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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 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)

Pasaje Posta 4789, 6th Floor

Buenos Aires, 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 registrant (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 every Interactive Data File required to be submitted 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 such files).    Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

x

Accelerated filer

¨

Non-accelerated filer

¨  

Smaller reporting company

¨

Emerging growth company

¨

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. ¨

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.

49,852,319 shares of the issuer’s common stock, $0.001 par value, outstanding as of May 4, 2021.

 


MERCADOLIBRE, INC.

INDEX TO FORM 10-Q

 

PART I. FINANCIAL INFORMATION

Item 1 — Unaudited Interim Condensed Consolidated Financial Statements

Interim Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

1

Interim Condensed Consolidated Statements of Income for the three-month periods ended March 31, 2021 and 2020

2

Interim Condensed Consolidated Statements of Comprehensive Income for the three-month periods ended March 31, 2021 and 2020

3

Interim Condensed Consolidated Statements of Equity for the three-month periods ended March 31, 2021 and 2020

4

Interim Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2021 and 2020

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

Item 4 — Controls and Procedures

55

PART II. OTHER INFORMATION

56

Item 1 — Legal Proceedings

56

Item 1A — Risk Factors

56

Item 2 — Issuer Purchases of Equity Securities

57

Item 6 — Exhibits

58

INDEX TO EXHIBITS

58

 

 


MercadoLibre, Inc.

Interim Condensed Consolidated Balance Sheets

As of March 31, 2021 and December 31, 2020

(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)

 

 

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

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

1


MercadoLibre, Inc.

Interim Condensed Consolidated Statements of Income

For the three-month periods ended March 31, 2021 and 2020

(In thousands of U.S. dollars, except for share data)

(Unaudited)

Three Months Ended March 31,

2021

2020

Net service revenues

$              1,230,904

$                 639,892

Net product revenues

147,537

12,199

Net revenues

1,378,441

652,091

Cost of net revenues

(787,064)

(339,277)

Gross profit

591,377

312,814

Operating expenses:

Product and technology development

(126,035)

(73,435)

Sales and marketing

(288,159)

(206,507)

General and administrative

(86,339)

(62,566)

Total operating expenses

(500,533)

(342,508)

Income (loss) from operations

90,844

(29,694)

Other income (expenses):

Interest income and other financial gains

25,071

36,784

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)

Income tax expense

(43,549)

(4,429)

Net loss

$                  (34,012)

$                  (21,109)

(*)

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.

 

2


MercadoLibre, Inc.

Interim Condensed Consolidated Statements of Comprehensive Income

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

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.

 


3


MercadoLibre, Inc.

Interim Condensed Consolidated Statements of Equity

For the three-month periods ended March 31, 2021 and 2020

(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.

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.

4


MercadoLibre, Inc.

Interim Condensed Consolidated Statements 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

(7,561)

Payment from settlements of derivative instruments

(3,897)

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)

Payment of finance lease obligations

(3,863)

(564)

Purchase of convertible note capped call

(100,769)

Dividends paid of preferred stock

(1,000)

Common Stock repurchased

(25,321)

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.

5


1. Nature of Business

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 largest online commerce ecosystem in Latin America, serving as an integrated regional platform and as a provider of necessary digital and technology tools that allow businesses and individuals to trade products and services in the region.

The Company enables commerce through its marketplace platform, which allows users to buy and sell in most of Latin America. Through Mercado Pago, the fintech solution, MercadoLibre enables individuals and businesses to send and receive digital payments; through Mercado Envios, MercadoLibre facilitates the shipping of goods from the Company and sellers to buyers; through the advertising products, MercadoLibre facilitates advertising services for large retailers and brands to promote their product and services on the web; through Mercado Shops, MercadoLibre allows users to set-up, manage, and promote their own on-line web-stores under a subscription-based business model; through Mercado Credito, MercadoLibre extends loans to certain merchants and consumers; and through Mercado Fondo, MercadoLibre allows users to invest funds deposited in their Mercado Pago accounts.

As of March 31, 2021, MercadoLibre, through its wholly-owned subsidiaries, operated online e-commerce platforms directed towards Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Peru, Mexico, Panama, Honduras, Nicaragua, El Salvador, Uruguay, Bolivia, Guatemala, Paraguay and Venezuela. Additionally, MercadoLibre operates its FinTech solution in Argentina, Brazil, Mexico, Colombia, Chile, Peru and 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 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, its wholly-owned subsidiaries and consolidated Variable Interest Entities (“VIE”). These interim condensed consolidated financial statements are stated in U.S. dollars, except where 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. Long-lived assets, intangible assets and goodwill located in the foreign jurisdictions totaled $552,837 thousands and $490,464 thousands as of March 31, 2021 and December 31, 2020, respectively.

These interim condensed consolidated financial statements reflect the Company’s consolidated financial position as of March 31, 2021 and December 31, 2020. These consolidated financial statements include the Company’s consolidated statements of income, comprehensive income, equity and cash flows for the three-month periods ended March 31, 2021. These interim condensed consolidated financial statements include all normal recurring adjustments that Management 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, 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, comprehensive income, equity and 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 for the year ended December 31, 2020. During the three-month period ended March 31, 2021, there were no material updates made to the Company’s significant accounting policies.


6


Revenue recognition

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.

Contract Balances

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 assetsbitcoins 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 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 use the local currency as their functional currency, except for Argentina, which has used the U.S. dollar as its functional currency since July 1, 2018. Accordingly, the foreign subsidiaries with local currency as functional currency translate assets and liabilities from their local currencies into U.S. dollars by using year-end exchange rates while income and expense accounts are translated at the average monthly rates in effect during the 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.

7


Argentine currency status

As of July 1, 2018, the Company transitioned its Argentinian operations to highly inflationary status in accordance with U.S. GAAP, and changed the functional currency for Argentine subsidiaries from Argentine Pesos to U.S. dollars, which is the functional 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 foreign currency, like the US dollar, to make payments abroad, either for foreign debt or the importation of goods or services, dividend payments and others, without prior authorization. Those regulations have continued to evolve, sometimes making them more or less stringent depending on the Argentine 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 available for external commerce and financial payments is the official exchange rate, which as of March 31, 2021 was 92.0.

The Company uses Argentina’s official exchange rate to record the accounts of Argentine subsidiaries. The following table sets forth the assets, liabilities and net assets of the Company’s Argentine subsidiaries and consolidated VIEs, before intercompany eliminations, as of March 31, 2021 and December 31, 2020:

March 31,

December 31,

2021

2020

(In thousands)

Assets

$              1,493,608

$              1,470,885