Good day, ladies and gentlemen, and welcome to the MercadoLibre Third Quarter 2017 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. I would now like to turn the conference over to Federico Sandler, you may begin.

Hello, everyone, and welcome to the MercadoLibre earnings conference call for the quarter ended September 30, 2017. I am Federico Sandler, Head of Investor Relations for MercadoLibre. Our senior manager presenting today is Pedro Arnt, Chief Financial Officer. Additionally, Marco Galperin, Chief Executive Officer; and Osvaldo Giménez, Executive VP of Payments will be available 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 prospects for the company, industry trends and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations and projections about future events. While we believe that our assumptions, expectations and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on these forward-looking statements. Our actual results may differ materially from those discussed on this call for a variety of reasons, including those described in the forward-looking statements and Risk Factor sections of our 10-K and other filings with the Securities and Exchange Commission, which are available on our Investor Relations website. Finally, I would like to remind you that during the course of this conference call, we may discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our third quarter 2017 earnings press release available in our Investor Relations website. Now let me turn the call over to Pedro.

Thank you, Federico, and hello to everyone to our third quarter conference call for 2017. Let's kick off by stating that we have delivered yet another quarter of solid financial and operational results. MercadoLibre is now positioned more clearly than ever as one of the central engines of the digital revolution of the retail landscape in Latin America. In many ways, the quarter has been our best this year so far, and we are delighted to witness firsthand how the company is executing against the set of goals it has set forth. Our aspirations are clear. We will strive to become an indispensable platform for our users that facilitates digital commerce payments and credit. And as you will see throughout the results I will walk you through shortly, the primary driver in achieving that goal is continuing to grow as fast as possible and to gain as much economy of scale as possible over the next few years. Throughout the quarter, as we increased the pace of investment behind product marketing and free shipping, we saw exceptional results in traffic, vibrancy and conversions in our marketplaces. With that, let me now take you through some business KPIs from a consolidated perspective. Units sold accelerated for the second consecutive quarter to 55.8% year-on-year reaching 74.2 million units sold, one of the fastest paces of unit volume growth in over five years. Gross Merchandise Volume surpassed the $3 billion mark for the first time ever, reaching $3.075 billion and accelerating by almost 40 percentage points year on year to 50.7% in U.S. dollars. While on an FX neutral basis, GMV accelerated for the fourth consecutive quarter to 93.8% year on year. Total payment volume grew 86% on an FX neutral basis, reaching $3.7 billion, while total payment transactions accelerated for the second…

Our first question comes from Irma Sgarz of Goldman Sachs. Your line is now open.

Hi. Good afternoon, good evening. Just two quick questions, firstly on your fulfillment initiatives, if you could just provide maybe a quick update on where you are in terms of rolling out fulfillment centers, sortation centers in Brazil? And how quickly do you think that initiative could scale? And the second question is maybe somewhat connected, but with the impressive item growth that you have, specifically in Mexico and Brazil, and connected with that the free shipping program, do you see already some benefits to scale in driving such big volumes through MercadoEnvíos? Or – maybe putting it more simply, are you already seeing the per unit shipping cost coming down on the back of the scale benefit from your significant item growth that you're seeing in these countries? Thank you.

Hi, Irma, thanks for the questions. So, fulfillment in Brazil is live, and we are onboarding an increasing number of sellers. It's still very small, and so we will continue to iterate and build from here, and hopefully scale that as quickly as possible. But we haven't given any specific guidelines or targets. I think it's good news to know that our sellers are already shipping inventory to us and we're fulfilling for them. And then in terms of unit growth, I would say that we don't yet see any significant impact of scale growth in driving down cost. I think the focus right now is the quality of the service. It's continuing to speed up the service and to have greater adoption of our different shipping offerings. Scale benefits to cost will come as we grow it out, but it's not something that is occurring yet, nor that we are extremely focused on as of yet.

Thank you.

Thank you. Our next question comes from Robert Ford of Bank of America Merrill Lynch. Your line is open.

Hey. Thank you. Good evening, and congratulations on the growth. It's very impressive, particularly in Mexico. And I was curious, do you feel as if you've finally succeeded in jumpstarting Mexico? And if so, how do you think about maybe withdrawing the subsidies, or shifting, or segmenting the market a little bit so you can maybe ease off, in Mexico in particular? And it appears as if you're employing different structures in different marketplaces. So you have a range of experiences. And I was wondering if you're finding a sweet spot among those.

Great. So clearly, Mexico has been a phenomenal performer for us so far this year, growing units north of 120%. We're very pleased, but we also recognize there's still lots of work and we'd like to continue growing at a very high clip for many more years. But it certainly performed very well. In terms of subsidies and costs, the focus continues to be to solve for growth and scale. And free shipping clearly is an important driver of that. So we will continue to invest aggressively behind free shipping. We are simultaneously very gradually changing pricing. We've already announced, and it's live during the fourth quarter, a slight tweak to the level of subsidies that we offer in free shipping in Mexico and some other countries. So as we always said, we will, as we move forward, manage the investment and the cost and how we price it, but the focus continues to be to invest aggressively and to grow out the scale of our logistics operation and free shipping as much as we can.

That's very helpful.

And then in terms of (29:53), I think, like we've always said, there's a lot of innovation going on. It's all focused on benefiting buyers and sellers. And I think we don't try to isolate which ones have greater impact or less impact. We see the ecosystem as a whole, and they're all fairly interconnected. And so as long as we continue to innovate on different fronts, hopefully that'll allow us to continue growing and sustaining these levels of growth.

Thank you very much.

Thank you. Our next question comes from Deepak Mathivanan of Barclays. Your line is now open.

Hey, guys. Two questions for me. So the first one: obviously the competitive environment in Brazil has changed with Amazon expansion. Just wanted to get your thoughts on that, and can you talk about what you're seeing more recently from consumer demand and supply from the seller side? And then on the second question, we noticed that you are making some tweaks to the seller commission structure in Brazil. Should we expect any impact to take rates under this (30:55), as more and more sellers gets transitioned into this program over the next few quarters? Thanks, guys.

Sure. So, let's see. We've competed over the last 18 years. It's something that I think is something we enjoy doing, and comes as a consequence of operating in a large and attractive market. And our approach to competition, I think, has always been the same, which is, we think of our consumers, we build back from them, and we see how we can innovate on their behalf. We benchmark and we learn from others where applicable. And I think, the more you compete, you compete against the best in the world, it's good for our consumers and it leads our execution to get increasingly better. And I think the consequence of this approach over the years, until this time, is that we've done incredibly well, and that's how we'll continue to look at competition and the competitive environment. I think we've always said that on the demand side, our business is more about what I just mentioned, innovating on behalf of our consumers and focusing on the product and the technology that's so and (32:06) what's happening at macro level. So we attribute a large part of the acceleration and the growth to what we've done on the platform and the product. And then your final point around the tweaks. The subsidies, as I mentioned before, as we continue to look at how we subsidize for shipping, how much of that is paid by us, how much is paid for by the merchants. We also look at pricing and it's something that's dynamic and that we'll continue to tweak going forward. Just bear in mind that when we alter subsidies, that doesn't necessarily change the take rate. It doesn't impact revenues. It impacts our cost structure. It impacts how much COGS we're flowing through our P&L versus getting our sellers to pay for. So depending on how the pricing and the subsidies are moved by us, it could either increase take rates or improve margins on that specific line. When we change the level of subsidy, it just means less cost for us, not necessarily more revenues.

Okay. That's helpful. Thanks, Pedro.

Thank you. Our next question comes from James Friedman of Susquehanna. Your line is now open.

Hi. This is Jaime (33:22) from Susquehanna. I wanted to ask you about your comments about the growth in the Merchant Service off-platform. I think you characterized it as going from strength-to-strength. I was just wondering what some of the value proposition from the merchant's perspective are resonating. So when you go into these merchants off platform and have the conversation, why is it that your payments solutions are gaining adoption? Osvaldo Giménez - MercadoLibre, Inc.: Hi, Jamie (33:56), this is Osvaldo. I'd say that in Brazil mostly that we see working very well is what we call our open platform solutions because it's based on API, which enables sophisticated merchants to integrate a checkout (34:11) in whichever way they want, we see that really taking off over last couple of years, and particularly in the last few quarters. And also we see the MPOS business growing very nicely, mostly in Brazil and in Argentina that scale-wise Brazil is significantly larger.

Okay. That's helpful, Osvaldo. And then if I could just follow up with an additional question. Could you talk about the role of credit both the merchant cash advance relevance of credit in terms of your ability to continue to grow the payments side of the solution, yeah, any comments on the credit environment relative to the merchant side would be helpful. Thank you. Osvaldo Giménez - MercadoLibre, Inc.: Yeah, I think we are very excited about our credit initiatives. On the merchant side we are doing two things. We are advancing funds to merchants who are already processing with us and instead of having to wait I don't know, for a couple of five days (35:12) to collect they can collect those funds right away. And that is very helpful for our merchants and also we are facilitating working capital to merchants up to two months in sales (35:24), particularly for them to be able to stock up before – such as (35:30) or the holiday season or whatnot and enable them to grow. We believe that this is something that is in countries where for small and medium businesses sometimes it's hard to tap the formal banking system. It's something that is really handy to our merchants. They can do it just with a couple of clicks and so far the conversion meaning of course we sell some offers (35:55) we make the conversion is really high. There's a lot of interest from the merchant to take credit from us.

Thank you for the color. I appreciate it.

Thank you. Our next question comes from Andre Baggio of JPMorgan. Your line is now open.

Hi. Can you talk a little bit more about Argentina? We have seen the beginning of an acceleration and you mentioned that you want to implement things that you already implemented in Brazil, which I believe it's related to Mercado points and also to the free shipping. So if that's the case, do you have any kind of a rollout or how do you explain the acceleration that we already saw in this quarter?

Yeah. So many of the big innovations that have been very successful in Mexico and Brazil, free shipping, the loyalty program, have not yet been rolled out to Argentina. And as we've been saying throughout the year we anticipate launching those in Argentina next year. In Argentina what we're seeing is a combination of two things: improved execution, a more aggressive approach to marketing. We've begun to invest more aggressively in Argentina in terms of customer acquisition about nearly 3 incremental percentage points of local margin in sales and marketing and customer acquisition. And I think also in all fairness the comps that were extremely tough leading into this quarter, if you look at last year eased off a little bit and that also explains part of the acceleration.

Thanks a lot, Pedro.

Thank you. Our next question comes from Scott Devitt of Stifel. Your line is now open. Scott William Devitt - Stifel, Nicolaus & Co., Inc.: Hi. Thanks. Pedro, I was wondering if you could just provide free shipping and subsidized free shipping share by market and how you expect that to trend through 2018 and if that's better offline with Federico that's fine as well but if you're willing to share on the call, that'd be great. And then secondly, following up on the off-platform in Pago; Pago's success off-platform now which is following kind of a similar path to PayPal in the U.S. and Europe. And PayPal deployed a platform strategy as Merchant Services got bigger; both grew via organic product expansion but then also M&A. And I'm just wondering how you're thinking about product expansions from here with Pago in terms of the willingness or should we start thinking about more extensive M&A the way that PayPal did in the U.S. Thank you.

Great. So in general, free shipping adoption continues to grow nicely. If we look at the percentage of GMV of our shipped volume, so of the volume that goes through MercadoEnvíos, what percentage of that is done on free? In Brazil it's already north of 70%, Mexico and Chile is north of 90%, and Colombia is nearly 90%. So clearly high-ticket items that are being shipped through us, a vast majority of them are free shipping to our consumers and our consumers really react positively to that. So the leverage that we will continue to focus on is driving more volume to MercadoEnvíos and away from merchants using their own shipping solutions. The value proposition is quite compelling to our merchants and we should be able to continue to drive that. Launching it in the markets that don't have it yet and then continuing to improve speed of delivery and eventually as the first question that I (40:04) covered, after we focus on adoption and quality of service, we start driving down costs to make the economics of that more and more attractive. But extremely pleased with the percentage of GMV that goes through Envíos that is already free shipping. Osvaldo Giménez - MercadoLibre, Inc.: And with regards to MercadoPago we are very excited with the organic growth opportunities we see. We have been opening return businesses over the last couple of years. We introduced the mall (40:36) – the MPOS first in Brazil then in Argentina and Mexico. Our wallet is taking off also in these three countries, we introduced for merchant – pay to merchants (40:48) and we are pilot testing pay to consumers (40:52). We are very excited with the opportunities we have. We don't believe now we have a need to look for M&A opportunities to be able to grow. We have looked into some opportunities. About a year ago we bought a very small gateway and with that team we have just launched a gateway first in Argentina and we will be expanding it to other countries. It works through the same API as MercadoPago does, it enable merchants to process payments with their own merchant number. So we're really excited about the opportunities we have. We're not looking really – we are not needing really M&A (41:29) to be able to grow. Scott William Devitt - Stifel, Nicolaus & Co., Inc.: Thank you.

Thank you. Our next question comes from Stephen Ju of Credit Suisse. Your line is now open. Stephen Ju - Credit Suisse Securities (USA) LLC: Thanks. So, Pedro, I think – I don't think this is a metric that you guys disclose but you do disclose number of items sold and you do disclose the unique buyers. And so if you solve for how many items are being purchased on a unique buyer basis, it seems like that growth continues to accelerate. So I'm just wondering if you can talk about the latest, the cohort of consumers that you're bringing on to the platform because it seems that they are probably purchasing at a materially faster velocity versus the people who were there before. Maybe your legacy cohort, legacy customers are buying more rapidly as well. So I'm just wondering as to the lifetime value of the new I guess customers, buyers that you're adding to the platform and whether that's inflecting positive, negative, whether you feel better about that or not. Thanks.

So we certainly continue to feel positive about the consistent growth in units per buyer per quarter and per year. Our engagement metrics continue to trend better. Some of that as you outlined is that newer users that come on to the platform and experience the 2017 version of MercadoLibre have greater repeat frequency and also recency and they buy more when they come back. We don't disclose the specifics of the different cohorts. And certainly we continue to see that newer cohorts given that their experience with the platform from the first time, and first-time purchases are very important, is vastly improved than (43:26) legacy cohorts they do perform better. And I think the other important factor here is that we're certainly not satisfied. We think that there's still room to significantly continue to drive those units per buyer per quarter, which are currently at around 4.5 units to numbers that are north of that. We think that category expansion will help us accomplish that as we get stronger in categories that will allow us to gather more share of wallet from users. And also as we continue to focus on improving the overall user experience, consumers should shift more and more of their buying behavior to our platform and away from offline means and other online means. So very pleased with what we're seeing. Positive results from a cohort perspective, and still think that there's a lot of work, and a lot of upside. Stephen Ju - Credit Suisse Securities (USA) LLC: Thank you.

Thank you. Our next question comes from Brad Erickson of KeyBanc Capital Markets. Your line is now open.

Hi. Thank you for taking the question. First, just related to Argentina and rolling out free shipping there at some point, how should we think about the unit volume exposure there? Would you anticipate it sort of hitting similar levels to what you're seeing in Brazil? And then just also curious if the shipping costs sort of sharing arrangement would be similar to the relationships with the merchants you have in Brazil for free shipping?

Yeah, so a couple of thoughts on this. If you were able to understand, when I answered the question around free shipping with the data, what I was saying is that we have extremely high adoption of free shipping on the volume that goes through MercadoEnvíos. And so the key driver is to drive more and more usage of MercadoEnvíos. That's particularly relevant for Argentina, in that Argentina is one of the countries that still has some of the lowest adoption of MercadoEnvíos. And so, even if we were to have very high levels of initial free shipping adoption on MercadoEnvíos platform, from a cost perspective and an overall impact perspective, it should be somewhat lower than Brazil or Mexico, because Envíos in Argentina is only roughly a third of all units purchased, whereas in Brazil and Mexico, it's nearly 75%. So that means that the initial launch of free shipping in Argentina shouldn't have as large a short-term cost impact. Hopefully, over time, we're able to expand adoption, and that's a great problem to have. Second part of the question is, will we subsidize 100% of shipping, like we did in Mexico until the fourth quarter, or will it be more similar to the Brazil model, where we pay for part of the shipping and the sellers/merchants pay for part of it. More likely to be the Brazil model, which is the latter, where we don't pay for all of shipping, but we subsidize part of it as an incentive to get sellers to pay for the rest of it.

Got it. That's great. And I guess, following up on that first one, what I was really kind of getting at was, do you target sort of a similar dollar value in terms of the items that you would ultimately expose to? I understand we can do the math around Envíos, but more just looking at sort of where you draw the line of dollar values that you expose to free shipping.

I think, until we determine the plan and launch the plan, probably no disclosures (47:05) that we need to make there. I think we attempt to have at least ballpark similar coverage, but we'll have to see once we launch it next year.

Got it and then, just secondarily, can you talk about kind of how firm you are in establishing a floor for where you'll let EBITDA margins go during this period of entering into free shipping in most of your major markets? Is that a little bit of a moving target still as you discover sort of how much elasticity you can drive with free shipping? Or is there a level where you sort of draw a line in the sand, thinking margins simply cannot go below that, given the offsetting scale benefits you gain on the higher GMV and revenue? Thanks.

So, the technology industry is incredibly dynamic, and I think drawing lines in the sand for short-term results is probably not a great idea. So having said that, I think we have guiding principles with which we're trying to manage the business and communicate how we think through the business. I think we've been pretty consistent in communicating those. We really want to grow the business as fast as we can, and continue to reach as much scale as we can. E-commerce is incredibly sensitive to economies of scale because of logistics and other factors, and the quicker we can get to a top line that is multiples what it is today, the closer we get to some sort of escape velocity where we really feel comfortable with our position. And we've always said that we strive to deliver positive EBITDA, and that what we're trying to do is to, over the mid to long-term, deliver incremental earnings. What happens on our trajectory between now and then is very much determined by how fast our top line is growing and the kind of returns we're seeing from these investments. So no hard line in the sand that we communicate outwards, we have pretty disciplined targets internally, but if things change, we're willing to change those if necessary.

Got it. That's great. Thanks.

Thank you. Our next question comes from Richard Cathcart of Bradesco. Your line is now open.

Hi guys, just two questions. First of all, I just wanted to ask about the overhead expenses, the year-on-year growth from those overhead expenses slowed to around 30% from around 60% in the first half. So I just wanted to ask if you could give us a little bit more color about what's going on, kind of are you slowing down some investment that you were making there in the first half in terms of hiring, et cetera? And then just a second question, going back to one of Pedro's answers about the share of free shipping, so you mentioned it was at a 70% share on volumes that were going through Envíos. And so I just wanted to ask about the other 30% of the volumes going through Envíos that aren't using free shipping. Is that because free shipping's not available on those products or consumers are choosing something else? Thank you.

So most of the operational leverage that we're seeing in the business is not a consequence of a pull-back in spend. But with the solid, solid top line growth that we have, we're able to invest as much as we need in those OpEx costs and still generate scale. So I don't think that there's anything that we're needing to invest less in when we look at dollars or just continuing to be aggressive in growing the business and delivering results to our consumers. It's simply that with these kinds of top line results, scale on OpEx is much easier to achieve and that's what you're seeing flow through the P&L. What doesn't go through free shipping is primarily dictated by where we have the minimum for free shipping to start from. So we only offer free shipping above a certain dollar amount in each of the different countries. That floor is actually lower depending on the user's loyalty level, but there's a certain floor beneath which we simply don't offer free shipping because the ASPs are too low. And that's what accounts for that 30%.

Okay. So on the purchases above that dollar level, the participation of free shipping would be much higher than the 70% number that you mentioned?

Correct. So let's see, by definition, if you are above the minimum for free shipping, you have free shipping. So it should be 100%. There are certain seller profiles at the margin that we don't allow them to offer free shipping because their historical track record, we don't want to give them the free shipping subsidies. And so that's the only reason it isn't 100%.

Okay. Excellent. Thanks very much.

Thank you. Our next question comes from Tom Champion of Cowen. Your line is now open.

Good afternoon. Thank you. Curious if there were any product categories that you'd call out that were particularly strong from a unit perspective? And then also as you reach this tipping point in mobile and in your GMV going above 50%, just curious how that impacts your product development or potentially any categories of offerings that you'd want to pursue? Thank you.

We haven't disclosed any particular changes in category growth cadence. We haven't aggressively launched any new large categories. I think that's something that we're beginning to work on and there are a few that we're excited about. But we haven't really started focusing products and platform rollouts to improve those. So the growth we're seeing is similar from a category perspective to previous quarters, and there's strength pretty much across the board. Mobile hasn't crossed 50% yet, very close to accomplishing that. From a product development perspective, I think it's been many years now that we're extremely focused on mobile and that all development has to have either mobile first or a mobile priority, so I don't expect any changes in how we build out product. Mobile is already critical to us so I don't think there's anything specific that we've identified that changes as mobile continues to penetrate north of 50% going forward.

Okay. Thank you.

Thank you and this does conclude our question and answer session. I would now like to turn the call back over to Pedro Arnt, Chief Financial Officer for further remarks.

Thanks everyone for listening in. I look forward to catching up with many of you over the course of the next few weeks and as always we look forward to updating you again next quarter once we're through our shopping season and the full year. Thank you.

Ladies and gentlemen, thank you for participating in today's conference.