{ "docId": "019dd923-622c-750b-8b97-535532caa115", "docSlug": "b0d4509b946d", "documentTitle": "dLocal (DLO)", "authorId": "51_Muddy_Waters", "authorName": "Carson Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2022-11-16 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 44, "pageCount": 47, "prevPage": 43, "nextPage": 45, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "dense", "nDataPoints": 0, "notes": "The slide uses a direct quote from DLocal's 2021 20-F to highlight the contradiction between their growth narrative and their business associations.", "elementsJson": [ "paragraph", "quote_block", "footnote" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b97-535532caa115/44", "deckHref": "/decks/019dd923-622c-750b-8b97-535532caa115", "deckJsonHref": "/decks/019dd923-622c-750b-8b97-535532caa115.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b97-535532caa115#slide-44", "components": [ { "bbox": { "h": 0.15, "w": 0.76, "x": 0.12, "y": 0.32 }, "kind": "paragraph", "text": "AstroPay and Directa24 process payments mainly for merchants operating in online gambling, forex, binary options or adult entertainment verticals. Their main markets are Brazil, India and Latin America generally. These activities do not have a clear legal framework in these jurisdictions and could be considered illegal in some of the jurisdictions, thereby exposing those companies to potential civil and criminal sanctions in one or more of the territories where they operate in the foreseeable future. Our controlling shareholders are the same controlling shareholders of AstroPay. In addition, prior to January 1, 2016, our chief executive officer was the chief executive officer of AstroPay and currently holds a 1% equity interest in AstroPay.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "89e3bab3-3d8d-4fdd-8156-3d9c5c59590e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.76, "x": 0.12, "y": 0.75 }, "kind": "paragraph", "text": "We question why – if Dlocal is growing rapidly and the opportunity before it to grow with its stable of brand name global merchants is “immense”110 – would its management even consider risking losing major clients by getting back into bed with AstroPay?", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "9981c5f5-b1f1-433a-b74a-ec0284acd4e9", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.76, "x": 0.12, "y": 0.51 }, "kind": "paragraph", "text": "Merchant customers or the market generally may continue to associate our operations with the operations of AstroPay. We may also be perceived to be associated with AstroPay and/or Directa24 due to partial overlap of our existing shareholder group with the shareholders of AstroPay. Finally, certain of our directors and officers were formerly associated with AstroPay and/or Directa24 and/or continue to hold an ownership interest in AstroPay and/or Directa24, and their prior association with and current interest in AstroPay and/or Directa24 may be imputed to us. Any perceived reputational shortcomings of AstroPay and/or Directa24 may reflect poorly on us, whether or not justified, which could have an adverse effect on our reputation and adversely affect our business, financial condition and results of operations.109", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "eda897a7-fe4a-46d8-a6a4-7fd142d21312", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.76, "x": 0.12, "y": 0.09 }, "kind": "paragraph", "text": "According to DLO’s quarterly financials, in 2Q21 the related party collection agents appear to have stopped processing transactions. We confirmed this with DLO’s IR. We observed that the termination of these related party collection agent relationships coincides with the issuance of DLO’s 2021 20-F and a new disclosure of the possibility it may begin processing transactions for AstroPay in 2022. The disclosure of the collaboration with AstroPay was accompanied by considerable discussion of reputational risk to DLO (emphasis added):", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "fb5ccfee-f923-4bd3-bbe4-93c69e5929d0", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.76, "x": 0.12, "y": 0.22 }, "kind": "quote", "text": "We are also subject to reputational risk related to our prior operations as a division of AstroPay and potential misattribution of our operations to those of AstroPay, and beginning in 2022 we may begin processing payments for certain AstroPay customers and provide card issuing and payment processing services to AstroPay, which could subject us to additional reputational and other risks.", "attrs": null, "subkind": "pull-quote", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "67646769-4eeb-4b7e-bd1c-211331f821da", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.3, "x": 0.12, "y": 0.91 }, "kind": "source-note", "text": "109 DLO 2021 20-F, pp. 41-42\n110 DLO 2Q22 earnings call, CEO Kanovich", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b3f379af-7719-40cb-903a-178f2ecdbebb", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }