate in the 2017 LTRP, which provides for the grant to an Eligible Employee of a cash-settled fixed (a “2017 LTRP Fixed Award”) and a cash-settled variable award, (a “2017 LTRP Variable Award”, and together with any 2017 LTRP Fixed Award, the “2017 LTRP Awards”). In order to receive payment in respect of the 2017 LTRP Awards, each Eligible Employee must satisfy the performance conditions established by the Board of Directors for such employee. If these conditions are satisfied, the Eligible Employee will, subject to his or her continued employment as of each applicable payment date, receive the full amount of his or her 2017 LTRP Awards, payable as follows:
|
|
|
|
The following table summarizes the 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020 and 20172021 long term retention planprogram accrued compensation expense for the nine and three-month periods ended September 30, 2017March 31, 2021 and 2016,2020, which are payable in cash according to the decisions made by the Board of Directors:
Three Months Ended March 31, | ||||||
2021 | 2020 | |||||
(In thousands) | ||||||
LTRP 2012 | — | 69 | ||||
LTRP 2014 | — | 126 | ||||
LTRP 2015 | 178 | 1,272 | ||||
LTRP 2016 | (538) | 2,435 | ||||
LTRP 2017 | (708) | 2,706 | ||||
LTRP 2018 | (210) | 1,556 | ||||
LTRP 2019 | 8,376 | 3,663 | ||||
LTRP 2020 | 9,652 | 3,837 | ||||
LTRP 2021 | 6,166 | — | ||||
Total LTRP | $ | 22,916 | $ | 15,664 | ||
11. Loans payable and other financial liabilities
The following table summarizes the Company’s Loans payable and other financial liabilities as of March 31, 2021 and December 31, 2020:
Book value as of | |||||||||||
Type of instrument | Currency | Interest | Weighted Average Interest | Maturity | March 31, 2021 | December 31, 2020 | |||||
(In thousands) | |||||||||||
Current loans payable and other financial liabilities: | |||||||||||
Loans from banks | |||||||||||
Chilean Subsidiary | Chilean Pesos | Fixed | 1.44 | % | April 2021 | $ | 45,044 | $ | 92,895 | ||
Brazilian Subsidiary | Brazilian Reais | — | — | % | — | — | 70,267 | ||||
Brazilian Subsidiary | Brazilian Reais | Variable | CDI + 3.25 | % | May 2021 | 39,478 | 42,693 | ||||
Brazilian Subsidiary | Brazilian Reais | Variable | CDI + 2.10 | % | June 2021 | 26,920 | 29,218 | ||||
Mexican Subsidiary | Mexican Peso | Variable | TIIE + 2.20 | % | April 2021 | 17,945 | 18,418 | ||||
Argentine Subsidiary | Argentine Pesos | Fixed | 37.75 | % | May 2021 | 13,185 | 14,400 | ||||
Uruguayan Subsidiary | Uruguayan Pesos | Fixed | 6.25 | % | September 2021 | 7,921 | — | ||||
Uruguayan Subsidiary | Uruguayan Pesos | Fixed | 5.37 | % | April 2021 | 4,793 | 13,406 | ||||
Secured lines of credit | |||||||||||
Argentine Subsidiary | Argentine Pesos | Fixed | 31.76 | % | April 2021 | 37,178 | 18,311 | ||||
Argentine Subsidiary | Argentine Pesos | Fixed | 34.84 | % | April 2021 | 5,977 | — | ||||
Brazilian Subsidiary (*) | Brazilian Reais | Variable | CDI + 0.55 | % | July 2021 | 52,978 | 58,437 | ||||
Unsecured lines of credit | |||||||||||
Uruguayan Subsidiary | Uruguayan Pesos | Fixed | 6.46 | % | April 2021 | 20,808 | 20,055 | ||||
Argentine Subsidiary | Argentine Pesos | Fixed | 39.21 | % | April - May 2021 | 124,376 | 116,140 | ||||
Deposit Certificates | |||||||||||
Brazilian Subsidiary | Brazilian Reais | Variable | CDI + 0.52 to 0.80 | % | June 2021 | 22,854 | — | ||||
Brazilian Subsidiary | Brazilian Reais | Variable | 107% to 122% of CDI | January - March 2022 | 43,460 | — | |||||
2028 Notes | 1,124 | 6,649 | |||||||||
2026 Sustainability Notes | 2,006 | — | |||||||||
2031 Notes | 4,618 | — | |||||||||
Finance lease obligations | 6,251 | 7,394 | |||||||||
Credit card collateralized debt | 11,842 | 12,920 | |||||||||
Collateralized debt | 25,782 | 25,342 | |||||||||
Other lines of credit | — | 1,848 | |||||||||
$ | 514,540 | $ | 548,393 | ||||||||
Non Current loans payable and other financial liabilities: | |||||||||||
2028 Notes | 301,368 | 595,800 | |||||||||
2026 Sustainability Notes | 396,282 | — | |||||||||
2031 Notes | 693,347 | — | |||||||||
Finance lease obligations | 18,050 | 16,261 | |||||||||
Collateralized debt | 250,851 | 248,815 | |||||||||
$ | 1,659,898 | $ | 860,876 | ||||||||
(*) | Under the terms of the loan agreement, the Company transferred U.S. treasury notes to an account owned by the Company but under the sole control and dominion of the escrow agent as collateral. This collateral is accounted for in short-term investments and its coupon payment is accounted for in Restricted cash and cash equivalents of the consolidated balance sheet. |
See Notes 12 and 13 to these interim condensed consolidated financial statements for details regarding the Company’s collateralized debt securitization transactions and finance lease obligations, respectively.
2.375% Sustainability Senior Notes Due 2026 and 3.125% Senior Notes Due 2031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, |
|
| Three Months Ended September 30, | ||||||
|
|
| 2017 |
|
| 2016 |
| 2017 |
| 2016 | ||
|
|
| (In thousands) |
| (In thousands) | |||||||
LTRP 2009 |
| $ | 29 |
| $ | 648 |
| $ | - |
| $ | 352 |
LTRP 2010 |
|
| 891 |
|
| 1,017 |
|
| 147 |
|
| 543 |
LTRP 2011 |
|
| 1,422 |
|
| 1,275 |
|
| 229 |
|
| 672 |
LTRP 2012 |
|
| 1,945 |
|
| 1,555 |
|
| 315 |
|
| 813 |
LTRP 2013 |
|
| 3,809 |
|
| 3,380 |
|
| 711 |
|
| 1,689 |
LTRP 2014 |
|
| 3,782 |
|
| 3,089 |
|
| 772 |
|
| 1,448 |
LTRP 2015 |
|
| 4,680 |
|
| 3,846 |
|
| 1,063 |
|
| 1,663 |
LTRP 2016 |
|
| 6,717 |
|
| 4,441 |
|
| 1,606 |
|
| 1,944 |
LTRP 2017 |
|
| 5,459 |
|
| - |
|
| 1,823 |
|
| - |
Total LTRP |
| $ | 28,734 |
| $ | 19,251 |
| $ | 6,666 |
| $ | 9,124 |
On January 14, 2021, the Company closed a public offering of $400,000 thousands aggregate principal amount of 2.375% Sustainability Notes due 2026 (the “2026 Sustainability Notes”) and $700,000 thousands aggregate principal amount of 3.125% Notes due 2031 (the “2031 Notes”, and together with the 2026 Sustainability Notes, the “Notes”). The Company will pay interest on the Notes on January 14 and July 14 of each year, beginning on July 14, 2021. The 2026 Sustainability Notes will mature on January 14, 2026, and the 2031 Notes will mature on January 14, 2031. In connection with the Notes, the Company capitalized $10,647 thousands of debt issuance costs, which are amortized during the term of the Notes.
Certain of the Company’s subsidiaries (the “Subsidiary Guarantors”) fully and unconditionally guarantee the payment of principal, premium, if any, interest, and all other amounts in respect of each of the Notes (the “Subsidiary Guarantees”). The initial Subsidiary Guarantors are MercadoLibre S.R.L., Ibazar.com Atividades de Internet Ltda., eBazar.com.br Ltda., Mercado Envios Servicos de Logistica Ltda., MercadoPago.com Representações Ltda., MercadoLibre Chile Ltda., MercadoLibre, S. de R.L. de C.V., DeRemate.com de México, S. de R.L. de C.V. and MercadoLibre Colombia Ltda.
9. 2.25%The Notes rank equally in right of payment with all of the Company’s other existing and future senior unsecured debt obligations from time to time outstanding. Each Subsidiary Guarantee will rank equally in right of payment with all of the Subsidiary Guarantor’s other existing and future senior unsecured debt obligations from time to time outstanding, except for statutory priorities under applicable local law.
2.00% Convertible Senior Notes Due 20192028
On June 30, 2014, August 24, 2018, the Company issued $330 million$800,000 thousands of 2.25% convertible senior2.00% Convertible Senior Notes due 2028 and issued an additional $80,000 thousands of notes on August 31, 2018 pursuant to the partial exercise of the initial purchasers’ option to purchase such additional notes, for an aggregate principal amount of $880,000 thousands of 2.00% Convertible Senior Notes due 2019 (the “Notes”2028 (collectively, the “2028 Notes”). The 2028 Notes are unsecured, unsubordinated obligations of the Company, which pay interest in cash semi-annually, on January 1February 15 and July 1,August 15 of each year, at a rate of 2.25%2.00% per annum. The 2028 Notes will mature on July 1, 2019August 15, 2028 unless earlier redeemed, repurchased or converted in accordance with their terms prior to such date. The 2028 Notes may be converted, under specific conditions, based on an initial conversion rate of 7.93532.2553 shares of common stock per $1,000 principal amount of the 2028 Notes (equivalent to an initial conversion price of $126.02$443.40 per share of common stock), subject to adjustment as described in the indenture governing the 2028 Notes.
21
MercadoLibre, Inc.
For additional information regarding the 2028 Notes please refer to Interim Condensed Consolidated Financial Statements (unaudited)
Holders may convert their notes at their option at any time priorNote 2 and Note 16 to January 1, 2019 only under the following circumstances: (1) during any calendar quarter commencing afteraudited consolidated financial statements for the calendar quarter ending on September 30, 2014 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”)year ended December 31, 2020, contained in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock andAnnual Report on Form 10-K filed with the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after January 1, 2019 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances. SEC.
During the three-month period from October 1, 2016 through Decemberended March 31, 2016, 12 Notes were2021, one Note was converted, for a total amount of $12 thousands. During$1 thousand. Additionally, during the period from April 1, 2017 through September 30, 2017, 16 Notes were converted for a total amount of $16 thousands. Additionally, during the thirdfirst quarter of 2017,2021, the conversion threshold was met again and the Notes becamebecome convertible atbetween April 1, 2021 and June 30, 2021. As of the holders’ option beginning on October 1, 2017 and ending on December 31, 2017.date of issuance of these interim condensed consolidated financial statements, the Company received additional requests for conversion of $900 thousands. The determination of whether or not the Notes are convertible must continue to be performed on a quarterly basis. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. The intention of the Company is to share-settle the total amount due upon conversion of the Notes.
From October 1, 2017 to the date of issuance of these interim condensed consolidated financial statements, no additional conversion requests were made.
In connection with the issuance of the 2028 Notes, the Company paid $19.7 million$91,784 thousands, $11,472 thousands, $88,362 thousands, $104,095 thousands, $82,682 thousands, $120,012 thousands and $67.3 million$100,769 thousands (including transaction expenses) in August 2018, November 2018, June 20142019, June 2020, August 2020, November 2020 and September 2017,January 2021, respectively, to enter into capped call transactions with respect to shares of the common stock (the “Capped Call Transactions”), with certain financial institutions.institutions (the “2028 Notes Capped Call Transactions”). In addition, the Company paid $8,005 thousands in November 2019 to amend the strike and cap prices of the capped call transaction purchased in November 2018. The 2028 Notes Capped Call Transactions are expected generally to reduce the potential dilution upon conversion of the Convertible2028 Notes in the event that the market price of the Company’s common stock is greater than the strike price and lower than the cap price of the 2028 Notes Capped Call Transactions. The cost of the 2028 Notes Capped Call Transactions is included as a net reduction to additional paid-in capital in the stockholders’ equity section of the consolidated balance sheets.
In January 2021, the Company repurchased $440,000 thousands principal amount of the outstanding of the 2028 Notes. The total amount paid amounted to $1,865,076 thousands, which includes principal, interest accrued and premium. As a result, $439,992 thousands of the principal amount of the 2028 Notes remains outstanding as of March 31, 2021. The settlement consideration was first allocated to the extinguishment of the liability component of the 2028 Notes repurchased. The difference of $29,953 thousands between the fair value of the liability component and the net carrying amount of the liability component and unamortized debt issuance costs was recognized as a loss on debt extinguishment; in addition, $19,294 thousands paid as a premium was recognized as a loss in Interest expense and other financial losses line in the consolidated statement of income for the three-month period ended March 31, 2021. The remaining consideration of $1,484,279 thousands (net of income tax effects) was allocated to the reacquisition of the equity component and recognized as a reduction of stockholders’ equity.
The total estimated fair value of the 2028 Notes was$687.9 million1,465,869 thousandsand$458.8 million3,416,819 thousandsas of September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively. The fair value was determined based on the closing trading price per $100 principal amount of the 2028 Notes as of the last day of trading for the period. The Company considered the fair value of the 2028 Notes as of September 30, 2017March 31, 2021 and December 31, 20162020to be a Level 2 measurement. The fair value of the 2028 Notes is primarily affected by the trading price of ourthe Company’s common stock and market interest rates.Based on the $258.9$1,472.14 closing price of the Company’s common stock on September 30, 2017,March 31, 2021, the if-converted value of the 2028 Notes exceeded their principal amount by $348.0 million.$1,020,833 thousands.
The following table presents the carrying amounts of the liability and equity components related to the 2.25% Convertible Senior2028 Notes Due 2019 as of September 30, 2017March 31, 2021 and December 31, 2016:2020:
March 31, 2021 | December 31, 2020 | ||||
(In thousands) | |||||
Amount of the equity component (1) | $ | 163,653 | $ | 327,305 | |
2.00% Convertible Senior Notes due 2028 | $ | 439,992 | $ | 879,993 | |
Unamortized debt discount (2) | (134,257) | (275,299) | |||
Unamortized transaction costs related to the debt component | (4,367) | (8,894) | |||
Contractual coupon interest accrual | 44,244 | 41,409 | |||
Contractual coupon interest payment | (43,120) | (34,760) | |||
Net carrying amount | $ | 302,492 | $ | 602,449 | |
|
|
|
|
|
|
| September 30, 2017 |
| December 31, 2016 | ||
| (In thousands) | ||||
Amount of the equity component (1) | $ | 45,808 |
| $ | 45,808 |
|
|
|
|
|
|
2.25% convertible senior notes due 2019 | $ | 330,000 |
| $ | 330,000 |
Unamortized debt discount (2) |
| (17,909) |
|
| (25,097) |
Unamortized transaction costs related to the debt component |
| (2,862) |
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| (3,968) |
Contractual coupon interest accrual |
| 5,569 |
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| 7,425 |
Contractual coupon interest payment |
| (3,713) |
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| (7,425) |
Net carrying amount | $ | 311,085 |
| $ | 300,935 |
(1)Net of $3,082 thousands of transaction costs related to the equity component of the 2028 Notes.
(2)As of March 31, 2021, the remaining period over which the unamortized debt discount will be amortized is 7.5 years.
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The following table presents the interest expense for the contractual interest, the accretion of debt discount and the amortization of debt issuance costs:
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| Nine-months period ended September 30, |
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Contractual coupon interest expense | $ | 5,569 |
| $ | 5,569 |
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| $ | 1,856 |
| $ | 1,856 | $ | 2,836 | $ | 4,400 | ||
Amortization of debt discount |
| 7,188 |
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| 6,806 |
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| 2,440 |
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| 2,310 | 4,355 | 6,307 | ||||
Amortization of debt issuance costs |
| 1,106 |
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| 998 |
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| 381 |
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| 344 | 102 | 135 | ||||
Total interest expense related to the Notes | $ | 13,863 |
| $ | 13,373 |
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| $ | 4,677 |
| $ | 4,510 | ||||||
Total interest expense related to the 2028 Notes | $ | 7,293 | $ | 10,842 | ||||||||||||||
10. Cash Dividend Distribution
In each12. Securitization Transactions
The process of February, May, Augustsecuritization consists of the issuance of securities collateralized by a pool of assets through a special purpose entity, often under a VIE.
The Company securitizes financial assets associated with its credit cards and Novemberloans receivable portfolio. The Company’s securitization transactions typically involve the legal transfer of 2016,financial assets to bankruptcy remote special purpose entities (“SPEs”) or the Boardacquisition of Directors approved a quarterly cash dividendloans receivable portfolios through SPEs. The Company generally retains economic interests in the collateralized securitization transactions, which are retained in the form of $6,624thousands (or$0.150per share) onsubordinated interests. For accounting purposes, the Company is precluded from recording the transfers of assets in securitization transactions as sales or is required to consolidate the SPE.
The Company securitizes certain credit cards receivable related to user’s purchases through Argentine SPEs. According to the SPE contracts, the Company has determined that it has no obligation to absorb losses or the right to receive benefits of the SPE that could be significant because it does not retain any equity certificate of participation or subordinated interest in the SPEs. As the Company does not control the vehicle, its assets, liabilities, and related results are not consolidated in the Company’s outstandingshares of common stock. The dividends were paid on April 15, July 15,October 14, 2016 and January 16, 2017financial statements.
Additionally, the Company intends to stockholders of record assecuritize certain credit cards receivable related to user’s purchases through Brazilian SPE. According to the SPE contract in place, the Company has determined that it has the obligation to absorb losses or the right to receive benefits of the close of business onMarch 31, June 30, September 30,SPE that could be significant because it retains subordinated interest in the SPEs. As the Company controls the vehicle, the assets, liabilities, andDecember 31, 2016. related results are consolidated in its financial statements.
On March 2, 2017,The Company securitizes certain loans receivable through Brazilian, Argentine and Mexican SPEs, formed to securitize loans receivable provided by the Board of Directors approved a changeCompany to its users or purchased from financial institutions that grant loans to the Company’s dividend policy for providing for a fixed quarterly dividend paymentusers through Mercado Pago. According to the SPE contracts, the Company has determined that it has both the power to direct the activities of the entity that most significantly impact the entity’s performance and the obligation to absorb losses or the right to receive benefits of the entity that could be significant because it retains the equity certificates of participation, and would therefore also be consolidated. When the Company controls the vehicle, it accounts the securitization transactions as if they were secured financing and therefore the assets, liabilities, and related results are consolidated in 2017its financial statements.
The following table summarizes the Company’s collateralized debt as of $0.150 per share ($0.600 per share annually).March 31, 2021:
SPEs | Collateralized debt as of March 31, 2021 | Interest rate | Currency | Maturity | ||||
Mercado Crédito Merchant Fundo de Investimento em Direitos Creditórios | 1,769 | DI plus 3.5% | Brazilian Reais | June 2021 | ||||
Mercado Crédito I Brasil Fundo de Investimento Em Direitos Creditórios Não Padronizados | 51,364 | DI plus 2.5% | Brazilian Reais | November 2023 | ||||
Fundo de Investimento Em DireitosCreditórios Arandu | 173,713 | DI plus 1.75% | Brazilian Reais | June 2023 | ||||
Mercado Crédito Consumo II | 5,478 | Badlar rates plus 200 basis points with a min 27% and a max 37% | Argentine Pesos | July 2021 | ||||
Mercado Crédito VIII | 2,726 | Badlar rates plus 200 basis points with a min 29% and a max 39% | Argentine Pesos | July 2021 | ||||
Mercado Crédito Consumo III | 6,325 | Badlar rates plus 200 basis points with a min 29% and a max 41% | Argentine Pesos | August 2021 | ||||
Mercado Crédito IX | 9,202 | Badlar rates plus 200 basis points with a min 30% and a max 44% | Argentine Pesos | February 2022 | ||||
Fideicomiso de administración y fuente de pago CIB/3369 | 26,056 | The equilibrium interbank interest rate published by Banco de Mexico in the Diario Oficial plus 3.34% | Mexican Pesos | November 2022 |
This secured debt is issued by the SPEs and includes collateralized securities used to fund Mercado Credito business. The new dividend policy took effect followingthird-party investors in the securitization transactions have legal recourse only to the assets securing the debt and do not have recourse to the Company. Additionally, the cash flows generated by the SPEs are restricted to the payment of amounts due to third-party investors, but the $0.150 per share dividend declaredCompany retains the right to residual cash flows.
The assets and liabilities of the SPEs are included in the Company’s interim condensed consolidated financial statements as of March 31, 2021 and December 31, 2020 as follows:
March 31, | December 31, | ||||
2021 | 2020 | ||||
Assets | (In thousands) | ||||
Current assets: | |||||
Restricted cash and cash equivalents | $ | 100,758 | $ | 249,872 | |
Credit cards receivable and other means of payments, net | 136,693 | — | |||
Loans receivable, net | 133,588 | 113,846 | |||
Total current assets | 371,039 | 363,718 | |||
Non-current assets: | |||||
Long-term investments | 1,596 | — | |||
Loans receivable, net | 10,106 | 9,581 | |||
Total non-current assets | 11,702 | 9,581 | |||
Total assets | $ | 382,741 | $ | 373,299 | |
Liabilities | |||||
Current liabilities: | |||||
Accounts payable and accrued expenses | $ | 136 | $ | 100 | |
Loans payable and other financial liabilities | 25,782 | 25,342 | |||
Total current liabilities | 25,918 | 25,442 | |||
Non-current liabilities: | |||||
Loans payable and other financial liabilities | 250,851 | 248,815 | |||
Total non-current liabilities | 250,851 | 248,815 | |||
Total liabilities | $ | 276,769 | $ | 274,257 | |
13. Leases
The Company leases certain fulfillment, cross-docking and services centers, office space and vehicles in the various countries in which it operates. The lease agreements do not contain any residual value guarantees or material restrictive covenants.
Supplemental balance sheet information related to leases was as follows:
March 31, | December 31, | ||||
2021 | 2020 | ||||
Operating Leases | (In thousands) | ||||
Operating lease right-of-use assets | $ | 345,313 | $ | 303,214 | |
Operating lease liabilities | $ | 344,528 | $ | 298,847 | |
Finance Leases | |||||
Property and equipment, at cost | 34,994 | 29,798 | |||
Accumulated depreciation | (5,730) | (4,086) | |||
Property and equipment, net | $ | 29,264 | $ | 25,712 | |
Loans payable and other financial liabilities | $ | 24,301 | $ | 23,655 | |
The following table summarizes the weighted average remaining lease term and the weighted average incremental borrowing rate for operating leases and the weighted average discount rate for finance leases at March 31, 2021:
Weighted average remaining lease term | |||
Operating leases | 7 | Years | |
Finance leases | 4 | Years | |
Weighted average discount rate (*) | |||
Operating leases | 8 | % | |
Finance leases | 13 | % | |
(*) Includes discount rates of leases in local currency and U.S dollar.
The components of lease expense were as follows:
Three months ended March 31, | |||||
2021 | 2020 | ||||
(In thousands) | |||||
Operating lease cost | $ | 16,105 | $ | 9,051 | |
Finance lease cost: | |||||
Depreciation of property and equipment | 1,324 | 512 | |||
Interest on lease liabilities | 837 | 508 | |||
Total finance lease cost | $ | 2,161 | $ | 1,020 | |
Supplemental cash flow information related to leases was as follows:
Three months ended March 31, | |||||
2021 | 2020 | ||||
Cash paid for amounts included in the measurement of lease liabilities: | (In thousands) | ||||
Operating cash flows from operating leases | $ | 14,779 | $ | 8,590 | |
Financing cash flows from finance leases | 3,863 | 564 | |||
Right-of-use assets obtained in exchange for lease obligations: | |||||
Operating leases | $ | 65,394 | $ | 14,580 | |
Finance leases | 6,197 | 663 | |||
The following table summarizes the fixed, future minimum rental payments, excluding variable costs, which are discounted by the Company’s incremental borrowing rates to calculate the lease liabilities for the operating and finance leases:
Period Ending March 31, 2021 | Operating Leases | Finance Leases | |||
(In thousands) | |||||
One year or less | $ | 69,830 | $ | 8,522 | |
One year to two years | 68,741 | 8,522 | |||
Two years to three years | 65,053 | 7,405 | |||
Three years to four years | 61,152 | 4,657 | |||
Four years to five years | 49,032 | 1,642 | |||
Thereafter | 126,023 | — | |||
Total lease payments | $ | 439,831 | $ | 30,748 | |
Less imputed interest | (95,303) | (6,447) | |||
Total | $ | 344,528 | $ | 24,301 | |
14. Derivative instruments
The Company designates certain derivatives as hedges of particular risks associated with forecasted purchases. These transactions, mainly currency forward contracts, are classified as cash flow hedges.
As of March 31, 2021 the Company used foreign currency exchange contracts to hedge the foreign currency effects related to the forecasted purchase of MPOS devices in U.S. dollars owed by a Brazilian subsidiary whose functional currency is the Brazilian Reais. Pursuant to these contracts, the Company will buy a notional amount of $10,005 thousands in April 2021, $10,589 thousands in May 2021, $10,749 thousands in June 2021, $8,490 thousands in July 2021, $8,659 thousands in August 2021, $8,755 thousands in September 2021, $4,326 thousands in October 2021, $7,724 thousands in November 2021, $5,960 thousands in December 2021, $2,337 thousands in January 2022, $2,175 thousands in February 2022 and $2,675 thousands in March 2022 at fixed currency rates. The Company designated the foreign currency exchange contracts as cash flow hedges, the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income and subsequently reclassified into earnings in the same period the forecasted transaction affects earnings. As of March 31, 2021, the Company estimated that the whole amount of net derivative gains related to its cash flow hedges included in accumulated other comprehensive income will be reclassified into earnings within the next 12 months.
In addition, as of March 31, 2021, the Company entered into certain foreign currency exchange contracts to hedge the foreign currency fluctuations related to certain transactions denominated in U.S. dollars of a Brazilian subsidiary, whose functional currency is the Brazilian Reais, which were not designated as hedges for accounting purposes. Pursuant to these contracts, the Company will buy a notional amount of $60,000 thousands in April 2021, $52,000 thousands in May 2021, $39,000 thousands in June 2021, $30,000 thousands in July 2021 and $24,000 thousands in August 2021 at fixed currency rates.
Finally, the Company entered into certain foreign currency exchange contracts to hedge the foreign currency fluctuations related to certain transactions denominated in U.S. dollars of a Mexican subsidiary, whose functional currency is the Mexican Peso, which were not designated as hedges for accounting purposes. Pursuant to these contracts, the Company will buy a notional amount of $66,470 thousands in April 2021, $20,349 thousands in May in 2021, $27,000 thousands in June 2021 and $15,000 thousands in July 2021, at fixed currency rates.
Foreign exchange contracts
The fair values of the Company’s outstanding derivative instruments as of March 31, 2021 and December 31, 2020 were as follows:
March 31, | December 31, | |||||||
Balance sheet location | 2021 | 2020 | ||||||
(In thousands) | ||||||||
Derivatives | ||||||||
Foreign exchange contracts not designated as hedging instruments | Other current assets | $ | 14,008 | $ | 199 | |||
Foreign exchange contracts designated as cash flow hedges | Other current assets | 3,469 | — | |||||
Foreign exchange contracts not designated as hedging instruments | Other current liabilities | 3,708 | 11,106 | |||||
Foreign exchange contracts designated as cash flow hedges | Other current liabilities | — | 2,858 | |||||
The effects of derivative contracts on unaudited interim condensed consolidated of comprehensive income as of March 31, 2021 were as follows:
Amount of | Amount of (gain) loss reclassified | |||||||||||
December 31, | Gain (Loss) recognized | from accumulated | March 31, | |||||||||
2020 | in other comprehensive loss | other comprehensive loss | 2021 | |||||||||
(In thousands) | ||||||||||||
Foreign exchange contracts designated as cash flow hedges | $ (2,469) | $ 5,561 | $ 636 | $ 3,728 | ||||||||
The effects of derivative contracts on unaudited interim condensed consolidated statement of income for the three-month periods ended March 31, 2021 and 2020 were as follows:
Three Months Ended March 31, | ||||||||
2021 | 2020 | |||||||
(In thousands) | ||||||||
Foreign exchange contracts not designated as hedging instruments | $ | 18,989 | $ | 16,767 | ||||
15. Share repurchase program
On August 30, 2020, the Board of Directors of MercadoLibre authorized the Company which was paid on April 17, 2017 to shareholders of record asrepurchase shares of the closeCompany’s common stock, par value $0.001 per share, for aggregate consideration of businessup to $350,000 thousands.
The Company expects to purchase shares at any time and from time to time, in compliance with applicable federal securities laws, through open-market purchases, block trades, derivatives, trading plans established in accordance with SEC rules, or privately negotiated transactions. The timing of repurchases will depend on factors including market conditions and prices, the Company’s liquidity requirements and alternative uses of capital. The share repurchase program expires on August 31, 2021 and may be suspended from time to time or discontinued, and there is no assurance as to the number of shares that will be repurchased under the program or that there will be any repurchases.
As of March 31, 2017. 2021, the Company acquired 66,096 shares under the share repurchase program. The shares were acquired in the Argentine market and paid for in Argentine pesos at a price that reflects the additional cost of accessing US dollars through an indirect mechanism, because of restrictions imposed by the Argentine government for buying US dollars at the official exchange rate in Argentina. As a result, the Company recognized a foreign currency loss of $18,280 thousands for the three-month period ended March 31, 2021.
On May 2, 2017,
16. Impact of COVID-19 pandemic
In March 2020, the Boardoutbreak of Directors approved a quarterlynovel strain of the coronavirus, COVID-19 was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread around the world. Government-imposed total or partial lockdowns or curfews instituted throughout Latin America since March 2020, some of which have been subsequently extended, modified or rescinded, have led to a weakening of the macroeconomic environment, generating recession conditions and a devaluation of the local currencies in the countries in which the Company operates.
The Company has thus far not been required to suspend its operations in any country, but the Company’s business was, and may in the future again be, negatively affected by the pandemic in terms of operations, consumer buying trends, and consequently, net revenues.
Management believes that, given the uncertainty with respect to how long the pandemic will persist, what additional measures may be introduced by governments or private parties, what effect any such additional measures may have on our business or the macroeconomic impact of the pandemic in the countries where the Company operates, it is not possible to have certainty around business development and its cash dividendgeneration until the outbreak of $6,624COVID-19 can be definitively contained. In terms of liquidity and cash management, relevant funding sources remain available at the geographical segment level and guaranteed senior notes were issued in January 2021 in an aggregate amount of $1,100,000 thousands.
As of March 31, 2021, the Company’s main source of liquidity was $1,208,729 thousands (or $0.150 per share)of cash and cash equivalents and short-term investments, which excludes a $562,797 thousands investment related to the Central Bank of Brazil Mandatory Guarantee and a $71,270 thousands investment related to a guarantee for a secured line of credit in Brazil.
Lastly, the revenues sources of the Company’s subsidiaries are denominated in local currency. As a result, the current weak macro-economic environment in certain countries in which the Company operates coupled with the devaluations of certain local currencies in those countries against the U.S. dollar could cause a decline in year-over-year net revenues as measured in U.S. dollars.
Management has made its best estimation of the potential scenarios for 2021. However it is not possible to predict at this time with certainty the impact that COVID-19 could have and its effects, including its impact on the Company´s outstanding shares of common stock. The second quarterly dividend was paid on July 14, 2017 to stockholdersof record aseconomies of the close of business on June 30, 2017.
On July 31, 2017,countries in which the Board of Directors approved a quarterly cash dividend of$6,624thousands (or$0.150per share) on ouroutstandingshares of common stock. The third quarterly dividend was paid onOctober 16, 2017to stockholders of record asCompany operates, and therefore the extent of the closeimpact on the Company’s financial condition and results of business onSeptember 30, 2017.
On October 31, 2017, the Board of Directors approved a quarterly cash dividend of$6,624thousands (or$0.150per share) on ouroutstandingshares of common stock. This quarterly dividend is payable on January 16, 2018to stockholders of record as of the close of business onDecember 31, 2017.
operations if conditions persist or materially deviate from those currently used in its estimates.
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Regarding Forward-Looking Statements
Any statementsmade or impliedin this report that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and should be evaluated as such. The words “anticipate,” “believe,” “expect,” “intend,” “plan,” “estimate,” “target,” “project,” “should,” “may,” “could,” “will” and similar words and expressions are intended to identify forward-looking statements. Forward-looking statements generally relate to information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, future economic, political and social conditions in the countries in which we operate and their possible impact on our business, and the effects of future regulation and the effects of competition. Such forward-looking statements reflect, among other things, our current expectations, plans, projections and strategies, anticipated financial results, future events and financial trends affecting our business, all of which are subject to known and unknown risks, uncertainties and other important factors (in addition to those discussed elsewhere in this report) that may cause our actual results to differ materially from those expressed or implied by these forward-looking statements. These risks and uncertainties include, among other things:
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our expectations regarding the continued growth of e-commerce and Internet usage in Latin America;
our ability to expand our operations and adapt to rapidly changing technologies;
our ability to attract new customers, retain existing customers and increase revenues;
the impact of government and central bank regulations on our business;
litigation and legal liability;
systems interruptions or failures;
our ability to attract and retain qualified personnel;
consumer trends;
security breaches and illegal uses of our services;
competition;
reliance on third-party service providers;
enforcement of intellectual property rights;
seasonal fluctuations;
political, social and economic conditions in Latin America;
the expected timing and amount of MercadoLibre’s share repurchases;
our long-term sustainability goals; and
the current and potential impact of COVID-19 on our net revenues, gross profit margins, operating margins and liquidity due to future disruptions in operations as well as the macroeconomic instability caused by the pandemic.
Many of these risks are beyond our ability to control or predict. New risk factors emerge from time to time and it is not possible for managementManagement to predict all such risk factors, nor can it assess the impact of all such risk factors on our company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.statements.
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. These statements are not guarantees of future performance. They are subject to future events, risks and uncertainties–many of which are beyond our control-ascontrol– as well as potentially inaccurate assumptions that could cause actual results to differ materially from our expectations and projections.Some of the material risks and uncertainties that could cause actual results to differ materially from our expectations and projections are described in “Item 1A — Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 20162020 filed with the Securities and Exchange Commission(“SEC”)onFebruary 24, 2017, March 1, 2021, as updated by those described in “Item 1A — Risk Factors” in Part II of our report on this reportForm 10-Q for the quarter ended March 31, 2021 and inin other reports we file from time to time with the SEC.
You should read that information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report, our unaudited interim condensed consolidated financial statements and related notes in Item 1 of Part I of this report and our audited consolidated financial statements and related notes in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2016.2020. We note such information for investors as permitted by the Private Securities Litigation Reform Act of 1995. There also may be other factors that we cannot anticipate or that are not described in this report, generally because they are unknown to us or we do not perceive them to be a material risk that could cause results to differ materially from our expectations.
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Forward-looking statements speak only as of the date they are made, and we do not undertake to update these forward-looking statements except as may be required by law. You are advised, however, to review any further disclosures we make on related subjects in our periodic filings with the SEC.
The discussion and analysis of our financial condition and results of operations presentshas been organized to present the following:
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a brief overview of our company;
a review of our financial presentation and accounting policies, including our critical accounting policies;
a discussion of our principal trends and results of operations for the three-month periods ended March 31, 2021 and 2020;
a discussion of the principal factors that influence our results of operations, financial condition and liquidity;
a discussion of our liquidity and capital resources and a discussion of our capital expenditures; and
a description of our non-GAAP financial measures.
Other Information
We routinely post important information for investors on our Investor Relations website, http://investor.mercadolibre.com. We use this website as a means of disclosing material, non-public information and for complying with our disclosure obligations under SEC Regulation FD (Fair Disclosure). Accordingly, investors should monitor our Investor Relations website, in addition to following our press releases, SEC filings, public conference calls and webcasts. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this report.
Business Overview
MercadoLibre, Inc. (together with its subsidiaries “us”, “we”, “our” or the “Company”) is one ofWe are the largest online commerce ecosystemsecosystem in Latin America.America based on unique active users, and we are present in 18 countries: Brazil, Argentina, Mexico, Chile, Colombia, Peru, Uruguay, Venezuela, Bolivia, Costa Rica, Dominican Republic, Ecuador, Guatemala, Honduras, Nicaragua, Panama, Paraguay and El Salvador. Our platform is designed to provide users with a complete portfolio of services to facilitate commercial transactions. We are a market leader in e-commerce in each of Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Peru, Uruguaytransactions both digitally and Venezuela, based on number of unique visitors and page views. We also operate online commerce platforms in the Dominican Republic, Honduras, Nicaragua, Salvador, Panama, Bolivia, Guatemala, Paraguay and Portugal.offline.
Through our e-commerce platform, we provide buyers and sellers with a robust and safe environment that fosters the development of a large e-commerce community in Latin America, a region with a population of over 610646 million people and with one of the fastest-growing Internet penetration and e-commerce growth rates in the world. We believe that we offer world-class technological and commercial solutions that address the distinctive cultural and geographic challenges of operating an onlinea digital commerce platform in Latin America.
We offer our users an ecosystem of six integrated e-commerce services: the MercadoLibreMercado Libre Marketplace, the MercadoLibre Classifieds Service, the MercadoPago paymentsMercado Pago FinTech solution, the MercadoEnvios shippingMercado Envios logistics service, the MercadoLibre advertising programMercado Libre Ads solution, the Mercado Libre Classifieds service and the MercadoShopsMercado Shops online webstoresstorefronts solution.
The MercadoLibreMercado Libre Marketplace, which we sometimes refer to as our marketplace, is a fully-automated, topically-arranged and user-friendly online commerce service.platform, which can be accessed through our website and mobile app. This service permitsplatform enables both businesses and individuals to list merchandise and conduct sales and purchases online in either a fixed-price or auction-based format.digitally.
To complement the MercadoLibreMercado Libre Marketplace and also to enhance the user experience for our buyers and sellers, we developed MercadoPago,Mercado Pago, an integrated onlinedigital payments solution. MercadoPago isInitially designed to facilitate transactions both on and off our marketplaceMercado Libre’s Marketplaces by providing a mechanism that allowsallowed our users to securely, easily and promptly send and receive payments, online.it is now a full ecosystem of Financial Technology solutions both in the digital and physical world. Our digital payments solution enables any MercadoLibre registered user to securely and easily send and receive digital payments and to pay for purchases made on any of MercadoLibre’s Marketplaces. Currently, Mercado Pago processes and settles all transactions on our Marketplaces in Brazil, Argentina, Mexico, Chile, Colombia and Uruguay, and is currentlyalso available in: Argentina, Brazil, Mexico, Colombia, Venezuela, Uruguay, Perúfor our buyers and Chile. MercadoPago allows merchants to facilitate checkout and payment processes on their websites and also enables users to simply transfer money to each other eithersellers in Peru. In addition, Mercado Pago grants through the website or using the MercadoPago App, available on iOS and Android. Additionally, during 2016, we launched MercadoCredito, which is designed to extendour Mercado Credito solution, loans to specific merchantssellers and consumers. Our MercadoCredito solution allows us to deepen our engagement with our merchants,buyers in Argentina, Brazil and Mexico,Mexico.
The Mercado Envios logistics solution enables sellers on our platform to utilize third-party carriers and consumers, in Argentina, by offeringother logistics service providers, while also providing them additional serviceswith fulfillment and is currently available.
To further enhance our suite of e-commercewarehousing services. The logistics services we launchedoffer are an integral part of our value proposition, as they reduce friction between buyers and sellers, and allow us to have greater control over the MercadoEnviosfull experience. As of March 31, 2021, we also offer free shipping programto buyers in Brazil, Argentina, Mexico, ColombiaChile and Chile.Colombia.
Our advertising platform, Mercado Ads, enables businesses to promote their products and services on the Internet. Through MercadoEnvios, we offer our advertising platform, MercadoLibre’s brands and sellers a cost-efficient way to utilize our existing distribution chain to fulfill their sales. Sellers opting into the program are able to offer a uniformdisplay ads on our webpages through product searches, banner ads, or suggested products. Our advertising platform enables merchants and seamlessly integrated shipping experiencebrands to their buyersaccess the millions of consumers that are on our Marketplaces at competitive prices.any given time with the intent to purchase, which increases the likelihood of conversion.
Through MercadoLibreMercado Libre Classifieds, Service, our online classified listing service, our users can also list and purchase motor vehicles, vessels, aircraft, real estate and services in allthe countries where we operate. Classifieds listings differ from Marketplace listings as they only charge optional placement fees and nevernot final value fees. Our classifieds pages are also a major source of traffic to our website,platform, benefitting both the MarketplaceCommerce and non-marketplaceFintech businesses.
To enhance the MercadoLibre Marketplace, we developedWe also offer our MercadoLibre advertising program,digital storefront solution, Mercado Shops, allows users to enable businesses to promote their products and services on the Internet. Through our advertising program, MercadoLibre’s sellers and large advertisers are able to display product ads on our webpages and our associated vertical sites in the region.
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Additionally, through MercadoShops, our online store solution, users can set-up, manage and promote their own online store.digital stores. These stores are hosted by MercadoLibreMercado Libre and offer integration with the other marketplace,rest of our ecosystem, namely our Marketplaces, payment services and advertising services we offer.logistics services. Users can choose fromcreate a basic, free store or pay monthly subscriptions for enhanced functionalityat no cost, and can access additional functionalities and value added services on their store.commission.
MercadoLibre also began developing and selling enterprise software solutions to e-commerce business clients in Brazil during the second quarter of 2015.
Reporting Segments and Geographic Information
Our segment reporting is based on geography, which is the current criterion we are usingour Management currently uses to evaluate our segment performance. Our geographic segments includeare Brazil, Argentina, Mexico Venezuela and other countriesOther Countries (including Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru, Portugal, Bolivia, Honduras, Nicaragua, El Salvador, Guatemala, Paraguay, Uruguay and the United States of America (real estate classifieds in the State of Florida only))America).Although we discuss long-term trends in our business, it is our policy not to not provide earnings guidance in the traditional sense. We believe that uncertain conditions make the forecasting of near-term results difficult. Further, we seek to make decisions focused primarily on the long-term welfare of our company and believe focusing on short termshort-term earnings does not best serve the interests of our stockholders. We believe that execution of key strategic initiatives as well as our expectations for long-term growth in our markets will best create stockholder value. We, therefore, encourage potential investors to consider this strategy before making an investment in our common stock. A long-term focus may make it more difficult for industry analysts and the market to evaluate the value of our company,Company, which could reduce the value of our common stock or permit competitors with short termshort-term tactics to grow strongermore rapidly than us. We, therefore, encourage potential investors to consider this strategy before making an investment in our common stock.
The following table sets forth the percentage of our consolidated net revenues by segment for the nine and the three-month periods ended September 30, 2017March 31, 2021 and 2016:2020:
Three-month Periods Ended | |||||||
March 31, | |||||||
(% of total consolidated net revenues) (*) | 2021 | 2020 | |||||
Brazil | 55.8 | % | 60.9 | % | |||
Argentina | 21.6 | 20.4 | |||||
Mexico | 16.7 | 14.5 | |||||
Other Countries | 5.9 | 4.1 |
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(% of total consolidated net revenues) (*) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
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Brazil |
| 59.2 | % |
| 53.0 | % |
| 61.9 | % |
| 56.7 | % |
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Argentina |
| 26.1 |
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| 31.6 |
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| 24.6 |
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| 30.3 |
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Mexico |
| 6.1 |
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| 5.8 |
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| 6.1 |
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| 5.1 |
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Venezuela |
| 4.0 |
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| 4.5 |
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| 2.6 |
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| 3.0 |
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Other Countries |
| 4.6 |
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| 5.1 |
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| 4.7 |
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| 4.8 |
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(*) Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due to rounding.
The following table summarizes the changes in our net revenues by segment for the nine and three-month periods ended September 30, 2017March 31, 2021 and 2016:2020:
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| Nine-months Periods Ended |
| Change from 2016 |
| Three-month Periods Ended |
| Change from 2016 | Three-month Periods Ended | Change from 2020 | ||||||||||||||||||||
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| September 30, | to 2017 (*) |
| September 30, |
| to 2017 (*) | March 31, | to 2021 (*) | |||||||||||||||||||||
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| 2017 |
| 2016 |
| in Dollars |
| in % |
| 2017 |
| 2016 |
| in Dollars |
| in % |
| 2021 | 2020 | in Dollars | in % | |||||||||
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Net Revenues: |
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Brazil |
| $ 569.3 |
| $ 311.4 |
| $ 257.9 |
| 82.8 | % |
| $ 229.5 |
| $ 131.0 |
| $ 98.5 |
| 75.2 | % | $ | 768.7 | $ | 397.4 | $ | 371.3 | 93.4 | % | ||||
Argentina |
| 250.7 |
| 185.9 |
| 64.8 |
| 34.9 |
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| 91.3 |
| 70.0 |
| 21.3 |
| 30.5 |
| 297.2 | 132.9 | 164.4 | 123.7 | ||||||||
Mexico |
| 58.3 |
| 34.4 |
| 23.9 |
| 69.7 |
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| 22.6 |
| 11.8 |
| 10.8 |
| 91.4 |
| 230.5 | 94.8 | 135.7 | 143.3 | ||||||||
Venezuela |
| 38.3 |
| 26.5 |
| 11.9 |
| 44.9 |
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| 9.8 |
| 6.9 |
| 2.9 |
| 41.6 |
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Other Countries |
| 44.5 |
| 30.0 |
| 14.5 |
| 48.3 |
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| 17.5 |
| 11.2 |
| 6.4 |
| 56.9 |
| 82.0 | 27.0 | 55.0 | 203.5 | ||||||||
Total Net Revenues |
| $ 961.1 |
| $ 588.1 |
| $ 373.0 |
| 63.4 | % |
| $ 370.7 |
| $ 230.8 |
| $ 139.8 |
| 60.6 | % | $ | 1,378.4 | $ | 652.1 | $ | 726.3 | 111.4 | % |
(*)Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due to rounding.
26
Recent Developments
2017 Capped Call Transactions
In September 2017, we paid $67.3 million (including transaction expenses) to enter into privately negotiated capped call transactions with respect to shares of our common stock with several financial institutions. The 2017 Capped Call Transactions are in addition to the 2014 Capped Call Transactions and are expected generally to reduce the potential dilution upon conversion of the Convertible Notes in the event that the market price of our common stock is greater than the strike price of the Capped Call Transactions, initially set at $295.67 per common share. The 2017 Capped Call Transactions are subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Notes, and have a cap price of approximately $366.06 per common share. If any portion of the Notes are converted prior to maturity or we repurchase any portion of the Notes prior to maturity, a corresponding portion of the Capped Call Transactions may be terminated for value at our election.
Description of Line Items
Net revenues
We recognize revenues in each of our fivefour geographical reporting segments. Within each of our segments, the services we provide and products we sale generally fall into two distinct revenue streams, “Marketplace” which includes our core businessstreams: “Commerce” and “Non-Marketplace” which includes ad sales, classified fees, payment fees, shipping fees and other ancillary businesses.“Fintech.”
The following table summarizes our consolidated net revenues by revenue stream for the nine and the three-month periods ended September 30, 2017March 31, 2021 and 2016:2020:
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Consolidated net revenues by revenue stream |
| 2017 |
| 2016 |
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| 2016 | 2021 | 2020 | |||||||
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Marketplace |
| $ | 582.5 |
| $ | 341.7 |
| $ | 227.3 |
| $ | 134.4 | ||||||
Non-Marketplace (**) (***) |
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| 378.6 |
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| 246.4 |
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| 143.4 |
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| 96.5 | ||||||
Commerce (**) | $ | 910.6 | $ | 380.7 | ||||||||||||||
Fintech | 467.8 | 271.4 | ||||||||||||||||
Total |
| $ | 961.1 |
| $ | 588.1 |
| $ | 370.7 |
| $ | 230.8 | $ | 1,378.4 | $ | 652.1 |
(*) The table above may not total due to rounding.
(**) Includes among other things, Ad Sales, Classified Fees, Payment Fees, Shipping Feesmarketplace fees, shipping fees, sales of goods, ad sales, classified fees and other ancillary services.
(***) Includes an amount of $232.4 million and $139.6 million of Payment Fees for the nine-month periods ended September 30, 2017 and 2016, respectively. Includes an amount of $92.3 million and $52.4 million of Payment Fees for the three-month periods ended September 30, 2017 and 2016, respectively.
Revenues from MarketplaceCommerce transactions are mainly generated from:
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For Marketplace services,marketplace fees that include final value fees representingand flat fees for transactions below a certain merchandise value;
shipping fees, net of the third-party carrier costs (when we act as an agent);
classifieds fees;
ad sales up-front fees;
sales of goods; and
fees from other ancillary businesses.
Final value fees represent a percentage of the sale value that areis charged to the seller once thean item is successfully sold. Up-frontsold and flat fees represent a fixed charge for transactions below a certain merchandise value.
Shipping revenues are generated when a buyer elects to receive an item through our shipping service net of the third-party carrier costs.
Through our classifieds offerings in vehicles, real estate and services, we generate revenues from up-front fees. These fees are charged to the seller in exchange for improvedsellers who opt to give their listings greater exposure throughout our websites.
Our Advertising revenues are generated by selling either display product and/or text link ads throughout our websites to interested advertisers.
Revenues from inventory sales are generated when control of the listings throughoutgood is transferred, upon delivery to our customers.
Fintech revenues correspond to our Mercado Pago service, which are attributable to:
commissions representing a percentage of the payment volume processed that are charged to sellers in connection with off Marketplace-platform transactions;
commissions from additional fees we charge when a buyer elects to pay in installments through our Mercado Pago platform, for transactions that occur either on or off our Marketplace platform;
commissions from additional fees we charge when our sellers elect to withdraw cash;
interest, cash advances and are not subject tofees from merchant and consumer credits granted under our Mercado Credito solution; and
revenues from the successful sale of the items listed.mobile points of sale products.
Revenues for Non-Marketplace services are generated from:
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27
With respect to our MercadoPago service, we generate payment fees attributable to:
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Although we also process payments on the Marketplace, we do not charge sellers an added commission for this service, as it is already included in the Marketplace final value fee that we charge.
Through our classifieds offerings in motor vehicles, real estate and services, we generate revenues from up-front fees. These fees are charged to sellers who opt to give their listings greater exposure throughout our websites.
Our Advertising revenues are generated by selling either display product and/or text link ads throughout our websites to interested advertisers.
Finally, our shipping revenues are generated when a buyer elects to receive the item through our shipping service.
When more than one service is included in one single arrangement with the same customer, we recognize revenue according to multiple element arrangements accounting, distinguishing between each of the services provided and allocating revenues based on their respective estimated selling prices.
We have a highly fragmented customer revenue base given the large numbers of sellers and buyers who use our platforms. For the nine month periodthree-month periods ended September 30, 2017March 31, 2021 and 2016,2020, no single customer accounted for more than 5.0% of our net revenues.
Our MercadoLibreMercado Libre Marketplace is available in 1918 countries (Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Mexico, Panama, Peru, Portugal, Uruguay, Venezuela (deconsolidated as of December 1, 2017), Bolivia, Honduras, Nicaragua, El Salvador, Guatemala and Paraguay), and MercadoPagoMercado Pago is available in 87 countries (Argentina, Brazil, Chile, Peru, Colombia, Mexico Uruguay and Venezuela)Uruguay). Additionally, MercadoEnviosMercado Envios is available in 5 countries: Argentina,6 countries (Argentina, Brazil, Mexico, Colombia, Chile and Chile.Uruguay). The functional currency for each country’s operations is the country’s local currency, except for VenezuelaArgentina, where the functional currency is the U.S. dollar due to Venezuela’sArgentina’s status as a highly inflationary economy. See—“Critical accounting policies and estimates—Foreign Currency Translation” included below. Therefore, ourOur net revenues are generated in multiple foreign currencies and then translated into U.S. dollars at the average monthly exchange rate.Please refer to “Critical Accounting Policies and Estimates” in Note 2 of our unaudited interim condensed consolidated financial statements for further detail on foreign currency translation.
Our subsidiaries in Brazil, Argentina Venezuela and Colombia are subject to certain taxes on revenues, which are classified as a cost of net revenues. TheseThese taxes represented 7.0%8.2% of net revenues for the three-month period endedSeptember 30, 2017, March 31, 2021, as compared to 9.5%5.9% for the same period in 2016. 2020.
Cost of net revenues
Cost of net revenues primarily representsincludes bank and credit card processing charges for transactions and fees paid with credit cards and other payment methods, shipping operation costs (including warehousing costs), carrier and other operating costs, cost of sales of goods, fraud prevention fees, certain taxes on revenues, free shipping costs, certain taxes on bank transactions, hosting and site operation fees, compensation for customer support personnel, ISP connectivity charges and depreciation and amortization, hosting and site operation fees, cost of mobile point of sale products sold and other operation costs.amortization.
Product and technology development expenses
Our product and technology development related expenses consist primarily of compensation for our engineering and web-development staff, depreciation and amortization costs related to product and technology development, telecommunications costs and payments to third-party suppliers who provide technology maintenance services to us.
28
Sales and marketing expenses
Our sales and marketing expenses consist primarily of costs ofrelated to marketing our platforms through online and offline advertising and agreements with portals, and search engines and other sales expenses related to strategic marketing initiatives, charges related to our buyer protection programs, the salaries of employees involved in these activities, chargebacks related to our MercadoPagoMercado Pago operations, bad debt charges, public relations costs,branding initiatives, marketing activities for our users and depreciation and amortization costs.
We carry out the majority of our marketing efforts on the Internet. We enter into agreements with portals, search engines, social networks, ad networks and other sites in order to attract Internet users to the MercadoLibreMercado Libre Marketplace and convert them into registered users and active traders on our platform.
We also work intensively on attracting, developing and growing our seller community through our customer support efforts. We have dedicated professionals in most of our operations that work with sellers through trade show participation, seminars and meetings to provide them with important tools and skills to become effective sellers on our platform.
General and administrative expenses
Our general and administrative expenses consist primarily of salaries for management and administrative staff, compensation forof outside directors, long term retention planprogram compensation, impairment of Long-Lived assets, expenses for legal, audit and other professional services, insurance expenses, office space rental expenses, travel and business expenses, as well as depreciation and amortization costs. Our general and administrative expenses include the costs of the following areas: general management, finance, treasury, internal audit, administration, accounting, tax, legal and human resources.
Other income (expenses), net
Other income (expenses) consists primarily of interest income derived from our investments and cash equivalents, interest expense and other financial charges related to financial liabilities and foreign currency gains or losses.
Income tax
We are subject to federal and state taxes in the United States, as well as foreign taxes in the multiple jurisdictions where we operate. Our tax obligations consist of current and deferred income taxes and asset taxes incurred in these jurisdictions. We account for income taxes following the liability method of accounting. A valuation allowance is recorded when, based on the available evidence, it is more likely than not that all or a portion of our deferred tax assets will not be realized.Therefore, our income tax expense consists of taxes currently payable, if any (given that in certain jurisdictions we still have net operating loss carry-forwards), plus the change in our deferred tax assets and liabilities during each period.
Critical Accounting Policies and Estimates
The preparation of our unaudited interim condensed consolidated financial statements and related notes requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our management has discussed the development, selection and disclosure of these estimates with our audit committee and our board of directors. Actual results may differ from these estimates under different assumptions or conditions.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our interim condensed consolidated financial statements. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our interim condensed consolidated financial statements.
There have been no significant changes in our critical accounting policies, managementManagement estimates or accounting policies since the year ended December 31, 20162020 and disclosed in the Form 10-K. See Item –10-K, see “Critical Accounting Policies”Policies and Estimates”.
Foreign Currency Translation
All of our foreign operations (other than Venezuela since January 1, 2010, as described below) use the local currency as their functional currency. Accordingly, these operating foreign subsidiaries translate assets and liabilities from their local currencies to U.S. dollars using period-end exchange rates while income and expense accounts are translated at the average exchange rates in effect during the period, unless exchange rates fluctuate significantly during the period, in which case the exchange rates at the date of the transaction are used. The resulting translation adjustment is recorded as part of other comprehensive (loss) income, a component of equity. Gains and losses resulting from transactions denominated in non-functional currencies are recognized in earnings. Net foreign currency exchange losses or gains are included in the consolidated statements of income under the caption “Foreign currency (losses) gains”.
Venezuelan Currency Status
Pursuant to U.S. GAAP, we have classified our Venezuelan operations as highly inflationary since January 1, 2010, using the U.S. dollar as the functional currency for purposes of reporting our financial statements. Therefore, no translation effect has been accounted for in other comprehensive income related to our Venezuelan operations.
On March 9, 2016 the Central Bank of Venezuela (“BCV”) issued the Exchange Agreement No.35, which is effective since March 10, 2016. The agreement established a “protected” exchange rate (“DIPRO”) for certain transactions, such as but not limited to: imports of goods of the food and health sectors, as well as supplies associated with the production of said sectors; expenses relating to health treatments, sports, culture, scientific research, and other urgent matters defined by the exchange regulations. All foreign currency transactions not expressly provided in Exchange Agreement No.35 will be processed on the alternate foreign currency markets governed by the exchange regulations, at the floating supplementary market exchange rate (“DICOM”).
Considering the significant devaluation and the lower U.S. dollar-equivalent cash flows then expected from the Venezuelan business, the Company reviewed its long-lived assets (including non-current other assets), goodwill and intangible assets with indefinite useful life for impairment and concluded that the carrying value of certain real estate investments in Venezuela as of June 30, 2016 would not be fully recoverable. As a result, on June 30, 2016, the Company recorded an impairment of offices and commercial property under construction included within non-current other assets of $13.7 million. The carrying amount of offices and commercial property under construction was adjusted to its estimated fair value of approximately $12.5 million as of June 30, 2016, by using the market approach, and considering prices for similar assets.
On May 19, 2017, the BCV issued the Exchange Agreement No.38, which established a new foreign exchange mechanism under DICOM, replacing previous SIMADI. The new mechanism consists of auctions, administered by an auction committee, where sellers and buyers from the private sector may offer foreign currency under certain limits determined by the BCV.
In light of the disappearance of SIMADI (which closed at 728.0 per U.S. dollar), and the Company’s inability to gain access to U.S. dollars under SIMADI, it started requesting U.S. dollars through DICOM. As a result, the Company expects to settle its transactions through DICOM going forward and concluded that the DICOM exchange rate should be used as from June 1, 2017 to measure its bolivar-denominated monetary assets and liabilities and to measure the revenues and expenses of the Venezuelan subsidiaries. Therefore, as of June 30, 2017, monetary assets and liabilities in Bolivares Fuertes (“BsF”) were re-measured to the U.S. dollar using the DICOM closing exchange rate of 2640.0 BsF per U.S. dollar. As a consequence of the local currency devaluation, the Company recorded a foreign exchange loss of $22.0 million during the second quarter of 2017.
Considering the significant devaluation and the lower U.S. dollar-equivalent cash flows then expected from the Venezuelan business, the Company reviewed its long-lived assets (including non-current other assets), goodwill and intangible assets with indefinite useful life for impairment and concluded that the carrying value of certain real estate investments in Venezuela as of June 30, 2017 would not be fully recoverable. As a result, on June 30, 2017, the Company recorded an impairment of offices and commercial property under construction included within non-current other assets of $2.8 million. The carrying amount of offices and commercial property under construction was adjusted to its estimated fair value of approximately $9.7 million as of June 30, 2017, by using the market approach, and considering prices for similar assets. As of September 30, 2017, the DICOM exchange rate was 3,345.0 BsF per U.S. dollar
Until 2010 we were able to obtain U.S. dollars for any purpose, including dividend distributions, using alternative mechanisms other than through the Commission for the Administration of Foreign Exchange Control (CADIVI). Those U.S. dollars, obtained at a higher exchange rate than the one offered by CADIVI and held in balance at U.S. bank accounts of our Venezuelan subsidiaries, were used for dividend distributions from our Venezuelan subsidiaries. We have not distributed dividends from our Venezuelan subsidiaries since 2011.
30
The following table sets forth the assets, liabilities and net assets of our Venezuelan subsidiaries, before intercompany eliminations of a net liability of $29.6 million and $15.8 million, as of September 30, 2017 and December 31, 2016 and net revenues for the nine-month periods ended September 30, 2017 and 2016:
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Venezuelan operations |
| (In millions) | ||
Net Revenues |
| $ 38.3 |
| $ 26.5 |
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| September 30, |
| September 30, |
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| 2016 |
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Assets |
| 62.6 |
| 66.2 |
Liabilities |
| (37.3) |
| (23.0) |
Net Assets |
| $ 25.4 |
| $ 43.2 |
As of September 30, 2017, the net assets (before intercompany eliminations) of our Venezuelan subsidiaries amounted to approximately 6.2% of our consolidated net assets, and cash and investments of our Venezuelan subsidiaries held in local currency in Venezuela amounted to approximately 2.2% of our consolidated cash and investments.
Our ability to obtain U.S. dollars in Venezuela is negatively affected by the exchange restrictions in Venezuela that are described above. If our access to U.S. dollars becomes widely available at a more unfavorable rate than the current DICOM exchange rate (or if DICOM exchange rate experiences significant devaluation in the future), and we decided to use that alternative mechanism considering that exchange rate as the one applicable for re-measurement, our results of operations, earnings and value of our net assets in Venezuela would be negatively impacted, and we cannot assure that the impact would not be material. In addition, our business and ability to obtain U.S. dollars in Venezuela would be negatively affected by any additional material devaluations or the imposition of significant additional and more stringent controls on foreign currency exchange by the Venezuelan government in the future.
Despite the current difficult macroeconomic environment in Venezuela, we continue managing, through our Venezuelan subsidiaries, our investment in Venezuela. Despite the current operating, political and economic conditions and certain other factors in Venezuela, we currently plan to continue supporting our business in Venezuela in the long run.
In November 2013 the Venezuelan Congress approved an “enabling law” granting the president of Venezuela the authority to enact laws and regulations in certain policy areas by decree. This authority includes the ability to restrict profit margins and impose greater controls on foreign exchange and the production, import, and distribution of certain goods. Among other actions, the president has used this decree power to pass the Law of Costs, Earnings, and Fair Profits, which became effective in January 2014 and, among other provisions, authorizes the Venezuelan government to set “fair prices” and maximum profit margins in the private sector. On October 26, 2015, the decree number 2,074 was published in the Official Gazette of Venezuela, establishing certain definitions related to the determination of prices in that country.
Despite we do not expect that this law together with the decree issued by the Venezuelan Government will have a material adverse impact on our financial condition or results of operations, considering the current difficult macroeconomic environment in Venezuela, the final potential effects remains uncertain. The effects of such potential effects, if any, would be recognized in our financial statements once the mentioned uncertainty is resolved.
Allowances for doubtful accounts and for chargebacks
We are exposed to losses due to uncollectible accounts and credits to sellers. Allowances for these items represent our estimate of future losses based on our historical experience. The allowances for doubtful accounts and for chargebacks are recorded as charges to sales and marketing expenses. Historically, our actual losses have been consistent with our charges. However, future adverse changes to our historical experience for doubtful accounts and chargebacks could have a material impact on our future consolidated statements of income and cash flows.
We believe that the accounting estimate related to allowances for doubtful accounts and for chargebacks is a critical accounting estimate because it requires management to make assumptions about future collections and credit analysis. Our management’s assumptions about future collections require significant judgment.
31
Legal contingencies
In connection with certain pending litigation and other claims, we have estimated the range of probable loss and provided for such losses through charges to our interim condensed consolidated statement of income. These estimates are based on our assessment of the facts and circumstances and historical information related to actions filed against us at each balance sheet date and are subject to change based upon new information and future events.
Convertible Senior Notes
On June 30, 2014, we issued $330 million of 2.25% convertible senior notes due 2019 (the “Notes”). The Notes may be converted, under specific conditions, based on an initial conversion rate of 7.9353 shares of common stock per $1,000 principal amount of Notes, subject to adjustment as described in the indenture governing the Notes. The convertible debt instrument, within the scope of the cash conversion subsection, was separated into debt and equity components at issuance and a fair value was assigned. The value assigned to the debt component was the estimated fair value, as of the issuance date, of a similar debt without the conversion feature. As of June 30, 2014, we determined the fair value of the liability component of the Notes by reviewing market data that was available for senior, unsecured nonconvertible corporate bonds issued by comparable companies. The difference between the cash proceeds and this estimated fair value represents the value assigned to the equity component and was recorded as a debt discount. The debt discount is amortized using the effective interest method from the origination date through its stated contractual maturity date.
In connection with the issuance of the Notes, we paid $19.7 million and $67.3 million (including transaction expenses) in June 2014 and September 2017, respectively, to enter into capped call transactions with respect to shares of our common stock (the “Capped Call Transactions”), with certain financial institutions. The Capped Call Transactions are expected generally to reduce the potential dilution upon conversion of the Convertible Notes in the event that the market price of our common stock is greater than the strike price of the Capped Call Transactions. The cost of the Capped Call Transactions is included as a net reduction to additional paid-in capital in the stockholders’ equity section of our consolidated balance sheets.
For more detailed information in relation to the Notes and the Capped Call Transactions, see “—Results of operations for the nine-month period ended September 30, 2017 compared to the nine-month period ended September 30, 2016 and the three-month period ended September 30, 2017 compared to the three-month period ended September 30, 2016—Debt” and Note 9 to our unaudited interim condensed consolidated financial statements.
Impairment of long-lived assets, goodwill and intangible assets with indefinite useful life
We review long-lived assets for impairments whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Furthermore, goodwill and certain indefinite life trademarks are reviewed for impairment at each year-end or more frequently when events or changes in circumstances indicate that their carrying value may not be recoverable.
We believe that the accounting estimate related to impairment of long lived assets and goodwill is critical since it is highly susceptible to change from period to period because: (i) it requires management to make assumptions about gross merchandise volume growth, total payment volume, total payment transactions, future interest rates, sales and costs; and (ii) the impact that recognizing an impairment would have on the assets reported on our balance sheet as well as our net income would be material. Management’s assumptions about future sales and future costs require significant judgment.
For additional information, see “Critical Accounting Policies” section in our Annual Report on Form 10-K for the fiscal year ended DecemberMarch 31, 2016.
Income taxes
We are required to recognize a provision for income taxes based upon taxable income and temporary differences between the book and tax bases of our assets and liabilities for each of the tax jurisdictions in which we operate. This process requires a calculation of taxes payable under currently enacted tax laws in each jurisdiction and an analysis of temporary differences between the book and tax bases of our assets and liabilities, including various accruals, allowances, depreciation and amortization. The tax effect of these temporary differences and the estimated tax benefit from our tax net operating losses are reported as deferred tax assets and liabilities in our consolidated balance sheet. We also assess the likelihood that our net deferred tax assets will be realized from future taxable income. To the extent we believe that it is more likely than not that some portion or all of our deferred tax assets will not be realized, we establish a valuation allowance. As of September 30, 2017, we had a valuation allowance on certain foreign net operating losses based on our assessment that it is more likely than not that the deferred tax asset will not be realized. To the extent we establish a valuation allowance or change the allowance in a period, we reflect the change with a corresponding increase or decrease in our “Income/asset tax expense” line in our consolidated statement of income.
32
Stock-based compensation
Our board of directors adopted long-term retention plans (“LTRPs”), under which certain eligible employees receive awards. See “Item 3. Quantitative and Qualitative Disclosures About Market Risk —Equity Price Risk” for details on the LTRPs. The variable LTRP awards are calculated based on the fair value of our common stock on NASDAQ Global Market.
Results of operations for the nine-month period ended September 30, 2017 compared to the nine-month period ended September 30, 2016 and three-month period ended September 30, 20172021 compared to the three-month period ended September 30, 2016March 31, 2020
The selected financial data for the nine and three-month periods ended September 30, 2017March 31, 2021 and 20162020 discussed herein is derived from our unaudited interim condensed consolidated financial statements included in Item 1 of Part I of this report. These statements include all normal recurring adjustments that managementManagement believes are necessary to fairly state our financial position, results of operations and cash flows. The results of operations for the nine and three-month periodperiods ended September 30, 2017March 31, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 20172021 or for any other period.
Statement of income data
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| Nine-months Periods Ended September 30, |
| Three-months Periods Ended September 30, | Three-months Periods Ended March 31, | ||||||||||
(In millions) | 2017 (*) |
| 2016 (*) |
| 2017 (*) |
| 2016 (*) |
| 2021 (*) | 2020 (*) | ||||
| (Unaudited) |
| (Unaudited) |
| (Unaudited) | |||||||||
Net service revenues | $ | 1,230.9 | $ | 639.9 | ||||||||||
Net product revenues | 147.5 | 12.2 | ||||||||||||
Net revenues | $961.1 |
| $588.1 |
| $370.7 |
| $230.8 |
| 1,378.4 | 652.1 | ||||
Cost of net revenues | (444.9) |
| (214.0) |
| (194.8) |
| (85.2) |
| (787.1) | (339.3) | ||||
Gross profit | 516.2 |
| 374.1 |
| 175.8 |
| 145.6 |
| 591.4 | 312.8 | ||||
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Operating expenses: |
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Product and technology development | (93.0) |
| (72.2) |
| (32.4) |
| (26.1) |
| (126.0) | (73.4) | ||||
Sales and marketing | (207.9) |
| (107.7) |
| (84.1) |
| (39.7) |
| (288.2) | (206.5) | ||||
General and administrative | (91.6) |
| (64.1) |
| (31.8) |
| (26.2) |
| (86.3) | (62.6) | ||||
Impairment of Long-Lived Assets | (2.8) |
| (13.7) |
| - |
| - |
| ||||||
Total operating expenses | (395.4) |
| (257.7) |
| (148.3) |
| (91.9) |
| (500.5) | (342.5) | ||||
Income from operations | 120.9 |
| 116.4 |
| 27.5 |
| 53.7 |
| ||||||
Income (loss) from operations | 90.8 | (29.7) | ||||||||||||
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Other income (expenses): |
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Interest income and other financial gains | 37.0 |
| 25.2 |
| 14.2 |
| 9.9 |
| 25.1 | 36.8 | ||||
Interest expense and other financial charges | (19.7) |
| (18.8) |
| (6.7) |
| (6.5) |
| ||||||
Foreign currency (loss) gain | (19.5) |
| (5.1) |
| 1.6 |
| (4.8) |
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Net income before income tax expense | 118.7 |
| 117.7 |
| 36.7 |
| 52.3 |
| ||||||
Interest expense and other financial losses (**) | (91.3) | (23.6) | ||||||||||||
Foreign currency losses | (15.1) | (0.2) | ||||||||||||
Net income (loss) before income tax expense | 9.5 | (16.7) | ||||||||||||
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Income tax expense | (37.2) |
| (32.7) |
| (9.0) |
| (13.4) |
| (43.5) | (4.4) | ||||
Net income | $81.5 |
| $85.0 |
| $27.7 |
| $38.9 |
| ||||||
Net loss | $ | (34.0) | $ | (21.1) |
(*) The table above may not total due to rounding.
(**) Includes $49.2 million of loss on debt extinguishment and premium related to the 2028 Notes repurchase. See Note 11 of our unaudited interim condensed consolidated financial statements for further detail on 2028 Notes repurchase.
33
Principal trends in results of operations
Growth in netNet revenues
Since our inception, we have consistently generated revenue growth from our Marketplace and Non-Marketplace revenue streams, driven by the strong growth of our key operational metrics. Our net revenues grew 63.4% inmaintained its growth trajectory during the nine-month period ended September 30, 2017 as comparedfirst quarter of 2021, specifically related to the same periodincrease in 2016. Our successful items sold and total payment volume increased 45.8% and 76.9%, respectively, in the nine-month period ended September 30, 2017 as compared to the same period in 2016. Additionally, our number of confirmed registered users was 21.0% higher as of September 30, 2017 as compared to the number of confirmed registered users as of September 30, 2016. Furthermore, our gross merchandise volume (“GMV”and the growth of our FinTech solution services (off-platform transactions through Mercado Pago, credits business, financing payment transactions, etc.) increased 39.6%. Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of operations— Net Revenues” section in the nine-month periodcurrent document for further detail on net revenues trends for the three-month periods ended September 30, 2017 as compared toMarch 31, 2021 and 2020.
As a consequence of the same periodCOVID-19 pandemic which has affected many countries in 2016. Finally, our shipped items volume increasedLatin America, governments in the nine-month period ended September 30, 2017 as comparedregion imposed total or partial lockdowns and curfews in March 2020, some of which have been subsequently extended, modified or rescinded based on the evolution of the COVID-19 pandemic.
We are not able to the same period in 2016.
Our net revenues grew 60.6% in the three-month period ended September 30, 2017 as compared to the same period in 2016. Our successful items sold and total payment volume increased 55.7% and 73.5%, respectively, in the three-month period ended September 30, 2017 as compared to the same period in 2016. Additionally, our number of confirmed registered users was 21.0% higher as of September 30, 2017 than as of September 30, 2016. Furthermore, our GMV increased 50.7% in the three-month period ended September 30, 2017 as compared to the same period in 2016. Finally, our shipped items volume increased in the three-month period ended September 30, 2017 as compared to the same period in 2016.
We believepredict any negative impacts that the growth in net revenues should continueCOVID-19 pandemic may have on our business in the future. However, despite this positive historical trend, See Note 16 to our unaudited condensed consolidated financial statements .
Our sources of revenues are denominated in local currencies; therefore, the current weak global macro-economic environment in certain countries in which we operate, as a result of COVID-19, coupled with the devaluations of certain local currencies in Latin America versusthose countries against the U.S. dollar, the effects of Venezuelan translations of local currencies into the U.S. dollar, Venezuelan Government limits on prices and high interest rates in Latin America, could cause a decline in year-over-year of our net revenues, particularly as measured in U.S. dollars.
We continue to monitor the progress of the COVID-19 pandemic and will take additional measures to comply with the rapidly changing regulations of the countries where we operate and the related macroeconomic instability. However, we may see lower net revenues growth until COVID-19 is contained in the countries where we operate.
Gross profit margins
During the past years, our business has experienced decreasingOur gross profit margins,margin is defined as total net revenues minus total cost of net revenues,, as a percentage of net revenues.
Our gross profit margins were 53.7%trends are directly affected by our revenue, as stated above, and 63.6%our cost of net revenues. In this sense, our main cost of net revenue are composed of bank and credit card processing charges for transactions and fees paid with credit cards and other payment methods, cost of products sold, fraud prevention fees, sales taxes, shipping operation costs (including warehousing costs), carrier and other operating costs, certain taxes on bank transactions, hosting and site operation fees, compensation for customer support personnel, ISP connectivity charges and depreciation and amortization. This cost structure is directly affected by the nine-month periods ended September 30, 2017level of operations of our services, and 2016, respectively. our strategic plan on gross profit is built on factors such as an ample liquidity to fund expenses and investments and a cost-effective capital structure.
However, in the future, our gross profit margin could decline if we are not able to apply appropriate measures regarding our business to prevent potential negative impacts of the COVID-19 pandemic, if we fail to maintain an appropriate relationship between our cost of revenue structure and our net revenues trend and if we continue building up our logistics network and growing our sales of goods business, which has a lower pure product margin.
For the three-month periods ended September 30, 2017March 31, 2021 and 2016,2020, our gross profit margins were 47.4%42.9% and 63.1%48.0%, respectively. The decrease in our gross profit marginsmargin resulted primarily from:
(i) Increasedfrom an increase in cost of product sold, shipping operating costs of providing free shipping in Mexico and Brazil of $102.6 million and $65.7 million for the nine and three-month period ended September 30, 2017, as compared with the same periods in 2016, respectively.
(ii) Higher penetration of our payments and shipping solution into our Argentine, Brazilian and Mexican marketplaces. For the nine and three-month period ended September 30, 2017, total volume of payments on our marketplace represented 81.4% and 84.3% of our total GMV (excluding motor vehicles, vessels, aircraft and real estate), respectively; as compared to 66.4% and 74.5% for the nine and three-month period ended September 30, 2016. Additionally, for the nine and three-month period ended September 30, 2017, the total number of items shipped through our shipping solution represented 54.2% and 56.2% of our total number of successful items sold, respectively; as compared to 46.8% and 48.5% for the nine and three-month period ended September 30, 2016. Transactions that include such services intrinsically incur incremental costs such as collection fees, which result in lower gross profit margins associated with these as compared to other services we offer. In addition, our financing and shipping revenues are disclosed net of third party provider costs while sales taxes are paid on the gross amount of revenues, thus, decreasing our gross profit margins in terms of revenues. For the nine-month period ended September 30, 2017, collection fees and sales taxes, increased $62.4 million and $23.3 million, respectively, as compared to the same period in 2016. For the three-month period ended September 30, 2017, collection fees and sales taxes increased $21.9 million and $4.0 million, respectively, as compared to the same period in 2016.
(iii) Increased customer support costs of $15.3 million and $4.8 million for the nine and three-month periods ended September 30, 2017, as compared with the same period in 2016; mainly as a consequence of an increase in salaries and wages. The number of employees related to customer support was 2,343 as of September 30, 2017 as compared with 1,740 as of September 30, 2016.
(iv) Increased hosting costs of $9.3 million and $2.8 million for the nine and three-month period ended September 30, 2017, as compared with the same periods in 2016, respectively.
In the future, gross profit margins could decline if free shipping volume increase or if the penetration of our payment solution and shipping grows faster than our marketplace.
34
Operating income margins
For the nine-month period ended September 30, 2017 as compared to the same period in 2016, our operating income margin decreased from 19.8% to 12.6%, mainly as a consequence of increases in costspercentage of net revenues, (drivenpartially offset by a decrease in collection fees, as a percentage of net revenues.
Operating margins
Our Operating margin is defined as total net revenues minus total cost of net revenues and total operating expenses, as a percentage of net revenues.
Our operating margin is affected by our operating expenses structure, which mainly by free shipping costs), as described under “Gross profit margins” above, and increases inconsists of our employees’s salaries, our sales and marketing expenses (driven mainly byrelated to those activities we incurred to promote our services, product development expenses, etc. As we continue to grow and focus on and off portal deals, salaries, buyer protection program and chargebacks from credit cards). Forexpanding our leadership in the three-month period ended September 30, 2017 as compared to the same period in 2016, our operating income margin decreased from 23.3% to 7.4%, for the same reasons.
We anticipate that asregion, we will continue to invest in product development, sales and marketing and human resources in order to promote our services and capture the long-term business opportunity offeredopportunities. As a result, we may experience decreases in our operating margins.
The COVID-19 pandemic and its potential negative impacts on our business could also have negative impacts on our operating margins if we fail to closely monitor operating expenses on demand patterns and expenses are not adjusted in order to maintain an appropriate balance of such expenses with our actual rate of business development.
For the three-month period ended March 31, 2021, as compared to the same period in 2020, our operating margin increased from a negative margin of 4.6% to a positive margin of 6.6%. This increase is primarily a consequence of the increase in net revenues explained above and also due to marketing expenditures efficiencies that we achieved as a result of the growth in organic demand brought about by the Interneteffects of the COVID-19 pandemic consumer behavior.
Other Data
The following table includes seven key performance indicators, which are calculated as defined in Latin America, it is increasingly difficultthe footnotes to sustain growth in operating income marginsthe table. Each of these indicators provide a different measure of the level of activity on our platform, and we could continue experiencing decreasesuse them to monitor the performance of the business. In light of the evolution of our business, as from January 1, 2021, we no longer disclose “Number of confirmed new registered users during period” since Management considers that this indicator is no longer relevant to measuring the level of activity on our Mercado Libre Marketplace platform.
| Three-month Periods Ended | |||||
(in millions) |
| 2021 | 2020 | |||
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Unique active users (1) |
| 69.8 |
| 43.2 | ||
Gross merchandise volume (2) |
| $ | 6,057.2 |
| $ | 3,414.1 |
Number of successful items sold (3) |
| 222.0 |
| 105.7 | ||
Number of successful items shipped (4) | 208.1 | 90.2 | ||||
Total payment volume (5) |
| $ | 14,717.7 |
| $ | 8,094.5 |
Total volume of payments on marketplace (6) |
| $ | 5,840.0 |
| $ | 3,203.3 |
Total payment transactions (7) | 630.1 | 290.7 | ||||
Capital expenditures |
| $ | 112.7 |
| $ | 53.5 |
Depreciation and amortization |
| $ | 38.4 |
| $ | 21.6 |
(1)New or existing user who performed at least one of the following actions during the reported period: (1) made one purchase, or reservation, or asked one question or MercadoLibre Marketplace or Classified Marketplace (2) maintained an active listing on MercadoLibre Marketplace or Classified Marketplace (3) maintained an active account in operating income margins.Mercado Shops (4) made a payment, money transfer, collection and/or advance using Mercado Pago (5) maintained an outstanding credit line through Mercado Credito or (6) maintained a balance of more than $5 invested in a Mercado Fondo asset management account. Management uses this metric to evaluate the size of our community of users who interact with the ecosystem and of which we have the opportunity to generate further engagement. With the changes in our business we believe it provides a better indication of our active user base rather than a registration metric that does not reflect any sort of interaction.
(2)Measure of the total U.S. dollar sum of all transactions completed through the Mercado Libre Marketplace, excluding Classifieds transactions.
Other Data(3)Measure of the number of items that were sold/purchased through the Mercado Libre Marketplace, excluding Classifieds items.
(4)Measure of the number of items that were shipped through our shipping service.
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| Three-month Periods Ended | |||||||
(in millions) |
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| 2017 |
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| 2016 |
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| 2017 | 2016 | ||
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Number of confirmed registered users at end of period (1) |
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| 201.2 |
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| 166.3 |
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| 201.2 |
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| 166.3 |
Number of confirmed new registered users during period (2) |
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| 27.0 |
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| 21.7 |
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| 10.0 |
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| 7.7 |
Gross merchandise volume (3) |
| $ | 8,131.6 |
| $ | 5,826.0 |
| $ | 3,075.3 |
| $ | 2,040.2 |
Number of successful items sold (4) |
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| 188.9 |
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| 129.6 |
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| 74.2 |
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| 47.6 |
Number of successful items shipped (5) |
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| 102.4 |
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| 60.7 |
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| 41.7 |
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| 23.1 |
Total payment volume (6) |
| $ | 9,388.9 |
| $ | 5,306.9 |
| $ | 3,667.1 |
| $ | 2,114.0 |
Total volume of payments on marketplace (7) |
| $ | 6,620.3 |
| $ | 3,867.8 |
| $ | 2,592.9 |
| $ | 1,519.9 |
Total payment transactions (8) |
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| 158.2 |
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| 96.2 |
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| 62.3 |
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| 36.8 |
Unique buyers (9) |
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| 27.6 |
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| 23.0 |
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| 16.3 |
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| 12.4 |
Unique sellers (10) |
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| 8.7 |
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| 7.7 |
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| 4.6 |
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| 4.0 |
Capital expenditures |
| $ | 52.1 |
| $ | 69.0 |
| $ | 17.5 |
| $ | 24.1 |
Depreciation and amortization |
| $ | 30.0 |
| $ | 20.7 |
| $ | 10.9 |
| $ | 7.5 |
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(5)Measure of the total U.S. dollar sum of all transactions paid for using Mercado Pago, including marketplace and non-marketplace transactions.
(6)Measure of the total U.S. dollar sum of all marketplace transactions paid for using Mercado Pago, excluding shipping and financing fees.
(7)Measure of the number of all transactions paid for using Mercado Pago.
Net revenues
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| Nine-month Periods Ended |
| Change from 2016 |
| Three-month Periods Ended |
| Change from 2016 | ||||||||
| September 30, |
| to 2017 (*) |
| September 30, |
| to 2017 (*) | ||||||||
| 2017 |
| 2016 |
| in Dollars |
| in % |
| 2017 |
| 2016 |
| in Dollars |
| in % |
| (in millions, except percentages) | (in millions, except percentages) | |||||||||||||
Total Net Revenues | $ 961.1 |
| $ 588.1 |
| $ 373.0 |
| 63.4% |
| $ 370.7 |
| $ 230.8 |
| $ 139.8 |
| 60.6% |
As a percentage of net revenues (*) | 100.0% |
| 100.0% |
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| 100.0% |
| 100.0% |
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Three-month Periods Ended | Change from 2020 | |||||||||
March 31, | to 2021 (*) | |||||||||
2021 | 2020 | in Dollars | in % | |||||||
(in millions, except percentages) | ||||||||||
Total Net Revenues | $ | 1,378.4 | $ | 652.1 | $ | 726.3 | 111.4% |
(*) Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due to rounding.
Our net revenues grew 111.4% for the three-month period ended March 31, 2021, as compared to the same period in 2020. The increase in net revenues was primarily attributable to:
a)an increase of $529.9 million, or 139.2%, in Commerce revenues, for the three-month period ended March 31, 2021, as compared to the same period in 2020. This increase is mainly generated by a 77.4% increase in our gross merchandise volume, partially offset by an increase of $145.3 million in shipping carrier costs which are netted from revenues, from $174.6 million for the three-month period ended March 31, 2020 to $319.9 million for the three-month period ended March 31, 2021; and
b)an increase of 72.4% in FinTech revenues, from $271.4 million for the three-month period ended March 31, 2020 to $467.8 million for the three-month period ended March 31, 2021. This increase is mainly generated by an increase of a $88.0 million in credit business, and increases in off-platform transactions and financing mainly associated to an 81.8% increase in our total payment volume, for the three-month period ended March 31, 2021, as compared to the same period in 2020.
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| Nine-month Periods Ended |
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| Change from 2016 |
| Three-month Periods Ended |
| Change from 2016 | ||||||||
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| September 30, |
|
| to 2017 (**) |
| September 30, |
| to 2017 (**) | ||||||||
Consolidated Net Revenues by revenue stream |
| 2017 |
| 2016 |
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| in Dollars |
| in % |
| 2017 |
| 2016 |
| in Dollars |
| in % |
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| (in millions, except percentages) |
| (in millions, except percentages) | |||||||||||||
Brazil |
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Marketplace |
| $ 340.6 |
| $ 172.7 |
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| $ 167.9 |
| 97.3% |
| $ 139.6 |
| $ 74.7 |
| $ 64.9 |
| 86.8% |
Non-Marketplace |
| 228.7 |
| 138.8 |
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| 90.0 |
| 64.8% |
| 89.9 |
| 56.3 |
| 33.6 |
| 59.7% |
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| 569.3 |
| 311.4 |
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| 257.9 |
| 82.8% |
| 229.5 |
| 131.0 |
| 98.5 |
| 75.2% |
Argentina |
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Marketplace |
| $ 145.8 |
| $ 112.8 |
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| $ 33.1 |
| 29.3% |
| $ 54.1 |
| $ 41.2 |
| $ 12.9 |
| 31.3% |
Non-Marketplace |
| 104.9 |
| 73.1 |
|
| 31.7 |
| 43.4% |
| 37.2 |
| 28.8 |
| 8.4 |
| 29.2% |
|
| 250.7 |
| 185.9 |
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| 64.8 |
| 34.9% |
| 91.3 |
| 70.0 |
| 21.3 |
| 30.5% |
Mexico |
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Marketplace |
| $ 41.6 |
| $ 20.0 |
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| $ 21.7 |
| 108.5% |
| $ 16.6 |
| $ 7.6 |
| $ 9.1 |
| 119.8% |
Non-Marketplace |
| 16.7 |
| 14.4 |
|
| 2.3 |
| 15.8% |
| 6.0 |
| 4.3 |
| 1.7 |
| 41.0% |
|
| 58.3 |
| 34.4 |
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| 23.9 |
| 69.7% |
| 22.6 |
| 11.8 |
| 10.8 |
| 91.4% |
Venezuela |
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Marketplace |
| $ 35.4 |
| $ 24.0 |
|
| $ 11.4 |
| 47.6% |
| $ 9.2 |
| $ 6.1 |
| $ 3.1 |
| 50.6% |
Non-Marketplace |
| 2.9 |
| 2.5 |
|
| 0.5 |
| 19.2% |
| 0.6 |
| 0.8 |
| (0.2) |
| -25.7% |
|
| 38.3 |
| 26.5 |
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| 11.9 |
| 44.9% |
| 9.8 |
| 6.9 |
| 2.9 |
| 41.6% |
Other countries |
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Marketplace |
| $ 19.0 |
| $ 12.4 |
|
| $ 6.6 |
| 53.6% |
| $ 7.8 |
| $ 4.8 |
| $ 3.0 |
| 62.2% |
Non-Marketplace |
| 25.4 |
| 17.6 |
|
| 7.8 |
| 44.5% |
| 9.7 |
| 6.4 |
| 3.4 |
| 52.9% |
|
| 44.5 |
| 30.0 |
|
| 14.5 |
| 48.3% |
| 17.5 |
| 11.2 |
| 6.4 |
| 56.9% |
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Marketplace |
| 582.5 |
| 341.7 |
|
| 240.7 |
| 70.4% |
| 227.3 |
| 134.4 |
| 92.9 |
| 69.1% |
Non-Marketplace (*) |
| 378.6 |
| 246.4 |
|
| 132.3 |
| 53.7% |
| 143.4 |
| 96.5 |
| 46.9 |
| 48.6% |
Total |
| $ 961.1 |
| $ 588.1 |
|
| $ 373.0 |
| 63.4% |
| $ 370.7 |
| $ 230.8 |
| $ 139.8 |
| 60.6% |
Three-month Periods Ended | Change from 2020 | ||||||||||
March 31, | to 2021 (*) | ||||||||||
Consolidated Net Revenues by revenue stream | 2021 | 2020 | in Dollars | in % | |||||||
(in millions, except percentages) | |||||||||||
Brazil | |||||||||||
Commerce | $ | 490.9 | $ | 214.6 | $ | 276.3 | 128.8% | ||||
Fintech | 277.8 | 182.8 | 94.9 | 51.9% | |||||||
$ | 768.7 | $ | 397.4 | $ | 371.3 | 93.4% | |||||
Argentina | |||||||||||
Commerce | $ | 167.2 | $ | 67.4 | $ | 99.8 | 148.0% | ||||
Fintech | 130.0 | 65.4 | 64.6 | 98.7% | |||||||
$ | 297.2 | $ | 132.9 | $ | 164.4 | 123.7% | |||||
Mexico | |||||||||||
Commerce | $ | 187.9 | $ | 77.3 | $ | 110.6 | 143.2% | ||||
Fintech | 42.6 | 17.5 | 25.1 | 143.5% | |||||||
$ | 230.5 | $ | 94.8 | $ | 135.7 | 143.3% | |||||
Other countries | |||||||||||
Commerce | $ | 64.5 | $ | 21.4 | $ | 43.1 | 201.7% | ||||
Fintech | 17.5 | 5.6 | 11.8 | 210.1% | |||||||
$ | 82.0 | $ | 27.0 | $ | 55.0 | 203.5% | |||||
Consolidated | |||||||||||
Commerce | $ | 910.6 | $ | 380.7 | $ | 529.9 | 139.2% | ||||
Fintech | 467.8 | 271.4 | 196.4 | 72.4% | |||||||
Total | $ | 1,378.4 | $ | 652.1 | $ | 726.3 | 111.4% |
(*) Includes, among other things, ad sales, classified fees, payment fees, shipping fees and other ancillary services.
(**) Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due to rounding.
NetBrazil
Commerce revenues forin Brazil increased 128.8% in the nine and three-month period ended September 30, 2017 increased in all of our geographic segments.
Brazil
Marketplace revenue in Brazil increased 97.3% in the nine-month period ended September 30, 2017March 31, 2021 as compared to the same period in 2016. The2020. This increase was primarily generated by a consequence of a 33.6%53.6% increase in our take rate (which we define as net revenues as a percentage of gross merchandise volume)volume. Fintech revenues grew by 51.9%, a 31.9% increase in local currency volume and a 12.0% average appreciation of local currency. Non-Marketplace revenues grew 64.8%, a $90.0$94.9 million increase, during the same period, mainly driven by: i) a 90.5% increase in the volume of payments transactions; and ii) a 51.4% increase in ad sales volume.
Marketplace revenues in Brazil increased 86.8% in the three-month period ended September 30, 2017March 31, 2021 as compared to the same period in 2016. The increase was primarily a consequence of a 64.9% increase in our take rate, a 10.4% increase in local currency volume and a 2.6% average appreciation of local currency. Non-Marketplace revenues grew 59.7%, a $33.6 million increase, during the same period,2020, mainly driven by: i)by a 85.0 %49.2% increase in the off-platform payments volume of payments transactions;(which is partially monetized as a strategy to expand our ecosystem), credits business and ii) a 39.9 % increasefinancing.
Argentina
Commerce revenues in ad sales volume.
Argentina
Marketplace revenues of our Argentine segment increased 29.3%148.0% in the nine-monththree-month period ended September 30, 2017,March 31, 2021 as compared to the same period in 2016. The2020. This increase was primarily generated by a consequence of an96.4% increase of 33.8% in our take rate and a 7.4% increase in local currencygross merchandise volume partially offset by a 10.0% average devaluation of local currency. Non-Marketplace. Fintech revenues grew 43.4%98.7%, a $31.7$64.6 million increase, during the same period, mainly driven by: i) a 43.7% increase in the volume of payments transactions; ii) a 29.1% increase in the volume of shipped items; and iii) a 68.8% increase in classifieds volume.
36
Marketplace revenues of our Argentine segment increased 31.3% in the three-month period ended September 30, 2017March 31, 2021 as compared to the same period in 2016. The increase was primarily2020, mainly driven by a consequence of a 62.8%119.6% increase in the off-platform payments volume (which is partially monetized as a strategy to expand our take rateecosystem), credit business and financing, partially offset by a 13.5% averagethe aforementioned devaluation of the local currency and a 6.7% decreasecurrency.
Mexico
Commerce revenues in local currency volume. Non-Marketplace revenues grew 29.2%Mexico increased 143.2% in the three-month period ended September 30, 2017, a $8.4 million increase, during the same period, mainly driven by: i) a 38.4% increase in the volume of payments transactions; ii) a 41.0% increase in the volume of shipped items; and iii) a 38.8% increase in ad sales volume.
Mexico
Marketplace revenues of our Mexican segment increased by approximately 108.5% in the nine-month period ended September 30, 2017,March 31, 2021 as compared to the same period in 2016, mainly due to2020. This increase was primarily generated by a 58.7%108.8% increase in our take rate, andgross merchandise volume. Fintech revenues grew 143.5%, a 35.6%$25.1 million increase, in local currency volume, partially offset by an average local currency devaluation of 3.1%. Non-Marketplace revenues increased 15.8% or $2.3 million during the same period, mainly driven by increases in the volume of payment transactions and volume of shipped items, partially offset by a decrease in our classified fees.
Marketplace revenues of our Mexican segment increased by approximately 119.8% in the three-month period ended September 30, 2017,March 31, 2021 as compared to the same period in 2016, mainly due to a 74.2% increase in our take rate, a 19.9% increase in local currency volume, and a 5.2% average appreciation of local currency. Non-Marketplace revenues increased 41.0% in the three-month period ended September 30, 2017, or $1.7 million during the same period,2020, mainly driven by increasesa 115.8% increase in the off-platform payments volume of payment transactions(which is partially monetized as a strategy to expand our ecosystem), financing and shipped items.
Venezuela
Marketplace revenues of our Venezuelan segment increased by approximately 47.6% in the nine-month period ended September 30, 2017, as compared to the same period in 2016, mainly due to a 296.2% increase in local currency volume and a 41.2% increase in our take rate, credits business, partially offset by an average local currencythe aforementioned devaluation of 73.6%. Non-Marketplace revenues increased 19.2%, or $0.5 million during the same period, mainly by an increase in the volumelocal currency.
Table of payment transactions.Contents
Marketplace revenues of our Venezuelan segment increased by approximately 50.6% in the three-month period ended September 30, 2017, when compared to the same period in 2016, mainly due to a 340.1% increase in local currency volume and a 59.8% increase in our take rate, partially offset by an average local currency devaluation of 78.6%.Non-Marketplace revenues decreased 25.7%, or $0.2 million during the same period, mainly due to a decrease in the volume of classified fees.
The following table sets forth our total net revenues and the sequential quarterly growth of these net revenues for the periods described below:
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Net revenues | $ 273.9 | $ 316.5 | $ 370.7 | n/a | $ | 1,378.4 | $ | n/a | $ | n/a | $ | n/a |
Percent change from prior quarter | 7% | 16% | 17% |
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Net revenues | $ 157.6 | $ 199.6 | $ 230.8 | $ 256.3 | $ | 652.1 | $ | 878.4 | $ | 1,115.7 | $ | 1,327.3 |
Percent change from prior quarter | -13% | 27% | 16% | 11% | -3% | 35% | 27% | 19% |
(*) Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table.
37
The following table sets forth the growth in net revenues in local currencies, for the nine and three-month period ended September 30, 2017March 31, 2021 as compared to the same period in 2016:2020:
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(% of revenue growth in Local Currency) |
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| 66.1% |
| 70.6% |
Argentina |
| 50.4% |
| 50.9% |
Mexico |
| 72.9% |
| 82.0% |
Venezuela |
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| 571.1% |
Other Countries |
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| 54.7% |
Total Consolidated |
| 74.3% |
| 79.4% |
Changes from 2020 to 2021 (*) | |||
(% of revenue growth in Local Currency) | Three-month period | ||
Brazil | 138.9% | ||
Argentina | 223.0% | ||
Mexico | 147.6% | ||
Other Countries | 190.9% | ||
Total Consolidated | 158.4% |
(*) The local currency revenue growth was calculated by using the average monthly exchange rates for each month during 20162020 and applying them to the corresponding months in 2017,2021, so as to calculate what our financial results would have been hadif exchange rates had remained stable from one year to the next. See also “Non-GAAP Financial Measures” section below for details on FX neutral measures.
In Venezuela,Argentina, the increase in our net revenueslocal currency growth is mainly due to higher Marketplace volume and average selling prices posted by sellers during the nine and three-month period ended September 30, 2017, which we do not control. Thean increase in average selling prices in Venezuela is a consequence of: (i) the high inflation rate; (ii) a shortage of products and (iii) changes in the mix of categories of the items soldour Argentine Commerce transactions volume, increases in our Marketplace.off-platform transactions business through Mercado Pago, an increase in our financing and a high level of inflation.
In Brazil, the increase in local currency growth is mainly a consequence of an increase ofin our Brazilian Marketplace take rateCommerce transactions volume and volume, increases inourMercadoPago transactions and our shipped items volume.
In the case of Argentina, the increase inour net revenues is due tolower shipping subsidies that we granted, an increase in the Argentine take rate, successful items volumeour off-platform transactions through Mercado Pago and increasesan increase inourMercadoPagotransactions. financing and credits business.
In Mexico, the increase in local currency growth is a consequence of an increase of our Mexican Marketplace take rateCommerce transactions volume, an increase in our off-platform transactions through Mercado Pago and volume,an increase in our financing and increases inourMercadoPago transactions.credits business.
Cost of net revenues
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| Nine-month Periods Ended |
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| (in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||
Total cost of net revenues | $ 444.9 |
| $ 214.0 |
| $ 230.9 |
| 107.9% |
| $ 194.8 |
| $ 85.2 |
| $ 109.6 |
| 128.7% | $ | 787.1 | $ | 339.3 | $ | 447.8 | 132.0% | |||
As a percentage of net revenues (*) | 46.3% |
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(*) Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due to rounding.
For the nine-monththree-month period ended September 30, 2017March 31, 2021 as compared to the same period of 2016,in 2020, the increase of $230.9 million in cost of net revenues was primarily attributable to: i) an increase in shipping costs amounting to $102.6 million, related to our Brazilian and Mexican free shipping initiative; ii) an increase in collection fees of $62.4 million, which was mainly attributable to our Argentine and Brazilian operations as a result of the higher transactions volume of MercadoPago in those countries; iii) an increase in sales taxes amounting to $23.3 million, mainly related to the growth of our Argentine and Brazilian operations; iv) a $15.3 million increase in customer support costs mainly as a consequence of salaries and wages, and v) $9.3 million in hosting costs due to higher traffic in our web-site.
For the three-month period ended September 30, 2017 as compared to the same period of 2016, the increase of $109.6$447.8 million in cost of net revenues was primarily attributable to: i) a $119.4 million increase in shipping costs amounting to $65.7operating costs; ii) a $114.0 million due to our Mexicanincrease in cost of sales of goods mainly in Brazil, Argentina and Brazilian free shipping initiative; ii) anMexico; iii) a $74.0 million increase in sales taxes; iv) a $58.0 million increase in collection fees, amounting to $21.9 million, which was mainly attributable to our Argentine, Brazilian and BrazilianMexican operations as a result of the higher transactions volumnevolume of MercadoPagoMercado Pago in those countries and higher off-platform transactions; iii) ancountries; v) a $23.8 million increase in cost of product sold amounting to $5.2 million asshipping carrier costs and; vi) a consequence of higher volumes of mobile points of sales devices sold in Brazil and Argentina; iv) a $ 4.8$19.9 million increase in customer support costs mainly as a consequence ofassociated to salaries and wages and; v) an increase in sales taxes amountingdue to $4.0 million, mainly related to the growth of our Argentinenew hires and Brazilian operations.temporary customer support workers.
38
Product and technology development expenses
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Product and technology development | $ 93.0 |
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| $ 6.3 | 24.2% | $ | 126.0 | $ | 73.4 | $ | 52.6 | 71.6% | |||
As a percentage of net revenues (*) | 9.7% |
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(*) Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due to rounding.
Forthenine and three-month periodendedSeptember 30, 2017, March 31, 2021, the increase in product and technology development expenses as compared to the same periodsperiod in 20162020 amounted to $20.8 million and $6.3 million, respectively. These$52.6 million. This increase werewas primarily attributable to: i) ana $26.9 million increase of $10.9 million and $3.9 million in salaries and wages respectively;mainly related to new hiring; ii) ana $14.3 million increase in maintenance expenses mainly related to higher software licenses expenses and iii) a $5.0 million increase in depreciation and amortization expenses of $6.2 million and $2.3 million, respectively.expenses.
We believe product development is one of our key competitive advantages and we intend to continue to invest in hiring engineers to meet the increasingly sophisticated product expectations of our customer base.
Sales and marketing expenses
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Sales and marketing | $ 207.9 |
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As a percentage of net revenues (*) | 21.6% |
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(*) Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due to rounding.
For the nine and three-month periodsperiod ended September 30, 2017,March 31, 2021, the $100.2 and $44.4$81.7 million increase in sales and marketing expenses whenas compared to the same periodsperiod in 20162020 was primarily attributable to: i) ana $59.1 million increase of $59.3in bad debt expenses; ii) a $10.4 million and $25.0 millionincrease in on-lineonline and offline marketing expenses mainly in Brazil, Mexico and Mexico; ii) a $15.4 million and $6.7 million increase in chargebacks from credit cards due to the increase in our MercadoPago volume, respectively;Argentina and; iii) a $12.1 million and $3.8 million increase in salaries and wages, respectively; and iv) a $10.7 million and $7.1$10.0 million increase in our buyer protection program expenses, respectively. mainly in Mexico, Brazil and Argentina.
General and administrative expenses
Three-month Periods Ended | Change from 2020 | |||||||||
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General and administrative | $ | 86.3 | $ | 62.6 | $ | 23.8 | 38.0% | |||
As a percentage of net revenues (*) | 6.3% | 9.6% |
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| September 30, |
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General and administrative | $ 91.6 |
| $ 64.1 |
| $ 27.5 |
| 42.9% |
| $ 31.8 |
| $ 26.2 |
| $ 5.6 |
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As a percentage of net revenues (*) | 9.5% |
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For the nine-monththree-month period ended September 30, 2017,March 31, 2021, the $27.5$23.8 million increase in general and administrative expenses whenas compared to the same period in 20162020 was primarily attributable to: i) a $19.8$11.7 million increase in salaries and wages;wages, mainly related to the LTRPs as a consequence of the increase in our common stock price; ii) a $2.9$4.2 million increase in temporary services primarily related to administrative workers and; iii) a $4.2 million increase in tax audit and legal fees; iii) a $2.3 million increase in other general and administrative expenses and; iv) a $ 0.9 increase in depreciation and amortization.fees.
For the three-month period September 30, 2017, the $5.6 million increase in general and administrative expenses when compared to the same period in 2016 was primarily attributable to: i) a $2.1 million increase in salaries and wages; ii) a $1.4 million increase in tax, audit and legal fees; iii) a $1.0 million increase in other general and administrative expenses; and iv) a $ 0.4 increase in depreciation and amortization.
Other income (expense), net
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Other income (expense), net | $ | (81.3) | $ | 13.0 | $ | (94.3) | -724.8% | |||
As a percentage of net revenues (*) | -5.9% | 2.0% |
39
Impairment of Long-Lived assets
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Impairment of Long-Lived Assets |
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We recorded an impairment
For thethree-month period ended March 31, 2021, the $94.3milliondecrease in other income (expense), net as compared to the same period in 2020 wasprimarily attributable to: i) a $67.7 million increase in interest expense and other financial losses mainly attributable to a $49.2 million of certain real estate investments owned by our Venezuelan subsidiaries of $2.8 millionloss on debt extinguishment and $13.7 millionpremium recognized during the secondfirst quarter of 20172021 related to the repurchase of $440 million of principal of the 2028 Notes (refer to Note 11 of our unaudited interim condensed consolidated financial statements for further detail) and 2016, respectively. For further information, see section “Foreign Currency Translation—Venezuelanhigher financial debt issued during 2021, mainly in U.S., Argentina and Brazil; ii) a $14.9 million increase in our foreign currency status.”loss mainly related to a loss of $18.3 million attributable to the additional cost of accessing US dollars through an indirect mechanism in Argentina due to restrictions imposed by Argentine government for buying US dollars at the official exchange rate (refer to Note 15 of our unaudited interim condensed consolidated financial), partially offset by a $5.7 million gain on foreign exchange from our Argentine subsidiaries and; iii) a $11.7 million decrease in interest income and other financial gains from our financial investments as a result of lower interest rates as a consequence of the pandemic and lower float in our U.S. investments, mainly offset by higher interest income in Argentina due to higher float.
Income tax
Other (expenses) income, net
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Other (expense) income, net | $ (2.1) |
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As a percentage of net revenues (*) | -0.2% |
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(*) Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due to rounding.
ForDuring thenine-month three-month period ended September 30, 2017, the $3.4millionincrease in other expenses whenMarch 31, 2021 as compared to a gain in the same period in 2016 wasprimarily attributable to: i) an increase2020, income tax expense increased by $39.1 million mainly as a result of higher income tax expense in foreign exchange loss of $14.4 million, from $5.1 million in 2016 to $19.5 million in 2017,Argentina and ii) an increase in financial expenses amounting to $ 0.9 million, from $ 18.8 million in 2016 to $ 19.7 million in 2017, due mainly to our convertible notes and other financial charges in Brazil. This increase was partially offset by an increase in interest income amounting to $11.8 million, from $25.2 million in 2016 to $37.0 million in 2017 arising mainly from our financial investments in Brazil and Argentina. The 2017 foreign exchange loss was mainlyas a consequence of a $25.5 million loss arising from the U.S. Dollar revaluation over our Bolivares Fuertes net asset position in Venezuela, partially offset by and a $ 4.2 million gain arising from the Mexican Peso revaluation over our U.S. Dollar net liability position in México and a $1.9 million gain arising from the Argentine Peso devaluation over our U.S. Dollar net asset position in Argentina. The 2016 foreign exchange loss was a consequence of a $7.4 million loss arising from the U.S. Dollar revaluation over our Bolivares Fuertes net asset position in Venezuela and a $ 3.7 million loss arising from the Mexican Peso devaluation over our U.S. Dollar net liability position in Mexico, partially offset by a $6.5 million gain arising from the Argentine Peso devaluation over our U.S. Dollar net asset position in Argentina.
For thethree-month period ended September 30, 2017, the $10.5millionincrease in other income when compared to a loss in the same period in 2016 wasprimarily attributable to: i) a decrease in foreign exchange loss of $6.4 million, from $4.8 million losses in 2016 to $1.6 millionhigher pre-tax gain in 2017our Argentine and ii) a $4.3 million increaseBrazilian segment in interest2021 and higher income arising from our financial investments in Brazil and Argentina. This increase was partially offset by an increase in our financial expenses amountingtax expense due to $ 0.2 million, from $ 6.5 million in 2016 to $6.7 million in 2017 due mainly to our convertible notes and other financial charges in Brazil. The 2017 foreign exchange loss was mainlywithholding tax on dividends.
Our effective tax rate is defined as income tax expense as a consequencepercentage of a $3.1 million gain arising fromincome before income tax expense.
The following table summarizes our effective tax rates for the Reais revaluation over our U.S. Dollar net liability position in Brazil, partially offset by a $ 2.6 million loss arising from the U.S. Dollar revaluation over our Bolivares Fuertes net asset position in Venezuela. The 2016 foreign exchange loss was mainly as a consequence of a $ 2.1 million loss arising from the Reais devaluation over our U.S. Dollar net liability position in Brazilthree-month periods ended March 31, 2021 and a $ 1.7 million loss arising from Mexican Peso devaluation over our U.S. Dollar net liability position in Mexico.2020:
Three-month Periods Ended | ||||
March 31, (*) | ||||
2021 | 2020 | |||
Effective tax rate | 456.6% | -26.6% |
40
Income tax
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| Change from 2016 |
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| Change from 2016 | ||||||||
| September 30, |
| to 2017 (*) |
| September 30, |
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| 2017 |
| 2016 |
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| 2016 |
| in Dollars |
| in % |
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| (in millions, except percentages) | ||||||||||||
Income tax | $ 37.2 |
| $ 32.7 |
| $ 4.5 |
| 13.9% |
| $ 9.0 |
| $ 13.4 |
| $ (4.4) |
| -32.8% |
As a percentage of net revenues (*) | 3.9% |
| 5.6% |
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(*) Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due to rounding.
During
Our effective tax rate for the nine-monththree-month period ended September 30, 2017March 31, 2021 increased to a positive effective tax rate as compared to the same period in 2016,2020, largely as a result of: i) the loss on debt extinguishment related to 2028 Notes repurchase which is considered as non-deductible expense, ii) the foreign exchange loss related to our share repurchases during the first quarter of 2021 which is considered a non-deductible expense, and iii) higher income tax increased by $4.5 million mainly as a consequence of: i) an increase in our pre-tax gains mainly in our Brazilian subsidiaries, partially offset by higher pre-tax losses recorded in Mexico during 2017 (as a result mainly of an increase in our operating costs); and ii)expense due to withholding tax on dividends. For the loss carryforwards generated in our Venezuelan subsidiaries mainly asthree-month period ended March 31, 2020 the negative effective tax rate was a consequence of the local currency devaluation, which was not considered recoverablevaluation allowance accounted for on certain deferred tax purposesassets in 2017.Mexico and Colombia.
DuringThe following table summarizes our effective tax rates for the three-month periods ended March 31, 2021 and 2020:
Three-month Periods Ended | |||
March 31, | |||
2021 | 2020 | ||
Effective tax rate by country | |||
Argentina | 23.9% | 45.1% | |
Brazil | 29.5% | 22.3% | |
Mexico | -12.9% | 1.0% |
The decrease in our Argentine effective income tax rate during the three-month period ended September 30, 2017March 31, 2021, as compared to the same period in 2016, income tax decreased by $4.4 million 2020, was mainly as a consequence of higher pre-tax losses recordedtax deductible expenses on our Argentine business related to tax inflation adjustments on certain assets, in Mexico and lower pre-tax tax gains recorded in Brazil during 2017 (as a result mainly of an increase in our operating costs); partially offset by a higheraccordance with Argentine income tax expense in our Argentinean subsidiaries during the third quarter of 2017, as compared to the same period in 2016, due to a higher pre-tax in 2017 and because, in the comparative quarter, we applied tax holiday granted to Neosur S.R.L. and Business Vision S.A. retroactively to be effective as of September 18, 2014.law.
Our blended tax rate is defined as income tax expense as a percentage of income before income tax. Our effective income tax rate is defined as the provision for income taxes (net of charges related to dividend distributions from foreign subsidiaries that are offset with domestic foreign tax credits) as a percentage of income before income tax. The effective income tax rate excludes the effects of the deferred income tax, and complementary income tax.
The following table summarizes our blended and effective tax rates for the nine and three-month periods ended September 30, 2017 and 2016:
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| 2017 |
| 2016 |
| 2017 |
| 2016 |
Blended tax rate | 31.4% |
| 27.8% |
| 24.5% |
| 25.6% |
Effective tax rate | 43.8% |
| 31.4% |
| 36.3% |
| 28.0% |
41
Our blended tax rate for the nine-month period ended September 30, 2017 increased as compared to the same period in 2016 mainly due to: i) the devaluation loss recorded in our Venezuelan subsidiaries as described above which was not considered recoverable for tax purposes in 2017; and ii) a higher increase in our pre-tax gains in our Brazilian subsidiaries as compared with other locations, which are taxable at a higher tax rate.
Our blended tax rate for the three-month period ended September 30, 2017 decreased as compared to the same period in 2016 mainly due to: i) an increase in our pre-tax losses in our Mexican subsidiaries as compared with other locations, which are taxable at a higher tax rate; and ii) a decrease in our pre-tax gains in our Brazilian subsidiaries as compared with other locations, which are taxable at a higher tax rate, partially offset by a higher income tax expenses in Argentina as described above.
Our effective tax rate for the nine and three-month periods ended September 30, 2017 increased as compared to the same period in 2016 mainly due to an increase in our pre-tax losses in our Mexican subsidiaries, which reduce our consolidated pre-tax gain without any corresponding recognition of provision for income taxes.
The following table sets forth our effective income tax rate on a segment basis for the nine and three-month periods ended September 30, 2017 and 2016:
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Effective tax rate by country |
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Argentina |
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| 21.1% |
| 20.2% |
| 18.8% |
| 21.2% |
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Brazil |
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| 29.3% |
| 26.1% |
| 23.6% |
| 23.5% |
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Venezuela |
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| -0.8% |
| -0.6% |
| -3.0% |
| 20.9% |
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Mexico |
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| -0.2% |
| -9.0% |
| 0.4% |
| -6.3% |
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The increase in the effective income tax rate in our Argentine subsidiaries during the nine-month period ended September 30, 2017 as compared to the same period in 2016 was mainly related to higher temporary differences in the current period. The decrease in the effective income tax rate in our Argentine subsidiaries during the three-month period ended September 30, 2017 as compared to the same periods in 2016, was mainly related to lower temporary differences in the current period.
On August 17, 2011, the Argentine government issued a new software development law and on September 9, 2013 a regulatory decree was issued, which established the new requirements to become a beneficiary of the new software development law. The new decree establishes compliance requirements with annual incremental ratios related to exports of services and research and development expenses that must be achieved to remain within the tax holiday. Our Argentine subsidiary will have to achieve certain required ratios annually under the new software development law to remain eligible for the benefits.
On September 17, 2015, the Argentine Industry Secretary approved our application for eligibility under the new software development law for our Argentinean subsidiary, Mercadolibre S.R.L. Furthermore, on September 18, 2016, the Argentine Industry Secretary approved our application for eligibility under the new software development law for our Argentinean subsidiaries, Neosur S.RL. and Business Vision S.A. As a result, our Argentinean subsidiaries have been granted a tax holiday retroactive from September 18, 2014. A portion of the benefits obtained as beneficiaries of the new law is a relief of 60% of total income tax related to software development activities and a 70% relief in payroll taxes related to software development activities.
Our benefits under the software development law will expire on December 31, 2019. As a result of our eligibility under the new law, we recorded an income tax benefit of $17.7 million and $6.4 million during the nine and three-month periods ended September 30, 2017, respectively. Aggregate per share effect of the Argentine tax holiday amounted to $0.40 and $0.14 for the nine and three-month periods ended September 30, 2017, respectively. Furthermore, we recorded a labor cost benefit of $5.5 million and $2.0 million during the nine and three-month periods ended September 30, 2017, respectively. Additionally, $1.6 million and $0.6 million were accrued to pay software development law audit fees during the nine and three-month periods ended September 30, 2017, respectively. During the nine-month period ended September 30, 2016, we recorded an income tax benefit of $16.0 million, a labor cost benefit of $4,2 million and $1.4 million were accrued to pay software development law audit fees. Additionally, during the third quarter of 2016, we recorded an income tax benefit of $6.8 million, a labor cost benefit of $2.2 million and $0.6 million were accrued to pay software development law audit fees. Aggregate per share effect of the Argentine tax holiday amounted to $0.46 and $0.20 for the nine and three-month periods ended September 30, 2016, respectively
The increase in our Brazilian effective income tax rate for the nine-month periods ended September 30, 2017 as compared to the same periods in 2016, was mainly related to higher temporary differences in the current period. There is no significant variation in the effective income tax rate for the three-month period ended September 30, 2017March 31, 2021, as compared to the same period in 2016. 2020, was mainly related to higher taxable pre-tax gains.
42
For the nine and three-month periods ended September 30, 2017 and 2016,The decrease in our Venezuelan Mexican effective income tax rate into a negative rate for the three-month period ended March 31, 2021 as compared to the same period in 2020, was mainly driven mainly by losses recorded in our Venezuelan subsidiariesthe combined effect of higher income tax expense related to impairment of long-lived assetsadvertising business in Mexico and foreign exchange losses, which generated net loss before income tax; except for the third quarter of 2016 which generated pre-tax gains. The loss carryforwards generated in Venezuela were considered not recoverable for tax purposes.
The increase in our Mexican effective income tax rate for the nine and three-month periods ended September 30, 2017 as compared with the same periods in 2016, is due to the higher pre-tax losses recorded during 2017 (asthat were not accounted for as deferred tax assets as a result mainlyconsequence of an increase in our operating costs) without any corresponding impact in our provision for income taxes.the valuation allowance.
We do not expect the domestic effective income tax rate related to dividend distributions from foreign subsidiaries to have a significant impact on our company since our strategy is to reinvest our cash surplus in our international operations, and to distribute dividends when they can be offset with available tax credits.
(*) Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due to rounding.
Net revenues
Net revenues for the nine and three-month period ended September 30, 2017March 31, 2021 as compared to the same periodperiods in 2016,2020 are described above in “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Net revenues”.revenues.”
Direct costs
Brazil
For the nine-monththree-month period ended September 30, 2017March 31, 2021, as compared to the same period in 2016,2020, direct costs increased by 106.6%91.6%, mainly driven by: i) a 140.6%134.5% increase in cost of net revenues, mainly attributable to an increase in shipping operating costs, sales taxes, collection fees as a consequence of the higher transactions volume of our MercadoPagoMercado Pago business, cost of sale of goods as a consequence of an increase in sales taxof products and salaries and wages;shipping carrier costs; ii) a 81.7%46.6% increase in sales and marketing expenses, mainly due to an increase in bad debt expenses and online and offline marketing expenses, salaries and wages, chargebacks from credit cards due to the increase in our MercadoPago volume and buyer protection program expenses; iii)expenses; iii) a 39.7%27.3% increase in product and technology development expenses, mainly due to an increase insalaries and wages, maintenance expenses mostly related to higher software licenses expenses and depreciation and amortization expensesexpenses; and other product development expenses and; iv) a 33.6%28.2% increase in general and administrative expenses, mainlymostly attributable to an increase in salarysalaries, mainly related to the LTRPs, taxes and wages and legalother fees.
Argentina
For the three-month period ended September 30, 2017March 31, 2021, as compared to the same period in 2016,2020, direct costs increased by 137.4%87.1%, mainly driven by: i) a 178.4% increase in cost of net revenues, mainly attributable to an increase in shipping costs, collection fees as a consequence of higher transactions volume of our MercadoPago business, sales tax and salaries and wages related to customer service; ii) a 120.7% increase in sales and marketing expenses, mainly due to an increase in online marketing expenses, chargebacks from credit cards due to increase in our MercadoPago volume and salaries and wages; iii) a 36.3% increase in product and technology development expenses, mainly due to an increase in depreciation and amortization expenses and other product development expenses; and iv) a 19.5% increase in general and administrative expenses, mainly attributable to an increase in depreciation and amortization expenses and legal fees.
Argentina
For the nine-month period ended September 30, 2017 as compared to the same period in 2016, direct costs increased by 43.5%, mainly driven by: i) a 75.5% increase in sales and marketing expenses, mainly due to an increase in online marketing expenses, buyer protection program expenses and chargebacks from credit cards due to increase in our MercadoPago volume; ii) a 68.4% increase in product and technology development expenses, mainly due to an increase in depreciation and amortization expenses; iii) a 37.5%115.1% increase in cost of net revenues, mainly attributable to an increase in collection fees as a consequence of athe higher operationtransactions volume of MercadoPagoour Mercado Pago business, customer supportshipping operating costs and cost of sale of goods as a consequence of an increase in sales of products and sales taxes. This increase was partially offset bytaxes; ii) a 3.7% decrease in general and administrative expenses.
For the three-month period ended September 30, 2017 as compared to the same period in 2016, direct costs increased by 44.0%, mainly driven by: i) a 111.9%11.6% increase in sales and marketing expenses, mainly due to an increase in online marketing expenses, buyer protection program expenses and increases in salaries and wages and chargebacks from credit cards due to increasepartially offset by a decrease in our MercadoPago volume; ii)online and offline marketing expenses as a 58.9%consequence of marketing expenditures efficiencies that we achieved as a result of the growth in organic demand brought about by the effects of the COVID-19 pandemic consumer behavior; iii) a 54.3% increase in product and technology development expenses, mainly due to an increase in depreciation and amortization expenses; iii)and iv) a 39.5%73.5% increase in general and administrative expenses, mainlymostly attributable to an increase in salaries, and wagesmainly related to the LTRPs, and other general and administrative expenses; and iv)expenses principally related to certain tax withholdings.
Mexico
For the three-month period ended March 31, 2021, as compared to the same period in 2020, direct costs increased by 92.5%, mainly driven by: i) a 30.0%132.7% increase in cost of net revenues, mainly attributable to an increaseincreases in collection feesshipping operating costs, cost of sale of goods as a consequence of a higher operation volume of MercadoPago business, customer support costs and sales taxes.
Mexico
For the nine-month period ended September 30, 2017 as compared to the same period in 2016, direct costs increased by 229.9%, mainly driven by: i) a 358.3% increase in cost of net revenues, mainly attributable to an increase in shipping costs ,collectionsales of products, collection fees as a consequence ofdue to higher Mercado Pago penetration of our MercadoPago business and customer support costs; ii) a 236.8%46.3% increase in sales and marketing expenses, mainly due to increases in onlinebuyer protection program and offline marketingbad debt expenses; and iii) a 21.0% increase in general and administrative expenses. This increase was partially offset by a 10.3% decrease in product and technology development expenses, mainly attributable to a decrease in salaries and wages.
For the three-month period ended September 30, 2017 as compared to the same period in 2016, direct costs increased by 248.1%, mainly driven by: i) a 421.7% increase in cost of net revenues, mainly attributable to an increase in shipping costs, collection fees due to higher MercadoPago penetration and customer support costs; ii) a 205.8% increase in sales and marketing expenses, mainly due to increases in online and offline marketing expenses and chargebacks from credit cards due to increase in our MercadoPago volume; iii) a 31.9% increase in general and administrative expenses and; iv) a 22.3%121.7% increase in product and technology development expenses, mainly attributable to depreciation and amortization.amortization expenses.
Venezuela
During second quarter of 2016 and the second quarter of 2017, we recorded an impairment of long-lived assets of $13.7 million and $2.8 million respectively in our Venezuelan subsidiaries.
For the nine-month period ended September 30, 2017 as compared to the same period in 2016, direct costs increased by 32.7%, mainly driven by: i) a 47.7% increase in cost of net revenues that was mainly attributable to an increase in customer support costs and collection fees due to higher MercadoPago penetration and certain new taxes on payment business; ii) a 28.1% increase in product and technology development expenses attributable to an increase in depreciation and amortization expenses; iii) a 13.2% increase in general and administrative expenses; and iv) a 10.1% increase in sales and marketing expenses, mainly due to an increase in the buyer protection program and bad debt expenses
For the three-month period ended September 30, 2017 as compared to the same period in 2016, direct costs increased by 32.4%, mainly driven by: i) a 63.2% increase in product and technology development expenses, mainly attributable to an increase in depreciation and amortization expenses; ii) a 36.6% increase in cost of revenues, mainly attributable to an increase in customer support costs, collection fees and sales taxes; and iii) a 29.2% in sales and marketing expenses, mainly due to increases in the buyer protection program, bad debt expenses. This increase was partially mitigated by a 10.6% decrease in general and administrative expenses.
45
Liquidity and Capital Resources
Our main cash requirement historically has been working capital to fund MercadoPagoMercado Pago financing operations in Brazil.operations. We also require cash for capital expenditures relating to technology infrastructure, software applications, office space, business acquisitions, to fund our credit business, to fund the payment of quarterly cash dividends on shares ofbuild out our common stocklogistics capacity and to fund themake interest payments on our Convertible Notes.loans payable and other financial liabilities. In 2020, we entered, into a purchase commitment in relation to the purchase of cloud services for a total amount of $240.5 million to be paid in the following 4 years. Please refer to Note 9 of our unaudited interim condensed consolidated financial statements for further detail on purchase commitments.
Since our inception, we have funded our operations primarily through contributions received from our stockholders during the first two years of operations, from funds raised during our initial public offering, and from cash generated from our operations. We issued on June 30, 2014, $330 million principal balance of Convertiblethe 2028 Notes for net proceeds to us of approximately $321.7$864.6 million. We have funded MercadoPagoMercado Pago mainly by discounting credit cardcards receivables and credit lines. Additionally, we have financed our Mercado Pago and Mercado Credito businesses through the securitization of credit cards receivable and certain loans through SPEs created in Brazil, Mexico and Argentina. Refer to Note 12 of our unaudited interim condensed consolidated financial statements for further detail on securitization transactions.
In January 2021, we closed a public offering of $400 million aggregate principal amount of 2.375% Sustainability Notes due 2026 (the “2026 Sustainability Notes”) and $700 million aggregate principal amount of 3.125% Notes due 2031 (the “2031 Notes”, and together with the 2026 Sustainability Notes, the “Notes”). The net proceeds from the offering of the 2031 Notes were applied in part towards the purchase price of $1,865.1 million for the repurchase of $440 million in aggregate principal amount of the 2028 Notes entered into in January 6, 2021. Refer to Note 11 to our unaudited condensed consolidated financial statements for further detail on the issuance of the Notes.
Given the uncertain progress of the COVID-19 pandemic and the related macroeconomic instability in the countries where we operate, it is not possible to have certainty around business development and cash advances derived fromgeneration for 2021. In terms of liquidity and cash management, our business.relevant sources of funding remain available and credit facilities have been obtained at the geographic segment level. Refer to Note 16 to our unaudited condensed consolidated financial statements for further detail on COVID-19 impacts.
As of September 30, 2017,March 31, 2021, our main source of liquidity amounting to $636.4was $1,208.7 million of cash and cash equivalents and short-term investments, which excludes a $562.8 million investment related to the Central Bank of Brazil Mandatory Guarantee and $45.6$71.3 million investment related to restricted escrow accounts regarding a financial loan taken out in Brazil, and consists of long-term investments, was provided by cash generated from operations, proceeds from loans, the issuance of the 2028 Notes and the Notes, and proceeds from the issuance of the Convertible Notes. We consider our long-term investments as part of our liquidity because long-term investments are comprised of available-for-sale securities classified as long-term as a consequence of their contractual maturities.common and preferred stock.
The significant components of our working capital are cash and cash equivalents, restricted cash and cash equivalents, short-term investments, credit cards receivable and other means of payments, accounts receivable, loans receivable, inventory, accounts payable and accrued expenses, funds receivable from and payable to MercadoPago users,customers and amounts due to merchants and short-term debt. As long as we continue transferring credit card receivables to financial institutions in return for cash, we will continue generating cash from those receivables.
As of September 30, 2017,March 31, 2021, cash and cash equivalents, restricted cash and cash equivalents and investments of our foreignnon-U.S. subsidiaries amounted to $481.8$1,921.1 million, or 70.6%82.0% of our consolidated cash and cash equivalents, restricted cash and cash equivalents and investments, and our cash, cash and equivalent, restricted cash and cash equivalent and investments held outside U.S. amounted to approximately 62.3%79.2% of our consolidated cash and investments were held outside the U.S., mostly in Brazil and Argentina. Our strategy is to reinvest the undistributed earnings of our foreign operations in those operations and to distribute dividends when they can be offset with available tax credits. We do not expect a material impact in any repatriation of undistributed earnings of foreign subsidiaries on our operations since the taxable domestic gains generated by any dividend distributions will be mostly offset with foreign tax credits that arise from income tax paid in our foreign operations, which we are allowed to compute for domestic income tax purposes.
In the event we change the way we manage our business, our working capital needs could be funded, as we did in the past, through a combination of the sale of credit card coupons to financial institutionscash equivalents, restricted cash and cash advances from our business.equivalents and investments. Our non-U.S. dollar-denominated cash and cash equivalents, restricted cash and cash equivalents and investments are located primarily in Brazil.
The following table presents our cash flows from operating activities, investing activities and financing activities for the nine-monththree-month periods ended September 30, 2017March 31, 2021 and 2016:2020:
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Net cash (used in) provided by: | ||||||||||||||
Operating activities |
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| $ 242.4 |
| $ 147.7 | $ | (263.0) | $ | (85.7) | ||||
Investing activities |
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| 91.8 |
| (91.9) | (97.9) | (150.1) | ||||||
Financing activities |
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| (78.3) |
| (20.4) | (859.7) | 154.6 | ||||||
Effect of exchange rates on cash and cash equivalents |
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| (28.8) |
| (14.3) | ||||||||
Net increase in cash and cash equivalents |
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| $ 227.1 |
| $ 21.1 | ||||||||
Effect of exchange rates on cash and cash equivalents, restricted cash and cash equivalents | (99.2) | (104.9) | ||||||||||||
Net decrease in cash and cash equivalents, restricted cash and cash equivalents | $ | (1,319.9) | $ | (186.0) |
(*) The table above may not total due to rounding.
Net cash provided byused in operating activities
Cash provided byused in operating activities consists of net income adjusted for certain non-cash items, and the effect of changes in working capital and other activities:
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| 2016 |
| in Dollars |
| in % | 2021 | 2020 | in % | ||||||
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Net Cash provided by: |
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Net Cash used in: |
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Operating activities |
| $ 242.4 |
| $ 147.7 |
| $ 94.7 |
| 64.1% | $ | (263.0) | $ | (85.7) | $ | (177.3) | 207.1% |
(*) Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due to rounding.
46
The $94.7$177.3 million increase in net cash provided byused in operating activities during the nine-monththree-month period ended September 30, 2017,March 31, 2021, as compared to the same period in 2016,2020, was primarily driven by a $57.9$100.7 million increasedecrease in accounts payablepayables and accrued expenses and a $51.3$85.5 million increasedecrease in funds payable to customers of MercadoPago partially offset by a $ 20.7 decrease in credit card receivables.and amounts due to merchants.
Net cash used in investing activities
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| 2016 |
| in Dollars |
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Net Cash provided by (used in): |
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Net Cash used in: |
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Investing activities |
| $ 91.8 |
| $ (91.9) |
| $ 183.7 |
| -199.9% | $ | (97.9) | $ | (150.1) | $ | 52.1 | -34.7% |
(*) Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due to rounding.
Net cash provided byused in investing activities in the nine-monththree-month period ended September 30, 2017March 31, 2021 resulted mainly from purchases of investments of $3,180.6$2,415.1 million, which was partially offset by proceeds from the sale and maturity of investments of $3,371.5$2,588.7 million, asconsistent with our treasury strategy of investing part of our financial strategy.available liquidity. We also used $ 47.0$148.7 million in principal of loans receivable granted to merchants and consumers under our MercadoCreditoMercado Credito solution $39.3and $112.7 million in the purchase of property plant and equipment (mainly in information technology assets in Argentina, Brazil and the United States) and $12.8 million in advances for property and equipment.Mexico).
Net cash used in(used in) provided by financing activities
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| $ (78.3) |
| $ (20.4) |
| $ (57.9) |
| 284.1% | $ | (859.7) | $ | 154.6 | $ | (1,014.3) | -656.3% |
(*) Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table. The table above may not total due to rounding.
For the nine-monththree-month period ended September 30, 2017,March 31, 2021, our primary use ofnet cash used in financing activities was to fund $ 67.3 million for the 2017 Capped Call Transactions, $19.9primarily derived from $1,865.1 million in cash dividends and $4.3payments of the repurchase of the 2028 Notes, $704.3 million for thein payments onfrom loans payable and other financing. In addition, we generated $13.2financial liabilities and $100.8 million for the purchase of capped calls, partially offset by $1,839.6 million in net proceeds from the issuance of loans.loans payable and other financial liabilities.
In the event that we decide to pursue strategic acquisitions in the future, we may fund them with available cash, third-party debt financing, or by raising equity capital, as market conditions allow.
Debt
Convertible Senior Notes
On June 30, 2014, August 24, 2018, we issued $330$800 million of 2.25%2.00% Convertible Senior Notes due 2019 (the “Notes”). 2028 and on August 31, 2018 we issued an additional $80 million of notes pursuant to the partial exercise of the initial purchasers’ option to purchase such additional notes, resulting in an aggregate principal amount of $880 million of 2.00% Convertible Senior Notes due 2028.The 2028 Notes are unsecured, unsubordinated obligations, of our Company, which pay interest in cash semi-annually, on January 1February 15 and July 1,August 15, at a rate of 2.25%2.00% per annum. The 2028 Notes will mature on July 1, 2019August 15, 2028 unless earlier repurchased or converted in accordance with their terms prior to such date. The 2028 Notes may be converted, under thespecific conditions, specified below, based on an initial conversion rate of 7.93532.2553 shares of common stock per $1,000 principal amount of the 2028 Notes (equivalent to an initial conversion price of approximately $126.02$443.40 per share of common stock), subject to adjustment as described in the indenture governing the 2028 Notes.
Holders
In January 2021, we repurchased $440 million principal amount of the outstanding 2028 Notes. The total amount paid to repurchase such 2028 Notes amounted to $1,865.1 million, which includes principal, interest accrued and premium. Approximately, $440 million of the principal amount aggregate principal amount of the 2028 Notes remains outstanding.
Please refer to note 11 to our unaudited interim condensed consolidated financial statements for additional information regarding the 2028 Notes and the related capped call transactions.
Mercado Pago Funding
In 2021, we, through our subsidiaries, continued obtaining certain lines of credit in Argentina, Chile and Uruguay primarily to fund the Mercado Pago business. Additionally, we continue to securitize certain loans and credit card receivables through our Argentine, Mexican and Brazilian SPEs, formed to securitize loans provided by us to our users and credit cards receivable. Please refer to Note 11 and 12 to our interim unaudited condensed consolidated financial statements for additional detail.
Debt Securities Guaranteed by Subsidiaries
On January 14, 2021, we issued $400 million aggregate principal amount of the 2026 Sustainability Notes and $700 million aggregate principal amount of the 2031 Notes. The payment of principal, premium, if any, interest, and all other amounts in respect of each of the Notes, is fully and unconditionally guaranteed (the “Subsidiary Guarantees”), jointly and severally, on an unsecured basis, by certain of our subsidiaries (the “Subsidiary Guarantors”). The initial Subsidiary Guarantors are MercadoLibre S.R.L., Ibazar.com Atividades de Internet Ltda., eBazar.com.br Ltda., Mercado Envios Servicos de Logistica Ltda., MercadoPago.com Representações Ltda., MercadoLibre Chile Ltda., MercadoLibre, S. de R.L. de C.V., DeRemate.com de México, S. de R.L. de C.V. and MercadoLibre Colombia Ltda.
We will pay interest on the Notes on January 14 and July 14 of each year, beginning on July 14, 2021. The 2026 Sustainability Notes will mature on January 14, 2026, and the 2031 Notes will mature on January 14, 2031.
The Notes rank equally in right of payment with all of the Company´s other existing and future senior unsecured debt obligations from time to time outstanding. Each Subsidiary Guarantee will rank equally in right of payment with all of the Subsidiary Guarantor’s other existing and future senior unsecured debt obligations from time to time outstanding, except for statutory priorities under applicable local law.
Each Subsidiary Guarantee will be limited to the maximum amount that would not render the Subsidiary Guarantor’s obligations subject to avoidance under applicable fraudulent conveyance provisions of applicable law. By virtue of this limitation, a Subsidiary Guarantor’s obligation under its Subsidiary Guarantee could be significantly less than amounts payable with respect to the Notes, or a Subsidiary Guarantor may convert their noteshave effectively no obligation under its Subsidiary Guarantee.
Under the indenture governing the Notes, the Subsidiary Guarantee of a Subsidiary Guarantor will terminate upon: (i) the sale, exchange, disposition or other transfer (including by way of consolidation or merger) of the Subsidiary Guarantor or the sale or disposition of all or substantially all the assets of the Subsidiary Guarantor (other than to the Company or a Subsidiary) otherwise permitted by the indenture, (ii) satisfaction of the requirements for legal or covenant defeasance or discharge of the Notes, (iii) the release or discharge of the guarantee by such Subsidiary Guarantor of the Triggering Indebtedness (as defined in the applicable indenture) or the repayment of the Triggering Indebtedness, in each case, that resulted in the obligation of such Subsidiary to become a Subsidiary Guarantor, provided that in no event shall the Subsidiary Guarantee of an Initial Subsidiary Guarantor terminate pursuant to this provision, or (iv) such Subsidiary Guarantor becoming an Excluded Subsidiary (as defined in the applicable indenture) or ceasing to be a Subsidiary
We may, at theirour option, redeem the 2026 Sustainability Notes, in whole or in part, at any time prior to January 1, 2019 only underDecember 14, 2025 (the date that is one month prior to the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2014 (and only during such calendar quarter), if the last reported sale pricematurity of the common stock for2026 Sustainability Notes) and the 2031 Notes, in whole or in part, at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending onany time prior to October 14, 2030 (the date that is three months prior to the last trading daymaturity of the immediately preceding calendar quarter is greater than or equal to 130%2031 Notes), in each case by paying 100% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day ofsuch Notes so redeemed plus the measurement period was less than 98% ofapplicable “make-whole” amount and accrued and unpaid interest and additional amounts, if any. We may, at our option, redeem the product of the last reported sale price of our common stock and the conversion rate2026 Sustainability Notes, in whole or in part, on each such trading day;December 14, 2025 or (3) upon the occurrence of specified corporate events. On or after January 1, 2019 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time regardlessthereafter and the 2031 Notes on October 14, 2030 or at any time thereafter, in each case at the redemption price of 100% of the foregoing circumstances.principal amount of such Notes so redeemed plus accrued and unpaid interest and additional amounts, if any. If we experience certain change of control triggering events, we may be required to offer to purchase the notes at 101% of their principal amount plus any accrued and unpaid interest thereon through the purchase date.
See note 11 of our unaudited condensed consolidated financial statements for additional detail.
47
As of September 30, 2017,We are presenting the conversion threshold had been metfollowing summarized financial information for the issuer and the Notes became convertible atinitial Subsidiary Guarantors (together, the holders’ option beginning“Obligor Group”) pursuant to Rule 13-01 of Regulation S-X, Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. For purposes of the following summarized financial information, transactions between the Company and the Subsidiary Guarantors, presented on October 1, 2017a combined basis, have been eliminated. Financial information for the non-guarantor subsidiaries, and ending onany investment in a non-guarantor subsidiary by the Company or by any Subsidiary Guarantor, have been excluded. Amounts due from, due to and transactions with the non-guarantor subsidiaries and other related parties, as applicable, have been separately presented.
Summarized balance sheet information for the Obligor Group as of March 31, 2021 and as of December 31, 2017. The determination of whether or not2020 is provided in the Notes are convertible must continue to be performed on a quarterly basis. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination oftable below:
March 31, | December 31, | |||||||
(In millions) | 2021 | 2020 | ||||||
Current assets (*)(**) | $ | 2,932.5 | $ | 4,339.4 | ||||
Non-current assets (***) | 1,224.9 | 1,121.2 | ||||||
Current Liabilities (****) | 2,891.5 | 3,298.2 | ||||||
Non-current Liabilities | 1,727.3 | 944.3 |
(*) Includes restricted cash and sharescash equivalents of the Company’s common stock, at the Company’s election. The intention$224.9 million and $402.0 million and guarantees in short-term investments of the Company is to share-settle the amount due upon conversion of the Notes.
From October 1 to the date of issuance of this form, no additional conversion request were made.
The total estimated fair value of the Notes was$687.9$634.1 millionand$458.8 $636.9 millionas of September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively. The fair value was determined based on the closing trading price per $100
(**) Includes Current assets from non-guarantor subsidiaries of the Notes$139.4 million and $156.4 million as of the last dayMarch 31, 2021 and December 31, 2020, respectively.
(***) Includes Non-current assets from non-guarantor subsidiaries of trading$107.8 million and $94.9 million as of March 31, 2021 and December 31, 2020, respectively.
(****) Includes Current liabilities to non-guarantor subsidiaries of $216.4 million and $144.7 million as of March 31, 2021 and December 31, 2020, respectively.
Summarized statement of income information for the period. Based onObligor Group for the $258.9 closing price ofthree-month period ended March 31, 2021 is provided in the Company’s common stock on September 30, 2017, the if-converted value of the Notes exceeded their principal amount by approximately $348.0 million.table below:
Capped Call Transactions
March 31, | |||||
(In millions) | 2021 | ||||
Net revenues (*) | $ | 1,189.6 | |||
Gross Profit (**) | 451.7 | ||||
Income from operations (***) | 55.8 | ||||
Net loss (****) | (47.7) |
The net proceeds(*) Includes Net revenues from the Notes were approximately $321.7 million after considering the transaction costs in an amount of $8.3 million. In connection with the issuance of the Notes, we paid approximately $19.7 million in June 2014 to enter into privately negotiated capped call transactions with respect to our common stock with certain financial institutions (the “2014 Capped Call Transactions”). In September 2017, we paid $67.3non-guarantor subsidiaries of $29.7 million (including transaction expenses) to enter into additional privately negotiated capped callfor the three-month period ended March 31, 2021.
(**) Includes charges from transactions with certain financial institutions (the “2017 Capped Call Transactions”; and together withnon-guarantor subsidiaries of $65.9 million for the 2014 Capped Call Transactions, the “Capped Call Transactions”three-month period ended March 31, 2021.
(***). The 2017 Capped Call Transactions are in In addition to the 2014 Capped Call Transactions and have a higher strike price and cap price. The 2014 Capped Call Transactions have a cap pricecharges included in Gross profit, Income from operations includes charges from transactions with non-guarantor subsidiaries of approximately $155.78 per common share and$39.1 million for the 2017 Capped Call Transactions have a cap price of approximately $366.06 per common share. The Capped Call Transactions are expected generally to reduce the potential dilution upon conversion of the Convertible Notes in the event that the market price of our common stock is greater than the strike price of the Capped Call Transactions. The strike price of the 2014 Capped Call Transactions was initially set at $126.02 per common share, which corresponds to the initial conversion price of the Notes. The strike price of the 2017 Capped Call Transactions was initially set at $295.67 per common share. The Capped Call Transactions are subject to anti-dilution adjustments substantially similar to those applicable to the conversion rate of the Notes. The Capped Call Transactions allow us to receive shares of our common stock and/or cash related to the excess conversion value that we would pay to the holders of the Notes upon conversion, up to the applicable cap price.
Cash Dividends
In each of February, May, August and November of 2016, the Board of Directors approved a quarterly cash dividend of $6,624 thousands (or $0.150 per share) on the Company’s outstanding shares of common stock. The dividends were paid on April 15, July 15, October 14, 2016 and January 16, 2017 to stockholders of record as of the close of business onthree-month period ended March 31, June 30, September 30, and December 31, 2016.2021.
On March 2, 2017,(****) Includes other income from transactions with non-guarantor subsidiaries of $3.7 million for the Board of Directors approved a change to the Company’s dividend policy for providing for a fixed quarterly dividend payment in 2017 of $0.150 per share ($0.600 per share annually). The new dividend policy took effect following the payment of the $0.150 per share dividend declared by the Board of Directors of the Company, which was paid on April 17, 2017 to shareholders of record as of the close of business onthree-month period ended March 31, 2017.2021.
On May 2, 2017, the Board of Directors approved a quarterly cash dividend of $6,624 thousands (or $0.150 per share) on the Company´s outstanding shares of common stock. The second quarterly dividend was paid on July 14, 2017 to stockholders of record as of the close of business on June 30, 2017.
On July 31, 2017, the Board of Directors approved a quarterly cash dividend of $6,624 thousands (or $0.150 per share) on our outstanding shares of common stock. The third quarterly dividend was paid on October 16, 2017 to stockholders of record as of the close of business on September 30, 2017.
On October 31, 2017, our board of directors approved a quarterly cash dividend of $6,624 thousands (or $0.150 per share) on our outstanding shares of common stock. This quarterly dividend is payable on January 16, 2018 to stockholders of record as of the close of business on December 31, 2017.
We currently expect to continue paying comparable cash dividends on a quarterly basis. However, any future determination as to the declaration of dividends on our common stock will be made at the discretion of our board of directors and will depend on our earnings, operating and financial condition, capital requirements and other factors deemed relevant by our board of directors, including the applicable requirements of the Delaware General Corporation Law.
48
Capital expenditures
Our capital expenditures (composed(comprised of our payments for property and equipment (such as fulfillment centers), intangible assets (excluding digital assets) and acquired business)businesses) for the nine-monththree-month periods ended September 30, 2017March 31, 2021 and 20162020 amounted to $52.1$112.7 million and $69.0$53.5 million, respectively.
During the nine-monththree-month period ended September 30, 2017March 31, 2021, we invested $32.9$47.3 million in Information Technologyinformation technology in Brazil, Argentina the United States and Mexico, and $2.3$60.1 million in our Argentine, Brazilian and ArgentineanMexican offices.
On February 12, 2016, through our subsidiaries Meli Participaciones S.L. and Marketplace Investment LLC, we acquired 100% of the issued and outstanding shares of capital stock of Monits S.A., a software development company located and organized under the laws of Buenos Aires, Argentina, for the purchase price of $3.1 million, measured at its fair value.
In April 2016, our Venezuelan subsidiary acquired commercial properties still in the construction process and totaling 135.81 square meters in Caracas, Venezuela for a total purchase price of approximately BF$1,359 million, or $3.7 million, for investment purposes and included in non-current other assets. The Venezuelan subsidiary paid the purchase price in Bolivares Fuertes. According to the purchase agreements, the commercial properties will be delivered in December 2018.
On June 1, 2016, through our subsidiary Ebazar.com.br Ltda., we acquired 100% of the issued and outstanding shares of capital stock of Axado, a company that develops logistic software for the e-commerce industry in Brazil, for the purchase price of $5.5 million, measured at its fair value. We believe this acquisition will allow us to enhance our software development capabilities on Transportation Management System and will contribute to our shipping business performance.
We are permanentlycontinually increasing theour level of investment onin hardware and software licenses necessary to improve and update theour platform’s technology of our platform and cost of computer software developed internally. We anticipate continued investments in capital expenditures related to information technology and logistics network capacity in the future as we strive to maintain our position in the Latin American e-commerce market.
We believe that our existing cash and cash equivalents, including the sale of credit card receivablescards receivable, short-term investments and cash generated from operations, will be sufficient to fund our operating activities, property and equipment expenditures and to pay or repay obligations going forward.
Off-balance sheet arrangements
As of September 30, 2017,March 31, 2021, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.
Recently issued accounting pronouncements
See Item 1 of Part I, “Unaudited Interim Condensed Consolidated Financial Statements-Note2-Summary of significant accounting policies-Recentlypolicies—Recently Adopted Accounting Standards and Recently issued accounting pronouncements.pronouncements not yet adopted.”
Non-GAAP Financial Measures
To supplement our consolidated financial statements presented in accordance with U.S. GAAP, we use foreign exchange (“FX”) neutral measures as a non-GAAP measure.
This non-GAAP measure should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP and may be different from non-GAAP measures used by other companies. In addition, this non-GAAP measure areis not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with U.S. GAAP. This non-GAAP financial measure should only be used to evaluate our results of operations in conjunction with the most comparable U.S. GAAP financial measures.
Reconciliation of this non-GAAP financial measure to the most comparable U.S. GAAP financial measure can be found in the table included in this quarterly report.
49
We believe that reconciliation of FX neutral measuresprovide this non-GAAP financial measure to the most directly comparable GAAP measure provides investors anenhance overall understanding of our current financial performance and its prospects for the future. Specifically,future, and we understand that this measure provides useful information to both Management and investors. In particular, we believe thisthat FX neutral non-GAAP measuremeasures provide useful information to both managementManagement and investors by excluding the foreign currency exchange rate impact that may not be indicative of our core operating results and business outlook.
The FX neutral measures were calculated by using the average monthly exchange rates for each month during 20162020 and applying them to the corresponding months in 2017,2021, so as to calculate what our results would have been hadif exchange rates had remained stable from one year to the next. The table below excludes intercompany allocation FX effects. Finally, these measures do not include any other macroeconomic effect such as local currency inflation effects, the impact on impairment calculations or any price adjustment to compensate local currency inflation or devaluations.
The following table sets forth the FX neutral measures related to our reported results of the operations for the nine and three-month periods ended September 30, 2017:March 31, 2021:
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| FX Neutral Measures | As reported | FX Neutral Measures | As reported | |||||||||||||||||
(In millions, except percentages) |
| 2017 |
| 2016 |
| Percentage Change |
| 2017 |
| 2016 |
| Percentage Change | 2021 | 2020 | Percentage Change | 2021 | 2020 | Percentage Change | ||||||
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Net revenues |
| $ 961.1 |
| $ 588.1 |
| 63.4% |
| $ 1,024.8 |
| $ 588.1 |
| 74.3% | $ 1,378.4 | $ 652.1 | 111.4% | $ 1,684.9 | $ 652.1 | 158.4% | ||||||
Cost of net revenues |
| (444.9) |
| (214.0) |
| 107.9% |
| (449.5) |
| (214.0) |
| 110.1% | (787.1) | (339.3) | 132.0% | (951.4) | (339.3) | 180.4% | ||||||
Gross profit |
| 516.2 |
| 374.1 |
| 38.0% |
| 575.3 |
| 374.1 |
| 53.8% | 591.4 | 312.8 | 89.1% | 733.5 | 312.8 | 134.5% | ||||||
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Operating expenses: |
| (392.6) |
| (244.0) |
| 60.9% |
| (413.1) |
| (244.0) |
| 69.3% | ||||||||||||
Impairment of Long-Lived Assets |
| (2.8) |
| (13.7) |
| -79.3% |
| (2.8) |
| (13.7) |
| -79.3% | ||||||||||||
Total operating expenses |
| (395.4) |
| (257.7) |
| 53.4% |
| (415.9) |
| (257.7) |
| 61.3% | ||||||||||||
Income from operations |
| 120.9 |
| 116.4 |
| 3.9% |
| 159.4 |
| 116.4 |
| 37.0% | ||||||||||||
Operating expenses | (500.5) | (342.5) | 46.1% | (623.7) | (342.5) | 82.1% | ||||||||||||||||||
Income (Loss) from operations | 90.8 | (29.7) | 405.9% | 109.8 | (29.7) | 469.5% |
(*) The table above may not total due to rounding.
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(In millions, except percentages) |
| 2017 |
| 2016 |
| Percentage Change |
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| 2016 |
| Percentage Change | |||||||||||
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Net revenues |
| $ 370.7 |
| $ 230.8 |
| 60.6% |
| $ 414.0 |
| $ 230.8 |
| 79.4% | |||||||||||
Cost of net revenues |
| (194.8) |
| (85.2) |
| 128.7% |
| (202.0) |
| (85.2) |
| 137.1% | |||||||||||
Gross profit |
| 175.8 |
| 145.6 |
| 20.7% |
| 212.0 |
| 145.6 |
| 45.6% | |||||||||||
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Operating expenses |
| (148.3) |
| (91.9) |
| 61.3% |
| (160.9) |
| (91.9) |
| 75.0% | |||||||||||
Income from operations |
| 27.5 |
| 53.7 |
| -48.7% |
| 51.2 |
| 53.7 |
| -4.8% |
Item 3 — Qualitative and Quantitative Disclosure About Market Risk
We are exposed to market risks arising from our business operations. These market risks arise mainly from the possibility that changes in interest rates and the U.S. dollar exchange rate with local currencies, particularly the Brazilian realReais and Argentine pesoPeso due to Brazil’s and Argentine’s respective share of our revenues, may affect the value of our financial assets and liabilities. Latin American countries in which we operate have been negatively affected by the outbreak of COVID-19, which has generated macroeconomic instability and led to the devaluation of certain Latin American currencies.
Foreign currencies
We have significant operations internationally that are denominated in foreign currencies, primarily the Brazilian Reais, Argentine Peso, Mexican Peso, Colombian Peso and Chilean Peso, subjecting us to foreign currency risk, which may adversely impact our financial results. We transact business in various foreign currencies and have significant international revenues and costs. In addition, we charge our international subsidiaries for their use of intellectual property and technology and for certain corporate services. Our cash flows, results of operations and certain of our intercompany balances that are exposed to foreign exchange rate fluctuations may differ materially from expectations and we may record significant gains or losses due to foreign currency fluctuations and related hedging activities.
As of September 30, 2017,March 31, 2021, we hold cash and cash equivalents in local currencies in our subsidiaries, and have receivables denominated in local currencies in all of our operations. Our subsidiaries generate revenues and incur most of their expenses in the respective local currencies of the countries in which they operate. As a result, our subsidiaries use their local currency as their functional currency except for our VenezuelanArgentine subsidiaries, which usewhose functional currency is the U.S. dollar as if it is the functional currency due to Venezuela being a highlythe inflationary environment. As of September 30, 2017,March 31, 2021, the total cash, cash equivalents, restricted cash and cash equivalentsequivalent denominated in foreign currencies totaled $255.0$947.1 million, short-term investments denominated in foreign currencies totaled $167.2$869.2 million and accounts receivable, credit cards receivable and other means of payment and loans receivable in foreign currencies totaled $487.2$1,383.6 million. As of September 30, 2017,March 31, 2021, we had no$8.6 million long-term investments denominated in foreign currencies. To manage exchange rate risk, our treasury policy is to transfer most cash and cash equivalents in excess of working capital requirements into U.S. dollar-denominated accounts in the United States.States and to enter into certain foreign exchange derivatives, such as currency forwards contracts, in order to mitigate our exposure to foreign exchange risk. As of September 30, 2017,March 31, 2021, our U.S. dollar-denominated cash and cash equivalents, restricted cash and cash equivalents and short-term investments totaled $214.2$352.1 million and our U.S. dollar-denominated long-term investments totaled $45.6$167.0 million.
For the nine-monththree-month period ended September 30, 2017,March 31, 2021, we had a consolidated loss on foreign currency of $19.5$15.1 million primarily asmainly related to a resultloss of a $25.5$18.3 million loss arising fromattributable to the U.S. Dollar revaluation overadditional cost of accessing US dollars through an indirect mechanism in Argentina due to restrictions imposed by Argentine government for buying US dollars at the official exchange rate (refer to Note 15 of our Bolivares Fuertes net asset position in Venezuela,unaudited interim condensed consolidated financial), partially offset by a $ 4.2$5.7 million gain arising from the Mexican Peso revaluation over our U.S. Dollar net liability position in México and a $1.9 million gain arising from the Argentine Peso devaluation over our U.S. Dollar net asset position in Argentina.
If the U.S. dollar weakens againston foreign currencies, the translation of these foreign-currency-denominated transactions will result in increased net revenues, operating expenses, and net income while the re-measurement of our net asset position in U.S. dollars will have a negative impactexchange in our StatementArgentina subsidiaries. (See “Management’s Discussion and Analysis of Income. Similarly, our net revenues, operating expensesFinancial Condition and netResults of Operations—Results of operations—Other income will decrease if the U.S. dollar strengthens against foreign currencies, while the re-measurement of our net asset position in U.S. dollars will have a positive impact in our Statement of Income.(expenses), net” for more information).
The following table sets forth the percentage of consolidated net revenues by segment for the nine and three-month periods ended September 30, 2017March 31, 2021 and 2016:2020:
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| Nine-months Periods Ended |
| Three-month Periods Ended |
| Three-month Periods Ended | ||||||||||||||
|
| September 30, |
| September 30, |
| March 31, | ||||||||||||||
(% of total consolidated net revenues) (*) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2021 | 2020 | |||||||||
Brazil |
| 59.2 | % |
| 53.0 | % |
| 61.9 | % |
| 56.7 | % |
| 55.8 | % | 60.9 | % | |||
Argentina |
| 26.1 |
|
| 31.6 |
|
| 24.6 |
|
| 30.3 |
|
| 21.6 | 20.4 | |||||
Mexico |
| 6.1 |
|
| 5.8 |
|
| 6.1 |
|
| 5.1 |
|
| 16.7 | 14.5 | |||||
Venezuela |
| 4.0 |
|
| 4.5 |
|
| 2.6 |
|
| 3.0 |
|
| |||||||
Other Countries |
| 4.6 |
|
| 5.1 |
|
| 4.7 |
|
| 4.8 |
|
| 5.9 | 4.1 |
(*) Percentages have been calculated using whole-dollar amounts.
Foreign Currency Sensitivity Analysis
The table below shows the impact on our net revenues, cost of net revenues, operating expenses, other expensesincome (expenses) and income tax, net income and equity for a positive and a negative 10% fluctuation on all the foreign currencies to which we are exposed at the moment of translating our financial statements to forU.S. dollar as of March 31, 2021:
Foreign Currency Sensitivity Analysis (*) | |||||
(In millions) | -10% | Actual | +10% | ||
(1) | (2) | ||||
Net revenues | $ 1,531.6 | $ 1,378.4 | $ 1,253.2 | ||
Expenses (**) | (1,430.3) | (1,287.6) | (1,170.8) | ||
Income from operations | 101.2 | 90.8 | 82.4 | ||
Other income/(expenses) and income tax related to P&L items | (115.0) | (109.8) | (105.5) | ||
Foreign Currency impact related to the remeasurement of our Net Asset position | (14.7) | (15.1) | (15.4) | ||
Net loss | (28.5) | (34.0) | (38.5) | ||
Total Shareholders' Equity | $ 73.0 | $ (30.4) | $ (163.1) |
(1)Appreciation of the nine-month period ended September 30, 2017:subsidiaries’ local currency against U.S. Dollar
(2)Depreciation of the subsidiaries’ local currency against U.S. Dollar
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Foreign Currency Sensitivity Analysis (*) | |||||
(In millions) |
|
| -10% | Actual | +10% |
|
|
| (1) |
| (2) |
Net revenues |
|
| $ 1,067.8 | $ 961.1 | $ 873.8 |
Expenses |
|
| (933.7) | (840.2) | (763.8) |
Income from operations |
|
| 134.1 | 120.9 | 110.0 |
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Other expenses and income tax related to P&L items |
|
| (21.0) | (19.9) | (19.0) |
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Foreign Currency impact related to the remeasurement of our Net Asset position |
|
| (21.5) | (19.5) | (17.8) |
Net income |
|
| 91.7 | 81.5 | 73.2 |
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Total Shareholders' Equity |
|
| $ 457.9 | $ 406.2 | $ 365.9 |
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(*) The table above may not total due to rounding.
(**) Includes cost of net revenues and operating expenses.
The table above shows an increasea decrease in our net incomeloss when the U.S. dollar weakens against foreign currencies because of the re-measurementpositive impact of our net asset positionthe increase in U.S. dollars has a lesser impact thanincome from operations. On the other hand, the table above shows an increase in our net revenues, operating expenses, and other expenses, net and income tax lines related to the translation effect. Similarly, the table above shows a decrease in our net incomeloss when the U.S. dollar strengthens against foreign currencies because of the re-measurementnegative impact of our net asset position in U.S. dollars has a lesser impact than the decrease in our net revenues, operating expenses, and other expenses, net and income tax lines related to the translation effect.from operations.
During the nine and three-month period ended September 30, 2017, we did not enter into any such hedging transaction.
VenezuelanArgentine Segment
In accordance with U.S. GAAP, we have classified our VenezuelanArgentine operations as highly inflationary since JanuaryJuly 1, 2010,2018, using the U.S. dollar as the functional currency for purposes of reporting our financial statements. Therefore, no translation effect has been accounted for in other comprehensive income related to our Venezuelan operations. Argentine operations since July 1, 2018.
As of September 30, 2017, monetary assets and liabilities in BsF were re-measured toMarch 31, 2021, the Argentine Peso exchange rate against the U.S. dollar was 92.00.
In the second half of 2019, the Argentine government instituted exchange controls restricting the purchase of foreign currencies. Because of Argentine exchange controls, many Argentine entities use a trading mechanism, in which an entity buys U.S. dollar denominated securities in Argentina using Argentine Pesos, transfers the DICOM closingsecurities outside Argentina and sells the securities for U.S. dollars. The number of U.S. dollars that may be obtained through this mechanism are lower than the ones that would have resulted from buying them at the official rate if such transaction was not restricted.
Considering a hypothetical devaluation of 10% of the Argentine Peso against the U.S. dollar on March 31, 2021, the effect on non-functional currency net liability position in our Argentine subsidiaries would have been a foreign exchange rate of 41,478.0 BsF per U.S. dollar.gain amounting to approximately $9.6 million in our Argentine subsidiaries.
See Item 2 of Part I,7, “Management’s discussion and analysis of financial condition and results of operations—Critical accounting policies and estimates—Foreign Currency Translation” for details on the currency status of our Venezuelan segment.Argentine segment.
Although the current mechanisms available to obtain U.S. dollars for dividend distributions to shareholders outside of Venezuela imply increased restrictions, we do not expect that the current restrictions to purchase U.S. dollars will have a significant adverse effect on our business strategy with regard to the investment in Venezuela.
In order to assist investors in their overall understanding of the impact on our Venezuelan segment reporting, we developed a scenario that considers a 1240% additional devaluation over the DICOM rate as of the date of this report, applied for the period starting on January 1, 2017 to September 30, 2017. These disclosures may help investors to project sensitivities, on segment information captions, to devaluations of whatever order of magnitude they choose by simple arithmetic calculations. The information is just a scenario and does not represent a forward-looking statement about our expectations or projections related to future events in Venezuela. The investors and other readers or users of the financial information presented in this caption are cautioned not to place undue reliance on this scenario. This information is not a guarantee of future events.
The information disclosed below does not include any inflation effect, nor the devaluation impact related to the assumed devaluation or any other effect derived from the assumed devaluation, such as further impairments of long-lived assets. The information below should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP. In addition, this information is not based on any comprehensive set of accounting rules or principles.
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The evolution of the Venezuelan economy and any future governmental interventions in the Venezuelan economy are beyond our ability to control or predict. New events could happen in the future in Venezuela and it is not possible for management to predict all such events, nor can it assess the impact of all such events on our Venezuelan business.
The table below provides specific sensitivity information of our Venezuelan segment reporting for the period indicated assuming approximately a 1240% additional devaluation over the DICOM rate as of the date of this report, applied for the period starting on January 1, 2017 to September 30, 2017:
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|
| Nine-month period ended |
| Three-month period ended |
| ||||
| Actual (*) |
| Sensitivity(**) (**) |
| Actual (*) |
| Sensitivity (**) |
|
| (In million) |
| (In million) |
| ||||
Net revenues | $38.3 |
| $1.3 |
| $9.8 |
| $0.7 |
|
Direct costs | (16.8) |
| (5.4) |
| (4.6) |
| (1.8) |
|
Direct contribution before impairment of Long-lived assets | $21.5 |
| $(4.1) |
| $5.2 |
| $ (1.0) |
|
Direct Contribution Margin before impairment % | 56.1% |
| -314.6% |
| 53.0% |
| -144.8% |
|
Non-current other assets impairment | (2.8) |
| (2.8) |
| - |
| - |
|
Direct Contribution after impairment | 18.7 |
| $(7.0) |
| 5.2 |
| $(1.0) |
|
Direct Contribution Margin after impairment % | 48.7% |
| -530.7% |
| 53.0% |
| -144.8% |
|
(*) As reported.
(**) Computing a hypothetical devaluation of the Venezuelan segment from January 1 to September 30, 2017 assuming an exchange rate of 41,478.0 BsF per U.S. dollar (1240% of the exchange rate as of September 30, 2017).
Despite the continued uncertainty and restrictions relating to foreign currency exchange in Venezuela as described above, we believe that our underlying business in that country is competitively well-positioned and continues to exhibit solid growth, in terms of units sold, even while economic conditions in the Venezuelan economy remain difficult. As economic conditions in that country improve, we expect that our business in Venezuela will benefit accordingly. Although during the first half of 2017, we experienced a strong devaluation of our business in Venezuela, we cannot assure you that the BsF will not experience further devaluations or that the Venezuelan government will not default on its obligations to creditors in the future, which may be significant and could have a material negative impact on our future financial results of our Venezuela segment and value of our bolivar denominated net assets. However, for the reasons stated at the beginning of this paragraph, we remain strongly committed to our business and investment in Venezuela.
Argentine Segment
As of September 30, 2017, the Argentine Peso exchange rate against the U.S. dollar was 17.3.
Had a hypothetical devaluation of 10% of the Argentine peso against the U.S. dollar occurred on September 30, 2017, the reported net assets in our Argentine subsidiaries would have decreased by approximately $20.6 million with a related impact on Other Comprehensive Income. Additionally, we would have recorded a foreign exchange gain amounting to approximately $0.4 million in our Argentine subsidiaries.
Brazilian Segment
As of September 30, 2017, the Brazilian Reais exchange rate against the U.S. dollar was 3.2.
HadConsidering a hypothetical devaluation of 10% of the Brazilian Reais against the U.S. dollar occurred on September 30, 2017,March 31, 2021, the reported net assets in our Brazilian subsidiaries would have decreased by approximately $10.4$93.6 million with the related impact in Other Comprehensive Income. Additionally, we would have recorded a foreign exchangecurrency loss amounting to approximately $2.1$18.3 million in our Brazilian subsidiaries.
Mexican Segment
Considering a hypothetical devaluation of 10% of the Mexican peso against the U.S. dollar on March 31, 2021, the reported net assets in our Mexican subsidiaries would have decreased by approximately $29.1 million with the related impact in Other Comprehensive Income. Additionally, we would have recorded a foreign currency loss amounting to approximately $13.4 million in our Mexican subsidiaries.
Interest
Our earnings and cash flows are also affected by changes in interest rates. These changes could have an impact on the interest rates that financial institutions charge us prior to the time we sell our MercadoPagoMercado Pago receivables. As of September 30, 2017, MercadoPago’sMarch 31, 2021, Mercado Pago’s receivables totaled $406.9$883.7 million. Interest rate fluctuations could also impact interest earned through our MercadoCreditoMercado Credito solution. As of September 30, 2017,March 31, 2021, loans granted underreceivable from our MercadoCreditoMercado Credito solution totaled $51.8$435.4 million. Interest rate fluctuations could also negatively affect certain of our fixed rate and floating rate investments comprised primarily of time deposits, money market funds investment grade corporate debt securities and sovereign debt securities. Investments in both fixed rate and floating rate interest earning products carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than predicted if interest rates fall.
53
Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. As of September 30, 2017,March 31, 2021, the average duration of our available for sale securities, defined as the approximate percentage change in price for a 100-basis-point change in yield, was 0.52%1.3%. If interest rates were to instantaneously increase (decrease) by 100 basis points, the fair market value of our available for sale securities as of September 30, 2017March 31, 2021 could decrease (increase) by approximately $1.0$2.6 million.
As of September 30, 2017,March 31, 2021, our short-term investments amounted to $175.2$980.1 million and our long-term investments amounted to $45.6$175.6 million. TheseOur short-term investments, except for the $562.8 million investment related to the Central Bank of Brazil Mandatory Guarantee and $71.3 million investment related to restricted escrow accounts regarding financial loan taken in Brazil, can be readily converted at any time into cash or into securities with a shorter remaining time to maturity. We determine the appropriate classification of our investments at the time of purchase and re-evaluate such designations as of each balance sheet date.
Equity Price Risk
Our board of directors, adopted the 2010, 2011 and 2012 long-term retention plans (the “ 2010, 2011 and 2012 LTRPs”, respectively), under which certain eligible employees receive awards (“LTRP Awards”), which are payable as follows:
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The 2010, 2011 and 2012 LTRPs are filed as Exhibits 10.02, 10.03 and 10.04, respectively, to our Quarterly Report on Form 10-Q filed with the SEC on August 5, 2016, and the above description of such LTRPs is qualified in its entirety by reference to such exhibits.
On September 27, 2013, our Board of Directors, upon the recommendation of the compensation committee, approved the 2013 Long Term Retention Plan (the “2013 LTRP”), on March 31, 2014, the Board of Directors, upon the recommendation of the compensation committee, approved the 2014 employee retention plan (the “2014 LTRP”) and on August 4, 2015, the Board of Directors, upon the recommendation of the compensation committee, approved the 2015, employee retention plan2016, 2017, and 2018 Long Term Retention Program (the “2015, LTRP”2016, 2017 and 2018 LTRPs”)., respectively.
In order to receive an award under the 2013, 20142015, 2016, 2017 and/or 20152018 LTRP, each eligible employee must satisfy the performance conditions established by the Board of Directors for such employee. If these conditions are satisfied, the eligible employee will, subject to his or her continued employment as of each applicable payment date, receive the full amount of his or her 2013, 20142015, 2016, 2017, and/or 20152018 LTRP award, payable as follows:
| the eligible employee will receive a fixed payment, equal to 8.333% of his or her 2015, 2016, 2017, and/or 2018 LTRP bonus once a year for a period of six years starting no later than April 30, 2016, 2017, 2018 and/or 2019 respectively (the “2015, 2016, 2017, or 2018 Annual Fixed Payment”, respectively); and on each date we pay the respective Annual Fixed Payment to an eligible employee, he or she will also receive a payment (the “2015, 2016, 2017, or 2018 Variable Payment”, respectively) equal to the product of (i) 8.333% of the applicable 2015, 2016, 2017, and/or 2018 LTRP award and (ii) the quotient of (a) divided by (b), where (a), the numerator, equals the Applicable Year Stock Price (as defined below) and (b), the denominator, equals the 2014 (with respect to the 2015 LTRP), 2015 (with respect to the 2016 LTRP), 2016 (with respect to the 2017 LTRP) and 2017 (with respect to the 2018 LTRP) Stock Price, defined as $127.29, $111.02, $164.17 and $270.84 for the 2015, 2016, 2017 and 2018 LTRP, respectively, which was the average closing price of our common stock on the NASDAQ Global Select Market during the final 60 trading days of |
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The 2013, 2014 and 2015 LTRPs are filed as Exhibits 10.05, 10.06 and 10.07, respectively, to our Quarterly Report on Form 10-Q filed with the SEC on August 5, 2016 and 2017, respectively. The “Applicable Year Stock Price” shall equal the above descriptionaverage closing price of such LTRPs is qualified in its entirety by reference to such exhibits.our common stock on the NASDAQ Global Select Market during the final 60 trading days of the year preceding the applicable payment date.
On August 2, 2016, the Board
Our board of Directors,directors, upon the recommendation of the Compensation Committee, adoptedcompensation committee, approved the 2016 LTRP2019, 2020 and 2021 Long Term Retention Program (the “2019, 2020 and 2021 LTRPs”), respectively, under which provides for the grant tocertain eligible employees have the opportunity to receive cash payments annually for a period of a fixed award (the 2016 LTRP Fixed Award)six years (with the first payment occurring no later than April 30, 2020, 2021 and a variable award (the 2016 LTRP Variable Award)2022, respectively). In order to receive awardsthe full target award under the 20162019, 2020 and/or 2021 LTRP, each eligible employee must satisfy the performance conditions established by the Board of Directors for such employee, which generally are expected to be based on pre-set goals for the Company’s financial and operational performance. If these conditions are satisfied, the eligible employee will, subject to his or her continued employmentremain employed as of each applicable payment date,date. The 2019, 2020 and 2021 LTRP awards are payable as follows:
the eligible employee will receive the full amount16.66% of half of his or her 2016target 2019, 2020 and/or 2021 LTRP Awards, payable as follows:
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The 2016 LTRP is filed as Exhibit 10.08 to our Quarterly Report on Form 10-Q filed with the SEC first payment occurring no later than April 30, 2020, 2021 and 2022 (the “2019, 2020 or 2021 Annual Fixed Payment”, respectively); and
on August 5, 2016, andeach date we pay the descriptionrespective Annual Fixed Payment to an eligible employee, he or she will also receive a payment (the “2019, 2020 or 2021 Variable Payment”) equal to the product of (i) 16.66 % of half of the 2016target 2019, 2020 or 2021 LTRP above is qualified in its entiretyaward and (ii) the quotient of (a) divided by reference to such exhibit.
On April 3, 2017,(b), where (a), the Boardnumerator, equals the Applicable Year Stock Price (as defined below) and (b), the denominator, equals the average closing price of Directors, uponour common stock on the recommendationNASDAQ Global Select Market during the final 60 trading days of 2018, 2019 and 2020 defined as $322.91, $553.45 and $1,431.26 for the 2019, 2020 and 2021 LTRP, respectively. The “Applicable Year Stock Price” shall equal the average closing price of our common stock on the NASDAQ Global Select Market during the final 60 trading days of the Compensation Committee, adoptedyear preceding the 2017 LTRP which provides for the grant to eligible employees of a fixed award (the 2017 LTRP Fixed Award) and a variable award (the 2017 LTRP Variable Award). In order to receive awards under the 2017 LTRP, each eligible employee must satisfy the performance conditions established by the Board of Directors for such employee, which generally are expected to be based on pre-set goals for the Company’s financial and operational performance. If these conditions are satisfied, the eligible employee will, subject to his or her continued employment as of each applicable payment date, receive the full amount of his or her 2017 LTRP Awards, payable as follows:
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date.
55
At September 30, 2017,March 31, 2021, the total contractual obligation fair value of our 2010, 2011, 2012, 2013, 2014, 2015, 2016 and 2017outstanding LTRP Variable Award Payment obligation subject to equity price risk amounted to $67.4$341.1 million. As of September 30, 2017,March 31, 2021, the accrued liability related to the 2010, 2011, 2012, 2013, 2014, 2015, 2016 and 2017outstanding Variable Award Payment of the LTRP included in Salaries and Social security payable in our condensed consolidated balance sheet amounted to $38.5$69.3 million. The following table shows a sensitivity analysis of the risk associated with our total contractual obligation fair value related to the 2010, 2011, 2012, 2013, 2014, 2015, 2016 and 2017outstanding LTRP Variable Award Payment subject to equity price risk if our common stock price per share were to increase or decrease by up to 40%:
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| As of September 30, 2017 | As of March 31, 2021 | |||||
|
| MercadoLibre, Inc |
| 2010, 2011, 2012, 2013, 2014, 2015, 2016 and 2017 | MercadoLibre, Inc | 2016, 2017, 2018, 2019, 2020 and 2021 | ||
|
| Equity Price |
| variable LTRP contractual obligation | Equity Price | LTRP Variable contractual obligation | ||
(In thousands, except equity price) |
|
| ||||||
Change in equity price in percentage |
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| ||||
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| ||||
40% |
| 372.04 |
| 94,320 | 2,063.37 | 477,546 | ||
30% |
| 345.47 |
| 87,583 | 1,915.98 | 443,436 | ||
20% |
| 318.89 |
| 80,846 | 1,768.60 | 409,325 | ||
10% |
| 292.32 |
| 74,109 | 1,621.22 | 375,215 | ||
Static | (*) | 265.74 |
| 67,372 | (*) | 1,473.83 | 341,104 | |
-10% |
| 239.17 |
| 60,634 | 1,326.45 | 306,994 | ||
-20% |
| 212.59 |
| 53,897 | 1,179.07 | 272,884 | ||
-30% |
| 186.02 |
| 47,160 | 1,031.68 | 238,773 | ||
-40% |
| 159.45 |
| 40,423 | 884.30 | 204,663 |
(*) AveragePresent value of average closing stock price for the last 60 trading days of the closingyear preceding the applicable payment date.
Item 4 — Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management,Management, including our chief executive officerChief Executive Officer and chief financial officer,Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of disclosure controlsDisclosure Controls and proceduresProcedures
Based on the evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) required by Exchange Act Rules 13a-15(b) or 15d-15(b), our chief executive officer and our chief financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the nine-monththree-month period ended September 30, 2017March 31, 2021 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting. Most of our employees are working remotely due to the COVID-19 pandemic, and we continue to monitor and assess the impact of the COVID-19 pandemic on our internal controls.
See Item 1 of Part I, “Financial Statements—Note 79 Commitments and Contingencies—Litigation and other Legal Matters.”
As of September 30, 2017, there have been no material changes in ourWe previously disclosed risk factors from those disclosedunder "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2020 (the “2020 Form 10-K”) . The following information supplements and, to the extent inconsistent, supersedes some of the information appearing in the Risk Factors section of our 2020 Form 10-K. In addition to those risk factors and the other information included elsewhere in this report, you should also carefully consider the risk factor discussed below. The risk described below and in our 2020 Form 10-K, are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations:
We hold and may acquire digital assets that may be subject to volatile market prices, impairment and unique risks of loss.
We have recently begun to use a portion of our cash to purchase digital assets or certain other alternative reserve assets. During the first quarter of 2021, we invested an aggregate $7,800 thousands in bitcoin, and we may expect to continue acquiring and holding digital assets from time to time.
The prices of digital assets have been and may continue to be highly volatile, including as a result of various associated risks and uncertainties. For example, the prevalence of such assets is a relatively recent development, and their long-term adoption by investors, consumers and businesses is unpredictable. Moreover, they rely on technology for their creation, existence and transactional validation and their decentralization may subject their integrity to the threat of malicious attacks and technological obsolescence. The status of such assets for a variety regulatory purposes is unclear and may change in the future.
As digital assets, including bitcoin, have grown in popularity and market size, there has been increasing focus on the extent to which digital assets can be used to launder the proceeds of illegal activities or fund criminal or terrorist activities, or entities subject to sanctions regimes. If we are found to have purchased bitcoin or other digital assets from persons that have used the digital assets to launder money or from persons subject to sanctions, we may be subject to regulatory proceedings and further transactions or dealings in bitcoin or other digital assets may be restricted or prohibited.
Digital assets are currently considered indefinite-lived intangible assets under applicable accounting rules, meaning that any decrease in their fair value below our carrying value for such assets at any time will require us to recognize impairment charges. This may adversely affect our operating results in any period in which such impairment occurs, which in turn could have a material adverse effect on the market price of our shares. We may not recognize any increases in fair value while we hold the assets.
As intangible assets without centralized issuers or governing bodies, digital assets have been, and may in the future be, subject to security breaches, cyberattacks or other malicious activities, as well as human errors or computer malfunctions, that may result in operational problems or the loss or destruction of private keys needed to access such assets, which may be irreversible and could adversely affect the value of our bitcoin and an investment in our Company. While we intend to take reasonable measures to secure any digital assets, if such threats are realized or the measures or controls we implement to secure our digital assets fail, it could result in a partial or total misappropriation or loss of our digital assets, and our financial condition and operating results may be adversely affected.
Item 2 — Issuer Purchases of Equity Securities
Period | (a) Total Number of Shares Purchased | (b) Average Price per Share (1)(2) | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Program (in millions) (2) | ||||
January, 2021 | — | — | — | Up to $251 | ||||
February, 2021 | — | — | — | Up to $251 | ||||
March, 2021 | 17,408 | 2,513.84 | 17,408 | Up to $251 |
(1) | Average price paid per share does not include costs associated with the repurchases. |
(2) | On August 30, 2020 the Board authorized the repurchase of Shares for an aggregate consideration of up to $350 million. The share repurchase program expires on August 31, 2021 and may be suspended from time to time or discontinued. The repurchases are being executed from time to time, subject to general business and market and price conditions and other investment opportunities, through open-market purchases, block trades, derivatives, trading plans established in accordance with SEC rules, or privately negotiated transactions. Please refer to Note 15 of our unaudited interim condensed consolidated financial statements for additional detail. |
The information set forth under “Index to Exhibits” below is incorporated herein by reference.
MercadoLibre, Inc.
INDEX TO EXHIBITS
3.1 | Registrant’s Amended and Restated Certificate of Incorporation.(1) | |
3.2 | ||
4.1 | Form of Specimen Certificate for the Registrant’s Common Stock.(2) | |
4.2 | ||
4.3 | ||
4.4 | ||
4.5 | Form of Global Note representing the Registrant’s 2.375% Sustainability Notes due 2026. (4) | |
4.6 | Form of Global Note representing the Registrant’s 3.125% Notes due 2031.(4) | |
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
10.6 | ||
10.7 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101 | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL: (i) Interim Condensed Consolidated Balance Sheets, (ii) Interim Condensed Consolidated Statements of Income, (iii) Interim Condensed Consolidated Statements of Comprehensive Income, (iv) Interim Condensed Statements of Equity, (v) Interim Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Interim Condensed Consolidated Financial Statements. | |
104 | The cover page from the Company’s Form 10-Q for the quarterly period ended March 31, 2021, formatted in Inline XBRL and contained in Exhibit 101 |
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* | Filed or furnished herewith, as applicable. |
(1) | Incorporated by reference to the Registration Statement on Form S-1 filed on May 11, 2007. |
(2) | Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 filed on February 27, 2009. |
(3) | Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on August 24, 2018. |
(4) | Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 14, 2021. |
(5) | Incorporated by reference to the Registrant’s Current Report on Form 8-K filed on May 5, 2021. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MERCADOLIBRE, INC. | ||||||
Registrant | ||||||
Date: | By: | /s/ Marcos Galperin | ||||
Marcos Galperin | ||||||
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President and Chief Executive Officer | ||||||
By: | /s/ Pedro Arnt | |||||
Pedro Arnt | ||||||
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Executive Vice President and Chief Financial Officer |