Q – Craig Maurer: Thanks very much.
Operator: One moment for our next question. And our next question comes from Kaio Prato with UBS.
Q – Kaio Prato: Good evening. Hello, everyone. Thanks for the opportunity for questions. I have two here, on my side, please. First, two questions on the fintech, okay. First, on the accounting reclassification that you made this quarter, if you could explain the rationale behind this change and why did you decide to do this now? And the second is related to Mexico. If you could please help us understand the strategy behind the FinTech business there specifically on the banking business. Is your plan is to compete with the FinTechs that are growing there or if this should be much more financial for the marketplace business. Because looking to the financial — there seeing they’re not having a banking license to make the business much more difficult than in Brazil for instance. You need some partners probably for investment lending. So I just would like to understand your view on this? And if you are planning any upgrade through your license there as well? Thank you.
Martin de los Santos: Hi, Kaio, Martin here. In terms of the reporting update as we explained in the investor letter, what we did is basically in the past we had the interest income and cost from the whole operation below EBIT as we — the Mercado Pago business evolved from being a wallet to being more of a digital banking business — lot of the business was the float that we had on that particular operation which we brought above within EBIT right now. So we now recognize the interest that we generated as revenue and the cost that we generate as cost of goods sold. And that’s better reflection, better reporting in terms of the nature of our business. And in fact this is the way we have been managing our business for quite a while. So I think this is an improvement in terms of disclosures and this is the reason why we did this at this point.
Osvaldo Gimenez: Building on Martin’s comment definitely the time value of money has been an integral part of how we price our FinTech services. Everything we do from acquiring from when we pay sellers and even more so now with a larger offering in terms of FinTech services. So we believe that this reflects better how we look at the business, how this business is really ahead of financial business. With regard to the second question about Mexico and our strategy. Our strategy is to be the largest FinTech in Mexico. We will offer a full-fledged solution of products from acquired on the one hand to FinTech services on the other one. There we — for a long time now we have been able to offer our wallet. And on top of that we have been doing quite for several years and America for several years.
Last year ago three quarters ago we launched our credit card which is growing very, very strongly and we work together with a third-party to offer remunerated account which is basically a money market. But money is available 24/7 in the Mercado Pago account. So we have a full offering and we believe there’s a huge opportunity that Mexico right now is going through a transformation similar to the one the market underwent in Brazil in the last five , seven or 10 years where our financial inclusion will increase a lot. With access to pay we increased a lot and we have a huge opportunity to be the leaders in this market.
Kaio Prato: Okay. Thank you very much. This is clear. Any plans for a potential upgrade in your license in Mexico?
Martin de los Santos: Yes. Today we are working with the Mexico license that we are able to do what we have to do. We regularly reevaluate whether in the future we might need license. And if so once we do anything we will let you know.
Kaio Prato: Okay. Thank you.
Operator: One moment for our next question. [Operator Instructions] Our next question comes from Jamie Friedman with Susquehanna International Group.
Jamie Friedman: Hi. Good evening. I wanted to ask a question about Argentina. So it looked like FX-neutral growth in Argentina came in slower than inflation. And I think in your prepared remarks attributed that to reduced consumer demand. So I’m just trying to gauge that. Is that trend something that you are contemplating to continue? Because in the past, the pattern has been that Argentina revenue would consistently outgrow inflation. So is this a new reality that we need to consider?
Martin de los Santos: Hi, it’s Martin here. I think we can talk about this quarter in which we saw a recession in Argentina slowdown in consumption. As you clearly mentioned, growth was high in nominal terms, but below inflation. And in fact in dollar terms was also decreased from last year. As we are monitoring the situation in the country and we’ll deal with the macro situation as it goes within the year. But as I mentioned earlier, we operate a marketplace that is very resilient to these type of situations. We have seen [Indiscernible] past not in Argentina, but in other markets and we’ll come out strong. We have a very strong brand and we’ll continue to manage the country as it is. On the fintech side of the business as I mentioned earlier, we are performing extremely well in Argentina given the market conditions. On the commerce side, we are outperforming the general retail industry.
Osvaldo Gimenez: Let me complement on the fintech side. I’d say, we have seen some deceleration in the point-of-sale business. However the QR code, the wallet continues to grow very strongly and above inflation and we have been cautious on the credit side.
Jamie Friedman: And then if I could just follow up switching gears on the Slide 18 and I apologize if you answered this, but I might have missed it. But the gross margin compression of 3.9% related to the change in shipping conditions — terms and conditions, what was that about?
Martin de los Santos: Yes. I think that’s the fact that the margin is decreased because we have higher rates. So what we try to do in that space is try to explain, to try to normalize the change that we include to better understand the results of this quarter. So because we had roughly $300 million more revenues that we will have had not made this change, that effectively increases the denominator. So that reduces the margin and this is what we adjusted there.
Jamie Friedman: Got it. Okay. Thank you.
Operator: This concludes the question-and-answer session. I would now like to turn it back to Martin de los Santos, CFO.
Martin de los Santos: Thanks everybody for joining. As we mentioned, we are very excited about the first quarter of our 25th year, particularly with the results that we saw in Mexico and Brazil, which we saw tremendous growth, both in terms of fintech and commerce, with also improving profitability. As we mentioned, the EBIT margin of Brazil and Mexico combined doubled year-on-year and that’s the result of the commerce business doing very well in terms of ads, shipping efficiencies, business that continues to improve profitability. And then the fintech business in Brazil and Mexico is also thriving, growing credit portfolio, growing very nicely and improving profitability, as well as acquiring business performing extremely well.
And then as we continue to grow, we also gain operational leverage that is going through our P&L. As we mentioned on the bottom line, in terms of net income, very strong net income growth year-on-year. So again, very excited about the results and looking forward to talking to you next quarter.
Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.
