MERCADOLIBRE, INC. 
You should read the following discussion and analysis of our financial condition and results of our operations in conjunction with our "Selected Financial Data" and our audited consolidated financial statements and the notes to those statements included elsewhere in this report. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled "Risk Factors" and elsewhere in this report.
The discussion and analysis of our financial condition and results of operations has been organized to present the following:
?a brief overview of our company;
?a review of our financial presentation and accounting policies, including our critical accounting policies;
?a discussion of our principal trends and results of operations for the years
ended
?a discussion of the principal factors that influence our results of operations, financial condition and liquidity;
?a discussion of our liquidity and capital resources and a discussion of our capital expenditure and a description of our contractual obligations; and
?a discussion of the market risks that we face.
For discussion on results from 2019 compared to 2018, please refer to "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K filed with theSEC for the year endedDecember 31, 2019 . Business Overview We are the largest online commerce ecosystem inLatin America based on unique active users, and we are present in 18 countries:Brazil ,Argentina ,Mexico ,Chile ,Colombia ,Peru ,Uruguay ,Venezuela ,Bolivia ,Costa Rica ,Dominican Republic ,Ecuador ,Guatemala ,Honduras ,Nicaragua ,Panama ,Paraguay andEl Salvador . Our platform is designed to provide users with a complete portfolio of services to facilitate commercial transactions both digitally and offline. Through our e-commerce platform, we provide buyers and sellers with a robust and safe environment that fosters the development of a large e-commerce community inLatin America , a region with a population of over 646 million people and with one of the fastest-growing Internet penetration and e-commerce growth rates in the world. We believe that we offer world-class technological and commercial solutions that address the distinctive cultural and geographic challenges of operating a digital commerce platform inLatin America . We offer our users an ecosystem of six integrated e-commerce services: theMercado Libre Marketplace , the Mercado Pago FinTech solution, the Mercado Envios logistics service, the Mercado Libre Ads solution, the Mercado Libre Classifieds service and theMercado Shops online storefronts solution.The Mercado Libre Marketplace , which we sometimes refer to as our marketplace, is a fully-automated, topically-arranged and user-friendly online commerce platform, which can be accessed through our website and mobile app. This platform enables both businesses and individuals to list merchandise and conduct sales and purchases digitally. To complement theMercado Libre Marketplace and also to enhance the user experience for our buyers and sellers, we developed Mercado Pago, an integrated digital payments solution. Initially designed to facilitate transactions onMercado Libre's Marketplaces by providing a mechanism that allowed our users to securely, easily and promptly send and receive payments, it is now a full ecosystem of Financial Technology solutions both in the digital and physical world. Our digital payments solution enables anyMercadoLibre registered user to securely and easily send and receive digital payments and to pay for purchases made on any ofMercadoLibre's Marketplaces. Currently, Mercado Pago processes and settles all transactions on our Marketplaces inBrazil ,Argentina ,Mexico ,Chile , andColombia , and is also available for our buyers and sellers inPeru andUruguay . In addition, Mercado Pago grants through ourMercado Credito solution, loans to sellers and buyers inArgentina ,Brazil andMexico . The Mercado Envios logistics solution enables sellers on our platform to utilize third-party carriers and other logistics service providers, while also providing them with fulfillment and warehousing services. The logistics services we offer are an integral part of our value proposition, as they reduce friction between buyers and sellers, and allow us to have greater control over the full experience. As ofDecember 31, 2020 , we also offer free shipping to buyers inBrazil ,Argentina ,Mexico ,Chile andColombia . 34
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Our advertising platform, Mercado Ads, enables businesses to promote their products and services on the Internet. Through our advertising platform,MercadoLibre's brands and sellers are able to display ads on our webpages through product searches, banner ads, or suggested products. Our advertising platform enables merchants and brands to access the millions of consumers that are on our Marketplaces at any given time with the intent to purchase, which increases the likelihood of conversion. Through Mercado Libre Classifieds, our online classified listing service, our users can also list and purchase motor vehicles, real estate and services in the countries where we operate. Classifieds listings differ from Marketplace listings as they only charge optional placement fees and not final value fees. Our classifieds pages are also a major source of traffic to our platform, benefitting both the Commerce and Fintech businesses We also offer our digital storefront solution,Mercado Shops , allows users to set-up, manage and promote their own digital stores. These stores are hosted byMercado Libre and offer integration with the rest of our ecosystem, namely our Marketplaces, payment services and logistics services. Users can create a store at no cost, and can access additional functionalities and value added services on commission.
Reporting Segments and Geographic Information
Our segment reporting is based on geography, which is the criterion our Management currently uses to evaluate our segment performance. Our geographic segments areBrazil ,Argentina ,Mexico and Other Countries (includingChile ,Colombia ,Costa Rica ,Dominican Republic ,Ecuador ,Panama ,Peru ,Bolivia ,Honduras ,Nicaragua ,El Salvador ,Guatemala ,Paraguay ,Uruguay andthe United States of America ). Although we discuss long-term trends in our business, it is our policy not to provide earnings guidance in the traditional sense. We believe that uncertain conditions make the forecasting of near-term results difficult. Further, we seek to make decisions focused primarily on the long-term welfare of our company and believe focusing on short-term earnings does not best serve the interests of our stockholders. We believe that execution of key strategic initiatives as well as our expectations for long-term growth in our markets will best create stockholder value. A long-term focus may make it more difficult for industry analysts and the market to evaluate the value of our Company, which could reduce the value of our common stock or permit competitors with short-term tactics to grow more rapidly than us. We, therefore, encourage potential investors to consider this strategy before making an investment in our common stock.
The following table sets forth the percentage of our consolidated net revenues
by segment for the years ended
Years Ended
December 31,
(% of total consolidated net revenues) (*) 2020 2019 2018 Brazil 55.2 % 63.6 % 60.2 % Argentina 24.7 19.9 26.2 Mexico 14.5 12.0 7.6 Other Countries 5.6 4.5 6.1
(*) Percentages have been calculated using whole-dollar amounts rather than the rounded
amounts that appear in the table. The table above may not total due to rounding.
The following table summarizes the changes in our net revenues by segment for
the years ended
Years Ended Change from 2019 Years Ended Change from 2018
December 31, to 2020 (*) December 31, to 2019 (*)
2020 2019 in Dollars in % 2019 2018 in Dollars in %
(in millions, except percentages) (in millions, except percentages)
Net
Revenues:
Brazil $ 2,194.0 $ 1,461.5 $ 732.5 50.1 % $ 1,461.5 $ 866.2 $ 595.3 68.7 %
Argentina 980.3 456.3 523.9 114.8 456.3 376.6 79.8 21.2
Mexico 575.2 275.1 300.0 109.1 275.1 109.1 166.0 152.2
Other
Countries 224.0 103.3 120.6 116.7 103.3 87.8 15.5 17.7
Total Net
Revenues $ 3,973.5 $ 2,296.3 $ 1,677.2 73.0 % $ 2,296.3 $ 1,439.7 $ 856.7 59.5 %
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table. The table above may not total due
to rounding.
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Recent Developments ? ?Issuance of guaranteed senior notes OnJanuary 14, 2021 , we closed a public offering of$400 million aggregate principal amount of 2.375% Sustainability Notes due 2026 (the "2026 Sustainability Notes") and$700 million aggregate principal amount of 3.125% Notes due 2031 (the "2031 Notes", and together with the 2026 Sustainability Notes, the "Notes"). The Notes were issued pursuant to an indenture (the "Indenture"), dated as ofJanuary 14, 2021 , among the Company,MercadoLibre S.R.L., Ibazar.com Atividades de InternetLtda., eBazar.com.br Ltda., Mercado Envios Servicos de Logistica Ltda., MercadoPago.com Representações Ltda., MercadoLibre Chile Ltda.,MercadoLibre ,S. de R.L. de C.V. , DeRemate.com de México,S. de R.L. de C.V. and MercadoLibre Colombia Ltda., as guarantors (the "Guarantors"), andThe Bank of New York Mellon , as trustee (the "Trustee"), as supplemented by the first supplemental indenture (the "First Supplemental Indenture"), dated as ofJanuary 14, 2021 , among the Company, the Guarantors and the Trustee. We intend to allocate the net proceeds from the issuance of the 2026 Sustainability Notes to finance or refinance, in whole or in part, one or more new or existing Eligible Projects within 36 months from the date of the issuance of the 2026 Sustainability Notes, where feasible. "Eligible Projects" are investments and expenditures made by us or any of our subsidiaries beginning with the issuance date of the 2026 Sustainability Notes or in the 24 months prior to the issuance of the 2026 Sustainability Notes, that: (i) contribute to environmental objectives such as: clean transportation, land conservation and preservation, energy efficiency, renewable energy, green buildings and pollution prevention and control, (ii) aim to address or mitigate a specific social issue or seek to achieve positive social outcomes especially, but not exclusively, for one or more target populations or (iii) combine (i) and (ii)). The net proceeds from the offering of the 2031 Notes were used to fund in part the purchase price for the repurchase of$440 million in aggregate principal amount of 2.00% Convertible Senior Notes Due 2028 (the "2028 Notes") entered into inJanuary 6, 2021 and the premium for capped call transactions entered into onJanuary 4, 2021 . For more information with respect to these transactions, see below "-Repurchase of 2028 Notes" and "-Capped call transactions related to the 2028 Notes."
We will pay interest on the Notes on
Repurchase of the 2028 Notes
InJanuary 2021 , we repurchased$440 million principal amount of our outstanding 2028 Notes. The total amount paid amounted to$ 1,865.1 million which includes principal, interest accrued and premium, as resulted, approximately$440 million of the principal amount of the 2028 Notes remains outstanding. As of the date of the issuance of this Annual Report, we are analyzing the impact of the repurchase transaction which estimate will have, in the first quarter of 2021, a material negative impact in Other income (expense) line in our consolidated statements of income and in our total equity of the Company.
Capped call transactions related to 2028 Notes
In connection with the 2028 Notes, we paid$100.8 million (including transaction expenses) inJanuary 2021 to enter into the 2028 Notes Capped Call Transactions with certain financial institutions. The 2028 Notes Capped Call Transactions are expected generally to reduce the potential dilution upon conversion of the 2028 Notes in the event that the market price of our common stock is greater than the strike price of the 2028 Notes Capped Call Transactions. See Note 16 to our audited consolidated financial statements for further detail on the 2028 Notes Capped Call Transactions. Description of line items Net revenues
We recognize revenues in each of our four geographical reporting segments. Within each of our segments, the services we provide generally fall into two distinct revenue streams: "Commerce" and "Fintech."
In 2020, we have re-named and grouped by nature our Revenue streams breakdown, given the increasing importance of our financial business in current and expected future revenue composition, which Management considers shows more meaningful information about the business. As such, the breakdown by revenue stream previously labeled as "Enhanced Marketplace " and "Non-marketplace", is now presented under the titles of "Commerce" and "Fintech", respectively. Also, as a result, a group of other services, including classifieds fees, ad sales and other ancillary services, which had historically been included in the "Non-marketplace" line, have as ofJanuary 1, 2020 , been included as a part of the "Commerce" revenue stream. Prior-period corresponding figures have been reclassified accordingly for comparative purposes. ? 36
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The following table summarizes our consolidated net revenues by revenue stream
for the years ended
Years ended
December 31 , (*)
Consolidated net revenues by revenue stream 2020 2019 2018
(in millions)
Commerce (**) $ 2,559.8 $ 1,346.4 $ 838.6
Fintech 1,413.7 949.9 601.0
Total $ 3,973.5 $ 2,296.3 $ 1,439.7 (*) The table above may not total due to rounding. (**) Includes marketplace fees, shipping fees, sales of goods, ad sales,
classified fees and other ancillary services.
Revenues from commerce transactions are mainly generated from:
?marketplace fees that include final value fees and flat fees for transactions below a certain merchandise value;
?shipping fees, net of the third-party carrier costs (when we act as an agent);
?classifieds fees; ?ad sales up-front fees; ?sales of goods; and
?fees from other ancillary businesses.
Final value fees represent a percentage of the sale value that is charged to the seller once an item is successfully sold and flat fees represent a fixed charge for transactions below a certain merchandise value.
Shipping revenues are generated when a buyer elects to receive an item through our shipping service net of the third-party carrier costs.
Through our classifieds offerings in vehicles, real estate and services, we generate revenues from up-front fees. These fees are charged to sellers who opt to give their listings greater exposure throughout our websites.
Our Advertising revenues are generated by selling either display product and/or text link ads throughout our websites to interested advertisers.
Revenues from inventories sales are generated when control of the good is transferred, upon delivery to our customers.
Fintech revenues correspond to our Mercado Pago service, which are attributable to:
?commissions representing a percentage of the payment volume processed that are charged to sellers in connection with off Marketplace-platform transactions;
?commissions from additional fees we charge when a buyer elects to pay in installments through our Mercado Pago platform, for transactions that occur either on or off our Marketplace platform;
?commissions from additional fees we charge when our sellers elect to withdraw cash;
?interest, cash advances and fees from merchant and consumer credits granted
under our
?revenues from the sale of mobile points of sale products.
Although we also process payments on the Marketplace, we do not charge sellers an added commission for this service, as it is already included in the Marketplace final value fee that we charge.
When more than one service is included in one single arrangement with the same customer, we recognize revenue according to multiple element arrangements accounting, distinguishing between each of the services provided and allocating revenues based on their respective estimated selling prices. We have a highly fragmented customer revenue base given the large numbers of sellers and buyers who use our platforms. For the years endedDecember 31, 2020 , 2019 and 2018, no single customer accounted for more than 5.0% of our net revenues. The functional currency for each country's operations is the country's local currency, except forArgentina , where the functional currency is theU.S. dollar due toArgentina's status as a highly inflationary economy. Our net revenues are generated in multiple foreign currencies and then translated intoU.S. dollars at the average monthly exchange rate. Please refer to "Critical accounting policies and estimates" in Note 2 to our audited consolidated financial statements for further detail on foreign currency translation. 37
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Table of Contents Cost of net revenues Cost of net revenues primarily includes bank and credit card processing charges for transactions and fees paid with credit cards and other payment methods, shipping operation costs (including warehousing costs), carrier and other operating costs, cost of sales of goods, fraud prevention fees, certain taxes on revenues, certain taxes on bank transactions, hosting and site operation fees, compensation for customer support personnel, ISP connectivity charges and depreciation and amortization. Our subsidiaries inBrazil ,Argentina andColombia are subject to certain taxes on revenues which are classified as a cost of net revenues. These taxes represented 8.2%, 8.2% and 9.7% of net revenues for the years endedDecember 31, 2020 , 2019 and 2018, respectively.
Product and technology development expenses
Our product and technology development related expenses consist primarily of compensation for our engineering and web-development staff, depreciation and amortization costs related to product and technology development, telecommunications costs and payments to third-party suppliers who provide technology maintenance services to us.
Sales and marketing expenses
Our sales and marketing expenses consist primarily of costs related to marketing our platforms through online and offline advertising and agreements with portals, search engines and other sales expenses related to strategic marketing initiatives, charges related to our buyer protection programs, the salaries of employees involved in these activities, chargebacks related to our Mercado Pago operations, bad debt charges, branding initiatives, marketing activities for our users and depreciation and amortization costs. We carry out the majority of our marketing efforts on the Internet. We enter into agreements with portals, search engines, social networks, ad networks and other sites in order to attract Internet users to theMercado Libre Marketplace and convert them into registered users and active traders on our platform. We also work intensively on attracting, developing and growing our seller community through our customer support efforts. We have dedicated professionals in most of our operations that work with sellers through trade show participation, seminars and meetings to provide them with important tools and skills to become effective sellers on our platform.
General and administrative expenses
Our general and administrative expenses consist primarily of salaries for management and administrative staff, compensation of outside directors, long term retention program compensation, expenses for legal, audit and other professional services, insurance expenses, office space rental expenses, travel and business expenses, as well as depreciation and amortization costs. Our general and administrative expenses include the costs of the following areas: general management, finance, treasury, internal audit, administration, accounting, tax, legal and human resources.
Other income (expenses), net
Other income (expenses) consists primarily of interest income derived from our investments and cash equivalents, interest expense and other financial charges related to financial liabilities and foreign currency gains or losses.
Income tax
We are subject to federal and state taxes inthe United States , as well as foreign taxes in the multiple jurisdictions where we operate. Our tax obligations consist of current and deferred income taxes incurred in these jurisdictions. We account for income taxes following the liability method of accounting. A valuation allowance is recorded when, based on the available evidence, it is more likely than not that all or a portion of our deferred tax assets will not be realized. Therefore, our income tax expense consists of taxes currently payable, if any (given that in certain jurisdictions we still have net operating loss carry-forwards), plus the change in our deferred tax assets and liabilities during each period. 38
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The following table summarizes the composition of our income taxes for the years
ended
Year ended December 31,
(In millons) 2020 (*) 2019 (*) 2018 (*)
Current:
U.S. - 8.7 (0.0)
Non U.S. 152.3 39.6 64.0
152.3 48.3 64.0
Deferred:
U.S. (5.4) (13.6) (3.6)
Non U.S. (64.9) 30.0 (89.3)
(70.3) 16.5 (92.9)
Income tax expense/(gain) 82.0 64.8 (28.9)
(*) The table above may not total due to rounding. No asset tax expense was
recorded for the years ended
Seasonality
The following information reflects all normal recurring adjustments necessary
for a fair presentation of the information for the periods presented. The
operating results for any quarter are not necessarily indicative of results for
any future period. Unaudited quarterly results are as follows:
Quarter Ended
(in millions, except for
share data) March 31, June 30, September 30, (*) December 31,
2020
Net Revenues $ 652.1 $ 878.4 $ 1,115.7 $ 1,327.3
Gross profit 312.8 427.2 480.2 489.0
Net (loss) Income (21.1) 55.9 15.0 (50.6)
Net (loss) Income per
share-basic (0.44) 1.11 0.28 (1.02)
Net (loss) Income per
share-diluted (0.44) 1.11 0.28 (1.02)
Weighted average shares
Basic 49,709,955 49,709,973 49,720,854 49,820,185
Diluted 49,709,955 49,709,973 49,720,854 49,820,185
2019
Net Revenues $ 473.8 $ 545.2 $ 603.0 $ 674.3
Gross profit 237.0 272.4 284.3 308.3
Net Income (loss) 11.9 16.2 (146.1) (54.0)
Net Income (loss) per
share-basic 0.13 0.31 (2.96) (1.11)
Net Income (loss) per
share-diluted 0.13 0.31 (2.96) (1.11)
Weighted average shares
Basic 45,980,255 49,318,522 49,710,723 49,709,955
Diluted 45,980,255 49,318,522 49,710,723 49,709,955
2018
Net Revenues $ 321.0 $ 335.4 $ 355.3 $ 428.0
Gross profit 162.8 159.7 169.7 204.8
Net loss (12.9) (11.3) (10.1) (2.3)
Net loss per share-basic (0.29) (0.25) (0.23) (0.05)
Net loss per
share-diluted (0.29) (0.25) (0.23) (0.05)
Weighted average shares
Basic 44,157,364 44,157,364 44,588,704 45,202,859
Diluted 44,157,364 44,157,364 44,588,704 45,202,859
(*)Net Loss for the quarter ended
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Seasonal fluctuations in Internet usage and retail seasonality have affected, and are likely to continue to affect, our business. Typically, the fourth quarter of the year is the strongest in terms of revenues in every country where we operate due to the significant increase in transactions before the Christmas season. Our slowest period is typically the first quarter of the year. The months of January, February and March normally correspond to summer vacation time inArgentina ,Brazil ,Chile ,Peru andUruguay . Additionally, the Easter holiday falls in March or April, andBrazil celebrates Carnival for one week in February or March. This is partially mitigated by the countries located in the northern hemisphere, such asColombia andMexico for which the slowest months are their summer months of July, August and September.
Critical Accounting Policies and Estimates
The preparation of our audited consolidated financial statements and related notes require us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management has discussed the development, selection and disclosure of these estimates with our audit committee and our board of directors. Actual results may differ from these estimates under different assumptions or conditions. An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our audited consolidated financial statements. You should read the following descriptions of critical accounting policies, judgments and estimates in conjunction with our audited consolidated financial statements and the notes thereto and other disclosures included in this report.
For an analysis of our Critical Accounting Policies and Estimates please refer to Note 2 "Summary of significant accounting policies" to our audited consolidated financial statements included elsewhere in this report.
Impairment of long-lived assets, goodwill and intangible assets with indefinite useful life
We review long-lived assets for impairments whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of a long-lived asset to its undiscounted future net cash flows expected to be generated by such asset. If such asset is considered to be impaired on this basis, the impairment loss to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.
If the carrying amount of the reporting unit exceeds its fair value, goodwill or indefinite useful life intangible assets are considered impaired.
Goodwill and intangible assets with indefinite useful life are reviewed at the end of the year for impairment or more frequently, if events or changes in circumstances indicate that the carrying value may not be recoverable.Goodwill is tested for impairment at the reporting unit level (considering each of our segment as a reporting unit) by comparing the reporting unit's carrying amount, including goodwill, to the fair value of such reporting unit. For the year endedDecember 31, 2020 , the fair values of the reporting units were estimated using the income approach. Cash flow projections used were based on financial budgets approved by Management. We use discount rates to each reporting unit in the range of 15.1% to 21.0%. The average discount rate used for 2020 was 17.2%. That rate reflected our estimated weighted average cost of capital. Key drivers in the analysis include Average Selling Price ("ASP"), Take Rate defined as marketplace revenues as a percentage of Gross Merchadise Volume ("GMV"), Total Payment Volume Off Platform ("TPV Off"), Off Platform Take Rate defined as off platform revenues as a percentage of TPV Off, Wallet and Point TPV per Payer, Wallet Users over Total Population andActive Point devices. In addition, the analysis includes a business to e-commerce rate, which represents growth of e-commerce as a percentage of Gross Domestic Product, Internet penetration rates as well as trends in our market share. For the year endedDecember 31, 2020 , based on quantitative assessments, we have determined that the fair value of all the reporting units and the intangible assets with indefinite useful lives, are greater than their respective carrying amounts. We believe that the accounting estimate related to impairment of long lived assets and goodwill is critical since it is highly susceptible to change from period to period because: (i) it requires Management to make assumptions about gross merchandise volume growth, total payment volume, total payment transactions, future interest rates, sales and costs; and (ii) the impact that recognizing an impairment would have on the assets reported on our balance sheet as well as our net income would be material. Management's assumptions about future sales and future costs require significant judgment. 40
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Allowances for doubtful accounts, for chargebacks and credit losses.
We are exposed to losses due to uncollectable accounts, chargebacks and credits to users. The allowances for doubtful accounts and for chargebacks are recorded as charges to sales and marketing expenses. Historically, our actual losses have been consistent with our estimated charges. However, future adverse changes to our historical experience for doubtful accounts, loans receivable and chargebacks could have a material impact on our future consolidated statements of income and cash flows. For loans receivable that share similar risk characteristics such as product type, country, unpaid installments, days delinquent, and other relevant factors, the company estimates the lifetime expected credit loss allowance based on a collective assessment. The lifetime expected credit losses is determined by applying probability of default and loss given default models to monthly projected exposures, then discounting these cash flows to present value using the portfolio's loans interest rate, estimated as a weighted average of the original effective interest rate of all the loans that conform the portfolio segment.The probability of default is an estimation of the likelihood that a loan receivable will default over a given time horizon. Probability of default models are estimated using a transition matrix method; these matrices are constructed using roll rates and then transformed, taking into account the expected future delinquency rate (forward-looking models). Therefore, the models include macroeconomic outlook or projections and recent performance. With this model, we estimate marginal monthly default probabilities for each delinquency bucket, type of product and country. Each marginal monthly probability of default represents a different possible scenario of default.The exposure at default is equal to the receivables' expected outstanding principal, interest and other allowable balances. We estimate the exposure at default that the portfolio of loans would have in each possible moment of default, meaning for each possible scenario mentioned above. The loss given default is the percentage of the exposure at default that is not recoverable. We estimate this percentage using the transition matrix method mentioned above and the portfolio segment´s interest rate. The measurement of CECL is based on probability-weighted scenarios (probability of default for each month), in view of past events (roll rates), current conditions and adjustments to reflect the reasonable and supportable forecast of future economic conditions which were affected, among other factors, by the COVID-19 pandemic. We will continue to monitor the impact of the pandemic on expected credit losses estimates. For accounts receivable, they have been grouped based on shared credit risk characteristics and the number of days past due. We have therefore concluded that the expected loss rates for accounts receivable is a reasonable approximation of the historical loss rates for those assets. Accounts receivable are recovered over a period of 0-180 days, therefore, forecasted changes to economic conditions are not expected to have a significant effect on the estimate of the allowance for doubtful accounts. For credit cards receivable and other means of payment, we assess balances for credit, based on a review of the average period for which the financial asset is held, credit ratings of the financial institutions and probability of default and loss given default models. We believe that the accounting estimate related to allowances for doubtful accounts, loans receivable and for chargebacks is a critical accounting estimate because it requires Management to make different assumptions and scenarios to estimate the CECL. Legal contingencies In connection with certain pending litigation and other claims, we have estimated the range of probable loss and provided for such losses through charges to our consolidated statement of income. These estimates are based on our assessment of the facts and circumstances and historical information related to actions filed against the Company at each balance sheet date and are subject to change based upon new information and future events. From time to time, we are involved in disputes that arise in the ordinary course of business. We are currently involved in certain legal proceedings as discussed in "Item 3-Legal Proceedings," and in Note 14 to our audited consolidated financial statements. We believe that we have meritorious defenses to the claims against us, and we will defend ourselves accordingly. However, even if successful, our defense could be costly and could divert Management's time. If the plaintiffs were to prevail on certain claims, we might be forced to pay material damages or modify our business practices. Any of these consequences could materially harm our business and could have a material adverse impact on our financial position, results of operations or cash flows.
Income taxes
We are required to recognize a provision for income taxes based upon taxable income and temporary differences between the book and tax bases of our assets and liabilities for each of the tax jurisdictions in which we operate. This process requires a calculation of taxes payable under currently enacted tax laws in each jurisdiction and an analysis of temporary differences between the book and tax bases of our assets and liabilities, including various accruals, allowances, depreciation and amortization. The tax effect of these temporary differences and the estimated tax benefit from our tax net operating losses are reported as deferred tax assets and liabilities in our consolidated balance sheet. We also assess the likelihood that our net deferred tax assets will be realized from future taxable income. To the extent we believe that it is more likely than not that some portion or all of our deferred tax assets will not be realized, we establish a valuation allowance. AtDecember 31, 2020 , we had a valuation allowance on certain foreign net operating losses and foreign tax credit based on our assessment that it is more likely than not that the deferred tax asset will not be realized. To the extent we establish a valuation allowance or change the allowance in a period, we reflect the change with a corresponding increase or decrease in our "Income tax expense" line in our consolidated statement of income. Please refer to note 2 and 12 to the consolidated financial statements for additional information regarding income tax and tax reforms. 41
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Recent accounting pronouncements
See Item 8 of Part II, "Financial Statements and Supplementary Data-Note 2-Summary of significant accounting policies-Recently Adopted Accounting Standards and Accounting Pronouncements Not Yet Adopted".
Results of operations
The following table sets forth, for the year ended presented, certain data from
our consolidated statements of income. This information should be read in
conjunction with our audited consolidated financial statements and the notes to
those statements included elsewhere in this report.
Statement of income data
Years Ended
December 31,
(In millions) 2020 (*) 2019 (*) 2018 (*)
Net revenues $ 3,973.5 $ 2,296.3 $ 1,439.7
Cost of net revenues (2,264.3) (1,194.2) (742.6)
Gross profit 1,709.2 1,102.1 697.0
Operating expenses:
Product and technology development (352.5) (223.8) (146.3)
Sales and marketing (902.6) (834.0) (482.4)
General and administrative (326.5) (197.5) (137.8)
Total operating expenses (1,581.5) (1,255.3) (766.5)
Income (loss) from operations 127.7 (153.2) (69.5)
Other income (expenses):
Interest income and other financial gains 102.8
113.5 42.0
Interest expense and other financial losses (106.7)
(65.9) (56.2)
Foreign currency (losses) gains (42.5)
(1.7) 18.2
Net income (loss) before income tax (expense) gain 81.3 (107.2) (65.5) Income tax (expense) gain (82.0) (64.8) 28.9 Net loss$ (0.7) $ (172.0) $ (36.6)
(*) The table above may not total due to rounding.
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Years Ended
December 31,
(% of net revenues) 2020 (*) 2019 (*) 2018
Net revenues 100.0 100.0 100.0
Cost of net revenues (57.0) (52.0) (51.6)
Gross profit 43.0 48.0 48.4
Operating expenses:
Product and technology development (8.9) (9.7) (10.2)
Sales and marketing (22.7) (36.3) (33.5)
General and administrative (8.2) (8.6) (9.6)
Total operating expenses (39.8) (54.7) (53.2)
Income (loss) from operations 3.2 (6.7) (4.8)
Other income (expenses):
Interest income and other financial gains 2.6 4.9 2.9
Interest expense and other financial charges (2.7) (2.9) (3.9)
Foreign currency (losses) gains (1.1) (0.1) 1.3
Net income (loss) before income tax (expense) gain 2.0 (4.7) (4.5)
Income tax (expense) gain (2.1) (2.8) 2.0
Net loss (0.0) (7.5) (2.5)
(*) Percentages have been calculated using whole dollar amounts rather than appear in the table. The table above may not total due to rounding.
Principal trends in results of operations
Net revenues
Our net revenues accelerated its growth trajectory during the year 2020, specifically related to the increase in our gross merchandise volume and the growth of our Fintech solution services (off-platform transactions through Mercado Pago, credits business, financing payment transactions, etc.) as a consequence of higher demand on ecommerce and fintech products related to the COVID-19 pandemic and the corresponding homeconfinement imposed by certain government in the jurisdiction in which we operate. Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of operations- Net Revenues" section in the current document for further detail on net revenues trends for the year endedDecember 31, 2020 . The COVID-19 pandemic has affected many companies and industries inLatin America , our Company included, especially during the end of first quarter of 2020 when government-imposed total or partial lockdowns and curfews throughoutLatin America in late March, some of which have been subsequently extended, modified or rescinded. Despite the fact that our three last quarters of 2020 were characterized by the solid performance of our business and our belief that our long-term growth in net revenues will continue in the future, given our leadership in the region and the ongoing opportunities for e-commerce and Fintech solutions inLatin America , we are not able to predict the negative impacts that the COVID-19 pandemic may have on our business in the future. Lastly, our sources of revenues are denominated in local currencies; therefore, the weak macro-economic environment in certain countries in which we operate coupled with the devaluations of certain local currencies in those countries against theU.S. dollar, could cause a decline in year-over-year net revenues, measured inU.S. dollars.
We continue to monitor the progress of the COVID-19 pandemic and will take additional measures to comply with the rapidly changing regulations of the countries where we operate and the related macroeconomic instability.
Gross profit margins
Our gross profit margin is defined as total net revenues minus total cost of net revenues, as a percentage of net revenues.
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Our gross profit trends are directly affected by our net revenues, as stated above, and our cost of net revenues. In this sense, our main cost of net revenue are composed of bank and credit card processing charges for transactions and fees paid with credit cards and other payment methods, fraud prevention fees, certain taxes on revenues, shipping operation costs (including warehousing costs), carrier and other operating costs, cost of products sold, certain taxes on bank transactions, hosting and site operation fees, compensation for customer support personnel, ISP connectivity charges, and depreciation and amortization. This cost structure is directly affected by the level of operations of our services, and our strategic plan on gross profit is built on factors such as an ample liquidity to fund expenses and investments and a cost-effective capital structure. However, in the future, our gross profit margin could decline if we are not able to apply appropriate measures regarding our business to prevent potential negative impacts of the COVID-19 pandemic, if we fail to maintain an appropriate relationship between our cost of revenue structure and our net revenues trend and if we continue building up our logistic network and growing our sales of goods business, which has a lower pure product margin. For the years endedDecember 31, 2020 and 2019, our gross profit margins were 43.0% and 48.0%, respectively. The decrease in our gross profit margin resulted primarily from an increase in shipping operating costs and cost of products sold, as a percentage of net revenues, partially offset by a decrease in collection fees, as a percentage of net revenues.
Operating income/(loss) margins
Our operating margin is affected by our operating expenses structure, which mainly consists of our employees's salaries, our sales and marketing expenses related to those activities we incurred to promote our services, product development expenses, etc. As we continue to grow and focus on expanding our leadership in the region, we will continue to invest in product development, sales and marketing and human resources in order to promote our services and capture long-term business opportunities. As a result, we may experience decreases in our operating margins. The COVID-19 pandemic and its potential negative impacts on our business could also have negative impacts on our operating margins if we fail to closely monitor operating expenses on demand patterns and expenses are not adjusted in order to maintain an appropriate balance of such expenses with our actual rate of business development. For the years endedDecember 31, 2020 , as compared to the year endedDecember 31, 2019 , our operating margin increased from a negative margin of 6.7% to a positive margin of 3.2%. This increase is primarily a consequence of marketing expenditures efficiencies that we achieved as a result of the growth in organic demand brought about by the effects of the COVID-19 pandemic consumer behavior. Net revenues For the years ended Change from 2019 For the years ended Change from 2018 December 31, to 2020 (*) December 31, to 2019 (*) 2020 2019 in Dollars in % 2019 2018 in Dollars in % (in millions, except percentages) (in millions, except percentages) Total Net Revenues$ 3,973.5 $ 2,296.3 $ 1,677.2 73.0% $
2,296.3
(*) Percentages have been calculated using the whole figures instead of rounding figures. The table above may not total due to rounding.
Our net revenues grew 73.0% for the year endedDecember 31, 2020 , as compared to the same period in 2019. The increase in net revenues was primarily attributable to: a)an increase of 90.1% in commerce net revenues for the year resulting, mainly, from increases in local currency gross merchandise volume inArgentina ,Brazil andMexico of 192%, 60% and 101%, respectively, for the year endedDecember 31, 2020 . The increase in our local currency gross merchandise volume for the years endedDecember 31, 2020 was partially offset by the devaluation of the Brazilian Reais, the Mexican Peso and the Argentine Peso;
b)an increase of
c) a decrease of$91.6 million , or 34.6%, in shipping subsidies that are netted from revenues, during the year endedDecember 31, 2020 as compared to the same period in 2019;
d) an increase of
e) an increase of our Fintech revenues of 48.8%, from$949.9 million for the year endedDecember 31, 2019 to$1,413.7 million for the year endedDecember 31, 2020 . This increase is mainly generated by a 75.3% increase in our total payment volume, mainly associated with off-platform transactions, financing, other payment fees (as we started to monetize wallet funding operations inBrazil ) and credits business for the year endedDecember 31, 2020 , as compared to the same period in 2019. ? 44
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For the years ended Change from 2019 For the years ended Change from 2018
December 31, to 2020 (*) December 31, to 2019 (*)
Consolidated Net
Revenues by 2020 2019 in Dollars in %
2019 2018 in Dollars in %
revenue stream
(in millions, except (in millions, except
percentages) percentages)
Commerce$ 1,356.8 $ 793.4 $ 563.4 71.0%$ 793.4 $ 450.1 $ 343.3 76.3% Fintech 837.3 668.1 169.2 25.3%
668.1 416.0 252.1 60.6%
$ 2,194.0 1,461.5$ 732.5 50.1%$ 1,461.5 $ 866.2 $ 595.3 68.7%Argentina Commerce$ 561.3 $ 240.2 $ 321.1 133.7%$ 240.2 $ 226.6 $ 13.6 6.0% Fintech 419.0 216.2 202.8 93.8%
216.2 150.0 66.2 44.1%
$ 980.3 456.3$ 523.9 114.8%$ 456.3 $ 376.6 $ 79.8 21.2%Mexico Commerce$ 471.4 $ 230.2 $ 241.2 104.8%$ 230.2 $ 89.5 $ 140.7 157.2% Fintech 103.7 44.9 58.8 130.8%
44.9 19.6 25.3 129.3%
$ 575.2 275.1$ 300.0 109.1%$ 275.1 $ 109.1 $ 166.0 152.2% Other countries Commerce$ 170.3 $ 82.7 $ 87.6 105.9%$ 82.7 $ 72.4 $ 10.3 14.2% Fintech 53.7 20.6 33.0 160.1% 20.6 15.4 5.3 34.1%$ 224.0 103.3$ 120.6 116.7%$ 103.3 $ 87.8 $ 15.5 17.7% Consolidated Commerce$ 2,559.8 $ 1,346.4 $ 1,213.3 90.1%$ 1,346.4 $ 838.6 $ 507.8 60.6% Fintech 1,413.7 949.9 463.8 48.8% 949.9 601.0 348.8 58.0% Total$ 3,973.5 $ 2,296.3 $ 1,677.2 73.0%$ 2,296.3 $ 1,439.7 $ 856.7 59.5% .
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table. The table above may not total due
to rounding.
Brazil
Commerce revenues in Brazil increased 71.0% in the year ended December 31, 2020
as compared to the same period in 2019. This increase was primarily a
consequence of: i) a 60% increase in local currency gross merchandise volume
(partially offset by a 23.5% approximate average devaluation of the local
currency); ii) a $150.1 million decrease in shipping subsidies which are
presented netted from revenues; iii) an increase of $98.9 million related to the
sale of goods; and iv) an increase of $62.6 million as a result of the flat fee
for transactions below a certain merchandise value. Fintech revenues grew by
25.3%, a $169.2 million increase, during the year ended December 31, 2020 as
compared to the same period in 2019, mainly driven by a 56.4% increase in the
off-platform payments volume, financing and credits business and other payment
fees (as we started to monetize wallet funding operations in Brazil ).
Commerce revenues inArgentina increased 133.7% in the year endedDecember 31, 2020 as compared to the same period in 2019. This increase was primarily a consequence of: i) a 192% increase in local currency gross merchandise volume (partially offset by a 31.7% approximate average devaluation of the local currency); ii) an increase of$97.3 million related to the sale of goods; and iii) an increase of$9.7 million as a result of the flat fee for transactions below a certain merchandise value. This increase was partially offset by a$31.5 million increase in shipping subsidies, which are presented netted from revenues. Fintech revenues grew 93.8%, a$202.8 million increase, during the year endedDecember 31, 2020 as compared to the same period in 2019, mainly driven by a 159.1% increase in the off-platform payments volume and financing.
Commerce revenues inMexico increased 104.8% in the year endedDecember 31, 2020 , as compared to the same period in 2019, mainly due to: i) a 101% increase in local currency gross merchandise volume (partially offset by a 10.4% approximate average devaluation of the local currency); ii) an increase of$42.7 million related to the sale of goods and; iii) an increase of$23.4 million as a result of the flat fee for transactions below a certain merchandise value. This increase was partially offset by a$12.5 million increase in shipping subsidies, which are presented netted from revenues. Fintech revenues grew 130.8%, a$58.8 million increase, during the year endedDecember 31, 2020 as compared to the same period in 2019, mainly driven by a 103.5% increase in the off-platform payments volume financing and credits business. 45
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The following table sets forth our total net revenues and the sequential quarterly growth of these net revenues for the periods described below:
Quarter Ended
March 31, June 30, September 30, December 31,
(in millions, except percentages)
(*)
2020
Net revenues $ 652.1 $ 878.4 $ 1,115.7 $ 1,327.3
Percent change from prior quarter -3% 35% 27% 19%
2019
Net revenues$ 473.8 $ 545.2 $ 603.0 $
674.3
Percent change from prior quarter 11% 15% 11%
12%
2018
Net revenues$ 321.0 $ 335.4 $ 355.3 $
428.0
Percent change from prior quarter -10% 4% 6%
20%
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table.
The following table set forth the growth in net revenues in local currencies for
the years ended
Changes from (*)
(% of revenue growth in Local Currency) 2019 to 2020 2018 to 2019
Brazil 97.4% 81.6%
Argentina 218.4% 115.6%
Mexico 132.2% 149.9%
Other Countries 141.2% 30.5%
Total Consolidated 126.5% 92.0%
(*) The local currency revenue growth was calculated by using the average
monthly exchange rates for each month during 2019 and applying them to the
corresponding months in 2020, so as to calculate what our financial results
would have been had exchange rates remained stable from one year to the
next.
The local currency revenue growth was calculated by using the average
monthly exchange rates for each month during 2018 and applying them to the
corresponding months in 2019, so as to calculate what our financial results
would have been had exchange rates remained stable from one year to the
next.
See also the "Non-GAAP Financial Measures" section for details on FX neutral
measures.
In
In
Cost of net revenues
Years ended Change from 2019 Years ended Change from 2018
December 31, to 2020 (*) December 31, to 2019 (*)
2020 2019 in Dollars in % 2019 2018 in Dollars in %
(in millions, except percentages) (in millions, except percentages)
Total cost of net
revenues $ 2,264.3 $ 1,194.2 $ 1,070.1 89.6% $ 1,194.2 $ 742.6 $ 451.5 60.8%
As a percentage of
net revenues (*) 57.0% 52.0% 52.0% 51.6%
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table. The table above may not total due
to rounding.
For the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 , the increase of$1,070.1 million in cost of net revenues was primarily attributable to: i) a$310.1 million increase in shipping operating costs; ii) a$236.3 million increase in cost of sales of goods inBrazil ,Argentina andMexico ; iii) a$223.2 million increase in collection fees, which was mainly attributable to our Argentine, Brazilian and Mexican operations as a result of the higher transactions volume of Mercado Pago in those countries; iv) a$136.0 million increase in sales taxes; v) a$57.3 million increase in hosting expenses and; vi) a$44.9 million increase in customer support costs mainly associated to salaries and wages due to new hires and temporary customer support workers. 46
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Product and technology development
Years ended Change from 2019 Years ended Change from 2018
December 31, to 2020 (*) December 31, to 2019 (*)
2020 2019 in Dollars in % 2019 2018 in Dollars in %
(in millions, except percentages) (in millions, except percentages)Product and technology development$ 352.5 $ 223.8 $ 128.7 57.5%$ 223.8 $ 146.3 $ 77.5 53.0% As a percentage of net revenues (*) 8.9% 9.7% 9.7% 10.2%
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table. The table above may not total due
to rounding.
For the year endedDecember 31, 2020 , the increase in product and technology development expenses as compared to the year endedDecember 31, 2019 , amounted to$128.7 million . This increase was primarily attributable to: i) a$80.1 million increase in salaries and wages mainly related to new hiring and LTRPs as a consequence of the increase in our common stock price; ii) a$21.0 million increase in maintenance expenses mainly related to higher software licenses expenses; iii) a$14.9 million increase in other product and technology development expenses mainly related to certain tax withholdings; and iv) a$12.6 million increase in depreciation and amortization expenses. We believe that product development is one of our key competitive advantages and we intend to continue to invest in hiring engineers to meet the increasingly sophisticated product expectations of our customer base. Sales and marketing Years ended Change from 2019 Years ended Change from 2018 December 31, to 2020 (*) December 31, to 2019 (*) 2020 2019 in Dollars in % 2019 2018 in Dollars in % (in millions, except percentages) (in millions, except percentages) Sales and marketing$ 902.6 $ 834.0 $ 68.5 8.2%$ 834.0 $ 482.4 $ 351.6 72.9% As a percentage of net revenues (*) 22.7% 36.3% 36.3% 33.5%
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table. The table above may not total due
to rounding.
For the year endedDecember 31, 2020 , the$68.5 million increase in sales and marketing expenses as compared to the year endedDecember 31, 2019 was primarily attributable to: i) a$66.1 million increase in our buyer protection program expenses, mainly inMexico ,Brazil andArgentina ; ii) a$63.1 million increase in bad debt expenses explained, mainly, by an increase in our credits business volume and the recognition of a charge of$27.0 million during the second quarter of 2020 related to accumulated receivables from an unaffiliated entity inArgentina ; and iii) a$21.4 million increase in salaries and wages. This increase was partially offset by an$84.6 million decrease in online and offline marketing expenses mainly inBrazil ,Mexico andArgentina as a consequence of marketing expenditures efficiencies that we achieved as a result of the growth in organic demand brought about by the effects of the COVID-19 pandemic consumer behavior. General and administrative Years ended Change from 2019 Years ended Change from 2018 December 31, to 2020 (*) December 31, to 2019 (*) 2020 2019 in Dollars in % 2019 2018 in Dollars in % (in millions, except percentages) (in millions, except percentages) General and administrative$ 326.5 $ 197.5 $ 129.0 65.3%$ 197.5 $ 137.8 $ 59.7 43.3% As a percentage of net revenues (*) 8.2% 8.6% 8.6% 9.6%
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table. The table above may not total due
to rounding.
For the year endedDecember 31, 2020 , the$129.0 million increase in general and administrative expenses as compared to the year endedDecember 31, 2019 was primarily attributable to: i) a$84.5 million increase in salaries and wages, mainly related to the LTRPs as a consequence of the increase in our common stock price; and ii) a$31.2 million increase in other general and administrative expenses mainly related to certain tax withholdings. 47
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Other income (expense), net
Years ended Change from 2019 Years ended Change from 2018
December 31, to 2020 (*) December 31, to 2019 (*)
2020 2019 in Dollars in % 2019 2018 in Dollars in %
(in millions, except percentages) (in millions, except percentages)Other income (expense), net$ (46.4) $ 45.9 $ (92.3) -201.0%$ 45.9 $ 4.0 $ 41.9 1039.4% As a percentage of net revenues (*) -1.2% 2.0% 2.0% 0.3%
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table. The table above may not total due to
rounding.
For the year endedDecember 31, 2020 , the$92.3 million decrease in other income (expense), net as compared to year endedDecember 31, 2019 was primarily attributable to: i) a 40.8 million increase in financial expenses mainly attributable to financial loans entered into during 2020, mainly inBrazil andArgentina and interest expenses from our trusts related to the factoring of our credit cards receivable inArgentina ; ii) a$40.7 million increase in our foreign currency loss mainly related to a loss of$44.5 million derived from an indirect mechanism used to obtain US dollars inArgentina which are not available at the official exchange rate at the moment of the share repurchase transaction (referred to Note 25 of our audited consolidated financial statements); and iii) a$10.8 million decrease in interest income from our financial investments as a result of lower interest rates in our investments as a consequence of the pandemic, mainly offset by higher interest income inArgentina due to higher float. Income tax Years ended Change from 2019 Years ended Change from 2018 December 31, to 2020 (*) December 31, to 2019 (*) 2020 2019 in Dollars in % 2019 2018 in Dollars in % (in millions, except percentages) (in millions, except percentages) Income tax (expense) gain$ (82.0) $ (64.8) $ (17.3) 26.7%$ (64.8) $ 28.9 $ (93.6) -324.3% As a percentage of net revenues (*) -2.1% -2.8%
-2.8% 2.0%
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table. The table above may not total due
to rounding.
During the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 , income tax expense increased by$17.3 million mainly as a result of: i) higher income tax expense inArgentina as a consequence of the temporary suspension of the knowledge-based economy promotional regime in 2020, which had a direct impact on the income tax rate for our Argentine business and higher income tax expense as a consequence of higher pre-tax gains in our Argentine segment in 2020 and ii) higher income tax expense due to withholding tax on dividends. This increase was partially offset by lower income tax expense inMexico andColombia mainly as a result of valuation allowances accounted for on certain deferred tax assets in those countries during the third quarter of 2019.
See Note 13 to our audited consolidated financial statements for additional information regarding tax reforms in each jurisdiction in which we operate.
Our effective tax rate is defined as income tax (expense) gain as a percentage of net income (loss) before income tax (expense) gain.
The following table summarizes the changes in our effective tax rate for the
years ended
Years ended
December 31,
2020 2019 2018
Effective tax rate 100.9% -60.4% 44.1%
Our effective tax rate for the year endedDecember 31, 2020 as compared to the same period in 2019, increased to a positive effective tax rate as compared to the same period in 2019, largely as a result of: i) an increase in our Argentine income tax rate mainly as a consequence of the temporary suspension of the knowledge-based economy promotional regime in 2020 by Argentine government until new rules for the application of the regime are issued, ii) the valuation allowances on certain accumulated deferred tax assets inMexico andColombia accounted for in year endedDecember 31, 2020 , iii) the foreign exchange loss accounted for the purchase of own shares during 2020 which is considered a non-deductible expense, and iv) higher income tax expense due to withholding tax on dividends. 48
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The following table sets forth our effective income tax rate related to our main
locations for the years ended
Years ended
December 31,
2020 2019 2018
Effective tax rate by country
Argentina 34.4% 5.2% 19.8%
Brazil 5.6% 16.7% 43.4%
Mexico -2.0% -33.4% 28.8%
The increase in the effective income tax rate in our Argentine subsidiaries
during the year ended December 31, 2020 as compared to the same period in 2019
was mainly a consequence of the temporary suspension of the knowledge-based
economy promotional regime since 2020 by the Argentine government until new
rules for the application of the regime are issued, which had a direct impact on
the income tax rate for our Argentine business. For information regarding the
benefits granted to the Company under the software development law and the
status of the knowledge-based economy promotional regime, see Note 2 and Note 13
to our audited consolidated financial statements.
The decrease in our Brazilian effective income tax rate for the year ended
The decrease in our Mexican negative effective income tax rate for year endedDecember 31, 2020 as compared to the same period in 2019, was mainly related to a higher valuation allowance accounted for in the year endedDecember 31, 2019 as compared with the valuation allowances accounted for in the year endedDecember 31, 2020 .
Deferred Income Tax
The following table summarizes the composition of our deferred tax assets for
the years ended
Year Ended Year Ended
December 31, (*) December 31, (*)
Deferred tax assets 2020 in % 2019 in %
(in millions, except (in millions, except
percentages) percentages)
Brazilian operations $ 101.4 30.4 % $ 88.2 34.4 %
Argentine operations 35.1 10.5 18.9 7.4
Mexican operations 162.7 48.8 118.6 46.2
U.S. deferred tax assets 18.3 5.5 13.7 5.3
Operations in other countries 16.0 4.8 17.1 6.7
Total $ 333.5 100.0 % $ 256.5 100.0 %
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table. The table above may not total due to
rounding.
As of December 31, 2020 and 2019 our deferred tax assets, were comprised mainly
of loss carry forwards representing 48.6% and 65.3% of our total deferred tax
assets, respectively, and provisions and non-deductible interest representing
21.1% and 15.8% of our total deferred tax assets, respectively.
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The following table summarizes the composition of our deferred tax assets from
loss carryforwards for the years ended
Year Ended Year Ended
December 31, (*) December 31, (*)
Loss carryforwards 2020 in % 2019 in %
(in millions, except
(in millions, except percentages) percentages)
? ?
Mexican operations $ 125.1 77.2 % $ 102.0 61.0 %
Brazilian operations 28.5 17.6 52.8 31.5
Colombian operations 4.8 3.0 8.2 4.9
U.S. loss carry forwards 0.2 0.1 0.2 0.1
Operations in other countries 3.4 2.1 4.2 2.5
Total $ 162.0 100.0 % $ 167.4 100.0 %
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table. The table above may not total due to
rounding.
We also assess the likelihood that our net deferred tax assets will be realized
from future taxable income. To the extent we believe that it is more likely than
not that some portion or the total deferred tax assets will not be realized, we
establish a valuation allowance.
At
The following table summarizes the composition of our valuation allowance for
the years ended
Year Ended Year Ended
December 31, (*) December 31, (*)
Valuation Allowance 2020 in % 2019 in %
(in millions, except
(in millions, except percentages) percentages)
Mexican operations $ 151.9 84.7 % $ 115.0 82.8 %
U.S. foreign tax credits and
non-deductible interest 17.5 9.8 12.8 9.2
Colombian operations 8.0 4.5 9.6 6.9
Argentine operations 1.8 1.0 1.5 1.1
Total $ 179.2 100.0 % $ 138.9 100.0 %
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table. The table above may not total due to
rounding.
Our valuation allowance is based on our assessment that it is more likely than
not that the deferred tax asset will not be realized. The fluctuations in the
valuation allowance will depend on the capacity of each country's operations to
generate taxable income or our execution of future tax planning strategies that
allow us to use the aforementioned deferred tax assets. To the extent we
establish a valuation allowance or change the allowance in a period, we reflect
the change with a corresponding increase or decrease in our tax provision in our
consolidated statement of income.
Our future effective tax rates could be adversely affected by earnings being
lower than anticipated in countries where we have lower statutory rates and
higher than anticipated in countries where we have higher statutory rates, by
changes in the valuations of our deferred tax assets or liabilities, or by
changes or interpretations in tax laws, regulations or accounting principles.
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Segment information
See Note 8 to our audited consolidated financial statements for detailed description about our reporting segments.
(In millions, except
for percentages) Year Ended December 31, 2020 (*)
Brazil Argentina Mexico Other Countries Total
Net revenues $ 2,194.0 $ 980.3 $ 575.2 $ 224.0 $ 3,973.5
Direct costs (1,766.0) (708.7) (586.0) (186.4) (3,247.1)
Direct contribution $ 428.1 $ 271.6 $ (10.8) $ 37.5 $ 726.4
Margin 19.5% 27.7% -1.9% 16.8% 18.3%
Year Ended December 31, 2019 (*)
Brazil Argentina Mexico Other Countries Total
Net revenues $ 1,461.5 $ 456.3 $ 275.1 $ 103.3 $ 2,296.3
Direct costs (1,245.4) (347.7) (390.2) (105.0) (2,088.2)
Direct contribution $ 216.1 $ 108.6 $ (115.0) $ (1.6) $ 208.1
Margin 14.8% 23.8% -41.8% -1.6% 9.1%
Change from the Year Ended December 31, 2020 to
Brazil Argentina Mexico Other Countries Total
Net revenues
in Dollars $ 732.5 $ 523.9 $ 300.0 $ 120.6 $ 1,677.2
in % 50.1% 114.8% 109.1% 116.7% 73.0%
Direct costs
in Dollars $ (520.6) $ (360.9) $ (195.9) $ (81.5) $ (1,158.9)
in % 41.8% 103.8% 50.2% 77.6% 55.5%
Direct contribution
in Dollars $ 211.9 $ 163.0 $ 104.2 $ 39.2 $ 518.3
in % 98.1% 150.1% 90.6% 2396.7% 249.1%
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table. The table above may not total due
to rounding.
(In millions, except
for percentages) Year Ended December 31, 2019 (*)
Brazil Argentina Mexico Other Countries Total
Net revenues $ 1,461.5 $ 456.3 $ 275.1 $ 103.3 $ 2,296.3
Direct costs (1,245.4) (347.7) (390.2) (105.0) (2,088.2)
Direct contribution $ 216.1 $ 108.6 $ (115.0) $ (1.6) $ 208.1
Margin 14.8% 23.8% -41.8% -1.6% 9.1%
Year Ended December 31, 2018 (*)
Brazil Argentina Mexico Other Countries Total
Net revenues $ 866.2 $ 376.6 $ 109.1 $ 87.8 $ 1,439.7
Direct costs (762.6) (254.5) (164.6) (79.6) (1,261.4)
Direct contribution $ 103.5 $ 122.0 $ (55.5) $ 8.2 $ 178.3
Margin 12.0% 32.4% -50.9% 9.4% 12.4%
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Change from the Year Ended December 31, 2019 to
Brazil Argentina Mexico Other Countries Total
Net revenues
in Dollars $ 595.3 $ 79.8 $ 166.0 $ 15.5 $ 856.7
in % 68.7% 21.2% 152.2% 17.7% 59.5%
Direct costs
in Dollars $ (482.7) $ (93.2) $ (225.5) $ (25.4) $ (826.9)
in % 63.3% 36.6% 137.0% 31.9% 65.6%
Direct contribution
in Dollars $ 112.6 $ (13.4) $ (59.5) $ (9.9) $ 29.8
in % 108.7% -11.0% -107.1% -119.8% 16.7%
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table. The table above may not total due
to rounding.
Net revenues
Net revenues for the years ended December 31, 2020 , 2019 and 2018 are described
above in "Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations - Net revenues".
Direct costs
For the year endedDecember 31, 2020 , as compared to the same period in 2019, direct costs increased by 41.8%, mainly driven by: i) a 71.6% increase in cost of net revenues, mainly attributable to an increase in shipping operating costs, sales taxes, collection fees as a consequence of the higher transactions volume of our Mercado Pago business and cost of sale of goods as a consequence of an increase in sales of products; ii) a 53.7% increase in product and technology development expenses, mainly due to an increase in salaries and wages, maintenance expenses mostly related to higher software licenses expenses, higher other product and development expenses mainly related to certain tax withholdings and depreciation and amortization expenses; and iii) a 52.2% increase in general and administrative expenses, mostly attributable to an increase in salaries and wages mainly related to the LTRPs and other general and administrative expenses principally related to certain tax withholdings. This increase was partially offset by a 3.9% decrease in sales and marketing expenses, mainly due to a decrease in online and offline marketing expenses as a consequence of marketing expenditures efficiencies that we achieved as a result of the growth in organic demand brought about by the effects of the COVID-19 pandemic consumer behavior.Argentina For the year endedDecember 31, 2020 , as compared to the same period in 2019, direct costs increased by 103.8%, mainly driven by: i) a 131.0% increase in cost of net revenues, mainly attributable to an increase in cost of sale of goods as a consequence of an increase in sales of products, an increase in collection fees as a consequence of the higher transactions volume of our Mercado Pago business, and an increase in shipping operating costs and sales taxes; ii) a 45.2% increase in sales and marketing expenses, mainly due to an increase in bad debt expenses explained by the recognition of a charge of$27.0 million related to accumulated receivables from an unaffiliated entity inArgentina during the second quarter of 2020, and buyer protection program expenses partially offset by a decrease in online and offline marketing expenses as a consequence of marketing expenditures efficiencies that we achieved as a result of the growth in organic demand brought about by the effects of the COVID-19 pandemic consumer behavior; iii) a 81.2% increase in product and technology development expenses, mainly due to an increase in depreciation and amortization expenses; and iv) a 68.4% increase in general and administrative expenses, mostly attributable to an increase in salaries and wages, mainly related to the LTRPs and other general and administrative expenses principally related to certain tax withholdings.
For the year endedDecember 31, 2020 , as compared to the same period in 2019, direct costs increased by 50.2%, mainly driven by: i) a 90.6% increase in cost of net revenues, mainly attributable to an increase in shipping operating costs, an increase in collection fees due to higher Mercado Pago penetration, cost of sale of goods as a consequence of an increase in sales of products and customer support costs; ii) a 6.6% increase in sales and marketing expenses, mainly due to buyer protection program expenses, bad debt expenses, chargebacks from credit cards due to the increase in our Mercado Pago transactions volume and other sales expenses mainly related to strategic marketing initiatives expenses, partially offset by a decrease in online and offline marketing expenses as a consequence of marketing expenditures efficiencies that we achieved as a result of the growth in organic demand brought about by the effects of the COVID-19 pandemic consumer behavior; iii) a 73.6% increase in product and technology development expenses, mainly attributable to depreciation and amortization expenses and salaries and wages; and iv) a 45.1% increase in general and administrative expenses, mainly attributable to an increase in salaries and wages and other general and administrative expenses principally related to certain tax withholdings. 52
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Liquidity and Capital Resources
Our main cash requirement has been working capital to fund Mercado Pago financing operations. We also require cash for capital expenditures relating to technology infrastructure, software applications, office space, business acquisitions, to fund our credit business, to build out our logistics capacity and the interest payments on our loans payable and other financial liabilities. We have entered into a purchase commitment in relation to the purchase of cloud services for a total amount of$240.5 million to be paid in the following 4 years. Please refer to Note 14 of our audited consolidated financial statements for further detail on purchase commitments. Since our inception, we have funded our operations primarily through contributions received from our stockholders during the first two years of operations, from funds raised during our initial public offering, and from cash generated from our operations. We issued the 2028 Notes for net proceeds of approximately$864.6 million . We have funded Mercado Pago mainly by discounting credit cards receivables and credit lines. Additionally, we started to fund our Mercado Pago andMercado Credito businesses through the securitization of credit cards receivable and certain loans through SPEs created inBrazil ,Mexico andArgentina . Please refer to Note 21 of our audited consolidated financial statements for further detail on securitization transactions. Finally, we issued common and preferred stock in the securities offerings that closed onMarch 15, 2019 andMarch 29, 2019 , respectively, for net aggregate proceeds of$1,965.9 million , which are intended to be used to fund the growth of our payment initiatives, build out our logistics capacity, drive the adoption of these services and for general corporate purposes. See note 12 to our audited consolidated financial statements for additional information regarding our equity offerings. Given the uncertain progress of the COVID-19 pandemic and the related macroeconomic instability in the countries where we operate, it is not possible to have certainty around business development and cash generation for the year 2021. In terms of liquidity and cash management, our relevant sources of funding remain available and new credit facilities have been obtained at the geographic segment level. Please refer to Note 26 to our audited consolidated financial statements for further detail on COVID-19 impacts. As ofDecember 31, 2020 , our main source of liquidity was$2,460.8 million of cash and cash equivalents and short-term investments, which excludes a$565.7 million investment related to theCentral Bank of Brazil Mandatory Guarantee and$71.2 million investment related to restricted escrow accounts regarding financial loans taken out inBrazil , and consists of cash generated from operations, proceeds from loans, from the issuance of the 2028 Notes and proceeds from the issuance of common and preferred stock.
The significant components of our working capital are cash and cash equivalents, restricted cash and cash equivalents, short-term investments, accounts receivable, loans receivable, inventories, accounts payable and accrued expenses, funds receivable from and payable to Mercado Pago users, and short-term debt.
As ofDecember 31, 2020 , cash and cash equivalents, restricted cash and cash equivalents and investments of our non-U.S. subsidiaries amounted to$2,449.7 million , 62.6% of our consolidated cash and cash equivalents, restricted cash and cash equivalents and investments, and our non-U.S. dollar-denominated cash, cash and equivalent, restricted cash and cash equivalenet and investments held outsideU.S. amounted to approximately 60.8% of our consolidated cash and investments. Our non-U.S. dollar-denominated cash and investments are located primarily inBrazil . ? 53
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The following table presents our cash flows from operating activities, investing activities and financing activities for the years endedDecember 31, 2020 , 2019 and 2018: Years ended December 31, (*) (In millions) 2020 2019 2018 Net cash (used in) provided by: Operating activities$ 1,182.6 $ 451.1 230.9 Investing activities (252.2) (1,447.8) (672.5) Financing activities 242.3 2,021.0 608.9 Effect of exchange rates on cash and cash equivalents, restricted cash and cash equivalents (115.8) (37.6) (90.9) Net increase in cash and cash equivalents, restricted cash and cash equivalents$ 1,056.8 $
986.7
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table. The table above may not total due
to rounding.
Net cash provided by operating activities
Cash provided by operating activities consists of net loss adjusted for certain
non-cash items, and the effect of changes in working capital and other
activities:
Years ended Change from 2019
December 31, (*) to 2020 (*)
2020 2019 in Dollars in %
(in millions, except percentages)
Net Cash provided by:
Operating activities $ 1,182.6 $ 451.1 $ 731.5 162.2%
The
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table. The table above may not total due
to rounding.
The$731.5 million increase in net cash provided by operating activities during the year endedDecember 31, 2020 , as compared to the same period in 2019, was primarily driven by a$670.3 increase in funds payable to customers and amounts due to merchants and a$440.8 million increase in accounts payable and accrued expenses. This increase was partially offset by a$492.7 million increase in credit cards receivable and a$102.8 million increase in inventories.
Net cash used in investing activities
Years ended Change from 2019
December 31, to 2020 (*)
2020 2019 in Dollars in %
(in millions, except percentages)
Net Cash used in:
Investing activities $ (252.2) $ (1,447.8) $ 1,195.6 -82.6%
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table. The table above may not total due
to rounding.
Net cash used in investing activities in the year endedDecember 31, 2020 resulted mainly from purchases of investments of$5,199.9 million , which was partially offset by proceeds from the sale and maturity of investments of$5,532.5 million , consistent with our treasury strategy of investing part of our available liquidity, principally, inU.S. treasury securities. We used$344.6 million in principal loans receivable granted under ourMercado Credito solution and$247.0 million in the purchase of property and equipment (mainly in information technology assets inArgentina ,Mexico andBrazil ). The cash used in investing activities in the year endedDecember 31, 2020 was partially offset by receipts from settlements of derivative instruments for$17.8 million . ? 54
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Net cash provided by financing activities
Years ended Change from 2019
December 31, to 2020 (*)
2020 2019 in Dollars in %
(in millions, except percentages)
Net Cash provided by:
Financing activities $ 242.3 $ 2,021.0 $ (1778.7) -88.0%
(*) Percentages have been calculated using whole-dollar amounts rather than the
rounded amounts that appear in the table.
For the year endedDecember 31, 2020 , our cash provided by financing activities was primarily derived from$611.4 million in net proceeds from loans payable and other financial liabilities partially offset by the payment of$306.8 million for the purchase of capped calls and$54.1 million for the Common Stock repurchased. In the event that we decide to pursue strategic acquisitions in the future, we may fund them with available cash, third-party debt financing, or by raising equity capital, as market conditions allow. Debt Convertible Senior Notes OnAugust 24, 2018 , we issued$800 million of 2.00% Convertible Senior Notes due 2028 and onAugust 31, 2018 we issued an additional$80 million of notes pursuant to the partial exercise of the initial purchasers' option to purchase such additional notes, resulting in an aggregate principal amount of$880 million of 2.00% Convertible Senior Notes due 2028. The 2028 Notes are unsecured, unsubordinated obligations, which pay interest in cash semi-annually, onFebruary 15 andAugust 15 , at a rate of 2.00% per annum. The 2028 Notes will mature onAugust 15, 2028 unless earlier repurchased or converted in accordance with their terms prior to such date. The 2028 Notes may be converted, under specific conditions, based on an initial conversion rate of 2.2553 shares of common stock per$1,000 principal amount of the 2028 Notes (equivalent to an initial conversion price of$443.40 per share of common stock), subject to adjustment as described in the indenture governing the 2028 Notes. InJanuary 2021 , we signed agreements with 2028 Notes holders to repurchase$440,000 thousands principal amount of our outstanding of the 2028 Notes. The total amount paid amounted to$1,865.1 million which includes principal, interest accrued and premium. As of the date of the issuance of the current report, approximately$440 millions of our principal amount of the 2028 Notes remains outstanding. Please refer to Notes 2 and 16 to our audited consolidated financial statements for additional information regarding the 2028 Notes and the related capped call transactions. Financial loans inBrazil Due to the COVID-19 pandemic situation, we have obtained new credit facilities at the geographic segment level. As ofDecember 31, 2020 , we obtained credit facilities inBrazil with an outstanding amount of$200.6 million . Please refer to Note 16 of our audited consolidated financial statements for further information on our loans and Note 26 for further detail on COVID-19 impacts.
Mercado Pago Funding
In 2020, we, through our subsidiaries, continued obtaining certain lines of credit inArgentina ,Chile andUruguay primarily to fund the Mercado Pago business. Additionally, we continue to securitize certain loans and credit card receivables through our Argentine, Mexican and Brazilian SPEs, formed to securitize loans provided by us to our users and credit cards receivable. Please refer to Note 21 to our audited consolidated financial statements for additional detail.
Debt Securities Guaranteed by Subsidiaries
OnJanuary 14, 2021 , we issued$400 million aggregate principal amount of 2.375% Sustainability Notes due 2026 (the "2026 Sustainability Notes" and$700 million aggregate principal amount of 3.125% Notes due 2031 (the "2031 Notes" and collectively, the "Notes"). The payment of principal, premium, if any, interest, and all other amounts in respect of each of the Notes, is fully and unconditionally guaranteed (the "Subsidiary Guarantees"), jointly and severally, on an unsecured basis, by certain of our subsidiaries (the "Subsidiary Guarantors"). The initial Subsidiary Guarantors are MercadoLibre S.R.L., Ibazar.com Atividades de Internet Ltda., eBazar.com.br Ltda.,Mercado Envios Servicos de Logistica Ltda., MercadoPago.com Representações Ltda.,MercadoLibre Chile Ltda.,MercadoLibre ,S. de R.L. de C.V. , DeRemate.com de México,S. de R.L. de C.V. and MercadoLibre Colombia Ltda. 55
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We will pay interest on the Notes on
The Notes rank equally in right of payment with all of the Company´s other existing and future senior unsecured debt obligations from time to time outstanding. Each Subsidiary Guarantee will rank equally in right of payment with all of the Subsidiary Guarantor's other existing and future senior unsecured debt obligations from time to time outstanding, except for statutory priorities under applicable local law. Each Subsidiary Guarantee will be limited to the maximum amount that would not render the Subsidiary Guarantor's obligations subject to avoidance under applicable fraudulent conveyance provisions of applicable law. By virtue of this limitation, a Subsidiary Guarantor's obligation under its Subsidiary Guarantee could be significantly less than amounts payable with respect to the Notes, or a Subsidiary Guarantor may have effectively no obligation under its Subsidiary Guarantee. Under the indenture governing the Notes, the Subsidiary Guarantee of a Subsidiary Guarantor will terminate upon: (i) the sale, exchange, disposition or other transfer (including by way of consolidation or merger) of the Subsidiary Guarantor or the sale or disposition of all or substantially all the assets of the Subsidiary Guarantor (other than to the Company or a Subsidiary) otherwise permitted by the indenture, (ii) satisfaction of the requirements for legal or covenant defeasance or discharge of the Notes, (iii) the release or discharge of the guarantee by such Subsidiary Guarantor of the Triggering Indebtedness (as defined in the applicable indenture) or the repayment of the Triggering Indebtedness, in each case, that resulted in the obligation of such Subsidiary to become a Subsidiary Guarantor, provided that in no event shall the Subsidiary Guarantee of an Initial Subsidiary Guarantor terminate pursuant to this provision, or (iv) such Subsidiary Guarantor becoming an Excluded Subsidiary (as defined in the applicable indenture) or ceasing to be a Subsidiary We may, at our option, redeem the 2026 Sustainability Notes, in whole or in part, at any time prior toDecember 14, 2025 (the date that is one month prior to the maturity of the 2026 Sustainability Notes) and the 2031 Notes, in whole or in part, at any time prior toOctober 14, 2030 (the date that is three months prior to the maturity of the 2031 Notes), in each case by paying 100% of the principal amount of such Notes so redeemed plus the applicable "make-whole" amount and accrued and unpaid interest and additional amounts, if any. We may, at our option, redeem the 2026 Sustainability Notes, in whole or in part, onDecember 14, 2025 or at any time thereafter and the 2031 Notes onOctober 14, 2030 or at any time thereafter, in each case at the redemption price of 100% of the principal amount of such Notes so redeemed plus accrued and unpaid interest and additional amounts, if any. If we experience certain change of control triggering events, we may be required to offer to purchase the notes at 101% of their principal amount plus any accrued and unpaid interest thereon through the purchase date.
See note 27 of our audited consolidated financial statements for additional detail.
We are presenting the following summarized financial information for the issuer and the initial Subsidiary Guarantors (together, the "Obligor Group ") pursuant to Rule 13-01 of Regulation S-X, Guarantors and Issuers ofGuaranteed Securities Registered or Being Registered. For purposes of the following summarized financial information, transactions between the Company and the Subsidiary Guarantors, presented on a combined basis, have been eliminated. Financial information for the non-guarantor subsidiaries, and any investment in a non-guarantor subsidiary by the Company or by any Subsidiary Guarantor, have been excluded. Amounts due from, due to and transactions with the non-guarantor subsidiaries and other related parties, as applicable, have been separately presented.
Summarized balance sheet information for the
December 31,
(In millions) 2020 2019
Current assets (*)(**) $ 4,339.4 $ 3,405.3
Non-current assets (***) 1,121.2 906.4
Current Liaibilities (****) 3,298.2 1,587.9
Non-current Liaibilities 944.3 864.7
Redeemable convertible preferred stock - 98.8
(*) Includes restricted cash and cash equivalents of $402.0 million and $29.3
million and guarantees in short-term investments of $636.9 million and
and
respectively.
(***) Includes Non-current assets from non-guarantor subsidiaries of
million and
respectively.
(****) Includes Current liabilities to non-guarantor subsidiaries of
million and
respectively.
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Summarized statement of income information for the
Year Ended
? December 31,
(In millions) 2020 2019
Net revenues (*) $ 3,638.8 $ 2,177.6
Gross Profit (**) 1,438.8 994.2Income (loss) from operations (***) 11.4 (169.8) Net loss (****)
(82.0) (183.1)
(*) Includes Net revenues from transactions with non-guarantor subsidiaries of
2019, respectively. (**) Includes charges from transactions with non-guarantor subsidiaries of
2019, respectively.
(***) In addition to the charges included in Gross profit, Income (loss) from
operations includes charges from transactions with non-guarantor
subsidiaries of
31, 2020 and 2019, respectively. (****) Includes other income from transactions with non-guarantor subsidiaries of
Cash Dividends
See "Item 5-Market for registrant's common equity, related stockholder matters and issuer purchases of equity securities-Dividend Policy" for more information regarding our dividend distributions. Our Board of Directors suspended the payment of dividends on our common stock as of the first quarter of 2018 after reviewing our capital allocation process and concluding that we have multiple investment opportunities that should generate greater returns to shareholders through investing capital into the business as compared to paying dividends. Any future determination as to the declaration of dividends on our common stock will be made at the discretion of our Board of Directors and will depend on our earnings, operating and financial condition, capital requirements and other factors deemed relevant by our Board of Directors, including the applicable requirements of the Delaware General Corporation Law. Capital expenditures Our capital expenditures (composed of our payments for property and equipment, intangible assets and acquired businesses) for the years endedDecember 31, 2020 and 2019 amounted to$254.1 million and$141.4 million , respectively. We invested$105.0 million and$55.3 million in leasehold improvements in our offices and fulfillment centers inArgentina ,Mexico andBrazil during the years endedDecember 31, 2020 and 2019, respectively. We also invested$137.2 million and$74.0 million , respectively, in Information Technology, which was concentrated acrossBrazil ,Argentina andMexico . We are continually increasing our level of investment in hardware and software licenses necessary to improve and update our platform's technology and our computer software developed internally. We anticipate continued investments in capital expenditures related to information technology in the future as we strive to maintain our position in the Latin American e-commerce market. We believe that our existing cash and cash equivalents and cash generated from operations will be sufficient to fund our operating activities, property and equipment expenditures and to pay or repay obligations going forward.
Off-balance sheet arrangements
As of
?
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Contractual Obligations
We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions and other factors may result in actual payments differing materially from the estimates below. We cannot provide certainty regarding the timing and amount of payments. Contractual obligations atDecember 31, 2020 are as follows: Payment due by period Total Less than 1 to 3 3 to 5 More than (in millions) (*) 1 year (*) years (*) years (*) 5 years (*) Long-term debt obligations (1)$ 1,840.7 $ 570.0 $ 302.7 $ 35.2 $ 932.8 Finance lease obligations 29.3 8.8 14.6 5.9 - Operating lease obligations 394.0 58.7 115.2 99.3 120.9 Purchase obligations 326.7 127.0 166.0 33.8 - Total$ 2,590.7 $ 764.5 $ 598.5 $ 174.1 $ 1,053.7
(*) The table above may not total due to rounding. (1) Includes principal and interest amounts. For additional details regarding our
loans payable and 2028 Notes, see Note 16; for collateralized debt
securitization and finance and operating lease obligation, see Note 21 and
Note 23 to our audited consolidated financial statements, respectively.
Long-term debt obligations do not include principal and interest amounts of
the Notes issued in
repurchase of the 2028 Notes. See Note 27 and 16 to our audited consolidated
financial statements for further information, respectively.
We have leases for office space, fulfillment, cross docking and service centers and vehicles in certain countries in which we operate. Purchase obligation amounts include minimum purchase commitments for advertising, capital expenditures (technological equipment and software licenses) and other goods and services that were entered into in the ordinary course of business. We have developed estimates to project payment obligations based upon historical trends, when available, and our anticipated future obligations. Given the significance of performance requirements within our advertising and other arrangements, actual payments could differ significantly from these estimates.
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