MercadoLibre, Inc. (MELI) Q2 2016 Earnings Report, Transcript and Summary

Hello, everyone, and welcome to the MercadoLibre earnings conference call for the quarter ended June 30, 2016. I am Federico Sander, (00:14) Head of Investor Relations for MercadoLibre. Our senior manager presenting today is Pedro Arnt, Chief Finance Officer. Additionally, Marcos Galperín, Chief Executive Officer; and Osvaldo Giménez, Executive VP of Payment will be available today for today's Q&A session. This conference call is also being broadcasted over the Internet and is available through the Investor Relations section of our website. I remind you that management may make forward-looking statements relating to such matters as continued growth prospect for the company, industry trends, and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations, and projections of our future events. While we believe that our assumptions, expectations, and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on these forward-looking statements. Our actual results may differ materially from those disclosed in this call for a variety of reasons, including those described in the forward-looking statements and risk factors sections of our 10-K and other filings with the Security and Exchange Commissions, which are available on our Investors Relations website. Finally, I would like to remind you that during the course of this conference call we may discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measure can be found in our second quarter 2016 earnings press release available on our Investor Relations website. Now, let me turn the call over to Pedro. Pedro Arnt - Chief Financial Officer & Executive Vice President: Thanks, Federico. Welcome, everyone, to our second quarter conference call for 2016. I'd like to start the call by saying that the second quarter was one of our strongest quarters ever. Not only have we maintained high growth rates on key operational and financial metrics by executing well, but we are also pleased to report that our enhanced marketplace vision continues to consolidate in our larger markets and perhaps more importantly, is starting to materialize outside of those main geographies. The incremental adoption of our suite of solutions that make buying, selling, collecting and paying online easier beyond Argentina and Brazil is resulting in acceleration of our business performance in countries like Mexico and Colombia as well. With that headline as context, let me now walk you through some of our key high-level operational metrics from a consolidated perspective. For the second quarter of 2016 items sold growth accelerated to 45% year-over-year, reaching 43.7 million units sold and recording the highest growth since 2009. Gross merchandise volume reached $2 billion and excluding our Venezuelan operations grew 57% on an FX neutral basis. Total payment transactions grew 76% to 32 million. Total payment volume doubled on an FX neutral basis, reaching $1.8 million and represented over 90% of our gross merchandise volume for the quarter. And finally, registered users were up 27% year-on-year after we added 7.1 million new users during the quarter. As we look forward to the rest of the year, we believe that this quarter's results confirm the sustained momentum of our business, pointing a clear path for our company through the remainder of 2016, continuing to execute on our vision that a marketplace with deeply integrated payments, credit, shipping and fulfillment solutions generates a virtuous cycle of volume growth, improved user engagement and opportunities to then port those marketplace solutions off marketplace, turning them into vibrant, standalone businesses. This is what we will be investing in and focusing on. Moving on to some more granular metrics, Brazilian GMV accelerated on an FX neutral basis to a robust 64% versus 61% in the first quarter of 2016. Units sold in Brazil also accelerated over 10 percentage points to 57%, up from 46% the prior quarter. Argentina also delivered strong results. Items sold in the country continue to grow at a solid 46% year-on-year rate while GMV growth on an FX neutral basis was 69%. Our Mexican operation was one of the highlights of the quarter. Units sold grew to a multiyear high of 32%, accelerating from 17% last quarter. Revenues in local currency grew 35% year-on-year, almost 15 percentage points above its three-year compounded annual growth rate. Colombia is also delivering solid results. Units sold grew 26% versus 21% during the first quarter of 2016. And on an FX neutral basis, revenues grew 55%, one of the highest growth rates on record. Product selection also continues to deepen as our efforts in simplifying our pricing structure combined with the rollout of our freemium strategy into other countries continues to increase supply. The number of live listings being offered in MercadoLibre accelerated for the second consecutive quarter to 73%, reaching 63 million listings. We continue to make strides on the user engagement front as well. We've successfully continued to stimulate demand and provide vibrancy across our marketplaces. As a result, unique buyers have accelerated for the third consecutive quarter to 26% year on year, while new buyers also accelerated their growth rate for the second consecutive quarter. Also encouraging is the fact that these cohorts of new buyers who have typically had a first purchase on MercadoLibre that already includes our integrated payments and shipping solutions are showing higher repeat usage rates, Net Promoter Scores and, consequently, lifetime value metrics. Another area of strategic focus for us is the advance of our mobile platform. Penetration of mobile as a percentage of our gross merchandise volume increased 10 percentage points in the last year alone. Mobile remains accretive to the platform as well as new registrations from either mobile or web apps continue to grow its mix of our total new users registering on the site. Finally, we are pleased to report that on an FX neutral basis mobile GMV grew 113% year on year during the second quarter. MercadoPago had another outstanding quarter and hit important milestones. Exiting the quarter, on-platform penetration reached 75% versus 57% a year ago, mainly as a result of the success we've had in initiatives that promote the pace of adoption of our payment solution on our platforms with a strong development there in Mexico and Argentina. MercadoPago on-platform penetration doubled from where it was a year ago in Mexico, reaching 60% while Argentina increased almost 20 percentage points during the same period to 72%. Colombia and Chile are delivering promising results as well, with penetration reaching 44% and 24% respectively. Our merchant service business continues to fire on all cylinders as well, as the second quarter was the fifth consecutive quarter of triple digit growth in that revenue line. As one of the fastest growing segments within MELI, FX neutral revenues grew on a consolidated basis 102% year-on-year as we continue to execute well on initiatives such as open platform integrations, special dates and commercial efforts. In line with that, our mobile POS initiative in Brazil is exceeding expectations in terms of share of total payment volume being transacted off platform through those devices, and we expect to launch those initiatives in Mexico and Argentina during the second half of the year. Lastly, during the month of June, we fully launched our MercadoPago payment solution in Peru. We expect this launch to serve as a powerful tool for users in that country to reduce friction and increase engagement within our ecosystem while at the same time onboarding merchants who conduct e-commerce outside our marketplace. Shipping continues to play an ever important role in growing engagement metrics and is a key element of our enhanced marketplace vision. As MercadoEnvios gains adoption in markets beyond Brazil, units shipped grew 104% year-on-year to 20.3 million units. Colombia was a highlight in this segment as adoption is already at one quarter of shipped items within only a year of launch and is showing world-class service levels in terms of average delivery times. Additionally, MercadoEnvios in Chile is showing encouraging advances in terms of penetration and adoption after its launch during the first quarter of this year. Argentina also continues to make strides in our ongoing efforts to improve the shipping offering and experience. Within only nine months of official launch, our cross-docking partners already account for close to 10% of items shipped on our platform in the country. This contributes to reignite growth of overall shipping penetration as these operations improve the overall experience as they allow us greater control over not only the shipping but also the picking and handling of these orders. As a consequence, shipping adoption in Argentina has gained seven percentage points in the last year, reaching 31% of units sold. Continuing on to our advertising efforts, we remain enthusiastic and encouraged by the progress we have achieved on this front. Our product ad solution that has found formats that seamlessly integrate advertising into our mobile and web properties continues to deliver a superior advertising solution. These new ad formats continue to provide improved click-through rates to our advertisers without negatively affecting conversion rates of our core marketplace. Additionally, during this quarter, we have seen confirmation that we are successfully transitioning these new formats on to mobile use cases as well. Mobile product ads in particular were a highlight as this advertising solution already represents 50% of total advertising revenue. Finally, our focus in developing a differentiated customer service experience continues to deliver positive results as well. With our investments and pace of execution in the area, we saw net promoter scores rise once again and now contact rates are also falling to record low levels as customers are requiring less and less assistance, a positive sign that transactions are increasingly occurring with absolutely no hiccups for users. As I have just outlined the performance of key indicators of our business continue to show strength, giving us confidence that we are adequately managing our financial model and allocating capital in the correct manner. Going forward, we will continue to invest in this disciplined yet aggressive manner behind initiatives that we believe have the potential to solidify our competitive position, allow us to gain market share, grow user engagement and satisfaction and keep us at the cusp of technological innovation. These are the elements that we believe will be the key to our long-term success. So now let's take a quick look at our bottom-line results and margin structures as we do every quarter. Greater detail can be found in the accompanying presentation to these prepared remarks. On an FX neutral basis, marketplace and non-marketplace revenue showed solid growth. Total MELI marketplace revenues grew 67% year-on-year and have been growing north of 50% for the past 11 quarters. Non-marketplace revenues grew 82%, the eight quarter of year-on-year growth above 70%. Excluding Venezuela on an FX neutral basis, total revenues grew by a solid 68% year-on-year. In U.S. dollars, revenue grew by an equally robust 29%, the highest rate of growth on multi-year high unit volume sales. Mexico's performance is worth noting here as well as marketplace local currency revenue accelerated to the highest level in four years at 30% year-on-year. As mentioned earlier, non-marketplace revenues continued to outperform during the quarter. Main contributors to growth in order of relevance came from the following initiatives; MercadoPago processing growing at 102% year-on-year in constant currency; financing fees accelerating in local currencies to 74% year-on-year aided by the continued adoption of interest free listings; shipping revenues accelerating to 101% year-on-year as adoption of our shipping solution in countries beyond Brazil's continues to scale; and finally, advertising revenues contributed to higher non-marketplace revenue growth as well growing at 124% year-on-year on an FX neutral basis. Aggregating marketplace and non-marketplace revenue growth resulted in net revenues of $200 million, a growth of 73% year-on-year on an FX neutral basis and the first quarter ever where we hit the $200 million mark. On a country-by-country basis, marketplace and non-marketplace revenue growth for the second quarter on an FX neutral basis was the following; Argentina 77% and 110%, Brazil 53% and 72%, Mexico 30% and 43%, Colombia 51% and 60%. Gross profit for the second quarter of 2016 was $126.3 million. Gross profit margin was 63.3% compared to 67.4% in the second quarter of 2015 and 64.8% during the first quarter. The 350 basis points of margin contraction are explained by increases in processing fees and sales taxes as MercadoPago and MercadoEnvíos gain share of revenues as well as costs related to sales of our mobile POS payment devices. The remaining 50 basis points of margin contraction are attributable to investments in strengthening our customer service operations and hosting and cloud services. Moving on to OpEx and before giving out the specific details, a note in Venezuela during the quarter. The country had a strong currency devaluation as the SIMADI exchange rate increased from VEF 273 per dollar to VEF 628 per dollar, a 57% decline. As a result of this and taking our traditionally prudent approach, we recorded a $16.9 million loss in the quarter that includes an impairment charge on long-lived assets primarily real estate of $13.7 million and a foreign exchange loss of $4.9 million, partially offset by deferred income tax gains of $1.7 million. Regardless of these charges, we feel bottom-line results were robust. Total operating expenses ascended to $94.1 million, up 35.7% from last year's second quarter on an as reported basis. Breaking down OpEx lines, results were the following. Sales and marketing grew less than revenues at 21% year on year to $35.3 million or 17.7% of revenues. Product development expenses, a key area of investment for us, also grew less than revenues at 23% to $24.2 million, representing 12.1% of revenues. General and administrative expenses totaled $34.6 million, a 68% increase including the impact of the Venezuelan write-off, representing 17.3% of revenues. Within this G&A number, operating expenses related to the Venezuelan impairment were $13.7 million. Consequently, on an as reported basis, operating income for the quarter was $32.2 million, down 7.1% versus last year. Below operating income, we incurred a $6.6 million loss in financial expenses, mostly corresponding to interest accrual on the convertible bond we issued in mid-2014. Interest income was $8 million, up 75% year on year explained by improving yields on locally invested cash positions and increases in interest rates. Further down, our forex line was negative $5.4 million, mainly due to the depreciation of our net monetary asset position in local currency in Venezuela. Income tax expense was $12.4 million during the quarter, yielding a blended tax rate for the period of 44%. Excluding the impact of the Venezuelan impairments on G&A, forex and tax, the blended tax rate for the second quarter would have been 30%. As a result of all this, as reported net income came in at $15.9 million or 7.9% of revenues during the second quarter, resulting in basic net income per common share of $0.36. Before I wrap up, let me break down for you what the results would have looked like excluding the impact of the Venezuelan write-offs that occurred during the quarter. Operating income would have increased 33% to $45.9 million, representing 23% of revenues versus 22.4% a year ago and 19.3% during the first quarter of 2016. Net income would have been $32.7 million, a margin of 16.4% and an earnings per share of $0.74, versus 12.6% and $0.44 a year ago respectively. Purchases of property and equipment, intangible assets, advances for fixed assets and payments for businesses acquired, net of cash acquired, totaled $27.6 million during the quarter. For the period ended on June 30, therefore, free cash flow was $29 million. And now wrapping up, we declared our quarterly dividend of $6.6 million or $0.15 per share, payable on October 14, 2016, to shareholders of record as of the close of business on September 30, 2016. This concludes our financial review and operational metrics overview for the quarter. We strongly believe the results validate that MercadoLibre is on the forefront of innovation when it comes to delivering world-class technology solutions and commerce, and they also give us the determination that we can continue to execute well when it comes to meeting the demands that our increasingly sophisticated user base requires. We'll continue working with a balanced and disciplined approach to scaling the business for the long term, while also trying to capitalize to the fullest the strong secular trends our region and industry offers. And now, we'd like to take your questions.

Thank you. Our first question is from Robert Ford of Bank of America. Your line is open, sir.

Thank you very much and congratulations on the quarter. There's a lot to be proud of. You did so many things well, and I was just looking at numbers that kind of stood out to me and I was very impressed with the big step up Q-on-Q in selection in Colombia, and I was kind of curious if you could comment on that. It just seems to be not in order of magnitude bigger but close, right? Pedro Arnt - Chief Financial Officer & Executive Vice President: Hi, Bob. Thanks. So what you're beginning to see in the Andean markets, Colombiam Chile, is as we roll out a lot of the initiatives that were successful in Brazil and Argentina and Mexico, we're beginning to see similar impact. So growth in listing count in Colombia is a consequence of the policy of opening the availability of free listings, improving the pricing so it's more back-loaded, all the stuff that worked for us so successfully in the other larger markets.

It seems to be taking hold though much more rapidly. Is there anything that you've learned in terms of past introductions? Are you rolling out things more differently? Are you communicating it more effectively? I'm just really surprised by the speed at which this seems to be maturing. Pedro Arnt - Chief Financial Officer & Executive Vice President: So, Bob, I think as everything you do, once you start iterating and you've gone through it before and you've made mistakes and you've fixed it, obviously it gets better in the newer markets. So probably some of that is just that once you're rolling out the third or the fourth country, there are a lot of learnings that have already been accumulated from the previous rollouts.

Great. Thank you very much. and again congratulations.

Thank you. Our next question is from Eugene Munster of Piper Jaffray. Your line is open. Eugene Charles Munster - Piper Jaffray & Co. (Broker): I'll add my congratulations. And can you talk about first, how you think about the trade-off between growth and investing in the business and maybe more specifically, is that you just to keep this growth going, do you foresee increasing the investment to do that? And separately, as some of the other bets that you talked about and the strength that they've had, do you have a sense of when those could have enough substance behind them that we think of them as kind of standalone businesses or we start to value them as a standalone part? And then last, just a housekeeping item, do you have a growth of listings in Brazil? Thanks. Pedro Arnt - Chief Financial Officer & Executive Vice President: So let me take that first piece, the investing piece. We feel increasingly comfortable on the results we're seeing that the investments that we've been making behind key areas of the use experience, investment in shipping, investments in payment, investments in credit, the growth of our engineering capability to be able to roll out more and better technology, obviously, is paying off. So going forward, that will continue to be our focus. Investing behind the user experience, growing the business, continuing to capture market share, this is a very long battle with enormous upside. And when you see the results that we're seeing out of the investments that we're making, it obviously gives us greater confidence to continue to invest behind those areas. Eugene Charles Munster - Piper Jaffray & Co. (Broker): Can I ask a quick follow-up on that is, do you think that the pace of investment going to be consistent with how you've been, or do you see that increasing or decreasing going forward? Pedro Arnt - Chief Financial Officer & Executive Vice President: The reality is that, we're disciplined. We try to make sure that we're investing things that are driving growth and that are driving results in terms of net promoter scores and how our users receive it. What that pace of investment will be is hard to tell. There are so many different factors and so many geographies and areas we're moving into. So you shouldn't see a company that behaves fundamentally different in terms of how we go about investing in the overall way that we think through our capital allocation but what that pace will be over the next few years is really something that we decide as we move forward and we learn from our users what's working and what isn't. And then, in terms of the bets, so some of the bets what we used to speak about obviously now have become important. I think many of our shipping efforts are already there. Obviously, our financing business has become important to both in the revenue side but also as a driver for increased transactions on the platform. And those were the things that maybe a few years ago, were bets. We have other bets on the pipeline now. We've got the mobile POS that we mentioned in the prepared remarks was obviously performing very well in Brazil, and so we're rolling it out to Argentina and Mexico, the other forms of merchant credit that we began to get into, but these are also very early stage. They're still in the seed stage. We'll call out overall growth rate as we move forward. We think there's a lot of potential there, but they're still small. And then the final question was growth in Brazil in terms of listing count. Brazilian listings continue to grow at a very robust pace. They grew at about 120%, slightly less than 120% year-over-year during the second quarter. Eugene Charles Munster - Piper Jaffray & Co. (Broker): Thank you.

Thank you. Our next question is from Ross Sandler of Deutsche Bank. Your line is open sir.

Hi there, congrats on the quarter guys. Pedro, I just had a couple. First, any color on specific categories in Brazil or Argentina that are performing well ahead of expectations and driving some of the re-acceleration? And then in Brazil, I think there was a law change at the beginning of the year around certain merchants. I'm not sure if your merchants fall under this, but certainly for one, two merchants and some categories had to start charging sales tax. So do your merchants have to do that? Are they doing it? Or some of the acceleration that you're seeing in Brazil, a result of picking up share from those that have to? And then the last question, sorry for the several here, you mentioned mobile is up about 100%. Where are we in terms of mobile penetration of total GMV if we, I guess, strip out Venezuela and just look into the rest of the business? Thank you and congrats. Pedro Arnt - Chief Financial Officer & Executive Vice President: So from a category perspective, Ross, there hasn't been any significant shift in category mix. Consequently, the growth isn't being driven by any specific new category or categories. It's strength pretty much across the board and our category mix continues to be very similar to what it has been over the last few quarters. Mobile, we don't disclose the number. Obviously, mobile continues to gain share overall. And so growing at north of 100%, overall GMV is growing at fraction of that. So, obviously, we continue on track towards 50% mobile penetration, but not there yet. But we're growing incredibly well. And I think also importantly from a qualitative perspective, when we look at the mobile app experience and the mobile apps, we feel increasingly very, very positive about them. And then finally, on Brazilian taxes, so obviously, the Brazilian tax system is incredibly complex. There were a few different changes to tax regime that occurred at the beginning of the year. And so I think the short answer is, not all our merchants have a potential tax benefit from these changes, but some of our merchants, particularly our smaller merchants do as they are exempt from some of the tax changes that are occurring and could potentially give them certain price benefit. But I don't think it's anything very large. So it could explain a part of the acceleration we are seeing, but there are many other things going, the ones we typically mentioned that we think explain a large part what is happening in Brazil. And the reason is say that also is, if you look at the other market and how to begin to perform once we start rolling out the enhanced marketplace where there hasn't been any changes to tax situation, you see the power that combined ecosystem that we've been rolling out.

Thank you. Our next question is from Irma Sgarz of Goldman Sachs. Your line is open.

Yes, hi. Good afternoon, good evening. Two questions for me. Firstly, where are you in terms of the onboarding official stores? Just curious if you had an update in terms of number and process and any recent notable successes that you've had in the strategy of onboarding or bringing larger retailers to your platform? And then secondly, in Mexico, obviously, you've talked in your prepared remarks already about the acceleration and the momentum you've been gaining in that business. But could you just talk a little bit about, sort of, in which areas you're growing maybe in terms of categories or what you're seeing in terms of competitive dynamics? And what do you see as the potential impact from Amazon's rollout of the business in that market or whether you just feel like you're going potentially after a different type of custom or different type of seller and with that you're not encroaching that much? Pedro Arnt - Chief Financial Officer & Executive Vice President: Great. So on official stores, we continue to grow the base of brands and branded retailers that set up stores on MELI, at a very strong pace. So, I think merchant adoption is there. We've crossed 2,000 local or global brands that have stores on MELI already. It's beginning to grow as a percentage of gross merchandise volume, and if you look at the pace of overall GMV growth, the fact that the official stores are growing mix is very positive because it means that the stores are growing very fast. Having said that, it's still a small percentage of GMV. It's still sub-10%. So, positive signs, beginning to grow, there's a lot of work we still need to do there and still think it's a huge opportunity. Mexico, I think rather than a category specific story, we think that Mexico is again, and being repetitive, but sometimes it's just – it is what it is. As the penetration of our shipping solutions grow, as Pago starts moving significantly beyond 50% penetration on marketplace, more extension of credit, we simply see an overall much better experience of buying MercadoLibre in Mexico. Our carrier partners in Mexico are extremely efficient. So, Mexico has very good shipping solution now, when you buy on MercadoLibre. And we think that begins to generate a very, very positive experience for users. And so I think we have very good a sense of what we need to do and what we need to focus on, which is continue to roll out those different services, improve them, start offering fulfillment solutions that will make both selling and buying even better. And hopefully, as we execute the way we have been executing over the last few quarters, we'll continue to see growth in that operation. And we think, as we've always said, the Mexican e-commerce market has been a laggard and there's enormous opportunity there. And we feel that we're beginning to figure out how to capture that and to grow that market.

Perfect. If I may just have one follow-up question on Mexico in terms of the margin, obviously, seen some reinvestment in the business in the past quarters, but maybe less so or at least the margin was better this quarter. So, I was just curious how you're thinking about margin and investment into customer acquisition in Mexico over the next couple of quarters? Pedro Arnt - Chief Financial Officer & Executive Vice President: Yeah, absolutely. So, a couple of things. Mexico last quarter, if you look at the quarterly evolution had a couple of quarter specific issues that drove the margin down. We've seen that rebound somewhat. But Mexico continues to be a market where we're investing in and it's these areas that I just mentioned. It's in shipping, it's in payment and it's in customer acquisition. So yes there has been improvement in margin, but I think more importantly if you compare it to some of the larger market that have already scaled some more like Brazil and Argentina, Mexico has an overall lower direct contribution margin and we're very comfortable with that. We think it's a market where now that we have the right product, it makes sense for us to continue investing in, especially with the results we're seeing. So I think you're looking at Mexico right now with a lower margin than some of the larger markets and that's how we would like to continue to manage it.

Well, thank you.

Thank you. Our next question is from Marcelo Santos of JPMorgan. Your line is open.

Hi, good afternoon. So my question is regarding the cross-docking service that you're offering in Argentina. I just wanted to understand better if there are plans to roll that service out to the other markets. And also looking on the shipping, standard shipping that you offer, how are the plans to offer this to third parties like you do with Pago? These are my questions. Pedro Arnt - Chief Financial Officer & Executive Vice President: So cross-docking is something that's beginning to work well in Argentina. Our objective at the end of the day is how can we deliver the cheapest and the fastest and the most reliable shipping for our consumers and obviously in some cases that will require that we get somewhat more involved with the shipping transaction. Cross-docking stations is one way to do it, fulfillment is another. In both cases through our partners and it's things that we will continue to test in different markets and different approaches and see what works well. So the answer is, yes, we will test cross-docking beyond Argentina. The standard shipping and porting that off platform, I think that's a long term opportunity. It's not where our focus is right now. Given the lift that we see in consumer behavior on MercadoLibre, our focus right now is much more to continue to drive the drop-ship solution in different markets on platform to Brazil-like levels and then to start rolling out these other formats of cross-docking and fulfillment. So the focus for the Envios business is still much more on MercadoLibre than it is off MercadoLibre for the time being.

Okay, thank you very much.

Your next question is from Tom Champion of Cowen. Your line is open. Thomas Champion - Cowen & Co. LLC: Hi, good afternoon guys. Just a question on the overall market growth. I think last quarter you commented that in Brazil maybe the market was growing high single digits or maybe mid-teens optimistically and you're growing so rapidly at 73%. You're almost assuredly taking share. But I'm just curious if the whole market is perhaps inflecting, whether e-commerce is just structurally growing at a much more rapid rate. And then the second question is you talked about vibrancy of the marketplace and the user experience. I think you used the same word last quarter. I'm curious if there's anything different about the site or the service offering, or if it's mostly just a function of more and better listings. Thank you. Pedro Arnt - Chief Financial Officer & Executive Vice President: Okay, so on the market, again, we're typically one of the earlier public companies to report. There's some data. I don't think we're seeing a market that's rebounding significantly on the e-commerce front. So I think it's similar to what we saw last quarter. We're really seeing phenomenal growth in our business. And we think that it's been yet another quarter of very strong market share gains certainly in Argentina, in Brazil and in some of the other countries as well. If you look at the macro, actually, it doesn't seem to be that that's driving acceleration in our larger markets. So, similar to last quarter, strong share gains. In terms of what driving the growth and are there changes in the site, I think the answer is certainly yes, profound changes and it's the ones that we've been significantly mentioning. Buying on MercadoLibre this year certainly feels very different to what it did in previous years because you have a much, much better buying experience. And one thing that we made brief allusion to in the prepared remarks is that when you look at cohort analysis, that really is confirmed. Users that are newer users to our website that have made their first purchases over the last few quarters with enhanced marketplace already rolled out shipping payments credit. Our mobile apps have consistently better lifetime repeat usage rate than those that have come to the marketplace initially when it was more of a non-enhanced marketplace. So yes, it's a much better place to buy or sell on than it was in the past. And that's primarily what's driving the growth, not just the fact that we have much deeper inventory. Thomas Champion - Cowen & Co. LLC: Super. Thanks very much.

Thank you. Our next question is from Stephen Ju of Credit Suisse. Your line is open.

Okay. Thanks. So Pedro, it's my understanding that the revenue you're generating from product listing ads at the outset was help you to offset some of the revenue you walked away from when you decided to take down the insertion fees. I know there's a ton of things going into the take rate that your reporting, but in regions like Brazil where it's been some time since you've taken down the insertion fees, is the advertising revenue now more than offsetting the prior decline? And in those regions where you've just eliminated the insertion fee, are you seeing the same dynamic of sort of the initial decline offset by advertising later on? Thanks. Pedro Arnt - Chief Financial Officer & Executive Vice President: Great question, Stephen, thank you. So the exact answer for Brazil is the following. We've seen consistent take rate increases from our advertising business but it's still small with tremendous opportunities for growth. It still represent less than 1% of take rate in that country. So it hasn't entirely offset the listing fees that we use to capture if you go back a few years but if you go back to when we transitioned, that's roughly the amount that was coming in from upfront fees. So the answer is no, it's not that it's now significantly accretive versus what we used to capture from the upfront fees at the time of migration. It's still in line with that but has been growing and is probably going to approach 1% of take rate sometime in the not-too-distant future. But it's not there yet for Brazil. In the other markets as we roll out the product, we certainly see success. We think that we really figured out an advertising format that's going to be successful everywhere and the results from the different markets are all positive.

Thank you.

Our next question is from James Friedman of McCullough (44:57) Your line is open.

Hi. I was just wondering if you could share some observations about the off platform growth for MercadoPago, how those conversations are going as you're setting up new merchants know what we can expect that the trajectory going forward there? Osvaldo Giménez - Executive Vice President - MercadoPago, Payments: Hello, James. This is Osvaldo. As Pedro mentioned in the remarks, this is our fifth quarter where we grow over 100% year-over-year in local currency in TBV off-platform. So we are very excited of that growth. And something that is very interesting that we're growing at triple digits in each of the six countries where we have been operating for over a year. So we see continuous growth in all of these markets. We don't make forward-looking statement, so we can't tell you how this will evolve in the future but we are very optimistic with how our customers are receiving our product with delivery low churn we have and with the fact that we have been able to gain share stealing customers some of our competitors.

Okay. Thank you. That's helpful. And I just had a question about Venezuela in general. So are there any measures that you can take to remediate the risk there? And just more generally, how important is that market to you? Is there a level at which you would know decide to kind of deemphasize your presence there? Pedro Arnt - Chief Financial Officer & Executive Vice President: So the de-risking I think, for many years now, the way we operate Venezuela is as a unit that we don't send money from the outside into. It's a unit that's entirely self-funded and that we really try to have local teams managed that as independently as possible. Areas like shipping or credits, we're not rolling out in Venezuela for time being. So we're prioritizing other markets and we're very comfortable with that way of risk managing it. There is no capital allocation from other markets into Venezuela. It's become a much smaller part of the overall business. It oscillates roughly around 5%, give or take. So that's also a level of exposure in terms of top line that we are comfortable with. And we continue to think that it makes sense for us given these conditions in this way we can manage it to remain there. We've been there and we've gone through most of the difficult times. So it makes even more sense now to hold out because we think regime change is closer today than it was three years ago or five years ago. We do have this accounting issue with having to impair some of the assets that we're buying but on the flip side of that is the fact that we have been buying real estate means that we actually have hard assets that we believe eventually we will be able to divest and make a return on. And it's the best way to hold whatever earnings we generate in Venezuela. So we think we found the way to not have to deemphasize any further what we do there. We're comfortable with the risk management and we do have these impairments as the currency devaluate.

Got it. Thank you very much.

Thank you. At this time, I see no other questions in queue. I would like to turn it back to the management for any closing remarks. Pedro Arnt - Chief Financial Officer & Executive Vice President: Great. Thanks, everyone. Thanks to the analysts for the great questions and we look forward to speaking to you again in another quarter.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.