Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(cid:0) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
(cid:0)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2021
OR
For the transition period from to
Commission file number 001-33647
MercadoLibre, Inc.
(Exact name of Registrant as specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
98-0212790
(I.R.S. Employer
Identification Number)
Title of each class
Common Stock, $0.001 par value per share
2.375% Sustainability Notes due 2026
3.125% Notes due 2031
Securities registered pursuant to Section 12(g) of the Act: None
WTC Free Zone
Dr. Luis Bonavita 1294, Of. 1733, Tower II
Montevideo, Uruguay, 11300
(Address of registrant’s principal executive offices) (Zip Code)
(+598) 2-927-2770
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
MELI
MELI26
MELI31
1
Name of each exchange on which registered
Nasdaq Global Select Market
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
Table of Contents
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:0) No (cid:0)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:0) No (cid:0)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:0) No (cid:0)
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit such files). Yes (cid:0) No (cid:0)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”,
“accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer
Non-Accelerated Filer
Emerging growth company
(cid:0)
(cid:0)
(cid:0)
Accelerated Filer
Smaller reporting company
(cid:0)
(cid:0)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of
the Exchange Act.(cid:0)(cid:0)
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15
U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes (cid:0) No (cid:0)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:0) No (cid:0)
The aggregate market value of the registrant’s Common Stock, $0.001 par value per share, at June 30, 2021, held by those persons deemed by the registrant to be non-affiliates (based upon the closing sale price of the Common Stock on
the Nasdaq Global Select Market on June 30, 2021) was approximately $71,151,553,526. Shares of the registrant’s Common Stock held by each executive officer and director and by each entity or person that, to the registrant’s
knowledge, owned 10% or more of the registrant’s outstanding common stock as of June 30, 2021 have been excluded from this number because these persons may be deemed affiliates of the registrant. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
As of February 18, 2022, there were 50,418,980 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.
Documents Incorporated By Reference
Portions of the Company’s Definitive Proxy Statement relating to its 2021 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days of the Company’s fiscal year ended December 31,
2021, are incorporated by reference in Part III, Items 10-14 of this Annual Report on Form 10-K as indicated herein.
2
Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II
MERCADOLIBRE, INC.
FORM 10-K
FOR FISCAL YEAR ENDED December 31, 2021
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
ITEM 9C. HOLDING FOREIGN COMPANY ACCOUNTABLE ACT
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
INDEX TO FINANCIAL STATEMENTS
EXHIBIT INDEX
SIGNATURES
3
4
5
17
31
32
32
32
32
35
39
64
67
67
68
69
69
69
69
70
71
71
72
72
73
74
Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Any statements made or implied in this report that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and should be evaluated as such. The words “anticipate,” “believe,” “expect,” “intend,”
“plan,” “estimate,” “target,” “project,” “should,” “may,” “could,” “will” and similar words and expressions are intended to identify forward-looking statements. These forward-looking statements are contained throughout this report.
Forward-looking statements generally relate to information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth
opportunities, future economic, political and social conditions in the countries in which we operate and their possible impact on our business, and the effects of future regulation and the effects of competition. Such forward-looking
statements are subject to known and unknown risks, uncertainties and other important factors (in addition to those discussed elsewhere in this report) that may cause our actual results to differ materially from those expressed or implied
by these forward-looking statements. These risks and uncertainties include, among other things:
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
our expectations regarding the continued growth of e-commerce and Internet usage in Latin America;
competition;
our ability to expand our operations and adapt to rapidly changing technologies;
our ability to attract new customers, retain existing customers and increase revenues;
the impact of government, central bank and other regulations on our business;
litigation and legal liability;
security breaches and illegal uses of our services;
systems interruptions or failures;
consumer trends;
reliance on third-party service providers;
enforcement of intellectual property rights;
our expectations regarding benefits and synergies from recent or future strategic investments, acquisitions of businesses, technologies, services or products;
our ability to attract and retain qualified personnel;
seasonal fluctuations;
our indebtedness;
volatility of market prices, impairment and unique risks related to loss of the digital assets that we acquire;
political, social and economic conditions in Latin America;
our long-term sustainability goals; and
the current and potential impact of COVID-19 on our net revenues, gross profit margins, operating margins and liquidity due to future disruptions in operations as well as the macroeconomic instability caused by the
pandemic.
Many of these risks are beyond our ability to control or predict. New risk factors emerge from time to time and it is not possible for Management to predict all such risk factors, nor can it assess the impact of all such risk factors
on our company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
These statements are based on currently available information and our current assumptions, expectations and projections about future events. While we believe that our assumptions, expectations and projections are reasonable in
view of the currently available information, you are cautioned not to place undue reliance on our forward-looking statements. These statements are not guarantees of future performance. Some of the material risks and uncertainties that
could cause actual results to differ materially from our expectations and projections are described in “Item 1A—Risk Factors” in Part I of this report. You should read that information in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this report, as well as the factors discussed in the other reports and documents we file from time to time with the Securities and Exchange Commission
(“SEC”). We note such information for investors as permitted by the Private Securities Litigation Reform Act of 1995. There also may be other factors that we cannot anticipate or that are not described in this report, generally because
they are unknown to us or we do not perceive them to be material that could cause results to differ materially from our expectations.
Forward-looking statements speak only as of the date they are made, and we do not undertake to update these forward-looking statements except as may be required by law. You are advised, however, to review any further
disclosures we make on related subjects in our periodic filings with the SEC.
4
Table of Contents
PART I
ITEM 1.
BUSINESS
MercadoLibre, Inc. (together with its subsidiaries “us”, “we”, “our” or the “Company”) is the largest online commerce ecosystem in Latin America based on unique visitors and page views, and is present in 18 countries: Brazil,
Argentina, Mexico, Chile, Colombia, Peru, Uruguay, Venezuela, Bolivia, Costa Rica, Dominican Republic, Ecuador, Guatemala, Honduras, Nicaragua, Panama, Paraguay and El Salvador. Our platform is designed to provide users with
a complete portfolio of services to facilitate commercial transactions both digitally and offline.
We offer our users an ecosystem of six integrated e-commerce and digital payments services: the Mercado Libre Marketplace, the Mercado Pago Fintech platform, the Mercado Envios logistics service, the Mercado Libre Ads
solution, the Mercado Libre Classifieds service and the Mercado Shops online storefronts solution.
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 in Latin America, a region with a population of over 650
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 in Latin America.
The Mercado Libre 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 us (when we act as sellers
in our first-party sales), merchants and individuals to list merchandise and conduct sales and purchases digitally. The Marketplace has an ample assortment of products, with a wide range of categories such as consumer electronics,
apparel and beauty, home goods, automotive accessories, toys, books and entertainment and consumer packaged goods.
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 user experience. Sellers that opt into our logistics solutions are not only able to
offer a uniform and seamlessly integrated shipping experience to their buyers at competitive prices, but are also eligible to access shipping subsidies to offer free or discounted shipping for many of their sales on our Marketplaces.
In 2020, we launched Meli Air with a fleet of dedicated aircrafts covering routes across Brazil and Mexico, with the aim of improving our delivery times. We have also developed a network of independent neighborhood stores and
commercial points (known as “MELI Places”) to receive and store packages that are in transit using our integrated technology. The Meli Places network allows buyers and sellers to pick-up, drop-off or return packages with a better
experience, reducing the travel distance for all parties.
To complement the Mercado Libre Marketplace and enhance the user experience for our buyers and sellers, we developed Mercado Pago, an integrated digital payments solution. Mercado Pago was initially designed to facilitate
transactions on Mercado Libre’s Marketplaces by providing a mechanism that allowed our users to securely, easily and promptly send and receive payments. Now, Mercado Pago is a full ecosystem of financial technology solutions both
in the digital and physical world. Our digital payments solution enables any Mercado Libre registered user to securely and easily send and receive digital payments and to pay for purchases made on any of Mercado Libre’s
Marketplaces. Currently, Mercado Pago processes and settles all transactions on our Marketplaces in Brazil, Argentina, Mexico, Chile, Colombia, Uruguay and Peru.
Beyond facilitating Marketplace transactions, over the years we have expanded our array of Mercado Pago services to third parties outside Mercado Libre’s Marketplace. We began first by satisfying the growing demand for
online-based payment solutions by providing merchants the necessary digital payment infrastructure for e-commerce to flourish in Latin America. Today, Mercado Pago’s digital payments business not only allows merchants to facilitate
checkout and payment processes on their websites through a branded or white label solution or software development kits, but it also enables users to transfer money in a simple manner to each other through the Mercado Pago website
or on the Mercado Pago app. Through Mercado Pago, we brought trust to the merchant customer relationship, allowing online consumers to shop easily and safely, while giving them the confidence to share sensitive personal and
financial data with us.
As we deployed our digitally-based payments solutions, we also observed that individuals and micro, small and medium- sized enterprises (“MSMEs”) in the physical world were being underserved or overlooked by incumbent
payment providers and financial institutions in Latin America, and that a very large number of retail transactions were still being settled in cash throughout the region. Consequently, we have also aggressively deepened our fintech
offerings by growing our online-to-offline (“O2O”) products and services. We envision Mercado Pago as a powerful disruptive provider of end-to-end financial technology solutions that will generate financial inclusion for segments of
the population that have been historically underserved and operate in the informal economy today.
In our main markets, we currently offer the following solutions:
(cid:0) In-store physical payments by selling mobile point of sale (“MPOS”) devices and through quick response (“QR”) payment codes;
(cid:0) Digital payment solutions for utilities, mobile phone top up, peer-to-peer payments and more through our mobile wallet;
(cid:0) Pre-paid cards and debit cards for users to spend and withdraw their account balances from their Mercado Pago wallet;
(cid:0) Merchant and consumer credits, both on and off the Mercado Libre Marketplace, and credit cards;
5
Table of Contents
(cid:0) Insurance products such as extended warranties, theft and damage policies, among others;
(cid:0) A money market fund to invest balances stored on Mercado Pago accounts, which we market under the name Mercado Fondo; and
(cid:0) A cryptocurrency savings wallet in Brazil, for users to buy, hold and sell selected global cryptocurrencies and stablecoins.
The impact of the COVID-19 pandemic on the payments business had a positive effect on the majority of our online payment flows which benefited from the same tailwinds as our e-commerce business and more than offset the
negative impact of the pandemic on our offline payment solutions which suffered as a result of the lockdowns imposed by the governments in Latin America and the resulting contracted physical footprint.
Mercado Credito, our credit solution, leverages our user base, which is not only loyal and engaged, but has also been historically underserved or overlooked by financial institutions and suffers from a lack of access to needed
credit. Facilitating credit is a key service overlay that enables us to further strengthen the engagement and lock-in rate of our users, while also generating additional touchpoints and incentives to use Mercado Pago as an end-to-end
financial solution. Our distribution capabilities and in-depth understanding of our merchants’ sales on the Mercado Libre Marketplace has also allowed us to develop our own proprietary credit risk models with unique data that
differentiate our scoring from traditional financial institutions, as we are able to leverage machine learning and artificial intelligence algorithms that we historically used for fraud prevention.
We offer credit lines to both our online merchants as well as MPOS device users. Because our online merchants’ business flows through Mercado Pago, we are able to collect principal and interest payments from their existing
sales on Mercado Libre’s Marketplaces, meaningfully reducing the risk of uncollectability on the loans we originate to our merchants.
Consumers can access credit lines through us once we score and approve them through our proprietary models. Loans can be used for a purchase on the Mercado Libre Marketplace, or for a payment on another website where our
payment solution is available at checkout. Since 2019, we also extend personal loans to recurring consumer credit borrowers, allowing them to buy products and services outside of our platform. In 2021, we launched our first Mercado
Pago credit card in Brazil, which is free, internationally accepted, and digitally managed. The credit card allows users to pay in additional installments for purchases on the MercadoLibre Marketplace and accrue additional points to our
user loyalty program.
Our credit business was initially impacted by the COVID-19 pandemic, particularly in the early stages of the pandemic when we slowed our pace of originations to manage our exposure to credit risk. As the year progressed and
transaction levels improved across our platforms, we began to collect more data in our proprietary credit models, which helped us gain a better understanding of users. This understanding enabled us to more accurately predict their
behavior and continue increasing the pace of originations while maintaining stable levels of uncollectibility to date.
Our asset management product, which is available in Argentina, Brazil and Mexico, is a critical pillar to build our alternative two-sided network vision. It incentivizes our users to begin to fund their digital wallets with cash as
opposed to credit or debit cards given that the return our product offers is greater than traditional checking accounts.
With a seamless onboarding, this product allows users to withdraw and use the value stored in their digital wallets at any given time through QR code in-store payments, pre-paid cards, or cash withdrawn from an ATM, without
requiring that their funds be trapped in a money market fund or a certificate of deposit to obtain an equivalent return. This product is another way in which we continue to innovate, leveraging the rising trust in third-party e-commerce
platforms and low levels of formal sector financial inclusion, which generate a unique opportunity for investment products aimed at users in Latin America who are unbanked or underbanked.
As an extension of our asset management and savings solutions for users, in 2021 we launched in Brazil a cryptocurrency feature as part of the Mercado Pago wallet. This service allows our millions of users to purchase, hold and
sell selected cryptocurrencies through our interface without leaving the Mercado Pago application, while a partner acts as the custodian and offers the blockchain infrastructure platform. This feature is available for all users through
their Mercado Pago wallet.
Our advertising platform, Mercado Ads, enables businesses to promote their products and services on the internet. Through our advertising platform, 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.
Complementing the services we offer, our digital storefront solution, Mercado Shops, allows users to set up, manage and promote their own digital stores. These stores are hosted by Mercado 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.
6
Table of Contents
The following table shows the main services currently available in each country where we operate:
Country
Marketplace
Argentina
Brazil
Mexico
Uruguay
Colombia
Chile
Peru
Venezuela, Ecuador, Costa Rica, Dominican Republic, Panama, Bolivia, Guatemala,
Paraguay, Nicaragua, Honduras, El Salvador
We have two distinctive revenue streams in our business:
(cid:0) Commerce Services
ü
ü
ü
ü
ü
ü
ü
ü
Mercado
Pago
ü
ü
ü
ü
ü
ü
ü
Mercado Envios
Mercado Credito
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
Our Commerce business is comprised of revenue streams that 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 third-
party carrier costs (when we act as an agent); classifieds fees; ad sales up-front fees; first-party sales; and fees from other ancillary businesses.
(cid:0) Fintech Services
Our Fintech business is comprised of revenue streams that are mainly generated from our Mercado Pago business, as well as from fees collected by any of our ancillary financial services businesses. With respect to Mercado Pago,
we generate fees attributable to: commissions that are charged to sellers representing a percentage of the processed payment volume in connection with off-Marketplace 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; commissions from additional fees we charge when our sellers elect to withdraw cash; commissions that
we charge from transactions carried out with Mercado Pago credit and debit cards; cash advances and fees from merchant and consumer credits granted under our Mercado Credito solution; interchange fees from the transactions on our
issued cards; insurtech fees and revenues from the sale of MPOS devices.
Our strategy
Our main focus is to serve people in Latin America by enabling wider access to retail, digital payments and e-commerce services, and by providing compelling technology-based solutions that democratize commerce and
money, thus contributing to the development of a large and growing digital economy in a region with a population of over 650 million people and one of the fastest-growing e-commerce and internet penetration rates in the world.
We serve our buyers by giving them access to a broad and affordable variety of products and services, a selection we believe to be larger than otherwise available to them via other online and offline sources serving our Latin
American markets. We believe we serve our sellers by giving them access to a larger and more geographically diverse user base at a lower overall cost and investment than offline venues serving our Latin American markets.
Additionally, we provide payment settlement services and shipping solutions to facilitate such transactions, and advertising solutions to promote them. We also serve our users by making capital more accessible through different credit
products and fostering entrepreneurship and social mobility, with the goal of creating significant value for our stakeholders.
More broadly, we strive to make inefficient markets more efficient through technology and in that process generate value for all our stakeholders.
7
Table of Contents
To achieve these objectives, we intend to pursue the following strategies:
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
Expand into additional transactional service offerings. Our strategic focus is to enable online transactions of multiple types of goods and services throughout Latin America. Consequently, we strive to launch online
transactional offerings in new product and service categories where we believe business opportunities exist. These new transactional offerings include, but are not limited to: (a) maximizing utilization of Mercado Pago on
our platform and expanding off-platform in digital and offline transactions, (b) offering additional product categories in our marketplace, (c) expanding our presence in vehicle, real estate and services classifieds, (d)
maximizing the value and usage of account money through investments in Mercado Fondo, (e) maximizing utilization of Mercado Envios, (f) expanding our Mercado Credito service, (g) offering enterprise software
solutions to our online commerce business users and (h) expanding our advertising offerings. We believe that a significant portion of our growth will be derived from these new or expanded product and service launches
within our ecosystem in the future.
Continue to improve the shopping experience for our users. We intend to continually enhance our e-commerce ecosystem in order to better serve individuals, brands, retailers and other businesses that want to buy or sell
goods and services online in a convenient, simple and safe way. We are committed to continue investing in the development of new tools and technologies that facilitate web and mobile commerce on our platform. In line
with our constant focus on innovation, a critical component of user experience is the vertical solutions that we offer across key categories. We will continue to focus on improving the functionality of our websites and apps,
building a verticalized experience in key categories, driving increased usage of our payments and shipping solutions to deliver a more efficient and safe shopping experience and providing our users with the help of a
dedicated customer support department. We will continue to focus on increasing purchase frequency and transaction volumes from our existing users, including the development of our Mercado Puntos loyalty program for
frequent users.
Continue to grow our business and maintain market leadership. We focus on growing our business, achieving as many scale-related competitive advantages and strengthening our position as a preferred commerce and
fintech platform in each of the markets in which we operate. We also intend to grow our business and maintain our leadership by taking advantage of the expanding potential user base that has resulted from the growth of
internet penetration rates in Latin America. We intend to achieve these goals through organic growth, by introducing our business in new countries and entering new category segments, by launching new transactional
business lines, and through potential strategic acquisitions of key businesses and assets.
Increase monetization of our transactions. We focus on improving the revenue generation capacity of our business by implementing initiatives designed to maximize the revenues we generate from transactions on our
platform. Some of these initiatives include increasing our fee structure, selling advertising on our platform, offering other e-commerce services and expanding our fee-based features.
Take advantage of the natural synergies that exist among our services. We strive to leverage our various services and our Mercado Puntos loyalty program, to promote greater cross-usage and synergies, thereby creating a
fully integrated ecosystem of e-commerce offerings. Consequently, we will continue to promote the adoption of our Mercado Envios logistics solution, our advertising solution, our Mercado Pago payments solution on our
Marketplaces and reward our users for increased usage and engagement.
Marketing
Our marketing strategy is designed to grow our platform by promoting the Mercado Libre and Mercado Pago brands, attracting new users, generating more frequent trading by our existing users and cross-selling services among
our existing user base. To this end, we employ various means of advertising, including placement in leading online channels across Latin America, paid and organic positioning in leading search engines, email and push notification
marketing, onsite marketing, presence in offline events and live-streaming events, and use of targeted promotional discount coupons. During 2021, we also launched new branding campaigns for Mercado Libre and Mercado Pago to
reinforce our brand's connection with our users and merchants. These campaigns were rolled out across public TV, cable TV, radio, billboards and online media. We continued carrying out a complete coverage of promotional campaigns
on commercial dates such as Children’s Day, Mother’s Day, Father’s Day, Christmas and dates specific to the e-commerce industry, such as Hot Sale, CyberMonday and Black Friday, leveraging our unique ecosystem of solutions
within advertising, Mercado Credito, Mercado Shops and Mercado Envios. Our expenditures on marketing and sales expenses related to our strategic marketing initiatives were $612.4 million and $391.2 million in 2021 and 2020,
respectively.
Product Development and Technology
On December 31, 2021, we had 9,471 employees on our information technology and product development staff, an increase from 5,201 employees at December 31, 2020, due to new hires and as a consequence of improvements in
our ecosystem products, such as Mercado Envios and our Fintech solution, which increased our information technology and product development staff. We incurred product development expenses (including salaries) in the amount of
$590.3 million in 2021 and $352.5 million in 2020.
We continually work to improve both our Mercado Libre Marketplace and Mercado Pago mobile apps and websites so that they better serve our users’ needs and function more efficiently. A significant portion of our information
technology resources are allocated to these purposes. We strive to maintain the right balance between offering new features and enhancing the existing functionality and architecture of our software and hardware.
8
Table of Contents
The effective management of the Mercado Libre Marketplace and Mercado Pago software architecture and hardware requirements is as important as introducing additional and better features for our users. Because our business
has grown relatively fast, we must ensure that our systems are capable of absorbing this incremental volume. Therefore, our engineers work to optimize our processes and equipment by designing more effective ways to run our
platform.
We design, develop, and operate most of our software and technology in-house. We have 17 development centers throughout Latin America. We believe having a team as diverse as our user base gives us a distinct advantage when
building products for markets as unique as the ones where we operate. Different languages and cultures require different features and products, and our multi disciplinary development team can draw from both data and their own culture
for insights when designing, implementing, and releasing products.
We have made acquisitions in the past to enhance our software development capabilities, and we outsource certain projects to outside developers. We believe that outsourcing the development of certain projects allows us to have a
greater operating capacity and strengthens our internal know-how by incorporating new expertise into our business. In addition, our developers frequently interact with technology suppliers and attend technology-related events to
familiarize themselves with the latest innovations and developments in the field. We also rely on certain technologies that we license from third parties, suppliers of key database technology, operating systems and specific hardware
components for our services.
In 2010, we started a deep technology overhaul to switch from a closed and monolithic system to an open and decoupled one. We split our teams into many decoupled and autonomous “cells”. A cell is a functional unit with its
own team, hardware, data and source code. Cells interact with each other using Application Programming Interfaces, or APIs. This successful overhaul allowed us to unlock greater developer productivity from all our teams. In the past,
we opened up our platform to allow third parties to integrate the various features of our platform into custom applications. Since then, we have seen significant adoption of our platform and entire companies built on and around our
APIs and services, all of them focused on adding even more value to our users.
During this overhaul, we built a proprietary Platform as a Service (PAAS) product used daily by our development team. This state of the art tool helps our teams by greatly reducing cognitive overload related to infrastructure and
network management, allowing our developers to focus on adding value to our users, focusing on their code and not which server their applications are running on. Our PAAS is a constant area of investment which we have expanded
from microservices to simplifying the building of mobile applications, SDKs. and building, testing, training, deploying and monitoring productive Machine Learning models, all with the purpose of increasing the rate of development
and, by extension, the pace and cadence with which all our teams add value to our users.
Acquisition of Digital Assets
In February 2021, we began to use a portion of our cash reserve to purchase digital assets or certain other alternative reserve assets. During 2021, we invested an aggregate $30,000 thousands in bitcoin and ethereum, and we may
continue acquiring and holding digital assets from time to time in the future. See “Item 1A. Risk factors—Risks related to our business—We hold and may acquire digital assets that may be subject to volatile market prices, impairment
and unique risks of loss.”
Seasonality
Like most retail businesses, we experience the effects of seasonality in all of the countries in which we operate throughout the calendar year. Although much of our seasonality is due to the year-end promotional campaigns and the
Christmas holiday season, the geographic diversity of our operations helps mitigate the seasonality attributed to summer vacation time (i.e. southern and northern hemispheres) and national holidays.
Typically, the fourth quarter of the year is the strongest in every country where we operate due to the significant increase in transactions before the holiday season. The first quarter of the year is generally our slowest period. The
months of January, February and March correspond to summer vacation time in Argentina, Brazil, Chile, Peru and Uruguay. Additionally, the Easter holiday falls in March or April, and Brazil celebrates Carnival for one week in
February or March. This first quarter seasonality is partially mitigated by our operations in the countries located in the northern hemisphere, such as Colombia and Mexico, the slowest months for which are the summer months of July,
August and September. Lastly, commercial campaigns like Hot Sale, Black Friday and Cyber Monday generate an increase in transactions.
Competition
The online commerce market is rapidly evolving and is highly competitive. We expect competition to intensify even further in the future. Barriers-to-entry for large, well-established internet companies are relatively low, and
current and new competitors can launch new sites at a relatively low cost using commercially available software. While we are currently a market leader in a number of the markets in which we operate, we currently or potentially could
compete with marketplace operators, businesses that offer business-to-consumer online e-commerce services or others with a focus on specific vertical categories, as well as a growing number of brick and mortar retailers that have
launched online offerings. Over the past few years, we have seen competition intensify not only as local players grow their e-commerce businesses, but also from international players, which are mainly present in Brazil and Mexico.
9
Table of Contents
The financial services market is also becoming increasingly competitive with the growth of several Fintechs established in Latin America. With respect to our payments’ business, Mercado Pago competes with existing digital and
offline payment methods, including banks and other providers of traditional payment methods that service both merchants and individuals. Mercado Pago also competes in the rapidly evolving Fintech space with local and strong global
players that offer digital financial services such as access to credit, virtual and physical cards, insurance, savings accounts, and asset management.
In the classifieds and advertising market, we compete with regional and local players with general or verticalized focus. In addition, we face competition from a number of large online communities and services that have expertise
in developing e-commerce, facilitating online interaction, or both. Other large companies with strong brand recognition and experience in e-commerce, such as large newspapers or media companies, also compete in the online listing
market in Latin America.
Intellectual Property Rights
We regard the protection of our intellectual property (“IP”) rights, such as copyrights, trademarks, domain names and trade secrets as critical to our future success and rely on a combination of intellectual property and unfair
competition laws and contractual restrictions to establish and protect our proprietary rights in our products and services. We have entered into confidentiality and IP assignment agreements with our employees and certain contractors. To
prevent disclosure of our proprietary information to unauthorized parties, we have also entered into non-disclosure agreements with our employees, strategic partners and suppliers.
In particular, we pursue the registration of our trademarks in each country where we operate as well as in the United States, in the European Union, in China and in certain other strategic countries.
As part of our acquisition of Kangu Participações S.A. in 2021 we acquired its trademarks in Brazil, Colombia and Mexico. Also in 2021, we acquired Redelcom S.A, a fintech company dedicated to payment services and sale of
POS devices in Chile, and its trademarks in Chile.
We have licensed certain proprietary rights, such as trademarks or copyrights, to third parties in the past and expect to continue to license such rights in the future. While we seek to ensure that our licensees maintain the quality of
the Mercado Libre brand, they may take actions that could adversely affect the value of our proprietary rights or our reputation, which could have a material adverse effect on our business, results of operations and financial condition.
Third parties have from time to time claimed, and others may in the future claim, that we have infringed their intellectual property rights through the content listed or the products offered on Mercado Libre’s marketplace. See
“Item 3. Legal Proceedings” and “Item 1A. Risk factors—Risks related to our business—We could face legal and financial liability upon the sale of items that infringe intellectual property rights of third parties and for information and
material disseminated through our platforms”, describing these risks as well as our Brand Protection Program, which we make available to intellectual property rights holders to enable them to enforce their rights against listings on our
sites that allegedly infringe those rights.
Human Capital
Employees and Labor Relations
The following table shows the number of our employees by country at December 31, 2021:
Country
Argentina
Brazil
Mexico
Colombia
Uruguay
Chile
Peru
Venezuela
United States
Total
We manage operations in the remaining countries in which we have operations remotely.
10
Number of Employees
9,126
12,398
4,038
2,237
1,320
789
22
18
9
29,957
Table of Contents
Our employees in Brazil are represented by different labor unions: i) Fetramag (“Federação dos Trabalhadores na Movimentação de Mercadorias em Geral de Goiás, Bahia e Piauí”) in the States of Goias, Bahia and Piauí, ii)
Fetrammergs (“Federação dos Trabalhadores na Movimentação de Mercadorias em Geral, Comércio Armazenador e Auxiliares de Administração de Armazéns Gerais do Estado do Rio Grande do Sul”) in the State of Rio Grande do
Sul, iii) by an Information Technology Companies Labor Union in the State of São Paulo (“Sindicato dos Trabalhadores nas Empresas e Cursos de Informática do Estado de São Paulo”), iv) Fetramov (“Federação dos Trabalhadores
na Movimentação de Mercadorias em Geral de Minas Gerais”) in the State of Minas Gerais, v) Sintracamp (“Sindicato Único dos profissionais de Movimentação de Mercadoria em Geral de Campinas e região”) in the city of
Louveira, State of São Paulo and vi) Sintrammgep (“Sindicato dos Trabalhadores em Movimentação de Mercadorias em Geral de Paulínia e região”) in the city of Cajamar, State of São Paulo. Also, some of our employees in
Argentina are represented by the Commercial Labor Union (“Sindicato de Empleados de Comercio”) and our fulfillment employees in Argentina are represented by “Sindicato de Carga y Descarga” and some of our employees in
Uruguay are represented by the Commercial Labor Union (“Federación Uruguaya de Empleados de Comercio y Servicios”). Unions or local regulations in other countries could also require that employees be represented. We consider
our relations with our employees to be good and we implement a variety of human resources practices, programs and policies that are designed to hire, develop, compensate and retain our employees.
Talent, Culture and Development
To be leaders in Latin America, we attract, engage and develop the best talent by offering a transformative experience, co-creating the best place to work and ensuring our “DNA” (or our culture) is present in every corner of our
business. Our business is based on technology and knowledge. In order to achieve our goals in innovation and knowledge we need focused and prepared human capital; motivated and committed employees to drive sustainable results.
We believe that being part of our Company is an experience that is always dynamic, collaborative, inspiring and full of opportunities. Our employee value proposition is designed to be attractive to the profile of entrepreneurial
talent and is aligned with our DNA. For this reason, it allows everyone in our Company to engage their experience in a unique way.
We have grown significantly over the years, yet we remain committed to our agile culture that allows us to quickly turn any challenge into an opportunity to offer our strategy at the service of people and to continue co-creating an
excellent workplace.
We are still one of the 20 best places to work in the world and one of the top 5 in the region according to the Great Places to Work rankings. We are very proud to have been highlighted in these rankings as one of the top 3
employers in most of the countries in which we operate.
Recruitment and Hiring
Our strategy with respect to recruitment and hiring is an example of our commitment to serve as a recovery engine for Latin America in response to the challenges presented in 2021. In connection with that goal, we designed an
initiative that provides for the doubling of our workforce with a strategic focus on attracting the best local talent for our different business units. In addition, in light of the increasingly relevant societal role that we play as an
organization, particularly in a region where economies are struggling to create new and more sources of employment, our strategy also aims to promote the creation of jobs through the opening of new centers in cities in which we
operate.
Well-being
Adapting to work environments during the COVID-19 pandemic has been a major focus of our people team’s programs, including taking care of the physical and emotional health of our team.
During 2020 and 2021, we implemented programs designed to promote total emotional and physical wellnes. For example, in 2021, we created an Emotional Health Mapping program, intended to support mental health. We also
increased mindfulness, yoga, gym workouts and psychological assistance services for our team. We have scheduled and broadcasted talks with specialists in areas relating to wellbeing, such as learning circles on how to manage
emotions, healthy sleep recommendations and resilience, among others.
Diversity and Inclusion
In our effort to democratize e-commerce, multiplying perspectives, we innovate through diversity. Being inclusive makes us more disruptive. We inspire people to develop their skills and express their feelings in a healthy and fair
environment, where prior beliefs do not determine approval and curiosity allows us to appreciate differences. Our mission with respect to diversity and inclusion is to: i) build diverse teams, with respect to gender sexual orientation,
disabilities, and racial or ethnic backgrounds, ii) foster an inclusive culture through the experience that each person lives in MercadoLibre: the way of doing things, the workspaces, the technology, and the processes, and iii) nourish IT
talent, expanding access to technology education, prioritizing gender.
11
Table of Contents
We prioritize the inclusion and development of women in our sector. At MercadoLibre, four out of ten employees are women and women occupy 35% of leadership positions (managers and above), exceeding the market averages
in IT Latin América. We also promote and measure equity in compensation by, among other methods, carrying out a thorough analysis of equal pay to confirm that we do not have a gender pay gap. As a result of these and other
diversity initiatives and priorities, women and men of the same seniority enjoy the same income level throughout MercadoLibre. In addition, the percentage of our employees with disabilities doubled in 2021. We also updated our
recruiting model, raising awareness in our Talent Acquisition teams about unconscious biases when hiring, developing and engaging employees and empowering our team members with the tools to combat unconscious bias.
Developing policies that accompany our employees in their family planning is a key at MercadoLibre. In 2018, we became the first company in the region to support women interested in preserving eggs to extend their fertility
cycle, covering 70% of the cost of the process. Since 2021, all female-identifying employees of MercadoLibre are afforded 5 months of paid leave following birth of a child. For same-gender couples or couples who are adopting, we
offer the same leave opportunity: 120 days from birth or from the moment they adopt their child. Also, we provide paid leave for women experiencing a miscarriage, to support the recovery path during this difficult moment in their
lives.
Remote Work Environment
Over half of the people who make up the MercadoLibre team, have been working remotely since the beginning of the pandemic, though we do provide some employees with the option of working on site if they prefer. After
experiencing this work format for almost all of 2021, faithful to our culture of change and permanent evolution, we now permit remote work on an indefinite basis for most positions.
In addition to providing us with flexibility, maintaining this work format provides our employees with the flexibility to plan for the future, such as moving to areas further away from our offices. Having the on-site option, in addition to
providing flexibility for each employee to use it according to their needs, will allow the team to work in person when it would be most effective. We want each employee to remain motivated to give their best, perform with excellence
and continue to write history by carrying out our purpose of democratizing commerce and financial services in Latin America to transform the lives of millions of people.
Government regulation
We are subject to a variety of laws, decrees and regulations that affect companies conducting business on the Internet in some of the countries where we operate related to e-commerce, electronic payments, privacy, data protection,
taxation (including value added taxes (“VAT”), or sales tax collection obligations), obligations to provide information to certain authorities about transactions occurring on our platform or about our users, anti money laundering
regulations, transport regulations and other legislation which also applies to other companies conducting business in general. It is not clear how existing laws governing issues such as general commercial activities, property ownership,
copyrights and other intellectual property issues, taxation, libel and defamation, obscenity, consumer protection, digital signatures and personal privacy apply to online businesses. Some of these laws were adopted before the Internet
was available and, as a result, do not contemplate or address the unique issues of the Internet. Due to these areas of legal uncertainty, and the increasing popularity and use of the Internet and other online services, it is possible that new
laws and regulations will be adopted with respect to the Internet or other online services. These regulations could cover a wide variety of issues, including, without limitation, online commerce, Internet service providers’ responsibility
for third party content hosted in their servers, user privacy, electronic or mobile payments, freedom of expression, pricing, content and quality of products and services, taxation (including VAT or sales tax collection obligations,
obligation to provide certain information about transactions that occurred through our platform, or about our users), advertising, intellectual property rights, consumer protection and information security.
Our Mercado Pago service is subject to regulation in the countries in which we operate, as described below:
Brazil
Mercado Pago’s activities are subject to a number of laws and regulations that ralate to payment schemes and payment institutions, including Law No. 12,865/2013, which established the first set of rules regulating the electronic
payments industry within the Brazilian Payment System (the Sistema de Pagamentos Brasileiro, or “SPB”) and creates the concepts of payment schemes and payment institutions.
In addition, Law No. 12,865/2013 gave the Brazilian Central Bank (“BACEN”), according to guidelines set out by the National Monetary Council (“CMN”) authority to regulate entities involved in the payments industry.
Pursuant to that authority, the CMN and the BACEN created a regulatory framework regulating the operation of payment schemes and payment institutions. A payment arrangement is a set of rules and procedures that discipline
the provision of a certain payment service to the public accepted by more than one payee, through direct access by paying and receiving end users. There are two types of payment arrangements, as defined by Resolution 150/21: (a)
“Closed Loop Payment Arrangement”: payment arrangements whereby the payment services (account management, issuance and accreditation of payment instrument) are performed by only one legal entity, which also acts as the
payment arranger (or is controlled/the controller of the payment arranger) and (b) “Open Loop Payment Arrangement”: any payment arrangements that do not fit into the concept of “closed payment arrangement”.
12
Table of Contents
Payment institutions are classified into (i) issuers of electronic currency, who manage a prepaid payment account, make available a payment transaction based on the electronic currency deposited in that account, convert such
funds into physical or scriptural currency, or vice versa, can also enable its acceptance with settlement in a payment account it manages; (ii) issuers of post-paid payment instruments, who manage post-paid payment accounts that enable
users to make payments on a post-paid basis; (iii) acquirer, who without managing payment account, enables payees for the acceptance of payment instruments issued by a payment or financial Institution and participates in the
settlement process of payment transactions as a creditor vis-à-vis the issuer, pursuant to the rules of the payment arrangement; and (iv) payment initiator, who initiates a payment upon a request of a client but it does not touch the money
and does not keep passwords to execute payments on behalf of users.
In November 2018, Mercado Pago obtained approval from the BACEN to become a payment institution in the modality of an issuer of electronic currency, pursuant to which Mercado Pago carries out payment processing
functions and offers payment accounts to its customers.
The funds held in a payment account: (i) constitute segregated assets in relation to the Mercado Pago's assets; (ii) are not directly or indirectly liable for any obligations of Mercado Pago; (iii) cannot be subject to attachment,
sequestration, search and seizure on account of the Mercado Pago's debts; (iv) are not part of Mercado Pago's assets for bankruptcy or liquidation purposes; (v) cannot be given as guarantee for debts assumed by Mercado Pago; (vi)
subject to the possibility of total redemption of the balance by the user at any time. This is a very important concept introduced by the law that ensures more reliability to customers of services provided by payment institutions, which
offer payment accounts to its users.
According to the BACEN’s regulation, Mercado Pago is required to maintain funds in an amount equal to the value of the balance of funds held in a payment account and in transit between payment accounts at the same payment
institution on: (i) a specific account in the BACEN (Correspondent Account for Electronic Currency - CCME) or (ii) federal government bonds, registered at SELIC.
Mercado Pago is also a payment scheme owner of a closed-loop payment scheme, which is not part of the SPB and therefore does not require the BACEN’s authorization to operate as such, relating to peer-to-peer transfers
between accounts opened by our users within the Mercado Pago payment account. Pursuant to the BACEN’s regulations, we are required to report certain operational information regarding this scheme to the BACEN on an annual
basis, such as the number of users and the annual cash value of our peer-to-peer transfer transactions.
In addition, Mercado Pago as a payment institution in Brazil is subject to:
(i) Anti-Money Laundering Rules: Mercado Pago is subject to Brazilian laws and regulations relating to anti-money laundering, terrorism financing and other potentially illegal activities. These rules require us to implement
policies and internal procedures to monitor and identify suspicious transactions, which must be duly reported to the relevant authorities to prevent the practice of crimes of “money laundering” or concealment of assets.
(ii) Register of Receivables from Payment: Mercado Pago is also subject to rules regarding the register of credit cards receivable and credit operations in a centralized system operated by an entity authorized by the BACEN. These
recent regulations aim to promote transparency in credit transactions, a broader credit offer and to allow merchants to offer their credit card receivables as collateral to receive better loan offers, improving competition and reducing the
cost of credit.
(iii) Cybersecurity Policies: In 2018 the BACEN published new rules setting forth cybersecurity policies and requirements for the contracting relevant data processing and storage services as well as cloud-based computing
services, which are applicable both to Mercado Pago and Mercado Crédito.
(iv) Data Protection Law: In August 2018, Brazil approved its first comprehensive data protection law (the “Lei Geral de Proteção de Dados Pessoais” or “LGPD”), which became applicable to our business in Brazil since August
2020. In December 2018, the former president of Brazil issued Provisional Measure No. 869/2018 which amended the LGPD and created Brazil’s national data protection authority (the “ANPDP”). We have created a program to
oversee the implementation of relevant changes to our business processes, compliance infrastructures and IT systems to reflect the new requirements and comply with the LGPD. The LGPD establishes detailed rules for the collection,
use, processing and storage of personal data and affects all economic sectors, including the relationship between customers and suppliers of goods and services, employees and employers and other relationships in which personal data is
collected, whether in a digital or physical environment.
(v) Secrecy rules: In addition to regulations affecting payment schemes, Mercado Pago is also subject to laws relating to internet activities and e-commerce, as well as banking secrecy laws, consumer protection laws, tax laws (and
related obligations such as the rules governing the sharing of customer information with tax and financial authorities) and other regulations applicable to Brazilian companies generally. Internet activities in Brazil are regulated by Law
No. 12,965/2014, known as the Brazilian Civil Rights Framework for the internet, which embodies a substantial set of rights of internet users and obligations relating to internet service providers, including data protection.
Law No. 12,865/2013 prohibits payment institutions from performing activities that are restricted to financial institutions, such as granting loans directly. In November 2020, the BACEN approved the application filed by
MercadoLibre Inc. for authorization to incorporate a financial institution in the modality of credit, financing and investment corporation (SCFI). In light of the authorization granted by BACEN, we incorporated a new entity (Mercado
Crédito Sociedade de Crédito, Financiamento e Investimento S.A.), which operates activities related to the granting of loans and obtains better funding alternatives for our business.
13
Table of Contents
On March 11, 2020, Mercado Pago also obtained approval from the BACEN to operate the activities of acquiring (payment processor) and post-paid payment instruments (credit cards) issuer, enabling the strengthening and growth
of the Mercado Pago’s operations. However, according to regulation recently implemented by the BACEN, any payment institution that is already licensed in another modality may operate as acquirers, post-paid payment instrument
issuers and/or payment transaction initiators, provided a 90-day prior notification is sent to the BACEN.
In 2020 the BACEN, within the Brazilian instant payment (IP) ecosystem, created Pix, the Brazilian IP scheme that enables its users — people, companies and governmental entities — to send or receive payment transfers in a few
seconds at any time, including non-business days. Mercado Pago participates in the payment scheme of Pix since its beginning and is subject to the applicable regulation.
The BACEN is also implementing the Brazilian Open Banking environment, to enable the sharing of data, products and services between regulated entities — financial institutions, payment institutions and other entities licensed
by the BACEN — at the customers' discretion, as far as their own data is concerned (individuals or legal entities). The Open Banking implementation has been gradual, through incremental phases that take into account specific
information/services to be shared, and Mercado Pago is a participant of the Open Banking system since February 2021, when its phase 1 started.
Mercado Pago.com Representações Ltda. and Mercado Crédito Sociedade de Crédito, Financiamento e Investimento S.A. as regulated entities in Brazil are subject to the supervision of the BACEN and must fully comply with all
the obligations established in the current regulation, under penalty of (i) formal warning establishing a deadline for the remediation of non-compliance activity, (ii) pay penalties for non-compliance, or (iii) shut down our Mercado Pago
business in Brazil for an indefinite period of time, which would be costly.
Argentina
In January 2020, the Central Bank of Argentina (“CBA”) enacted regulations relating to payments service providers that apply to the Fintech institutions that are not financial institutions but nevertheless, provide payment services
in at least one of the stages of the payment system. Pursuant to this regulation, payment service providers had to register by April 1, 2020, in a registry of payment service providers created by the CBA. The regulation sets forth certain
specific rules related to (i) providing information to users; (ii) depositing user’s funds in a freely available bank account; (iii) allowing users to dispose immediately of the funds accredited to their accounts; and (iv) providing
information to the CBA relating to the business of payments processing. On July 7, 2020, Mercado Libre S.R.L. was registered on the CBA as a payment service provider in accordance with applicable regulations.
The CBA recently modified the requirement relating to the deposit of users’ funds in a freely transferable bank account. On December 30, 2021, the board of the CBA issued a regulation that established that financial institutions
must set up a reserve of 100% of the funds deposited by payment service providers that offer payment accounts in which the customers' funds are deposited. According to this new regulation, as of January 1, 2022, these funds must also
remain immobilized at the CBA, without any remuneration, and must remain available to users. On January 13, 2022, we filed an appeal against such regulation which shall be decided by the CBA. As of the date of this report we were
not served with any decision on the subject matter.
As a non-financial loan provider, since March 1, 2021, we have been required to provide certain information on a monthly basis as part of a new reporting regime. We have been registered as a “Proveedor de Crédito No
Financiero” (non-financial loan provider) with the CBA since December 18, 2020. The regulation also requires that we comply with certain rules established by the CBA regarding, among other things: (i) interest rates in loan
operations; (ii) protection of users of financial services; (iii) methods of communication with users of financial services; and (iv) such users’ access to information concerning their contractual obligations. The rules regarding interest
rates became effective as of January 1, 2021, and the rules regarding the protection of users of financial services, methods of communication and access to information became effective as of February 1, 2021.
As we continue to develop Mercado Pago and our peer-to-peer lending business, we may need to comply with regulations applicable to such payments and lending activities and/or anti-money laundering. In this regard, our
Argentine subsidiary has been registered with the Argentine anti-money laundering authority since 2016, 2020 and 2022 as an entity subject to certain reporting obligations pursuant to anti-money laundering local regulations relating to
the issuance of prepaid cards, card aggregator activities; and insurance, respectively.
In September 2021, MercadoLibre S.R.L. completed the registration process with the National Insurance Superintendent to operate as appointed agent for insurance companies (agente institorio), which allows MercadoLibre
S.R.L. to offer its users insurance policies sold by one or more insurance companies, as well as to manage certain aspects of such policies (payments, claims, etc.).
Mexico
In March 2018, Mexico enacted a new law that regulates both crowd-funders as well as providers of wallets and money transmittal services (the “Fintech Law”). Under the Fintech Law, institutions that provided the
aforementioned services prior to its enactment are required to submit an application to the Comisión Nacional Bancaria y de Valores (the Mexican National Banking Commission or the “CNBV”) to obtain a license, and may continue to
provide those services while such license application is being processed. Our Mexican subsidiary submitted an application to obtain such license in September 2019. The application is being currently processed by the CNBV.
14
Table of Contents
Chile
In 2017 and 2018, Chile enacted regulations regarding the issuance and operation of payment cards, which could affect Mercado Pago's operations, including authorization to operate, anti-money laundering obligations, capital
requirements and reserve funds, operational and security safeguards, among others. In November 2021, the Chilean Financial Market commission (“CMF”) granted Mercado Pago, through its entities Mercado Pago Emisora S.A. and
MercadoPago S.A., a prepaid card issuer license and payment card operator license, respectively. These licenses transform Mercado Pago Emisora S.A. and MercadoPago S.A. into regulated entities, supervised by the CMF and the
Chilean Financial Analysis Unit (UAF, in charge of supervising anti-money laundering activities in Chile), and subject to other regulatory and financial requirements such as minimum capital requirements, liquidity reserves and know
your client and anti-money laundering duties.
Colombia
Colombian regulations establish specific requirements to open accounts and provide certain payment services, as well as policies for cash and risk management. There are also regulations requiring payment processors such as
Mercado Pago to comply with certain security, privacy and anti-money laundering standards. As a result, Mercado Pago has started the process of incorporating a new company (“MercadoPago S.A. Compañía de Financiamiento”)
which will request a license to act as a financial institution, and will therefore be able to offer credits, digital accounts and prepaid cards without any limitation. We expect this new company to be fully operational by the beginning of
June 2022.
Uruguay and Peru
Uruguay and Peru have also enacted regulations that cover a wide variety of issues related to electronic payments or e-money, including, among other things, rules related to the requirement to obtain authorization from the
relevant authority to operate, offer or provide certain payment services. In September 2016, we obtained the registration of our Uruguayan subsidiary DeRemate de Uruguay S.R.L. before the Central Bank of Uruguay as an entity
entitled to provide services of payments and collections (“PSPC”). Thus, on November 1, 2016, Mercado Pago was launched in Uruguay. Likewise, on August 26, 2021 we filed a license application before the Central Bank for our new
company Mercado Pago Uruguay S.R.L. to operate as e-money institution ("IEDE"). The product offer planned for IEDE operation includes the products currently offered by Mercado Pago in Uruguay under PSPC license, plus the
launch of new products enabled by IEDE license.
There are laws and regulations that address foreign currency and exchange rates in every country in which we operate. In certain countries where we operate, we need governmental authorization to pay invoices to a foreign
supplier or send money abroad due to foreign exchange restrictions. See “Item 1A. Risk factors—Risks related to doing business in Latin America—Local currencies used in the conduct of our business are subject to depreciation,
volatility and exchange controls” for more information.
We are also the beneficiary of certain tax regulations in various jurisdictions in which we operate.
The Argentine Industry Secretary approved our main Argentine subsidiary as beneficiary of the Argentine regime to promote the software industry. Benefits of receiving this status included a relief of 60% of total income tax
related to software development activities and a 70% relief in payroll taxes related to software development activities. These tax benefits expired on December 31, 2019. In June 2019, a new law was enacted by the Argentine
government (knowledge-based economy promotional regime), which established new tax benefits intended to take effect as of January 1, 2020, to December 31, 2029, for certain companies that meet specific criteria. On January 20,
2020, a new resolution issued by Argentina’s Ministry of Productive Development suspended the application of the new law until new provisions were issued. In October 2020, Argentina enacted Law 27,570, which amended the new
law by imposing new requirements to qualify for the promotional regime and modified certain benefits, and some additional regulations were issued thereafter. In August 2021, the Under Secretariat of Knowledge Economy issued the
Disposition 316/2021 approving MercadoLibre S.R.L.’s application for eligibility under the knowledge-based economy promotional regime. See Item 8 of Part II, “Financial Statements and Supplementary Data-Note 13-Income taxes”
for further information.
We are also subject to significant data protection and privacy-related regulations in many of the jurisdictions in which we operate. Further, some jurisdictions in which we operate are considering imposing additional restrictions or
regulations.
15
Table of Contents
Segment and Geographic Information
For an analysis of financial information about our segments, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reporting Segments and Geographic Information”, “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations—Description of Line Items—Net revenues” and Note 8, Segments to our audited consolidated financial statements included elsewhere in this
report and incorporated by reference in this Item 1.
Offices
We are a Delaware corporation incorporated on October 15, 1999. Our registered office is located at 874 Walker Road, Suite C, Dover, Delaware. Our principal executive offices are located at Dr. Luis Bonavita 1294, Of. 1733,
Tower II, Montevideo, Uruguay, 11300.
Available Information
Our Internet address is www.mercadolibre.com. Our investor relations website is investor.mercadolibre.com. We use our investor relations website as a means of disclosing material, non-public information and for complying with
our disclosure obligations under SEC Regulation FD (Fair Disclosure). Accordingly, investors should monitor our Investor Relations website, in addition to following our press releases, SEC filings, public conference calls and
webcasts. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to the SEC. The SEC maintains an internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. Our Sustainability report, the Sustainability Bond report and the Task Force on Climate-Related Disclosures are available on our
investor relations website. Our Corporate Governance Guidelines, Code of Ethics, and the charters of the Audit Committee, the Compensation and the Nominating and Corporate Governance Committee are also available on our website
and are available in print to any stockholder upon request in writing to MercadoLibre, Inc., Attention: Investor Relations, Dr. Luis Bonavita 1294, Of. 1733, Tower II, Montevideo, Uruguay, 11300. Information on or connected to our
website is neither part of nor incorporated into this report on Form 10-K or any other SEC filings we make from time to time.
16
Table of Contents
ITEM 1A. RISK FACTORS
Set forth below are the risks that we believe are material to our stockholders and prospective stockholders. You should carefully consider the following factors in evaluating our company, our properties and our business.
Risks related to our business
Our business depends on the continued growth of online commerce, the commercial and financial activity that our users generate on our platform and the availability and reliability of the Internet in Latin America.
Online commerce is still a developing market in Latin America. A significant portion of our business is based on an Internet platform for commercial and financial transactions in which almost all activity depends on our users and
is therefore largely outside of our control. Except for our first-party sales, we do not choose which items will be listed, nor do we make pricing or other decisions relating to the products and services bought and sold on our platform.
Our future revenues depend substantially on Latin American consumers’ and providers’ widespread acceptance and continued use of the Internet as a way to conduct commerce and to carry out specific financial transactions. For us to
grow our user base successfully, more consumers and providers must accept and use new ways of conducting business and exchanging information. The price of personal computers and/or mobile devices and Internet access may limit
our potential growth in certain areas or countries with low levels of Internet penetration and/or high levels of poverty. The infrastructure for the Internet in Latin America may not be able to support continued growth in the number of
Internet users, their frequency of use or their bandwidth requirements.
Given that we operate in a business environment in Latin America that is different than the environment in which other e-commerce companies operate, the performance of such other e-commerce companies is not an indication of
our future financial performance. Availability, transaction speeds, acceptance, interest and use of the Internet across Latin America are all critical to our growth and services and the occurrence of any one or more of the above challenges
to Internet usage could have a material adverse effect on our business.
We operate in a highly competitive and evolving environment.
The e-commerce and omnichannel retail, e-commerce services, and digital content and electronic devices industries are relatively new in Latin America, rapidly evolving and intensely competitive, and we expect competition to
become more intense in the future. Barriers to entry are relatively low and current offline and new competitors, including small businesses who want to create and promote their own stores or platforms, can easily launch new sites at
relatively low cost using software that is commercially available. Mercado Libre’s Marketplace currently competes with a number of companies, including: traditional brick and mortar retailers, e-commerce and omnichannel retailers
and vendors and distributors offering physical, digital and interactive media products that we offer and sell on our platform; online sales, auction services and comparison shopping websites; social media platforms and online and app-
based means of search engines for the purchase of goods and services; companies that provide e-commerce related services such as inventory, storage and supply chain management, fulfillment, advertising and payment processing;
other small online service providers, including those that serve specialty markets; business-to-consumer online commerce services; in each case located throughout Latin America.
Many of Mercado Libre’s marketplace competitors are larger, more well-established and well-financed companies with greater resources, longer history, greater brand recognition, more customers and better access to suppliers of
critical inputs and products. This positioning allows our competitors to acquire, invest in or enter into commercial relationships with competing businesses, adopt more aggressive pricing, secure better terms from suppliers, devote more
resources to technology, marketing and promotional campaigns, infrastructure, fulfillment and payment solutions. These competitive advantages could be used to harm our competitive position through the adoption of restrictive
covenants with suppliers, self-preferencing their product offerings, tying and bundling services and cross subsidizing. Furthermore, some of our competitors have been accused of illegal and anticompetitive conduct in markets where we
actively compete, making it easier for them to replicate such conducts in Latin American countries where such commercial policies have not yet been put to test before antitrust authorities.
In many cases, companies that directly or indirectly compete with us provide Internet access. These competitors include incumbent telephone companies, cable companies, mobile communications companies and large Internet
service providers. Some of these providers may take measures that could degrade, disrupt, or increase the cost of customers’ use of our services. For example, they could restrict or prohibit the use of their lines for our services, filter,
block or delay the packets containing the data associated with our products, charge increased fees to us or our users for use of their lines to provide our services, or seek to charge us for our customers’ use of our services or receipt of
our e-mails. Although we have not identified any providers that intend to take these actions, any interference with our services or higher charges for access to the Internet, could cause us to lose existing users, impair our ability to attract
new users, limit our potential expansion and harm our revenue and growth.
17
Table of Contents
Mercado Pago competes with existing online and offline payment methods, including, among others: traditional banks and financial institutions; fintechs (e.g., crowdfunding institutions, electronic payment funds), and other
providers and acquirers of financial services, particularly credit, prepaid and debit cards, checks, money orders, and electronic bank deposits and transactions; payment networks that facilitate processing and aggregation of payments -
cards and retail networks-; tokenized and contactless payment services, digital wallets, QR code-based solutions and other mobile card readers and payment solutions; international and local online payments services; the use of cash,
which is often preferred in Latin America; offline funding alternatives such as cash deposit and money transfer services; peer to peer payments and electronic money remittances and other point of sale terminals and devices or
technologies installed at merchants’ sites. Some of these services may operate at lower commission rates than Mercado Pago’s current rates and, accordingly, we are subject to market pressures with respect to the commissions we
charge for Mercado Pago services. Any or all of these companies could create competitive pressures, which could have a material adverse effect on our business, results of operations and financial condition.
The global payments industry is continuously changing and increasingly subject to regulatory supervision and continued examination. Players in the market are highly innovative enterprises, with immense resources, which has
made it a very competitive environment. Our competitors may respond to new or emerging technologies and changes in customer requirements faster and more effectively than we do. They may devote greater resources to the
development, promotion, and sale of products and services. Competing services tied to established banks and other financial institutions may offer greater liquidity and create greater consumer confidence in the safety and efficacy of
their services. Established banks and other financial institutions currently offer online payments and those that do not yet provide such a service could quickly and easily develop it, including mobile phone carriers. Moreover,
establishing a payments solution entity in Latin America has proven to be difficult and resource intensive (time and money); traditional banking and financial institutions still have significant influence over sectoral regulators, which
makes it harder to promote innovative payment solutions and policy changes to adapt regulation to an ever changing and fast growing innovative and disrupting industry.
Our future success depends on our ability to expand and adapt our operations to meet rapidly changing industry and technology standards in a cost-effective and timely manner. These expansion efforts place, and are expected to
continue to place, a significant strain on our management, operational and financial resources.
Rapid, significant, and disruptive technological changes impact the industries in which we operate, and we cannot predict the effects of technological changes on our business. Our success depends on our ability to develop and
incorporate new technologies and adapt to technological changes and evolving industry standards; if we are unable to do so in a timely or cost-effective manner, our business could be harmed.
We plan to continue to expand our operations by expanding our services internationally and developing and promoting new and complementary services. We may have limited or no experience in our newer market segments,
which can present new and difficult technology challenges. We may not succeed at expanding our operations in a cost-effective or timely manner, and our expansion efforts may not have the same or greater overall market acceptance as
our current services. Furthermore, any new business or service that we launch that is not favorably received by users could damage our reputation and diminish the value of our brands. Similarly, a lack of market acceptance of these
services or our inability to generate satisfactory revenues from any expanded services to offset their cost could have a material adverse effect on our business, results of operations and financial condition.
We must constantly add new hardware, update software, enhance and improve our billing and transaction systems, and add and train new engineering and other personnel to accommodate the increased use of our website and the
new products and features we regularly introduce. This upgrade process is expensive, and the increasing complexity and enhancement of our website results in higher costs. Our revenues depend on prompt and accurate billing
processes. Failure to upgrade our technology, transaction-processing capabilities, features, transaction processing systems, security infrastructure, or network infrastructure to accommodate increased traffic or transaction volume or the
increased complexity of our website could materially harm our business and our ability to collect revenue.
We may also need to enter into relationships with various strategic partners, websites, other online service providers, shipping companies and other third parties necessary to our business. The increased complexity of managing
multiple commercial relationships could lead to execution problems that can affect current and future revenues and operating margins, as well as our reputation. The expansion of our Mercado Pago and Mercado Envios business into
new countries may also require a close commercial relationship with one or more local banks or other intermediaries, which may prevent, delay or limit the introductions of our services in such countries.
The markets in which we operate are rapidly evolving and we may not be able to maintain our profitability.
As a result of the emerging nature and related volatility of the markets and economies in the countries in which we operate, the increased variety of services and products offered on our website and the rapidly evolving nature of
our business, it is particularly difficult for us to forecast our revenues or earnings accurately. In addition, we have no backlog and substantially all of our net revenues for each quarter are derived from marketplace fees, which include
final value fees and flat fees on transactions below a certain merchandise value, commissions and fees from Mercado Pago, first-party sales, shipping fees, up-front fees, advertising and classified fees, and fees from other ancillary
business that are earned during that quarter. Our current and future expense levels are based largely on our investment plans and estimates of future revenues and are, to a large extent, fixed. We may not be able to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues relative to our planned expenditures would have an immediate adverse effect on our business, results of operations
and financial condition.
18
Table of Contents
Any delay or problem with operating or upgrading our existing information technology infrastructure could cause a disruption in our business and adversely impact our financial results.
Our ability to operate our business on a day-to-day basis largely depends on the efficient operation of our information technology infrastructure and our cloud providers, the largest of which is Amazon Web Services. We have been
and are susceptible to hacks into our systems or other security breaches by unauthorized third parties. We are also susceptible to errors in connection with any systems upgrade or migration to a different hardware or software system,
errors or incidents of our cloud providers, bugs or other problems for any of the software we use, either developed in-house or provided by third parties. Security breaches, or financial, regulatory or other developments that might
prevent these third parties from providing services to us or our users could harm our business.
Most of our systems for operating the Mercado Libre ecosystem (Mercado Libre, Mercado Pago, Mercado Envíos, etc.) run on public cloud systems across several locations around the United States. We also run some of our data
bases on computer hardware located at the facilities of the Cyxtera Datacenters in Sterling, Virginia. These systems (whether over the public cloud or at the datacenter) and our information technology infrastructure are vulnerable to
damage or interruption from natural disasters, power loss, computer viruses, telecommunication failures, ransomware attacks or any other kind of denial of service related attacks, physical or electronic break-ins, sabotage, intentional
acts of vandalism, terrorism, publich health crises (including pandemics) and similar events. The public cloud provider could also decide to close their facilities. Although we are working on developing an alternate cloud provider of
hosting services, this project is still in the early stages.
Any steps that we may take to upgrade and improve the stability and efficiency of our information technology may not be sufficient to avoid defects or disruptions in our technology infrastructure, which could cause a disruption in
our business and adversely impact our financial results. Our systems are not fully redundant and our disaster recovery planning may not be sufficient. We may have inadequate insurance coverage to compensate for any related losses.
Any errors, defects, disruptions, interruptions, delays or cessation of service could result in significant disruptions to our business that could ultimately be more expensive, time consuming, and resource intensive than anticipated. We
have experienced and will likely continue to experience defects or disruptions in our technology infrastructure, including system interruptions and delays that make our site and services unavailable or slow to respond for periods of
time, which could adversely impact our ability to process transactions on our site or fulfill shipments, which could reduce our revenue, adversely affect our reputation with, or result in the loss of users and negatively impact our
financial results.
We are subject to extensive government regulation and oversight. Failure to comply with existing and future rules and regulations in the jurisdictions in which we operate could adversely affect the operations of one or more of
our businesses in those jurisdictions.
Our business is subject to the laws, rules, regulations and policies of the countries in which we operate, as well as the legal interpretation of such regulations by administrative bodies and the judiciary of those countries, including,
but not limited to, those listed below. Furthermore, because our services and products are available worldwide, certain foreign jurisdictions may claim that we are required to comply with their laws. The expansion of our business
(including through acquisitions) may also result in increased regulatory oversight and enforcement, as well as licensing requirements. In addition, our operations in most of the countries where we operate are subject to risks related to
compliance with the U.S. Foreign Corrupt Practices Act and other applicable U.S. and other local laws prohibiting corrupt payments to government officials and other third parties.
Any changes to, enforcement of, failure, or perceived failure to comply with these regulations could result in lawsuits, civil or criminal penalties, or fines against the Company or its subsidiaries, forfeiture of significant assets, an
outright or partial restriction on our operations, additional compliance and licensure requirements, an adverse impact on our business, results of operations or financial position, or may otherwise force us to change the way we or our
users do business, which could adversely affect the operations and reputation of our businesses in those jurisdictions.
Internet Services Regulation
There is uncertainty in many of the countries where we operate with respect to the liability of Internet service providers, the application of existing regulations to our business as they relate to, or the enactment of new regulations
relating to, issues such as e-commerce, electronic or mobile payments, information requirements for Internet providers, data collection, data protection, on line privacy, cryptocurrencies, artificial intelligence and machine learning (e.g.
in relation to risk analysis) governing anti-money laundering, taxation, reporting obligations, consumer protection and businesses. This uncertainty could negatively affect our users’ perception and use of our services and could result in
significant expense should we have to defend cases in an unclear legal environment. Also, new laws and regulations could have a material adverse effect on our business, results of operation and financial condition.
Privacy and user Data Protection
We are subject to laws relating to the collection, use, storage and transfer of personal data about our providers, employees and, principally, our users, especially regarding financial data. We expect that these regulations will
increase both in number and in the level of stringency, in ways we cannot predict, including with respect to evolving technologies such as cloud computing, artificial intelligence and machine learning, and blockchain technology. Should
we fail to comply with these laws, which apply to our interactions with third-parties, transfers of information amongst our employees in the course of their work for us, our subsidiaries, and other parties with which we have commercial
relations, we may be subject to significant penalties and negative publicity, which would adversely affect us.
19
Table of Contents
Consumer Protection
Government and consumer protection agencies have in the past received a substantial number of complaints about both the Mercado Libre Marketplace and Mercado Pago. These complaints are small as a percentage of our total
transactions, but they could become large in aggregate (absolute) numbers over time. From time to time, we are involved in disputes or regulatory inquiries that arise in the ordinary course of business. The number and significance of
these disputes and inquiries have increased as our business has expanded. We are likely to receive new inquiries from regulatory agencies in the future, which may lead to actions against us, and we may be subject to enforcement
actions, injunctions, fines or penalties, civil damages or forced to change our operating practices in ways that could harm our business and cause us to incur substantial costs.
Taxation
As far as taxation and digital economy is concerned, many taxing jurisdictions and international organizations are considering changes to tax laws and policies in order to address so-called base erosion and profit shifting. These
discussions aim to support and guide tax reforms that may impact e-commerce and internet based companies, including reforms related to corporate income taxation and also to value added taxes (VAT). In addition, we have a complex
corporate structure, with entities that are subject to taxation in multiple jurisdictions, and the management of that structure and the transactions among our entities creates potential tax exposures for us in multiple jurisdictions, including
the United States as well as the jurisdictions where our subsidiaries operate. Further, any changes to, suspension or revocation of, any tax incentive regimes or other tax benefits that we may receive (including tax benefits under the
Argentina knowledge-based economy promotional regime), could have a material adverse effect in our business, results of operation and financial position.
Competition
We receive scrutiny from various governmental agencies under competition laws in the countries where we operate. Some jurisdictions also provide private rights of action for competitors or consumers to assert claims of anti-
competitive conduct. Other companies or governmental agencies may allege that our actions violate antitrust or competition laws, or otherwise constitute unfair competition. Contractual agreements with buyers, sellers, or other
companies could give rise to regulatory action, antitrust investigations or litigation. Also, our business practices could give rise to regulatory action, antitrust investigations or litigation. Such claims and investigations, even if without
foundation, typically are very expensive to defend, involve negative publicity and substantial diversion of Management time and effort, and could result in significant judgments against us.
Banking, Money Transmission and Domestic or Cross-Border Electronic Funds Transfer
A number of jurisdictions where we operate have enacted legislation regulating money deposits, transmitters and/or electronic payments or funds transfers. We are subject to regulation in Brazil, Argentina, Mexico, Chile, Peru
and Uruguay, that require or would require us to obtain licenses or regulatory authorizations to operate certain services provided by Mercado Pago and that would subject us to additional regulatory requirements. As an authorized or
licensed money transmitter, we are subject to, among other requirements, restrictions with respect to the investment of customer funds, reporting requirements and inspection by regulatory agencies. In the case of Brazil, these
requirements and restrictions extend to Mercado Pago services that involve a partnership with a custodian and blockchain infrastructure provider, which services enable our users to buy, hold and sell cryptocurrency on our partner's
platform through their Mercado Pago wallet.
Any changes to, or fail to comply with, money services laws or regulations or any tax regulations, or if we engage in an unauthorized banking or financial business, could result in liability, inability to continue doing business with
residents of certain countries, changes to our business or regulatory status. Any of these changes could result in making the service less attractive to users, decreasing the speed of trade on the Mercado Libre Marketplace, increasing our
financial costs or change our financial model, which would further harm our business and results of operations. Even if we are not forced to change our Mercado Pago business, we could be required to obtain licenses or regulatory
approvals.
Anti-Money Laundering
Mercado Libre and Mercado Pago are or may be subject to anti-money laundering laws and regulations that prohibit, among other things, their involvement in receiving and/or transferring the proceeds of criminal activities and
impose obligations to identify the users and request certain information and documentation that, in certain circumstances, must be shared with regulators or government institutions. Because laws and regulations differ in each of the
jurisdictions where we operate, as we roll-out and adapt Mercado Libre and Mercado Pago in other countries, additional verification and reporting requirements could apply. These regulations requirements, as well as any future
regulation and any additional restrictions imposed by credit card associations, could raise our costs significantly and reduce the attractiveness of the Company. Failure to comply with anti-money laundering laws could result in
significant criminal and civil lawsuits, penalties, and forfeiture of significant assets.
Sanctions
Sanctions are the tool that national governments and multinational organizations use to prevent targets such as terrorists, national and international narcotics traffickers, weapons of mass destruction proliferators, perpetrators of
serious human rights abuse, or other persons who engage in conduct deemed sanctionable from accessing the financial system, and to prevent other persons from dealings with such targets in order to change the behavior of such targets.
20
Table of Contents
As a U.S-incorporated entity, Mercado Libre is subject to U.S. sanctions administered by the Office of Foreign Assets Control (“OFAC”). For most programs, OFAC-administered sanctions apply in two circumstances. First, all
U.S. persons, including legal entities organized under the laws of the United States, must comply with OFAC requirements at all times. Second, transactions conducted by non-U.S. persons that have a jurisdictional link to the U.S.
(“U.S. nexus”), for example transactions that involve a U.S. person, that are processed in U.S. dollars, or that take place in whole or in part in the United States, are subject to OFAC’s requirements. Where such a nexus is present, non-
U.S. persons are required to comply with OFAC’s sanctions obligations. The U.S. sanctions program regarding Cuba has a broader scope of application than most other sanctions programs, applying to non-U.S. subsidiaries of U.S.
companies, even if such subsidiaries have no other connection to the United States. As a result, Mercado Libre’s non-U.S. subsidiaries, including its non-U.S. subsidiaries involved with the Mercado Pago business, are required to
comply with U.S. sanctions regarding Cuba in the same way that Mercado Libre is required to comply with such sanctions. OFAC has the authority to impose civil penalties for violations of U.S. sanctions, and the U.S. Department of
Justice is authorized to bring criminal actions against persons that willfully violate U.S. sanctions. Compliance with United Nations sanctions is also mandatory under local law in the jurisdictions where Mercado Libre operates. Failure
to comply with local obligations could result in significant criminal and civil penalties, in addition to reputational and operational consequences.
Shipping
A number of jurisdictions where we operate have enacted legislation regulating shipping services. If we fail to comply with shipping services laws or regulations, or if we engage in an unauthorized shipping business, we could be
subject to liability, forced to cease doing business with residents of certain countries, or to change our business practices or to become a postal entity. Any change to our Mercado Envios business practices that makes the service less
attractive to customers or prohibits its use by residents of a particular jurisdiction could decrease the speed of trade on the Mercado Libre Marketplace, which would further harm our business. Even if we are not forced to change our
Mercado Envios business practices, we could be required to obtain licenses or regulatory approvals that could be very expensive and time consuming, and we cannot assure that we would be able to obtain them in a timely manner or at
all.
Sale, Storage and/or Transportation of Goods and Services
Laws specifying the scope of liability of providers of online services for the activities of their users through their online service are currently unsettled in most of the Latin American countries where we operate. For instance, in
Brazil, we may be liable for fraud committed by sellers and losses incurred by buyers when purchasing items through our platform. Our policies prohibit the sale, storage and/or transport of certain items (both on our platform and/or in
our fulfillment centers and/or through third party carriers providing services to Mercado Libre) and we have implemented various actions to monitor and exclude unlawful goods and services from our marketplaces, which we
continually work to improve.
However, we are aware that certain goods, such as alcohol, tobacco, firearms, animals, adult material and other goods that may be subject to regulation by local or national authorities of various jurisdictions have been traded on
the Mercado Libre Marketplace. We have at times been and may continue to be subject to fines for certain users’ sales of products that have not been approved by the government. We are also aware that certain goods expressly
excluded from our shipping services pursuant to our policies were stored in our fulfillment centers and/or delivered through third-party carriers providing services to Mercado Libre.
We cannot provide any assurances that we will successfully avoid civil or criminal liability for unlawful activities that our users carry out when using our services in the future. If we suffer potential liability for any unlawful
activities of our users, including as a result of damages to individuals or assets, we may need to implement additional measures to reduce our exposure to this liability, which may require, among other things, that we spend substantial
resources and/or discontinue certain service offerings. Any costs that we incur as a result of this liability or asserted liability could have a material adverse effect on our business, results of operations and financial condition.
We may be liable for or experience reputational damage from the failure of users of our Marketplace to deliver merchandise or make required payments.
Our success depends largely upon sellers accurately representing and reliably delivering the listed goods and buyers paying the agreed purchase price. We have received in the past, and anticipate that we will receive in the future,
complaints from users who did not receive the purchase price or the goods agreed to be exchanged, and regarding the quality or the partial or non-delivery of purchased items. While we can suspend the accounts of users who fail to
fulfill their obligations to other users, we do not have the ability to force users to meet their obligations. Our free Buyer Protection Program, which is generally available to all of our buyers, has been implemented to address those
situations, subject to certain conditions. As we expand the coverage of our Buyer Protection Program, the number and amount of reimbursements may increase. Effective customer service requires significant personnel expense and
investment in developing programs and technology infrastructure to help customer service representatives carry out their functions, which if not properly managed, could significantly impact our profitability.
Litigation related to unpaid or undelivered purchases or defective items could be expensive for us, divert Management’s attention and result in increased costs of doing business. In addition, failure to handle customer complaints
effectively and negative publicity generated as a result of the fraudulent or deceptive conduct of any of our sellers could damage our reputation, diminish the value of our brands and negatively impact our results of operations.
21
Table of Contents
We could face legal and financial liability upon the sale of items that infringe intellectual property rights of third parties and for information and material disseminated through our platforms.
We have received in the past, and anticipate that we will receive in the future, complaints alleging that certain items listed or sold through the Mercado Libre Marketplace or Mercado Shops or using Mercado Pago, or delivered by
Mercado Envios infringe third-party copyrights, trademarks and/or other IP rights. Content owners and other IP rights owners have been active in defending their rights against online companies, including us. Our user policy prohibits
any content and/or the first-party sales that may infringe upon third-party IP rights, and we have implemented a notice and takedown procedure, called our Brand Protection Program, to streamline IP right owners’ reports and requests
of removal of any listing that allegedly infringes their IP rights. We also use artificial intelligence (“AI”) and machine learning technology to proactively remove listings based on infringements of our policies. Despite these measures
and our efforts to prevent IP infringements, we are not able to prevent all IP rights infringements, and some rights owners may consider our efforts insufficient. In 2020, we were included on the United States Trade Representative’s
Notorious Markets Watch List for 2020 and the European Commission’s 2020 Counterfeit and Piracy Watch List and have been proposed for both lists in 2021. We anticipate that we may continue to be included in these and/or any
other similar list(s), and receive legal claims from content and IP owners alleging violations of their IP rights, which could result in substantial monetary awards, penalties or costly injunctions against us, as well as adversely affect our
reputation. It is also possible that new laws and regulations may be adopted with respect to intermediaries’ liability or mandatory out-of-court procedures to solve any disputes related to intermediaries’ liability that could have a material
adverse effect on our operations.
It is also possible that third parties could bring claims against us for defamation, libel, invasion of privacy, negligence, or other theories based on the nature and content of the materials disseminated through our platforms,
particularly by our users. Other online services companies are facing several claims for this type of liability. If we are held liable or potentially liable for information carried on or disseminated through our platforms, we may have to pay
monetary damages, be subject to enforcement actions, injunctions, fines or penalties, and it may have an adverse impact on our business model, including our level of exposure to liability. Any measures we may need to implement to
reduce that exposure may involve spending substantial resources and/or discontinuing certain services, which could have a material adverse effect on our business, results of operations and financial condition. In addition, public
attention to liability issues, lawsuits and legislative proposals could have an adverse impact on our business model and reputation, and consequently on our business results.
Fraudulent activity by our users could negatively impact our operating results, brand and reputation and cause the use of services to decrease.
We are subject to the risk of fraudulent activity on our platforms by our users, including with respect to Mercado Pago fraudulent and illicit sales, money laundering, bank fraud, fraud from means of payment entities, employee
fraud and online securities fraud. Although we have implemented measures to detect and reduce the occurrence of fraudulent activities, there can be no assurance that these measures will be sufficient to accurately detect, prevent or
deter fraud. As our marketplace sales grow, the cost of remediating for fraudulent activity, including customer reimbursements, may materially increase and could negatively affect our operating results. In addition, users’ fraudulent or
potential illegal activities when using any platform we operate could expose us to civil or criminal liability and could have a material adverse effect on our financial performance, our business or reputation in the future.
We incur losses from claims of customers who did not authorize a purchase, from buyer fraud and from erroneous transmissions. In addition to the direct costs of such losses, if they are related to credit card transactions and
become excessive, they could result in Mercado Pago losing the right to accept credit cards for payment. If Mercado Pago is unable to accept credit cards, our business will be adversely affected given that credit cards are the most
widely used method for funding Mercado Pago accounts. We are systematically taking measures to detect and reduce the risk of fraud on Mercado Pago, such as running card security code (“CSC”) checks in some countries, requiring
user identity validation, requiring users to confirm small debit amounts prior to authorizing high risk transactions, implementing caps on overall spending per users and implementing machine learning models to detect potentially
fraudulent transactions. However, these measures may not be effective against current and new forms of fraud. If these measures do not succeed, excessive charge-backs may arise in the future and our business will be adversely
affected.
We are subject to security breaches or other confidential data theft from our systems, which can adversely affect our reputation and business.
A significant risk associated with e-commerce is the secure transmission of confidential information over public networks. Our business involves the collection, storage, processing and transmission of customers’ personal data,
including financial information. We rely on encryption and authentication necessary to provide the security and authentication technology to transmit confidential information securely. Advances in computer capabilities, new
discoveries in the field of cryptography, or other events or developments may result in a compromise or breach of the technology that we use to protect customer transaction data.
22
Table of Contents
The techniques used to obtain unauthorized, improper or illegal access to our systems, our data or our customers’ data, to disable or degrade service, or to sabotage systems are constantly evolving, have become increasingly
complex and sophisticated, may be difficult to detect quickly, and often are not recognized until launched against a target. Unauthorized parties have and may continue to attempt to gain access to our systems or facilities through various
means, including, among others, hacking into our systems or those of our customers, partners or vendors, or attempting to fraudulently induce our employees, customers, partners, vendors or other users of our systems into disclosing
user names, passwords, payment card information or other sensitive information, which may in turn be used to access our information technology systems and those of third parties with whom we partner. Our users have been and will
continue to be targeted by parties using fraudulent “spoof” and “phishing” emails that appear to be legitimate emails sent by Mercado Libre or Mercado Pago or by a user of one of our businesses, but direct recipients to fake websites
operated by the sender of the email or misstates that certain payment was credited in Mercado Pago and request that the recipient send the product sold or send a password or other confidential information. Our information technology
and infrastructure and those of third parties with whom we partner have been and may continue to be vulnerable to cyberattacks, security breaches, and third parties may be able to access our customers’ personal or proprietary
information and card data that are stored on or accessible through those systems. Our security measures may also be breached due to human error, malfeasance, system errors or vulnerabilities, or other irregularities.
Actual or perceived vulnerabilities or data breaches may lead to claims sanctions against us, subject us to investigations or liability, may compromise our reputation, diminish the value of our brands and discourage use of our
websites. We also expect to spend significant additional resources to protect against security or privacy breaches, and may be required to address problems caused by breaches. Additionally, while we maintain insurance policies, our
current insurance policies may not be adequate to reimburse us for losses caused by security breaches, and we may not be able to collect fully, if at all, under these insurance policies. Some of our systems have experienced past security
breaches and, although they did not have a material adverse effect on our operating results or reputation, there can be no assurance of a similar result in the future. We cannot assure you that our security measures will prevent security
breaches or that failure to prevent them will not have a material adverse effect on our business, results of operations, financial condition and reputation. In addition, any breaches of network or data security of companies we acquire or
of our customers, partners or vendors, including parties that provide services to us or to our customers, could have similar negative effects.
We are subject to consumer trends and could lose revenue if certain items become less popular or if we fail to meet customer demand.
Our future revenues depend on continued demand for the types of goods that we sell, that users list on the Mercado Libre Marketplace or that users pay for with Mercado Pago on or off the Mercado Libre Marketplace. Demand
for our products and services can fluctuate significantly for many reasons, including as a result of perceived availability, consumer trends, seasonality, promotions, product launches, defective products or unforeseeable events, such as in
response to natural or man-made disasters, extreme weather, or geopolitical events, which could impact the overall volume of transactions on our platforms. A decline in the demand for or popularity of certain items sold through the
Mercado Libre Marketplace without an increase in demand for different items could result in reduced revenues. In addition, certain consumer “fads” or other factors may temporarily inflate the volume of certain types of items listed on
the Mercado Libre Marketplace, posing an inventory risk and placing a significant strain on our infrastructure and transaction capacity. These trends may also cause significant fluctuations in our operating results from one quarter to the
next.
Although it is difficult to accurately forecast demand, we strive to predict these trends, as overstocking or understocking products we sell could lead to lower sales, missed opportunities, and excessive markdowns, any of which
could have a material impact on our business and operating results or reputation. Failure to accurately forecast demand could significantly affect our revenue and our future growth.
Manufacturers may limit distribution of their products by dealers, prevent dealers from selling through us or encourage governments to limit e-commerce.
Manufacturers may attempt to enforce minimum resale price maintenance arrangements to prevent distributors from selling on our websites or on the Internet generally, or at prices that would make our site attractive relative to
other alternatives. Increased competition or anti-Internet distribution policies could result in reduced operating margins, loss of market share and diminished value of our brand. In order to respond to changes in the competitive
environment, we may, from time to time, make pricing, service or marketing decisions or acquisitions that may be controversial with and lead to dissatisfaction among some of our sellers, which could reduce activity on our websites
and harm our profitability.
Our failure to manage Mercado Pago and Mercado Fondo users’ funds properly would harm our business.
Our ability to manage and account accurately for Mercado Pago and Mercado Fondo users’ funds requires a high level of internal controls. As Mercado Pago and Mercado Fondo continue to grow, we must strengthen our internal
controls accordingly. Mercado Pago and Mercado Fondo’s success requires significant consumer confidence in our ability to handle large and growing transaction volumes and amounts of customer funds. Any failure to maintain
necessary controls or to properly manage customer funds could severely reduce customer use of Mercado Pago and Mercado Fondo.
23
Table of Contents
We rely on banks, investment funds which acquire Mercado Pago’s receivables and payment processors to fund transactions, and changes to card association fees, rules or practices may adversely affect our business.
Mercado Pago relies on banks, investment funds or payment processors to process the funding of Mercado Pago transactions and Mercado Libre Marketplace collections, and must pay a fee for this service. From time to time, card
associations may increase the interchange fees they charge for each transaction using one of their cards. The card processors of Mercado Pago and the Mercado Libre Marketplace have the right to pass on to us any increases in
interchange fees or their own fees for processing. These increased fees increase the operating costs of Mercado Pago, reduce our profit margins from Mercado Pago operations and, to a lesser degree, affect the operating margins of the
Mercado Libre Marketplace.
This is beginning to be partially mitigated by the issuance of our Mercado Pago prepaid and credit cards in Brazil under the VISA brand, which enables Mercado Pago to receive a part of the interchange fees of the transactions
made with the cards issued by Mercado Pago, and the raising of capital in the open market at more competitive rates than those offered by banks or payment processors specifically.
We are also subject to, or required by processors to comply with, card association operating rules. The card associations and their member banks set and interpret the card rules. Some of those member banks compete with
Mercado Pago. Card companies could adopt new operating rules or re-interpret existing rules that we or Mercado Pago’s processors may find difficult or even impossible to follow. As a result, we could lose our ability to provide
Mercado Pago customers the option of using debit, prepaid or credit cards to fund their payments and MercadoLibre users the option to pay their fees using a debit, prepaid or credit card. If Mercado Pago were unable to accept credit
cards, our Mercado Pago business would be materially adversely affected.
We could lose the right to accept credit cards or pay fines if card processors determine that users are using Mercado Pago to engage in illegal or “high risk” activities or if users generate a large amount of chargebacks.
Accordingly, we are continually working to prevent “high risk” merchants from using Mercado Pago. Additionally, we may be unable to access financing in the credit and capital markets at reasonable rates to fund our Mercado Pago
operations and for that reason our profitability and total payments volume could materially decline.
The failure of the financial institutions with which we conduct business may have a material adverse effect on our business, operating results, and financial condition.
If the condition of the financial services industry deteriorates or becomes weakened for an extended period of time, any of the following factors could have a material adverse effect on our business, operating results, and financial
condition:
(cid:0)
Disruptions to the capital markets or the banking system may materially adversely affect the value of investments or bank deposits we currently consider safe, liquid or provide a reasonable return, and we may be unable to
find suitable alternative investments, which could result in lower interest income or longer investment horizons;
(cid:0) We may be required to increase the installment and financing fees we charge to customers for purchases made in installments or cease offering installment purchases altogether, each of which may result in a lower volume of
transactions completed;
(cid:0) We may be unable to access financing in the credit and capital markets at reasonable rates in the event we find it desirable to do so. Due to the nature of our Mercado Pago and Mercado Libre Marketplace businesses, we
generate high credit cards receivables and consumer and merchant loans that from time to time we sell to financial institutions, and accordingly, lack of access to credit or significant changes to the terms of any existing
credit, or bank liquidations could cause us to experience severe difficulties; and
(cid:0)
The failure of financial institution counterparties to honor their obligations to us under credit instruments could jeopardize our ability to rely on and benefit from those instruments. Our ability to replace those instruments on
the same or similar terms may be limited under difficult market conditions.
A rise in interest rates may negatively affect our Mercado Pago payment volume.
In each of Brazil, Argentina, Mexico, Colombia, Chile, Uruguay and Peru we offer users the ability to pay for goods purchased in installments using Mercado Pago. In 2021 and 2020, installment payments represented 24.8% and
27.8%, respectively, of Mercado Pago’s payment volume, including transactions on and off the Mercado Libre Marketplace. To subsidize the cost of the installment payment feature, from time to time we pay interest to discount credit
card coupons, securitize credit card coupons through trusts or finance Mercado Pago business through financial debt. In all of these cases, if interest rates increase, we may have to raise the installment fees we charge to users which
would likely have a negative effect on Mercado Pago’s total payment volume.
24
Table of Contents
Changes in Mercado Pago’s funding mix and ticket mix could adversely affect Mercado Pago’s results.
Mercado Pago pays significant transaction fees when customers fund payment transactions using certain debit and credit cards or through unaffiliated entities, nominal fees when customers fund payment transactions from their
bank accounts and no fees when customers fund payment transactions from an existing Mercado Pago account balance. Mercado Pago’s financial success will remain highly sensitive to changes in the rate at which its senders fund
payments using credit cards. Customers may prefer to paid using credit cards rather than bank account transfers for a number of reasons, including the ability to pay in installments, the ability to dispute and reverse charges, the ability to
earn frequent flyer miles or other incentives offered by credit cards, the ability to defer payment, or a reluctance to provide bank account information to us.
The transaction fees Mercado Pago pays in connection with certain payment methods are fixed regardless of the ticket price, and certain costs incurred in connection with the processing of credit card transactions are also fixed.
Currently, Mercado Pago charges a fee calculated as a percentage of each transaction. If Mercado Pago receives a larger percentage of low ticket transactions, our profit margin may erode, or we may need to raise prices, which, in turn,
may affect the volume of transactions.
Our Mercado Credito solution exposes us to additional risks.
Our Mercado Credito solution is offered to certain merchants and consumers, and the financial success of this product depends on the effective management of the credit related risk. To assess the credit risk of a merchant and/or
consumer seeking a loan under the Mercado Credito solution, we use, among other indicators, a risk model internally developed, as a credit quality indicator to help predict the merchants and/or consumer’s ability to repay the principal
balance and interest related to the credit. This risk model may not accurately predict the creditworthiness of a merchant and/or consumer due to inaccurate assumptions about the particular merchant and/or consumer or the economic
environment or limited product history, among other factors. The accuracy of the risk model and our ability to manage credit risk related to our Mercado Credito solution may also be affected by legal or regulatory changes (e.g.,
bankruptcy laws and minimum payment regulations), competitors’ actions, changes in consumer behavior, obtain funding resources, changes in the economic environment and other factors.
A decline in economic, political, market, health and social conditions could impact our users as well, and their decisions could reduce the number of cards, accounts, and credit lines of their account holders, which ultimately
impact our revenues. Any events or conditions that impair the functioning of the financial markets, tighten the credit market, or lead to a downgrade of our current credit rating could increase our future borrowing costs and impair our
ability to access the capital and credit markets on favorable terms, which could affect our liquidity and capital resources, or significantly increase our cost of capital. Like other businesses with significant exposure to credit losses, we
face the risk that Mercado Credito merchants and consumers will default on their payment obligations, making the receivables uncollectible and creating the risk of potential charge-offs, which could impact our liquidity. Any of these
events could adversely affect our business and results of operation.
The funding and growth of our Mercado Credito business is directly related to interest rates; a rise in interest rates may negatively affect our Mercado Credito business and results of operations.
We face significant risks related to the ongoing reliability of our logistics network and shipping service.
In Brazil, Argentina, Mexico, Colombia, Uruguay, Chile and Peru, we offer users our Mercado Envios shipping service through integration with local carriers and our own transportation systems. To achieve economies of scale,
drive down shipping costs and eliminate friction for buyers and sellers, we generally pay local carriers directly for their shipping costs, and then we decide how much of those costs we transfer to our customers. The decision to raise the
shipping fees we charge to users may have a negative effect on Mercado Envios’s shipping volume, and the decision not to do that may result in an increase in operating costs of Mercado Envios which could generate net losses in our
commerce operations.
We rely on a number of local carriers (through non-exclusivity agreements) to receive the inventories of third parties and ship orders to customers. The unavailability of the services of local carriers because of unfavorable
contractual or commercial terms or performance problems or any other difficulty (i.e., a truckers’ strike) experienced by the local carriers could negatively affect our ability to provide shipping services to our customers, which could in
turn have a material adverse effect on our shipping service, operating results, and financial condition. Moreover, our ability to receive the inventories of third parties efficiently and ship orders to customers also may be negatively
affected by natural or man-made disasters, extreme weather, geopolitical events and security issues, labor or trade disputes, public health crises and similar events which could have a material adverse effect on our shipping service,
operating results, and financial condition.
25
Table of Contents
Failure to successfully operate our fulfillment network may also negatively affect our business.
Through our logistics solution, Mercado Envios, we offer sellers on our platform fulfillment and warehousing services, including maintaining inventories of third parties that sell products through our platform. As we continue to
add fulfillment centers, our fulfillment network may become more complex, and the operation of such centers may present significant challenges including an increased complexity of tracking inventories and operating our fulfillment
network. Our failure to accurately forecast customer demand, staffing and properly handle inventories and commercial relationship with third parties could result in excess or insufficient fulfillment capacity, an inability to optimize
platform fulfillment, unexpected costs and adversely affect our reputation or results of operations. We offer to sellers a free Fulfillment Protection Program, for any damage or loss of seller’s inventories as a result of using our
fulfillment network service, subject to certain conditions. We may in the future receive additional requests from sellers requesting reimbursement or threatening legal action against us if we do not reimburse them, the result of which
could materially adversely affect our business and financial condition.
We continue to build new warehouses to manage increasing demand of our logistics solution. These construction efforts are subject to a risk of delay and also to risks relating to the quality of the construction, both of which could
increase our costs and impact our ability to grow capacity in time to adequately meet demand.
We may not be able to adequately protect and enforce our intellectual property rights. We could potentially face claims alleging that our technologies infringe the property rights of others.
We regard the protection of our IP rights as critical to our future success and rely on a combination of copyright, trademark and trade secret laws and contractual restrictions to establish and protect our proprietary rights in our
products and services. We cannot assure you that these contractual arrangements or the other steps that we have taken or will take in the future to protect our IP will prove sufficient to prevent misappropriation of our technology,
prevent counterfeit sale of our products, or deter independent third-parties from developing similar or competing technologies.
We pursue the registration of our intangible assets in each country where we operate. Effective IP protection may not be available or granted to us by the appropriate regulatory authority in every country in which our services are
made available online, meaning our ability to protect our brands against third-party infringers would be compromised and we could face claims by any future trademark owners. Any claims relating to these issues, whether meritorious
or not, could cause us to enter into costly royalty and/or licensing agreements. If any of these claims against us are successful we may also have to modify our brand name in certain countries. Any of these circumstances could adversely
affect our business, results of operations and financial condition.
We have licensed in the past, and expect that we may license in the future, certain of our proprietary rights, such as trademarks or copyrighted material, to third parties. Our licensees may take actions that could affect the value of
our proprietary rights or reputation, which could have a material adverse effect on our business, results of operations and financial condition.
To date, we have not been notified that our technology or products infringes on the proprietary rights of third parties, but third parties may claim infringement on our part with respect to past, current or future technologies or
features of our services or of our products. For instance, third parties’ claims may arise if, although it would be inconsistent with our Code of Ethics, our employees include third parties’ software without their authorization. We expect
that participants in our markets will be increasingly subject to infringement claims as the number of services and competitors in the e-commerce segment grows. Any of these claims could be expensive and time consuming to litigate or
settle and could have a material adverse effect upon our business, results of operations and financial condition.
We may not be able to secure licenses for technologies on which we rely.
We rely on certain technologies that we license from third parties that supply key database technology, operating systems and specific hardware components for our services. We cannot assure you that these technology licenses
will continue to be available to us on commercially reasonable terms. If we were not able to make use of this technology, we would need to obtain substitute technology that may be of lower quality or performance standards or at
greater cost, which could materially adversely affect our business, results of operations and financial condition. Although we generally have been able to renew or extend the terms of contractual arrangements with these service
providers on acceptable terms, we cannot assure you that we will continue to be able to do so in the future.
Problems that affect our service providers could potentially adversely affect us as well.
A number of parties provide services to us or to our users. These services include the hosting of our servers, shipping and the postal and payments infrastructures that allow users to deliver and pay for goods and services, in
addition to paying their Mercado Libre Marketplace bills. Financial, regulatory, or other problems that might prevent these companies from providing services to us or our users could reduce the number of listings on our websites or
make completing transactions on our websites more difficult, which would harm our business. Any security breach at one of these companies could also affect our customers and harm our business.
26
Table of Contents
We may not realize benefits from recent or future strategic investments, acquisitions of businesses, technologies, services or products despite their costs in cash and dilution to our stockholders.
We intend to continue to enter into a wide array of potential strategic transactions, including strategic investments, acquire businesses, technologies, services or products, as appropriate opportunities arise. We may not, however, be
able to identify, negotiate or finance such future acquisitions successfully or at favorable valuations, or to effectively integrate these acquisitions with our current business. Strategic transactions may involve significant additional
challenges, uncertainties and risks, including, but not limited to, unforeseen operating difficulties and expenditures, challenges of integrating new employees, systems, technologies, and business cultures; failure to develop the acquired
business adequately; disruption of our ongoing operations and diversion of our management’s attention; inadequate data security, cybersecurity and operational and information technology resilience; failure to identify, or our
underestimation of, commitments, liabilities, deficiencies and other risks associated with acquired businesses or assets; and potential exposure to new or increased regulatory oversight and uncertain or evolving legal, regulatory and
compliance requirements; potential reputational risks that could arise from transactions with, or investments in, companies involved in new or developing businesses or industries, which may be subject to uncertain or evolving legal,
regulatory and compliance requirements; failure of the transaction to advance our business strategy and of its anticipated benefits to materialize; potential impairment of goodwill or other acquisition-related intangible assets; and the
potential for our acquisitions to result in dilutive issuances of our equity securities or significant additional debt. Strategic transactions may also heighten many of the risks described in this “Risk Factors” section.
Acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to intangible assets and impairment of goodwill, which could
materially adversely affect our business, results of operations and financial condition. Any future acquisitions might require us to obtain additional equity or debt financing, which might not be available on favorable terms, or at all. If
debt financing for potential future acquisitions is unavailable, we may determine to issue shares of our common stock or preferred stock in connection with such an acquisition and any such issuance could result in the dilution of our
common stock.
We depend on key personnel, the loss of which could have a material adverse effect on us.
Our performance depends substantially on the continued services and on the performance of our senior management and other key personnel. Our ability to retain and motivate these and other officers and employees is
fundamental to our performance.
Our future success also depends on our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, marketing and customer service personnel. Competition for these personnel is intense, and
we cannot assure you that we will be able to successfully attract and retain sufficiently qualified personnel.
We may have inadequate business insurance coverage, which would require us to spend significant resources in the event of a disruption of our services or other contingency.
Even though we have business insurance coverage to face major contingencies affecting our services and goods, it may be inadequate to compensate for our losses. Any business disruption, litigation, system failure or natural or
man-made disaster may cause us to incur substantial costs and divert resources, which could have a material adverse effect on our business, results of operation and financial condition.
COVID-19 has had, and may in the future have a negative impact on the global economy and on our business, operations and results.
The COVID-19 pandemic and global responses to it have had dramatic adverse consequences for the global economy, and have significantly contributed to deteriorating macroeconomic conditions. The full extent of the nature and
scope of the consequences are still difficult to evaluate, and their future course is impossible to predict with confidence.
The lockdowns imposed at the beginning of the pandemic negatively affected on our business. The factors that adversely affected, and may in the future affect, our operations include, but are not limited to: lockdowns that have
restricted merchants from operating resulting at times, in order backlogs and cancellations for orders delivered through drop ship and cross-docking networks; lower foot traffic in physical retail that caused Mercado Pago a deceleration
at times in the number of Mercado Pago payments processed, resulting in lower mobile point of sale and QR total payment volume growth; and weak macro-economic conditions in which we operate, coupled with devaluations of
certain local currencies in those countries against the U.S. dollar. Since then, our business has benefitted from the shift from in-store shopping and traditional in-store payment methods (e.g., credit cards, debit cards and cash) towards e-
commerce and online payments that was accelerated by the pandemic. To the extent that consumer preferences revert to pre-COVID-19 behaviors as mitigation measures to limit the spread of COVID-19 are eased or lifted, our
business, financial condition and results of operations could be adversely impacted.
The future impact of the pandemic on our business, operations, or financial results is uncertain and will depend on numerous evolving factors that we cannot predict, including, but not limited to the ongoing duration, scope, and
severity of the pandemic; a resurgence or the emergence of a new strain of coronavirus; the availability, distribution and effectiveness of vaccines or other treatments in the countries where we operate; disruption of our logistics
network; disruption or delay of the activity of our merchants; the impact of travel bans, work-from-home policies, or shelter-in-place orders; the temporary or prolonged shutdown of manufacturing facilities or retail items availability
and decreased retail traffic; staffing shortages; the long-term effects of the pandemic on the national and global economy, including on consumer confidence and spending, financial markets and the availability of credit for us, our
suppliers and our customers; and increased cyber and payment fraud risk related to COVID-19, as cybercriminals attempt to profit from the disruption in light of increased online-banking, e-commerce and other online activity.
27
Table of Contents
The pandemic outbreak has required and is likely to continue to require management to devote time and attention, as well as increased investments of resources across our enterprise, including as a result of our continued efforts to
monitor the progress of the pandemic and any additional measures we may have to take to comply with the rapidly changing regulations of the countries in which we operate. The spread of COVID-19 has caused us to implement
modifications to our business practices, including work-from-home policies and strict health and safety precautions for our offices and fulfillment centers, and we may take further actions as required by government authorities or that
we determine are in the best interests of our employees, customers, and business partners. There is no certainty that those measures will be sufficient to mitigate the risks posed by COVID-19 or will otherwise be satisfactory to
government authorities.
There are risks associated with our indebtedness.
The terms of our senior unsecured notes issued in January 2021 contain, and any debt instruments we enter in the future may contain, covenants that restrict or could restrict, among other things, our business and operations.
Failure to pay amounts due under a debt instrument or breach any of its covenants may result in the acceleration of the indebtedness (subject in certain cases to a grace or cure period). Moreover, any such acceleration and required
repayment of, or default in respect of, any of our indebtedness could, in turn, constitute an event of default under other debt instruments, thereby resulting in the acceleration and required repayment of other indebtedness we may have.
Any of these events could materially adversely affect our liquidity and financial condition.
In addition, changes by any rating agency to our outlook or credit rating could negatively affect the value of both our debt and equity securities and increase our borrowing costs. If our credit ratings are downgraded or other
negative action is taken, the interest rates payable by us under our indebtedness may increase. In addition, any downgrades to our credit ratings may affect our ability to obtain additional financing in the future and the terms of any such
financing. Any of these factors could adversely affect our financial condition and results of operations.
The conditional conversion feature of the 2028 Notes, if triggered, may adversely affect our financial condition and operating results.
In the event the conditional conversion feature of the 2028 Notes is triggered, holders of the outstanding 2028 Notes will be entitled to convert the outstanding 2028 Notes at any time during specified periods at their option. If one
or more holders elect to convert their 2028 Notes), we can decide to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to
convert their 2028 Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material
reduction of our net working capital.
We hold and may acquire digital assets that may be subject to volatile market prices, impairment and unique risks of loss.
In February 2021, we began to use a portion of our cash reserve to purchase digital assets or certain other alternative reserve assets. During 2021, we invested an aggregate $30,000 thousands in bitcoin and ethereum, and we may
continue acquiring and holding digital assets from time to time in the future.
The prices of digital assets have been and may continue to be highly volatile, including as a result of various associated risks and uncertainties. For example, the prevalence of such assets is a relatively recent development, and
their long-term adoption by investors, consumers and businesses is unpredictable. Moreover, they rely on technology for their creation, existence and transactional validation and their decentralization may subject their integrity to the
threat of malicious attacks and technological obsolescence. The status of such assets for a variety of regulatory purposes is unclear and may change in the future.
As digital assets, including bitcoin, have grown in popularity and market size, there has been increasing focus on the extent to which digital assets can be used to launder the proceeds of illegal activities or fund criminal or terrorist
activities, or entities subject to sanctions regimes. If we are found to have purchased bitcoin or other digital assets from persons that have used the digital assets to launder money or from persons subject to sanctions, we may be subject
to regulatory proceedings and further transactions or dealings in bitcoin or other digital assets may be restricted or prohibited.
Digital assets are currently considered indefinite-lived intangible assets under applicable accounting rules, meaning that any decrease in their fair value below our carrying value for such assets at any time will require us to
recognize impairment charges. This may adversely affect our operating results in any period in which such impairment occurs, which in turn could have a material adverse effect on the market price of our shares. We may not recognize
any increases in fair value while we hold the assets.
As intangible assets without centralized issuers or governing bodies, digital assets have been, and may in the future be, subject to security breaches, cyberattacks or other malicious activities, as well as human errors or computer
malfunctions, that may result in operational problems or the loss or destruction of private keys needed to access such assets, which may be irreversible and could adversely affect the value of our digital assets and an investment in our
Company. While we intend to take reasonable measures to secure any digital assets, if such threats are realized or the measures or controls we implement to secure our digital assets fail, it could result in a partial or total
misappropriation or loss of our digital assets, and our financial condition and operating results may be adversely affected.
28
Table of Contents
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to
new or additional risks.
We have published an annual sustainability report, a sustainability bond report framework and a specific analysis of climate related risk factors following the guideline and recommendations of the Task Force on Climate-related
Financial Disclosures. Our reports describe, among others, our policies, practices and initiatives on a variety of environmental, social and governance (“ESG”) matters, including our contribution to socio-economic development,
diversity, inclusion and financial education, our sustainable development goals and manifesto, and human capital management. These efforts may contribute to increased scrutiny from customers, regulators, investors and other
stakeholders related to our ESG practices and disclosure. For example, some of our Marketplace customers may elect to reduce purchases from us if we are unable to verify that our performance and products meet the specifications of
responsible sourcing programs. Investor advocacy groups, investment funds and institutional investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor
conditions and human rights. Increased ESG related compliance costs for us as well as among Marketplace merchants and vendors and various other parties within our supply chain could result in increases to our overall operational
costs. Failure or perceived failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners and our
stock price. Government, media or activist pressure to limit emissions could negatively impact consumers’ perceptions of our products and services, which could have a material adverse effect on our business, and the actions taken by
governments and other actors to reduce emissions could impose costs that could materially affect our financial condition. New government regulations could also result in new or more stringent forms of ESG oversight and expanding
mandatory and voluntary reporting, taxes, diligence and disclosure.
Risks related to doing business in Latin America
We face the risk of political and economic crises, instability, terrorism, civil strife, labor conflicts, expropriation and other risks of doing business in emerging markets.
We conduct our operations in emerging market countries in Latin America, which have historically experienced uneven periods of economic growth, as well as recession, periods of high inflation and economic instability. There
has been increased violence, crime, social and political turmoil and unrest in some of these countries, which could result in disruptions to our operations or present risks to our employees. These developments, as well as other economic
and political developments in these countries, including future economic changes or crises (such as inflation, currency devaluation or recession), government deadlock, social and political turmoil and unrest, changes in laws and
regulations, labor conflicts, expropriation or nationalization of property, and exchange controls could impact our operations or the market value of our common stock and have a material adverse effect on our business, financial
condition and results of operations.
Our employees in Brazil and some of our employees in Argentina and Uruguay are currently represented by a labor union and employees in other Latin American countries may eventually become unionized. We may incur
increased payroll costs and reduced flexibility under labor regulations if unionization in other countries were to occur, any of which may negatively impact our business. In addition, we could be affected by conflicts between unions
which claim representation of our employees that could generate additional payroll costs and labor conflicts.
Although economic conditions may differ from one country to another, we cannot assure you that events in one country alone will not adversely affect our business, financial condition or the market value of our common stock.
Latin American governments have exercised and continue to exercise significant influence over the economies of the countries where we operate. This involvement, as well as political and economic conditions, could adversely
affect our business.
Governments in Latin America frequently intervene in the economies of their respective countries and occasionally make significant changes in policy and regulations. Governmental actions to control inflation and other policies
and regulations have often involved, among other measures, price controls, currency devaluations, capital controls and limits on imports. Our business, financial condition, results of operations and prospects may be adversely affected
by changes in government policies or regulations, including such factors as: exchange rates and exchange control policies; inflation rates; interest rates; tariff and inflation control policies; price control policies; import duties and
restrictions; liquidity of domestic capital and lending markets; electricity rationing; tax policies, including royalty, tax increases and retroactive tax claims; and other political, diplomatic, social and economic developments in or
affecting the countries where we operate.
Reduced foreign investment in any of the countries where we operate may have a negative impact on such country’s economy, affecting interest rates and the ability of companies such as ours to access financial markets.
Local currencies used in the conduct of our business are subject to depreciation, volatility and exchange controls.
Most Latin American countries have historically experienced, and may continue to experience in the future, high rates of inflation, which could lead to further government intervention in the economy, including the introduction of
government policies that could adversely affect our results of operations. Brazil, Argentina and Mexico, which together accounted for 93.5% and 94.4% of our net revenues for 2021 and 2020, respectively, have experienced volatility
and significant devaluations in the past. For the year ended December 31, 2021, inflation rate in Argentina was 50.9%. Since July 1, 2018, we have classified our Argentine operations as highly inflationary in accordance with U.S.
GAAP, and use the U.S. dollar as the functional currency of our Argentine subsidiaries for purposes of reporting our financial statements.
29
Table of Contents
The depreciation of local currencies creates inflationary pressures that may have an adverse effect on our results of operations, including affecting our ability to adjust the price of our services sufficiently to offset the effects of
inflation on our cost structures and generally restricting access to the international capital markets. A high inflation environment would also have negative effects on the level of economic activity, employment and may adversely affect
our business and results of operations. On the other hand, the appreciation of local currencies against the U.S. dollar may lead to the deterioration of public accounts and the balance of payments of the countries where we operate, and
may reduce export growth in those countries.
Because we conduct our business outside the United States and receive almost all of our revenues in currencies other than the U.S. dollar, but report our results in U.S. dollars, we face exposure to adverse movements in currency
exchange rates. The results of operations in the countries where we operate are exposed to foreign exchange rate fluctuations as our financial results are translated from the applicable local currency into U.S. dollars upon consolidation.
If the U.S. dollar weakens against foreign currencies, as has occurred in some years, the translation of these foreign-currency-denominated transactions will result in increased net revenues, operating expenses, and net income.
Similarly, our net revenues, operating expenses, and net income will decrease if the U.S. dollar strengthens against the foreign currencies of countries in which we operate. For the year ended December 31, 2021, 55.3% of our net
revenues were denominated in Brazilian Reais, 21.7% in Argentine Pesos and 16.6% in Mexican Pesos.
Certain of our subsidiaries may be subject to exchange control regulations that might restrict their ability to convert local currencies into U.S. dollars. Brazilian law provides that whenever there is a serious imbalance in Brazil’s
balance of payments or reason to foresee a serious imbalance, the Brazilian government may impose temporary restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil. Further, exchange controls
implemented by the Argentine government control and restrict the ability of companies and individuals to exchange Argentine Pesos for foreign currencies and their ability to remit foreign currency out of Argentina. There can be no
assurance that the Central Bank of Argentina or other government agencies will not increase such controls or restrictions, make modifications to these regulations or establish more severe restrictions on currency exchange, which could
affect the ability to make payments to foreign creditors or providers and dividend payments to foreign shareholders. These exchange controls and restrictions could materially adversely affect the business, financial condition and results
of operations of our Argentine subsidiaries and their ability to comply with their foreign currency obligations, and could significantly impact our ability to receive cash from our Argentine subsidiaries and our ability to meet our
obligations, each of which could have a material adverse effect on our Company.
E-commerce transactions in Latin America may be impeded by the lack of secure payment methods.
Unlike in the United States, consumers and merchants in Latin America can be held fully liable for credit card and other losses due to third-party fraud. As secure methods of payment for e-commerce transactions have not been
widely adopted in Latin America, both consumers and merchants generally have a relatively low confidence level in the integrity of e-commerce transactions. In addition, many banks and other financial institutions have generally been
reluctant to give merchants the right to process online transactions due to these concerns about credit card fraud. Unless consumer fraud laws in Latin American countries are modified to protect e-commerce merchants and consumers,
and until secure, integrated online payment processing methods are fully implemented across the region, our ability to generate revenues from e-commerce may be limited, which could have a material adverse effect on our Company.
Risks related to our shares
Provisions of our certificate of incorporation and Delaware law could inhibit others from acquiring us, prevent a change of control, and may prevent efforts by our stockholders to change our management.
Certain provisions of our certificate of incorporation and by-laws may inhibit a change of control that our board of directors does not approve or changes in the composition of our board of directors, which could result in the
entrenchment of current management and may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders.
These provisions include: i) advance notice requirements for stockholder proposals and director nominations; ii) a staggered board of directors; iii) limitations on the ability of stockholders to remove directors other than for cause;
iv) limitations on the ability of stockholders to own and/or exercise voting power over 20% of our common stock; v) limitations on the ability of stockholders to amend, alter or repeal our by-laws; vi) the inability of stockholders to act
by written consent; vii) the authority of the board of directors to adopt a stockholder rights plan; viii) the authority of the board of directors to issue, without stockholder approval, preferred stock with any terms that the board of
directors determines and additional shares of our common stock; and ix) limitations on the ability of certain stockholders to enter into certain business combinations with us, as provided under Section 203 of the Delaware General
Corporation Law.
30
Table of Contents
We may require additional capital in the future, and this additional capital may not be available on acceptable terms or at all.
We may need to raise additional funds in order to fund more rapid expansion (organically or through strategic acquisitions), to develop new or enhanced services or products, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced, stockholders may experience
additional dilution and the securities that we issue may have rights, preferences and privileges senior to those of our common stock. Additional financing may not be available on terms favorable to us or at all. If adequate funds are not
available or are not available on acceptable terms, we may not be able to fund our expansion, take advantage of unanticipated acquisition opportunities, develop or enhance services or products or respond to competitive pressures.
These inabilities could have a material adverse effect on our business, results of operations and financial condition.
Shares eligible for future sale may cause the market price of our common stock to drop significantly, even if our business is doing well.
The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market in the future or the perception that these sales could occur. These sales, or the possibility that
these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
Certain stockholders or entities controlled by them or their permitted transferees beneficially own shares of our common stock that have not been registered for resale with the SEC. The holders of these restricted shares may sell
their shares in the public market from time to time without registering them, subject in the case of our affiliates, to certain limitations on the timing, amount and method of those sales imposed by regulations promulgated by the SEC.
Holders of restricted stock will also have the right to cause us to register the resale of shares of common stock beneficially owned by them.
In the future, we may issue securities in connection with investments and acquisitions. The amount of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then
outstanding common stock.
It may be difficult to enforce judgments rendered against us in U.S. courts.
Although we are a Delaware corporation, our subsidiaries and most of our assets are located outside of the U.S. Furthermore, most of our directors, officers and some experts named in this report reside outside the U.S. As a result,
it may not be possible to effect service of process within the U.S. upon these persons. Moreover, uncertainty exists as to whether courts outside of the U.S. would recognize or enforce judgments rendered against us, our subsidiaries, or
the above mentioned persons in U.S. courts and predicated on the civil liability provisions of U.S. federal securities laws. In addition, any original or enforcement action in a court outside the U.S. will be subject to compliance with
procedural requirements under applicable local law, including the condition that the judgment does not violate the public policy of the applicable jurisdiction.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
31
Table of Contents
ITEM 2.
PROPERTIES
We lease facilities in different countries of Latin America that are used for administrative, marketing, product development and shipping activities purposes. All of our offices are occupied under lease agreements, except for three
of our Argentine offices. The leases for our facilities provide for renewal options and after expiration, we can renegotiate the leases with our current landlords, or move to another location. From time to time we consider various
alternatives related to our long-term facility needs. While we believe our existing facilities are adequate to meet our immediate needs, it may become necessary to lease or acquire additional or alternative space to accommodate any
future growth.
For Mercado Envios, we operate fulfillment, cross docking and service centers in multiple locations in Argentina, Brazil, Mexico, Chile and Colombia.
Our headquarters are located in Montevideo, Uruguay. Our data centers are located in Virginia, United States, and occupy approximately 542 square meters. As of December 31, 2021, our owned and leased facilities (excluding
data centers) provided us with square meters as follows:
Owned facilities
Leased facilities
Managed by third parties
Total facilities
ITEM 3.
LEGAL PROCEEDINGS
Argentina
Brazil
México
Others
Total
14,718
124,959
10,449
150,126
-
1,310,287
3,900
1,314,187
-
506,943
3,500
510,443
-
140,969
12,540
153,509
14,718
2,083,158
30,389
2,128,265
Please refer to Item 8 of Part II, “Financial Statements and Supplementary Data”—Note 14 Commitments and Contingencies—Litigation and Other Legal Matters.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Shares of our common stock, par value $0.001 per share, or our common stock, trade on the Nasdaq Global Select Market (“NASDAQ”) under the symbol “MELI.” As of December 31, 2021, the closing price of our common
stock was $1,348.40 per share.
Holders of record
As of January 31, 2022, we had 197 holders of record of our common stock. This figure does not reflect the beneficial ownership of shares held in nominee name. The following table sets forth, for the indicated periods, the high
and low per share sale prices for our common stock on the Nasdaq Global Select Market:
2021
1st quarter
2nd quarter
3rd quarter
4th quarter
2020
1st quarter
2nd quarter
3rd quarter
4th quarter
High
Low
$
$
$
$
$
$
$
$
1984.34
1623.01
1953.83
1709.98
742.74
985.77
1225.45
1732.39
$
$
$
$
$
$
$
$
1369.54
1296.65
1497.27
1052.95
452.17
447.34
956.62
1079.33
32
Table of Contents
Recent Sales of Unregistered Securities
There were no sales of unregistered securities by us during the year ended December 31, 2021.
Dividend Policy
After reviewing the Company’s capital allocation process, the Board of Directors has concluded that it has multiple investment opportunities that can generate greater return to shareholders through investing capital into the
business over a dividend policy. Consequently, the Board of Directors suspended the payment of dividend to shareholders as from the first quarter of 2018.
Equity Compensation Plan Information
Information regarding securities authorized for issuance under the Company’s equity compensation plan as of December 31, 2021 is set forth in “Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholders Matters.”
Issuer Purchases of Equity Securities
Period
October, 2021
November, 2021
December, 2021
(a) Total Number of Shares Purchased
(2)(3)
(b) Average Price per Share (1)
(c) Total Number of Shares Purchased
as Part of Publicly Announced Plans or
Programs (2)(3)
(d) Maximum Number (or Approximate
Dollar Value) of Shares that May Yet Be
Purchased Under the Program (in
millions) (2)(3)
—
3,379
36,599
—
2,635.70
2,454.12
— Up to $143
3,379 Up to $134
36,599 Up to $44
(1)
(2)
(3)
Average price paid per share does not include costs associated with the repurchases.
On August 30, 2020 the Board authorized the repurchase of shares of the Company’s common stock for an aggregate consideration of up to $350 million (the “2020 Authorization”). The share repurchase program was scheduled to expire on August 31, 2021 and may be suspended
from time to time or discontinued. The repurchases are being executed from time to time, subject to general business and market and price conditions and other investment opportunities, through open-market purchases, block trades, derivatives, trading plans established in
accordance with SEC rules, or privately negotiated transactions. On August 4, 2021, the Board authorized the Company to repurchase shares of the Company’s common stock, for aggregate consideration of up to $150 million (the “2021 Authorization”). This authorization, which
replaced and superseded the previous authorization, expires on August 31, 2022. As of December 31, 2021, the estimated remaining balance available for share repurchases under this authorization was $36 million. Please refer to Note 25 of our audited consolidated financial
statements for additional detail.
On June 7, 2021, the Board authorized the use of part or all of the cash proceeds of terminating certain of its 2028 Notes Capped Call Transactions to repurchase shares of the Company’s common stock. This authorization expired on December 31, 2021 and is in addition to the
share repurchase authorization referred to above. The repurchases were executed from time to time, subject to general business and market and price conditions and other investment opportunities, through open-market purchases, block trades, derivatives, trading plans established in
accordance with SEC rules, or privately negotiated transactions. In August and September 2021, we repurchased an aggregate of 158,413 shares of common stock pursuant to this authorization for an aggregate price of $290 million. As of December 31, 2021, the estimated
remaining balance available for share repurchases under this authorization was $8 million. The amount of further repurchases under this authorization will depend on whether the Company terminates additional 2028 Capped Call Transactions and on the amount of cash proceeds
from any such terminations. Please refer to Note 25 of our audited consolidated financial statements for additional detail.
33
Table of Contents
Stock Performance Graph
The graph below shows the total stockholder return of an investment of $100 on December 31, 2016 through December 31, 2021 for (i) our common stock; (ii) The Nasdaq Composite Index; (iii) The S&P 500 Index; and (iv) the
Dow Jones Ecommerce Index. The Dow Jones Ecommerce Index is a weighted index of stocks of companies in the e-commerce industry. Stock price performance shown in the graph below is not indicative of future stock price
performance:
We cannot assure you that our share performance will continue into the future with the same or similar trends depicted in the graph above. We will not make or endorse any predictions as to our future stock performance.
The foregoing graph and chart shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act of 1933, as amended, or
under the Securities Exchange Act of 1934, as amended, except to the extent we specifically incorporate this information by reference, and shall not otherwise be deemed filed under those acts.
34
Table of Contents
ITEM 6.
SELECTED FINANCIAL DATA
The following summary financial data is qualified by reference to and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated
financial statements and related notes thereto included elsewhere in this report.
The figures in the tables below are derived from our audited consolidated financial statements as of and for the year ended December 31, 2021, 2020 and 2019.
(In millions)
Net service revenues
Net product revenues
Net revenues
Cost of net revenues
Gross profit
Operating expenses:
Product and technology development
Sales and marketing
General and administrative
Total operating expenses
Income (loss) from operations
Other income (expenses):
Interest income and other financial gains
Interest expense and other financial losses (**)
Foreign currency losses
Net income (loss) before income tax expense
Income tax expense
Equity in earnings of unconsolidated entity
Net Income (loss)
2021 (*)
Years Ended
December 31,
2020 (*)
2019 (*)
$
$
$
6,149.3
920.1
7,069.4
(4,064.4)
3,005.1
(590.3)
(1,509.5)
(464.5)
(2,564.3)
440.7
138.0
(228.7)
(109.3)
240.6
(148.8)
(8.5)
83.3
$
$
3,690.0
283.5
3,973.5
(2,264.3)
1,709.2
(352.5)
(902.6)
(326.5)
(1,581.5)
127.7
102.8
(106.7)
(42.5)
81.3
(82.0)
—
(0.7) $
2,265.7
30.6
2,296.3
(1,194.2)
1,102.1
(223.8)
(834.0)
(197.5)
(1,255.3)
(153.2)
113.5
(65.9)
(1.7)
(107.2)
(64.8)
—
(172.0)
(*)
(**)
The table above may not total due to rounding.
Includes $49.2 million of loss on debt extinguishment and premium related to the 2028 Notes repurchase recognized in January 2021. See Note 16 of our audited consolidated financial statements for further detail on 2028 Notes repurchase.
35
Table of Contents
(in millions, except for per share data)
Selected balance sheet data:
Total assets
Long-term debt
Total liabilities
Net assets
Mandatorily redeemable convertible preferred stock (*)
Common stock
Equity
(*) In September and November 2020, holders converted 100,000 shares of Preferred Stock into 208,460 shares of the Company’s Common Stock.
Earnings (loss) per share data:
Basic net income (loss) available to common stockholders
per common share
Diluted net income (loss) per common share
Weighted average shares(1):
Basic
Diluted
(1) Shares outstanding at December 31, 2021 were 50,418,980
2021
$
10,101.2
2,233.3
8,569.5
1,531.7
—
0.05
1,531.7
At December 31,
2020
2019
$
6,526.3
860.9
4,874.8
1,651.6
—
0.05
1,651.6
Year Ended December 31,
2021
2020
2019
$
$
$
1.67
1.67 $
49,802,993
49,802,993
$
(0.08)
(0.08) $
49,740,407
49,740,407
4,781.7
631.4
2,699.7
2,082.0
98.8
0.05
1,983.1
(3.71)
(3.71)
48,692,906
48,692,906
The following table includes seven key performance indicators, which are calculated as defined in the footnotes to the table. Each of these indicators provides a different measure of the level of activity on our platform, and we use
them to monitor the performance of the business. Given the evolution of our business, as from January 1, 2021, we no longer disclose “Number of confirmed new registered users during period” since Management no longer considers
this indicator relevant to measuring the level of activity on our Mercado Libre Marketplace platform.
36
Table of Contents
(in millions)
Other data:
Unique Active Users (1)
Gross merchandise volume (2)
Number of successful items sold (3)
Number of successful items shipped (4)
Total payment volume (5)
Total volume of payments on marketplace (6)
Total payment transactions (7)
Capital expenditures
Depreciation and amortization
2021
2020
2019
Year ended December 31, (*)
139.5
28,350.9 $
1,014.3
962.3
77,371.1 $
27,432.4 $
3,254.5
630.1 $
203.9 $
132.5
20,926.8 $
719.3
649.2
49,756.8 $
19,951.4 $
1,914.5
254.1 $
105.0 $
74.2
13,997.4
378.9
306.9
28,389.9
13,051.7
838.0
141.4
73.3
$
$
$
$
$
(*) Figures have been calculated using rounded amounts. Growth calculations based on this table may not total due to rounding.
(1) New or existing user who performed at least one of the following actions during the reported period: (1) made one purchase, or reservation, or asked one question on Mercado Libre Marketplace or Classified Marketplace (2) maintained an active listing on Mercado Libre Marketplace or
Classified Marketplace (3) maintained an active account in Mercado Shops (4) made a payment, money transfer, collection and/or advance using Mercado Pago (5) maintained an outstanding credit line through Mercado Credito or (6) maintained a balance of more than $5 invested in a
Mercado Fondo asset management account. Management uses this metric to evaluate the size of our community of users who interact with the ecosystem and of which we have the opportunity to generate further engagement. With the changes in our business we believe it provides a better
indication of our active user base rather than a registration metric that does not reflect any sort of interaction.
(2) Measure of the total U.S. dollar sum of all transactions completed through the Mercado Libre Marketplace, excluding Classifieds transactions.
(3) Measure of the number of items that were sold/purchased through the Mercado Libre Marketplace, excluding Classifieds items.
(4) Measure of the number of items that were shipped through our shipping service.
(5) Measure of the total U.S. dollar sum of all transactions paid for using Mercado Pago, including marketplace and non-marketplace transactions.
(6) Measure of the total U.S. dollar sum of all marketplace transactions paid for using Mercado Pago, excluding shipping and financing fees.
(7) Measure of the number of all transactions paid for using Mercado Pago.
Non-GAAP Measures of Financial Performance
To supplement our audited consolidated financial statements presented in accordance with U.S. GAAP, we present foreign exchange (“FX”) neutral measures as a non-GAAP measure. Reconciliation of this non-GAAP financial
measure to the most comparable U.S. GAAP financial measure can be found in the tables below.
This non-GAAP measure should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP and may be different from non-GAAP measures used by other companies. In
addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as
determined in accordance with U.S. GAAP. This non-GAAP financial measure should only be used to evaluate our results of operations in conjunction with the most comparable U.S. GAAP financial measures.
We provide this non-GAAP financial measure to enhance overall understanding of our current financial performance and its prospects for the future, and we understand that this measure provides useful information to both
Management and investors. In particular, we believe that FX neutral measures provide useful information to both Management and investors by excluding the foreign currency exchange rate impact that may not be indicative of our core
operating results and business outlook.
The FX neutral measures were calculated by using the average monthly exchange rates for each month during 2020 and applying them to the corresponding months in 2021, so as to calculate what our results would have been had
exchange rates remained stable from one year to the next. The comparative FX neutral measures were 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 results would have been had exchange rates remained stable from one year to the next. The table below excludes intercompany allocation FX effects. Finally, these measures do not include any other
macroeconomic effect such as local currency inflation effects, the impact on impairment calculations or any price adjustment to compensate local currency inflation or devaluations.
37
Table of Contents
The following table sets forth the FX neutral measures related to our reported results of the operations for years ended December 31, 2021, 2020 and 2019:
(In millions, except percentages)
Net revenues
Cost of net revenues
Gross profit
Operating expenses
Income from operations
(*) The table above may not total due to rounding.
(In millions, except percentages)
Net revenues
Cost of net revenues
Gross profit
Operating expenses
Income (loss) from operations
(*) The table above may not total due to rounding.
2021
2020
As reported
Year Ended
December 31, (*)
Percentage
Change
FX Neutral Measures
2021
$ 7,069.4
(4,064.4)
3,005.1
$ 3,973.5
(2,264.3)
1,709.2
77.9%
79.5%
75.8%
$ 7,702.8
(4,371.0)
3,331.8
As reported
2020
Percentage
Change
$ 3,973.5
(2,264.3)
1,709.2
93.9%
93.0%
94.9%
(2,564.3)
440.7
(1,581.5)
127.7
62.1%
245.1%
(2,803.1)
528.7
(1,581.5)
127.7
77.2%
314.0%
2020
2019
As reported
Year Ended
December 31, (*)
Percentage
Change
FX Neutral Measures
2020
As reported
2019
Percentage
Change
$ 3,973.5
(2,264.3)
1,709.2
$ 2,296.3
(1,194.2)
1,102.1
73.0%
89.6%
55.1%
$ 5,200.3
(2,912.3)
2,288.0
$ 2,296.3
(1,194.2)
1,102.1
(1,581.5)
127.7
(1,255.3)
(153.2)
26.0%
183.4%
(2,060.6)
227.4
(1,255.3)
(153.2)
126.5%
143.9%
107.6%
64.2%
248.5%
38
Table of Contents
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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:
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
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 December 31, 2021, 2020 and 2019;
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 discussion of the market risks that we face.
For discussion on results from 2020 compared to 2019, 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 the SEC
for the year ended December 31, 2020.
Business Overview
We are the largest online commerce ecosystem in Latin America based on unique visitors and page views, 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 and El Salvador. Our platform is designed to provide users with a complete portfolio of services to facilitate commercial transactions both
digitally and offline.
We offer our users an ecosystem of six integrated e-commerce services: the Mercado Libre Marketplace, the Mercado Pago Fintech solution, the Mercado Envios logistics service, the Mercado Libre Ads solution, the Mercado
Libre Classifieds service and the Mercado Shops online storefronts solution.
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 in Latin America, a region with a population of over
650 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 in Latin America.
The Mercado Libre 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 us (when we act as sellers
in our first party sales), merchants and individuals to list merchandise and conduct sales and purchases digitally. The Marketplace has an ample assortment of products, with a wide range of categories such as consumer electronics,
apparel and beauty, home goods, automotive accessories, toys, books and entertainment and consumer packaged goods.
To complement the Mercado Libre Marketplace and enhance the user experience for our buyers and sellers, we developed Mercado Pago, an integrated digital payments solution. Mercado Pago was initially designed to facilitate
transactions on Mercado Libre’s Marketplaces by providing a mechanism that allowed our users to securely, easily and promptly send and receive payments. Now, Mercado Pago is a full ecosystem of financial technology solutions both
in the digital and physical world. Our digital payments solution enables any MercadoLibre registered user to securely and easily send and receive digital payments and to pay for purchases made on any of MercadoLibre’s Marketplaces.
Currently, Mercado Pago processes and settles all transactions on our Marketplaces in Brazil, Argentina, Mexico, Chile, Colombia, Uruguay and Peru. In addition, Mercado Pago grants through our Mercado Credito solution, loans to
sellers and buyers in Argentina, Brazil, Mexico and Chile.
Beyond facilitating Marketplace transactions, over the years we have expanded our array of Mercado Pago services to third parties outside Mercado Libre’s Marketplace. We began first by satisfying the growing demand for
online-based payment solutions by providing merchants the necessary digital payment infrastructure for e-commerce to flourish in Latin America. Today, Mercado Pago’s digital payments business not only allows merchants to facilitate
checkout and payment processes on their websites through a branded or white label solution or software development kits, but it also enables users to transfer money in a simple manner to each other through the Mercado Pago website
or on Mercado Pago app. Through Mercado Pago, we brought trust to the merchant customer relationship, allowing online consumers to shop easily and safely, while giving them the confidence to share sensitive personal and financial
data with us.
39
Table of Contents
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 user experience. Sellers that opt into our logistics solutions are not only able to
offer a uniform and seamlessly integrated shipping experience to their buyers at competitive prices, but are also eligible to access shipping subsidies to offer free or discounted shipping for many of their sales on our Marketplaces. In
2020, we launched Meli Air with a fleet of dedicated aircrafts covering routes across Brazil and Mexico, with the aim of improving our delivery times. We have also developed a network of independent neighborhood stores and
commercial points (known as “MELI Places”) to receive and store packages that are in transit using our integrated technology. MELI Places network allows buyers and sellers to pick-up, drop-off, or return packages with a better
experience, reducing the travel distance for all parties.
Mercado Credito, our credit solution, leverages our user base, which is not only loyal and engaged, but has also been historically underserved or overlooked by financial institutions and suffers from a lack of access to needed
credit. Facilitating credit is a key service overlay that enables us to further strengthen the engagement and lock-in rate of our users, while also generating additional touchpoints and incentives to use Mercado Pago as an end-to-end
financial solution.
Our asset management product, which is available in Argentina, Brazil and Mexico, is a critical pillar to building our alternative two-sided network vision. It incentivizes our users to begin to fund their digital wallets with cash as
opposed to credit or debit cards given that the return our product offers is greater than traditional checking accounts.
As an extension of our asset management and savings solutions for users, in 2021 we launched in Brazil a cryptocurrency feature as part of the Mercado Pago wallet. This service allows our millions of users to purchase, hold and
sell selected cryptocurrencies through our interface without leaving the Mercado Pago application, while a partner acts as the custodian and offers the blockchain infrastructure platform. This feature is available for all users through
their Mercado Pago wallet.
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.
Complementing the service we offer our digital storefront solution, Mercado Shops, which allows users to set-up, manage and promote their own digital stores. These stores are hosted by Mercado 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 are Brazil, Argentina, Mexico and Other Countries (including
Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru, Bolivia, Honduras, Nicaragua, El Salvador, Guatemala, Paraguay, Uruguay and the 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.
40
Table of Contents
The following table sets forth the percentage of our consolidated net revenues by segment for the years ended December 31, 2021, 2020 and 2019:
(% of total consolidated net revenues) (*)
Brazil
Argentina
Mexico
Other Countries
2021
%
55.3
21.7
16.6
6.5
Years Ended
December 31,
2020
%
55.2
24.7
14.5
5.6
2019
63.6 %
19.9
12.0
4.5
(*)
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.
The following table summarizes the changes in our net revenues by segment for the years ended December 31, 2021, 2020 and 2019:
Net Revenues:
Brazil
Argentina
Mexico
Other Countries
Total Net Revenues
Years Ended
December 31,
Change from 2020
to 2021 (*)
Years Ended
December 31,
Change from 2019
to 2020 (*)
2021
2020
in Dollars
in %
2020
2019
in Dollars
in %
(in millions, except percentages)
(in millions, except percentages)
$
$
3,909.6
1,531.0
1,172.4
456.4
7,069.4
$
$
2,194.0 $
980.3
575.2
224.0
3,973.5 $
1,715.5
550.8
597.2
232.5
3,095.9
78.2 %
56.2
103.8
103.8
77.9 %
$
$
2,194.0 $
980.3
575.2
224.0
3,973.5 $
1,461.5 $
456.3
275.1
103.3
2,296.3 $
732.5
523.9
300.0
120.6
1,677.2
50.1 %
114.8
109.1
116.7
73.0 %
(*)
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.
41
Table of Contents
Recent Developments
Acquisition of online payment service company in Chile
On December 13, 2021, we, through our subsidiaries Mercado Pago LLC and SFSC LLC, completed the acquisition of 100% of the equity interest of Redelcom S.A., a payment services provider that also offers point-of-sales
terminals with the latest technology to retailers in the Republic of Chile. The Company is located and organized under the laws of Chile. The objective of the acquisition was to consolidate the Company’s value proposition in Chile and
enhance the growth of its multiple payment tools and digital financial solutions. We paid $24.1 million in relation to this acquisition. Refer to Note 7 to our audited consolidated financial statements for additional detail.
Equity Offering
On November 18, 2021, we closed a public equity offering for an aggregate of 1,000,000 shares of common stock, par value $0.001 per share (the “Common Stock”), at a public offering price of $1,550 per share. The aggregate
proceeds of the equity offering were $1,519.5 million net of issuance costs paid. Refer to Note 22 to our audited consolidated financial statements for additional detail.
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 and the products we sell generally fall into two distinct revenue streams: “Commerce” and
“Fintech.”
The following table summarizes our consolidated net revenues by revenue stream for the years ended December 31, 2021, 2020 and 2019:
Consolidated net revenues by revenue stream
2021
Years ended
December 31, (*)
2020
(in millions)
Commerce
Fintech
Total
$
$
4,635.4
2,434.0
7,069.4
$
$
2,559.8
1,413.7
3,973.5
$
$
2019
1,346.4
949.9
2,296.3
(*)
The table above may not total due to rounding.
Revenues from commerce transactions are mainly generated from:
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
marketplace fees that include final value fees and flat fees for transactions below a certain merchandise value;
first-party sales;
shipping fees, net of the third-party carrier costs (when we act as an agent);
ad sales up-front fees;
classifieds fees; 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.
Revenues from inventories sales are generated when control of the good is transferred, upon delivery to our customers.
Shipping revenues are generated when a buyer elects to receive an item through our shipping service net of the third-party carrier costs (when we act as an agent).
Our Advertising revenues are generated by selling either display product and/or text link ads throughout our websites to interested advertisers.
42
Table of Contents
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.
Fintech revenues correspond to our Mercado Pago service, which are attributable to:
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
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 Mercado Credito solution;
commissions that we charge from transactions carried out with Mercado Pago credit and debit cards; and
revenues from the sale of mobile points of sale products and insurtech fees.
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 ended December 31, 2021, 2020 and 2019, 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 for Argentina, where the functional currency is the U.S. dollar due to Argentina’s status as a highly inflationary economy. Our net
revenues are generated in multiple foreign currencies and then translated into U.S. dollars at the average monthly exchange rate. Please refer to “Summary of significant accounting policies” in Note 2 to our audited consolidated
financial statements for further detail on foreign currency translation.
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, financing costs related to our financing and credit business, cost of goods sold, 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 in Brazil, Argentina and Colombia are subject to certain taxes on revenues which are classified as a cost of net revenues. These taxes represented 8.0%, 8.2% and 8.2% of net revenues for the years ended
December 31, 2021, 2020 and 2019, 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,
certain tax withholding related to export duties, 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 the Mercado 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.
43
Table of Contents
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, impairment losses from digital assets, 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 income tax in the 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.
The following table summarizes the composition of our income taxes for the years ended December 31, 2021, 2020 and 2019:
(In millons)
Current:
U.S.
Non U.S.
Deferred:
U.S.
Non U.S.
Income tax expense
2021 (*)
Year ended December 31,
2020 (*)
2019 (*)
$
$
— $
— $
178.3
178.3
(3.3)
(26.2)
(29.5)
148.8
$
152.3
152.3
(5.4)
(64.9)
(70.3)
82.0
$
8.7
39.6
48.3
(13.6)
30.0
16.5
64.8
(*) The table above may not total due to rounding. No asset tax expense was recorded for the years ended December 31, 2021, 2020 and 2019.
Equity in earnings of unconsolidated entity
Equity in earnings of unconsolidated entity consists primarily of earnings and losses related to our share in our equity investment.
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.
44
Table of Contents
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 ended December 31, 2021, 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 14.9% to 20.8%. The average discount rate used for 2021 was 16.9%. 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 and Active 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 ended December 31, 2021, 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, except for the digital assets which are accounted for as indefinite-lived intangible assets and for which we have recorded an impairment of $8.6 million during the year ended December 31, 2021. No impairment loss
has been recognized in the years ended December 31, 2020 and 2019.
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.
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. This percentage depends on days past due, type of product and country, and is estimated by measuring an average of historical recovery rates from defaulted credits. 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. Considering a hypothetical increase in the probability of default of 10%, the company would have recognized an increase in its allowance for uncollectible
accounts for its loans receivable of approximately $19.6 million. We will continue to monitor the impact of the pandemic on expected credit losses estimates.
45
Table of Contents
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 losses, 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. At December 31, 2021, 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 13 to the audited consolidated financial statements for additional information regarding income tax.
Recent accounting pronouncements
See Item 8 of Part II, “Financial Statements and Supplementary Data” and Note 2, “Summary of significant accounting policies-Recently Adopted Accounting Standards and Accounting Pronouncements Not Yet Adopted”.
46
Table of Contents
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
(In millions)
Net service revenues
Net product revenues
Net revenues
Cost of net revenues
Gross profit
Operating expenses:
Product and technology development
Sales and marketing
General and administrative
Total operating expenses
Income (loss) from operations
Other income (expenses):
Interest income and other financial gains
Interest expense and other financial losses (**)
Foreign currency losses
Net income (loss) before income tax expense
Income tax expense
Equity in earnings of unconsolidated entity
Net Income (loss)
Years Ended
December 31,
2021 (*)
2020 (*)
2019 (*)
$
6,149.3
$
3,690.0
$
920.1
7,069.4
(4,064.4)
3,005.1
(590.3)
(1,509.5)
(464.5)
(2,564.3)
440.7
138.0
(228.7)
(109.3)
240.6
(148.8)
(8.5)
83.3
$
283.5
3,973.5
(2,264.3)
1,709.2
(352.5)
(902.6)
(326.5)
(1,581.5)
127.7
102.8
(106.7)
(42.5)
81.3
(82.0)
—
(0.7)
$
$
2,265.7
30.6
2,296.3
(1,194.2)
1,102.1
(223.8)
(834.0)
(197.5)
(1,255.3)
(153.2)
113.5
(65.9)
(1.7)
(107.2)
(64.8)
—
(172.0)
(*) The table above may not total due to rounding.
(**) Includes $49.2 million of loss on debt extinguishment and premium related to the 2028 Notes repurchase recognized in January 2021. See Note 16 of our consolidated financial statements for further detail on 2028 Notes repurchase
47
Table of Contents
(% of net revenues)
Net service revenues
Net product revenues
Net revenues
Cost of net revenues
Gross profit
Operating expenses:
Product and technology development
Sales and marketing
General and administrative
Total operating expenses
Income (loss) from operations
Other income (expenses):
Interest income and other financial gains
Interest expense and other financial charges
Foreign currency losses
Net income (loss) before income tax expense
Income tax expense
Equity in earnings of unconsolidated entity
Net Income (loss)
(*) Percentages have been calculated using whole dollar amounts rather than appear in the table. The table above may not total due to rounding.
48
2021 (*)
Years Ended
December 31,
2020 (*)
2019 (*)
87.0
13.0
100.0
(57.5)
42.5
(8.4)
(21.4)
(6.6)
(36.3)
6.2
2.0
(3.2)
(1.5)
3.4
(2.1)
(0.1)
1.2
92.9
7.1
100.0
(57.0)
43.0
(8.9)
(22.7)
(8.2)
(39.8)
3.2
2.6
(2.7)
(1.1)
2.0
(2.1)
—
(0.0)
98.7
1.3
100.0
(52.0)
48.0
(9.7)
(36.3)
(8.6)
(54.7)
(6.7)
4.9
(2.9)
(0.1)
(4.7)
(2.8)
—
(7.5)
Table of Contents
Principal trends in results of operations
Net revenues
Our net revenues maintained its growth trajectory during the year 2021, specifically related to the increase in our gross merchandise volume and the growth of our Fintech solution services (off-platform transactions through
Mercado Pago, credit business, etc.). 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 ended December 31, 2021.
As a consequence of the COVID-19 pandemic which has affected many countries in Latin America, governments in the region imposed total or partial lockdowns and curfews in March 2020, some of which have been
subsequently extended, modified or rescinded based on the evolution of the COVID-19 pandemic. On balance, the effect of such measures on consumer behavior has resulted in revenue growth for our business, however, it is uncertain
how consumer behavior will evolve in the future as measures to limit the spread of COVID-19 are further eased or lifted, and how and whether that will impact our revenues.
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 the U.S. dollar, could cause a decline in year-over-year net revenues, measured in U.S. dollars.
We continue to monitor the progress of the COVID-19 pandemic and the impact of new variants, as well as the availability, distribution and effectiveness of vaccines and or other treatments in the countries where we operate and
will take additional measures to comply with the rapidly changing regulations of the countries where we operate and the related macroeconomic instability. However, we may not be able to predict the negative impacts that the COVID-
19 pandemic may have on our business in the future.
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.
Our gross profit trends are directly affected by our net revenue, as stated above, and our cost of net revenues. In this sense, our main cost of net revenue are composed of cost of goods sold, bank and credit card processing charges
for transactions and fees paid with credit cards and other payment methods, sales taxes, shipping operation costs (including warehousing costs), carrier and other operating costs, financing costs related to our financing and credit
business, hosting and site operation fees, compensation for customer support personnel and ISP connectivity charges. 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 continue growing our first-party sales, which has a lower pure product margin, and building up our logistics network, if we fail to maintain an appropriate
relationship between our cost of revenue structure and our net revenues trend and if we are not able to appropriately adapt to prevent future negative impacts of the ongoing COVID-19 pandemic.
For the years ended December 31, 2021 and 2020, our gross profit margins were 42.5% and 43.0%, 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 margins
Our Operating margin is defined as total net revenues minus total cost of net revenues and total operating expenses, as a percentage of net revenues.
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 ended December 31, 2021, as compared to the year ended December 31, 2020, our operating margin increased from a margin of 3.2% to a margin of 6.2%. This increase is primarily a consequence of the increase in
net revenues explained above, 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, a decrease in buyer
protection program expenses, as a percentage of net revenues, and social security benefits granted pursuant to the knowledge-based economy promotional regime in Argentina, partially offset by an increase in bad debt expenses, as a
percentage of net revenues.
49
Table of Contents
Net revenues
Total Net Revenues
For the years ended
December 31,
Change from 2020
to 2021 (*)
For the years ended
December 31,
Change from 2019
to 2020 (*)
2021
2020
in Dollars
in %
2020
2019
in Dollars
in %
$
7,069.4 $
(in millions, except percentages)
3,973.5 $
3,095.9
77.9% $
3,973.5 $
(in millions, except percentages)
2,296.3 $
1,677.2
73.0%
(*) 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 77.9% for the year ended December 31, 2021, as compared to the same period in 2020. The increase in net revenues was primarily attributable to:
a)
b)
an increase of $2,075.7 million, or 81.1%, in Commerce revenues, for the year ended December 31, 2021, as compared to the same period in 2020. This increase is mainly generated by a 35.5% increase in our gross
merchandise volume, an increase of $629.6 million in our first-party sales and an increase of $357.6 million in shipping services billed net of carrier costs for the year ended December 31, 2021, as compared to the same
period in 2020. The aforementioned increase was partially offset by an increase of $365.9 million of shipping carrier costs netted from revenues from $1,110.7 million for the year ended December 31, 2020 to $1,476.6
million for the year ended December 31, 2021; and
an increase of 72.2%, in Fintech revenues, from $1,413.7 million for year ended December 31, 2020, to $2,434.0 million for the year ended December 31, 2021. This increase was mainly generated by an increase of 229.2%
in credit business revenues and increases in off-platform transactions and financing mainly associated to a 55.5% increase in our total payment volume for the year ended December 31, 2021, as compared to the same period in
2020;
50
Table of Contents
Consolidated Net Revenues by revenue stream
(in millions, except percentages)
(in millions, except percentages)
For the years ended
December 31,
Change from 2020
to 2021 (*)
For the years ended
December 31,
Change from 2019
to 2020 (*)
2021
2020
in Dollars
in %
2020
2019
in Dollars
in %
Brazil
Commerce
Fintech
Argentina
Commerce
Fintech
Mexico
Commerce
Fintech
Other countries
Commerce
Fintech
Consolidated
Commerce
Fintech
Total
$
$
$
$
$
$
$
$
$
$
2,481.2 $
1,428.4
3,909.6 $
855.6 $
675.4
1,531.0 $
924.5 $
247.8
1,172.4 $
374.1 $
82.3
456.4 $
4,635.4 $
2,434.0
7,069.4 $
1,356.8
$
1,124.4
82.9% $
837.3
591.1
70.6%
2,194.0
$
1,715.5
78.2% $
561.3
$
419.0
980.3
$
471.4
$
103.7
575.2
$
170.3
$
53.7
224.0
$
2,559.8
$
1,413.7
3,973.5
$
294.3
256.4
550.8
453.1
144.1
597.2
203.8
28.6
232.5
2,075.7
1,020.3
3,095.9
52.4% $
61.2%
56.2% $
96.1% $
138.9%
103.8% $
119.7% $
53.4%
103.8% $
81.1% $
72.2%
77.9% $
1,356.8 $
837.3
2,194.0 $
561.3 $
419.0
980.3 $
471.4 $
103.7
575.2 $
170.3 $
53.7
224.0 $
2,559.8 $
1,413.7
3,973.5 $
793.4 $
668.1
1,461.5 $
240.2 $
216.2
456.3 $
230.2 $
44.9
275.1 $
82.7 $
20.6
103.3 $
563.4
169.2
732.5
321.1
202.8
523.9
241.2
58.8
300.0
87.6
33.0
120.6
1,346.4 $
949.9
2,296.3 $
1,213.3
463.8
1,677.2
71.0%
25.3%
50.1%
133.7%
93.8%
114.8%
104.8%
130.8%
109.1%
105.9%
160.1%
116.7%
90.1%
48.8%
73.0%
(*)
.
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.
Brazil
Commerce revenues in Brazil increased 82.9% in the year ended December 31, 2021 as compared to the same period in 2020. This increase was primarily a consequence of a 34.9% increase in our gross merchandise volume and
the increase in our first-party sales and shipping services billed net of carrier costs for the year ended December 31, 2021, as compared to the same period in 2020. Fintech revenues grew by 70.6%, a $591.1 million increase, during the
year ended December 31, 2021 as compared to the same period in 2020, mainly driven by a 61.6% increase in the off-platform payments volume, credit business and financing.
Argentina
Commerce revenues in Argentina increased 52.4% in the year ended December 31, 2021 as compared to the same period in 2020. This increase was primarily a consequence of a 23.5% increase in our gross merchandise volume
and the increase in our first-party sales for the year ended December 31, 2021. Fintech revenues grew 61.2%, a $256.4 million increase, during the year ended December 31, 2021 as compared to the same period in 2020, mainly driven
by a 73.5% increase in the off-platform payments volume, credit business and financing.
Mexico
Commerce revenues in Mexico increased 96.1% in the year ended December 31, 2021, as compared to the same period in 2020. This increase was primarily a consequence of a 52.7% increase in our gross merchandise volume and
the increase in our first-party sales for the year ended December 31, 2021. Fintech revenues grew 138.9%, a $144.1 million increase, during the year ended December 31, 2021 as compared to the same period in 2020, mainly driven by
a 109.1% increase in the off-platform payments volume and credit business.
51
Table of Contents
The following table sets forth our total net revenues and the sequential quarterly growth of these net revenues for the periods described below:
March 31,
June 30,
September 30,
December 31,
Quarter Ended
(in millions, except percentages)
(*)
2021
Net revenues
Percent change from prior quarter
2020
Net revenues
Percent change from prior quarter
2019
Net revenues
Percent change from prior quarter
$
$
$
1,378.4 $
4%
652.1 $
-3%
473.8 $
11%
1,702.7 $
24%
878.4 $
35%
545.2 $
15%
1,857.5 $
9%
1,115.7 $
27%
603.0 $
11%
(*)
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 December 31, 2021 and 2020:
(% of revenue growth in Local Currency)
Brazil
Argentina
Mexico
Other Countries
Total Consolidated
Changes from (*)
2020 to 2021
2019 to 2020
84.5%
106.3%
93.6%
102.4%
93.9%
2,130.8
15%
1,327.3
19%
674.3
12%
97.4%
218.4%
132.2%
141.2%
126.5%
(*)
The local currency revenue growth was calculated by using the average monthly exchange rates for each month during 2020 and applying them to the corresponding months in 2021, 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 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.
See also the “Non-GAAP Financial Measures” section for details on FX neutral measures.
In Argentina, the increase in local currency growth is due to an increase in our Argentine Commerce transactions volume, increases in our off-platform transactions business through Mercado Pago, an increase in our credit and
financing business and a high level of inflation.
In Brazil, the increase in local currency growth is a consequence of an increase in our Commerce transactions volume, an increase in our off-platform transactions through Mercado Pago and an increase in our financing and credit
business.
In Mexico, the increase in local currency growth is a consequence of an increase of our Commerce transactions volume, an increase in our off-platform transactions through Mercado Pago and an increase in our financing and
credit business.
Cost of net revenues
Years ended
December 31,
Change from 2020
to 2021 (*)
Years ended
December 31,
Change from 2019
to 2020 (*)
2021
2020
in Dollars
in %
2020
2019
in Dollars
in %
(in millions, except percentages)
(in millions, except percentages)
Total cost of net revenues
$
4,064.4
$
2,264.3 $
1,800.1
79.5%
$
2,264.3 $
1,194.2 $
1,070.1
89.6%
As a percentage of net revenues (*)
57.5%
57.0%
57.0%
52.0%
(*)
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.
For the year ended December 31, 2021 as compared to the year ended December 31, 2020, the increase of $1,800.1 million in cost of net revenues was primarily attributable to: i) a $616.1 million increase in cost of goods sold
mainly in Brazil, Argentina and Mexico; ii) a $478.7 million increase in shipping operating costs; iii) a $243.8 million increase in sales taxes; iv) a $169.6 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; v) a $77.3 million increase in shipping carrier costs.
52
Table of Contents
Product and technology development
Product and technology development
As a percentage of net revenues (*)
Years ended
December 31,
Change from 2020
to 2021 (*)
Years ended
December 31,
Change from 2019
to 2020 (*)
2021
2020
in Dollars
in %
2020
2019
in Dollars
in %
(in millions, except percentages)
$
590.3 $
8.4%
352.5 $
8.9%
237.9
67.5% $
(in millions, except percentages)
352.5 $
8.9%
223.8 $
9.7%
128.7
57.5%
(*)
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 ended December 31, 2021, the increase in product and technology development expenses as compared to the year ended December 31, 2020, amounted to $237.9 million. This increase was primarily attributable to: i)
a $133.9 million increase in salaries and wages mainly related to new hires, partially offset by social security benefits granted pursuant to the knowledge-based economy promotional regime in Argentina; ii) a $49.9 million increase in
maintenance expenses mainly related to higher software licenses expenses; and iii) a $30.8 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
Sales and marketing
As a percentage of net revenues (*)
Years ended
December 31,
Change from 2020
to 2021 (*)
Years ended
December 31,
Change from 2019
to 2020 (*)
2021
2020
in Dollars
in %
2020
2019
in Dollars
in %
$
1,509.5 $
21.4%
(in millions, except percentages)
902.6 $
22.7%
606.9
67.2% $
(in millions, except percentages)
902.6 $
22.7%
834.0 $
36.3%
68.5
8.2%
(*)
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 ended December 31, 2021, the $606.9 million increase in sales and marketing expenses as compared to the year ended December 31, 2020 was primarily attributable to: i) a $302.4 million increase in bad debt
expenses explained, mainly, by an increase in our credit business volume; ii) an $174.7 million increase in online and offline marketing expenses principally in Brazil, Mexico and Argentina; iii) a $46.5 million increase in other sales
expenses mainly related to strategic marketing initiatives; and iv) a $37.3 million increase in salaries and wages.
General and administrative
General and administrative
As a percentage of net revenues (*)
Years ended
December 31,
Change from 2020
to 2021 (*)
Years ended
December 31,
Change from 2019
to 2020 (*)
2021
2020
in Dollars
in %
2020
2019
in Dollars
in %
$
(in millions, except percentages)
464.5 $
6.6%
326.5
8.2%
$
138.0
42.3%
$
(in millions, except percentages)
326.5 $
8.2%
197.5 $
8.6%
129.0
65.3%
(*)
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 ended December 31, 2021, the $138.0 million increase in general and administrative expenses as compared to the year ended December 31, 2020 was primarily attributable to: i) a $62.2 million increase in salaries and
wages, mainly related to new hires; and ii) a $36.9 million increase in tax, legal and other fees; and iii) a $26.0 million increase in temporary services primarily related to administrative worker.
53
Table of Contents
Other income (expense), net
Other income (expense), net
As a percentage of net revenues (*)
Years ended
December 31,
Change from 2020
to 2021 (*)
Years ended
December 31,
Change from 2019
to 2020 (*)
2021
2020
in Dollars
in %
2020
2019
in Dollars
in %
$
(200.1) $
-2.8%
(in millions, except percentages)
(46.4)
-1.2%
$
(153.7)
331.4%
$
(in millions, except percentages)
(46.4) $
-1.2%
45.9 $
2.0%
(92.3)
-201.0%
(*) 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.
For the year ended December 31, 2021, the $153.7 million increase in other income (expense), net as compared to year ended December 31, 2020 was primarily attributable to: i) a $122.0 million increase in financial expenses
mainly attributable to a $49.2 million of loss on debt extinguishment and premium recognized during the first quarter of 2021 related to the repurchase of $440 million of principal of the 2028 Notes (refer to Note 16 of our audited
consolidated financial statements for further detail) and higher level of indebtedness during 2021, mainly incurred in U.S., Argentina and Brazil; and ii) a $66.9 million increase in our foreign currency loss mainly related to higher
foreign exchange losses attributable to our own common stock acquisition in the Argentine market at a price that reflects the additional cost of accessing US dollars through an indirect mechanism due to restrictions imposed by the
Argentine government for buying US dollars at the official exchange rate (refer to Note 25 of our audited consolidated financial statements for further detail), and higher foreign exchange losses from our Brazilian subsidiaries. This
increase was partially offset by a $35.2 million increase in interest income and other financial gains from our financial investments as a result of higher interest income in Argentina due to higher float, in Brazil due to higher float and
higher rates, partially offset by lower float in our U.S. investments.
Income tax
Income tax expense
As a percentage of net revenues (*)
Years ended
December 31,
Change from 2020
to 2021 (*)
Years ended
December 31,
Change from 2019
to 2020 (*)
2021
2020
in Dollars
in %
2020
2019
in Dollars
in %
$
(148.8) $
-2.1%
(in millions, except percentages)
(82.0)
-2.1%
$
(66.8)
81.4%
$
(82.0) $
-2.1%
(in millions, except percentages)
(64.8) $
-2.8%
(17.3)
26.7%
(*)
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.
During the year ended December 31, 2021 as compared to the year ended December 31, 2020, income tax expense increased by $66.8 million mainly as a result of higher income tax expense in Argentina and Brazil as a
consequence of higher pre-tax gain in our Argentine and Brazilian segments in 2021 and higher income tax expense due to withholding tax on dividends from our Argentine subsidiary offset by the income tax benefit that our Argentine
subsidiary, MercadoLibre S.R.L., obtained upon the approval of its eligibility under the knowledge-based economy promotional regime (see Note 13 of our audited consolidated financial statements for further detail).
Our effective tax rate is defined as income tax expense as a percentage of net income (loss) before income tax expense.
The following table summarizes the changes in our effective tax rate for the years ended December 31, 2021, 2020 and 2019:
Effective tax rate
2021
61.8%
Years ended
December 31,
2020
100.9%
2019
-60.4%
Our effective tax rate for the year ended December 31, 2021 as compared to the same period in 2020, decreased largely as a result of the income tax benefit that our Argentine subsidiary, MercadoLibre S.R.L., obtained upon the
approval of its eligibility under the knowledge-based economy promotional regime and higher non-taxable pre-tax gains in Brazil.
54
Table of Contents
The following table sets forth our effective income tax rate related to our main locations for the years ended December 31, 2021, 2020 and 2019:
Effective tax rate by country
Argentina
Brazil
Mexico
2021
Years ended
December 31,
2020
22.1%
5.9%
-7.2%
34.4%
5.6%
-2.0%
2019
5.2%
16.7%
-33.4%
The decrease in the effective income tax rate in our Argentine subsidiaries during the year ended December 31, 2021 as compared to the same period in 2020 was mainly a consequence of the income tax benefit that our Argentine
subsidiary, MercadoLibre S.R.L., obtained upon the approval of its eligibility under the knowledge-based economy promotional regime (see Note 13 of our audited consolidated financial statements for further detail).
The increase in our Brazilian effective income tax rate for the year ended December 31, 2021 as compared to the same period in 2020, was mainly related to higher non-deductible expenses.
The increase in our Mexican negative effective income tax rate for year ended December 31, 2021 as compared to the same period in 2020, was mainly driven by the combined effect of higher income tax expense related to
advertising business due to higher pre-tax gains in Mexico and pre-tax losses from other entities in Mexico that were not accounted for as deferred tax assets as a consequence of the valuation allowance.
Deferred Income Tax
The following table summarizes the composition of our deferred tax assets for the years ended December 31, 2021 and 2020:
Deferred tax assets
2021
in %
2020
in %
(in millions, except percentages)
(in millions, except percentages)
Year Ended
December 31, (*)
Year Ended
December 31, (*)
Brazilian operations
Argentine operations
Mexican operations
U.S. deferred tax assets
Operations in other countries
Total
$
$
127.8
47.6
232.8
52.3
20.9
481.4
% $
26.5
9.9
48.4
10.9
4.3
100.0
% $
101.4
35.1
162.7
18.3
16.0
333.5
%
30.4
10.5
48.8
5.5
4.8
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, 2021, and 2020 our deferred tax assets, were comprised mainly of loss carry forwards representing 40.2% and 48.6% of our total deferred tax assets, respectively, provisions representing 18.5% and 21.1% of
our total deferred tax assets, respectively, and allowance for doubtful accounts representing 13.6% and 5.4% of of our total deferred tax assets, respectively.
55
Table of Contents
The following table summarizes the composition of our deferred tax assets from loss carryforwards for the years ended December 31, 2021 and 2020:
Loss carryforwards
Mexican operations
Brazilian operations
Argentine operations
Colombian operations
Operations in other countries
Total
Year Ended
December 31, (*)
Year Ended
December 31, (*)
2021
in %
(in millions, except percentages)
2020
in %
(in millions, except percentages)
$
$
165.4
16.4
5.5
2.2
4.2
193.7
85.4
% $
8.5
2.8
1.1
2.2
100.0
% $
125.1
28.5
0.3
4.8
3.3
162.0
%
77.2
17.6
0.2
3.0
2.0
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 December 31, 2021 and 2020, our valuation allowance amounted to $261.6 million and $179.2 million, respectively.
The following table summarizes the composition of our valuation allowance for the years ended December 31, 2021 and 2020:
Valuation Allowance
Mexican operations
U.S. foreign tax credits
Colombian operations
Argentine operations
Operations in other countries
Total
Year Ended
December 31, (*)
Year Ended
December 31, (*)
2021
in %
2020
in %
(in millions, except percentages)
(in millions, except percentages)
$
$
197.0
51.5
9.4
2.5
1.2
261.6
%
$
75.2
19.7
3.6
1.0
0.5
100.0
% $
151.9
17.5
8.0
1.8
—
179.2
84.7
%
9.8
4.5
1.0
—
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.
56
Table of Contents
Equity in earnings of unconsolidated entity
Equity in earnings of unconsolidated entity
As a percentage of net revenues (*)
Years ended
December 31,
2021
2020
Change from 2020
to 2021 (*)
Years ended
December 31,
Change from 2019
to 2020
in Dollars
in %
2020
2019
in Dollars
in %
(in millions, except percentages)
(in millions, except percentages)
$
(8.5) $
-0.1%
— $
0.0%
(8.5)
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.
For the year ended December 31, 2021, the $8.5 million loss in equity in earnings of unconsolidated entity was attributable to losses derived from the equity investment in MELI Kaszek Pioneer Sponsor LLC.
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, 2021 (*)
Net revenues
Direct costs
Direct contribution
Margin
Net revenues
Direct costs
Direct contribution
Margin
Net revenues
in Dollars
in %
Direct costs
in Dollars
in %
Direct contribution
in Dollars
in %
$
$
$
$
$
$
$
Brazil
Argentina
Mexico
Other Countries
Total
3,909.6 $
(3,233.2)
676.4 $
17.3%
1,531.0 $
(997.8)
533.2 $
34.8%
1,172.4 $
(1,138.9)
33.5 $
2.9%
Year Ended December 31, 2020 (*)
456.4 $
(380.5)
75.9 $
16.6%
Brazil
Argentina
Mexico
Other Countries
Total
2,194.0 $
(1,766.0)
428.1 $
19.5%
980.3 $
(708.7)
271.6 $
27.7%
575.2 $
(586.0)
(10.8) $
-1.9%
224.0 $
(186.4)
37.5 $
16.8%
Change from the Year Ended December 31, 2021 to December 31, 2020 (*)
Brazil
Argentina
Mexico
Other Countries
Total
1,715.5 $
78.2%
(1,467.2) $
83.1%
248.3 $
58.0%
550.8 $
56.2%
(289.1) $
40.8%
261.6 $
96.3%
597.2 $
103.8%
(552.8) $
94.3%
44.4 $
408.8%
232.5 $
103.8%
(194.1) $
104.1%
38.4 $
102.2%
7,069.4
(5,750.4)
1,319.0
18.7%
3,973.5
(3,247.1)
726.4
18.3%
3,095.9
77.9%
(2,503.3)
77.1%
592.7
81.6%
(*)
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.
57
Table of Contents
(In millions, except for percentages)
Year Ended December 31, 2020 (*)
Net revenues
Direct costs
Direct contribution
Margin
Net revenues
Direct costs
Direct contribution
Margin
Net revenues
in Dollars
in %
Direct costs
in Dollars
in %
Direct contribution
in Dollars
in %
$
$
$
$
$
$
$
Brazil
Argentina
Mexico
Other Countries
Total
2,194.0 $
(1,766.0)
428.1 $
19.5%
980.3 $
(708.7)
271.6 $
27.7%
575.2 $
(586.0)
(10.8) $
-1.9%
Year Ended December 31, 2019 (*)
224.0 $
(186.4)
37.5 $
16.8%
Brazil
Argentina
Mexico
Other Countries
Total
1,461.5 $
(1,245.4)
216.1 $
14.8%
456.3 $
(347.7)
108.6 $
23.8%
275.1 $
(390.2)
(115.0) $
-41.8%
103.3 $
(105.0)
(1.6) $
-1.6%
Change from the Year Ended December 31, 2020 to December 31, 2019 (*)
Brazil
Argentina
Mexico
Other Countries
Total
732.5 $
50.1%
(520.6) $
41.8%
211.9 $
98.1%
523.9 $
114.8%
(360.9) $
103.8%
163.0 $
150.1%
300.0 $
109.1%
(195.9) $
50.2%
104.2 $
90.6%
120.6 $
116.7%
(81.5) $
77.6%
39.2 $
2396.7%
3,973.5
(3,247.1)
726.4
18.3%
2,296.3
(2,088.2)
208.1
9.1%
1,677.2
73.0%
(1,158.9)
55.5%
518.3
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.
Net revenues
Net revenues for the years ended December 31, 2021, 2020 and 2019 are described above in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Net revenues”.
Direct costs
Brazil
For the year ended December 31, 2021, as compared to the same period in 2020, direct costs increased by 83.1%, mainly driven by: i) a 88.3% increase in sales and marketing expenses, mainly due to an increase in bad debt
expenses online and offline marketing, salaries and wages and other sales expenses mainly related to strategic marketing initiative; ii) a 87.5% 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, cost of goods solds as a consequence of an increase in sales of products and shipping carrier costs; and iii) a 78.8%
increase in general and administrative expenses, mostly attributable to an increase in salaries mainly related to new hires, taxes and legal and other fees.
58
Table of Contents
Argentina
For the year ended December 31, 2021, as compared to the same period in 2020, direct costs increased by 40.8%, mainly driven by: i) an 49.2% increase in cost of net revenues, mainly attributable to an increase in collection fees
as a consequence of the higher transactions volume of our Mercado Pago business, shipping operating costs, cost of goods sold as a consequence of an increase in sales of products, sales taxes and shipping carrier costs; ii) a 53.6%
increase in product and technology development expenses, mainly attributable to depreciation and amortization expenses; and iii) a 97.2% increase in general and administrative expenses, mostly attributable to an increase in salaries
mainly related to new hires, taxes and other fees and other general and administrative expenses principally related to certain tax withholding.
Mexico
For the year ended December 31, 2021, as compared to the same period in 2020, direct costs increased by 94.3%, mainly driven by: i) a 99.1% increase in cost of net revenues, mainly attributable to increases in shipping operating
costs, cost of goods sold as a consequence of an increase in sales of products, collection fees due to higher Mercado Pago penetration and shipping carrier costs; ii) an 84.0% increase in sales and marketing expenses, mainly due to
buyer protection program, bad debt expenses, online and offline marketing expenses, salaries and wages and other sales expenses mainly related to strategic marketing initiative; iii) a 137.7% increase in product and technology
development expenses, mainly attributable to maintenance expenses mainly related to higher software licenses expenses and depreciation and amortization expenses; and iv) a 86.4% increase in general and administrative expenses,
mostly attributable to an increase in salaries, mainly related to new hires.
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 to make interest payments on our loans payable and other financial liabilities.
In 2020, we committed to purchase cloud services for: i) a total amount of $240.5 million to be paid within a 4-year period starting on June 1, 2020, which was amended in September 2021, for a total amount of $824.0 million to
be paid within a 5-year period starting on October 1, 2021 and ii) a total amount of $30.0 million to be paid between November 24, 2019 and March 23, 2023, which was amended in September 2021 for a total amount of $108.0 million
to be paid within 3-year period starting on September 17, 2021. Refer to Note 14 of our audited consolidated financial statements for further detail on purchase commitments. Further, in connection with the closing of MELI Kaszek
Pioneer Corp (“MEKA”)’s initial public offering on October 1, 2021, MEKA (a special purpose acquisition company sponsored by MELI Kaszek Pioneer Sponsor LLC (the “Sponsor”), which is a joint venture between our subsidiary,
MELI Capital Ventures LLC, and Kaszek Opportunity II, L.P.) entered into a forward purchase agreement with the Sponsor, pursuant to which the Sponsor committed to purchase from MEKA 5 million Class A ordinary shares at a
price of $10 per share in a private placement to close substantially concurrently with the consummation of MEKA’s initial business combination.
Additionally, we have several committed leases, mainly, related to our fulfillment and service centers which are one of the most important investments for our Mercado Envios business. In this sense, as of December 31, 2021, we
have committed rental expenditures with our lessors for $597.5 million and $60.9 million for operating leases and finance leases, respectively. Please see note 23 of our audited consolidated financial statements for further detail on
leases.
We have funded Mercado Pago mainly by discounting credit cards receivables and credit lines. Additionally, we have financed our Mercado Pago and Mercado Credito businesses through the securitization of credit cards
receivable and certain loans through SPEs created in Brazil, Mexico and Argentina. Finally, we obtained funding through our financial institution in Brazil through deposit certificates and financial bills. Refer to Note 16 and 21 of our
audited consolidated financial statements for further detail.
In November 2021, we closed a equity public offering for an aggregate of 1,000,000 shares of Common Stock at a public offering price of $1,550 per share The aggregate proceeds of the equity offering were $1,519.5 million net
of issuance costs paid. See note 22 to our audited consolidated financial statements for additional information regarding our equity offerings.
Finally, we issued common and preferred stock in the securities offerings that closed on March 15, 2019 and March 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.
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 future business development and cash generation. In
terms of liquidity and cash management, our relevant sources of funding remain available and credit facilities have been obtained at the geographic segment level.
As of December 31, 2021, our main source of liquidity was $2,791.9 million of cash and cash equivalents and short-term investments, which excludes a $602.2 million investment mainly related to the Central Bank of Brazil
Mandatory Guarantee, and consists of cash generated from operations and proceeds from loans.
59
Table of Contents
The significant components of our working capital are cash and cash equivalents, restricted cash and cash equivalents, short-term investments, credit cards receivable and other means of payments, accounts receivable, loans
receivable, inventory, accounts payable and accrued expenses, funds payable to customers, amounts payable due to credit and debit card transactions and short-term debt.
As of December 31, 2021, cash and cash equivalents, restricted cash and cash equivalents and investments of our non-U.S. subsidiaries amounted to $2,994.7 million, 65.9% 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 equivalent and investments held outside U.S. amounted to approximately 64.9% of our consolidated
cash and investments. Our non-U.S. dollar-denominated cash and investments are located primarily in Brazil and Argentina.
The following table presents our cash flows from operating activities, investing activities and financing activities for the years ended December 31, 2021, 2020 and 2019:
(In millions)
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rates on cash and cash equivalents, restricted cash and cash equivalents
Net increase in cash and cash equivalents, restricted cash and cash equivalents
2021
965.0 $
(1,596.5)
1,925.0
(153.8)
1,139.7 $
$
$
Years ended
December 31, (*)
2020
1,182.6 $
(252.2)
242.3
(115.8)
1,056.8 $
2019
451.1
(1,447.8)
2,021.0
(37.6)
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:
Net Cash provided by:
Operating activities
Years ended
December 31, (*)
Change from 2020
to 2021 (*)
2021
2020
in Dollars
in %
(in millions, except percentages)
$
965.0
$
1,182.6 $
(217.5)
-18.4%
(*)
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 $217.5 million decrease in net cash provided by operating activities during the year ended December 31, 2021, as compared to the same period in 2020, was primarily driven by a $540.8 million increase in credit cards
receivable and a decrease of $204.5 million increase in accounts payable and accrued expenses. This decrease was partially offset by an increase of $302.4 million in bad debt charges during 2021 primary related to an increase in
volume of our credit business and an increase of $272.0 million in amounts payable due to credit and debit card transactions.
60
Table of Contents
Net cash used in investing activities
Net Cash used in:
Investing activities
Years ended
December 31, (*)
Change from 2020
to 2021 (*)
2021
2020
in Dollars
in %
(in millions, except percentages)
$
(1,596.5)
$
(252.2) $
(1,344.4)
533.1%
(*)
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.
Net cash used in investing activities in the year ended December 31, 2021 resulted mainly from purchases of investments of $7,370.7 million, which was partially offset by proceeds from the sale and maturity of investments of
$7,800.5 million, consistent with our treasury strategy of investing part of our available liquidity, principally, in U.S. treasury securities and money market funds. We used: i) $1,347.7 million in principal loans receivable granted under
our Mercado Credito solution; ii) $572.9 million in the purchase of property and equipment (mainly related to our shipping network and information technology assets in Argentina, Brazil and Mexico); iii) $50.6 million in payments
related to the acquisition of Kangu Participações S.A. and Redelcom S.A. and; iv) $36.6 million in the purchase of intangible assets.
Net cash provided by financing activities
Net Cash provided by:
Financing activities
Years ended
December 31, (*)
Change from 2020
to 2021 (*)
2021
2020
in Dollars
in %
(in millions, except percentages)
$
1,925.0
$
242.3 $
1,682.7
694.6%
(*)
Percentages have been calculated using whole-dollar amounts rather than the rounded amounts that appear in the table.
For the year ended December 31, 2021, our cash provided by financing activities was primarily derived from $1,519.5 million in proceeds from issuance of common stock from the equity offering that we closed during the fourth
quarter of 2021, $9,261.7 million in net proceeds from loans payable and other financial liabilities and $396.7 million proceeds from the termination of certain of our 2028 Notes Capped Call Transactions. The cash flow provided by
these financing activities was partially offset by $1,865.1 million in payments of the repurchase of the 2028 Notes, $6,781.6 million in payments from loans payable and other financial liabilities, $485.9 million related to repurchases of
our common stock, and $100.8 million for the purchase of a capped call. 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
On August 24, 2018, we issued $800 million of 2.00% Convertible Senior Notes due 2028 and on August 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 (collectively the “2028 Notes”). The 2028 Notes are unsecured, unsubordinated obligations, which
pay interest in cash semi-annually, on February 15 and August 15, at a rate of 2.00% per annum. The 2028 Notes will mature on August 15, 2028 unless earlier redeemed, 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.
In January 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 this annual report, approximately $440 millions of our principal amount of the 2028 Notes remains outstanding.
61
Table of Contents
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.
Mercado Pago Funding
In 2021, we obtained funding through our financial institution in Brazil through deposit certificates and financial bills, and continued obtaining, through our subsidiaries, certain lines of credit in Argentina, Chile and Uruguay
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 Notes 16 and 21 to our audited consolidated financial statements for additional detail.
Debt Securities Guaranteed by Subsidiaries
On January 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. On October 27,
2021, MercadoLibre, S. de R.L. de C.V. became an excluded subsidiary pursuant to the terms of the Notes and, therefore, it was automatically released from its Subsidiary Guaranty. On October 27, 2021, MP Agregador, S. de R.L. de
C.V. became a Subsidiary Guarantor under the Notes.
We pay interest on the Notes on January 14 and July 14 of each year, beginning on July 14, 2021. The 2026 Sustainability Notes will mature on January 14, 2026, and the 2031 Notes will mature on January 14, 2031.
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 to December 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 to October 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, on December 14, 2025 or at any time thereafter and the 2031 Notes on
October 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 16 of our audited consolidated financial statements for additional detail.
We are presenting the following summarized financial information for the issuer and the Subsidiary Guarantors (together, the “Obligor Group”) pursuant to Rule 13-01 of Regulation S-X, Guarantors and Issuers of Guaranteed
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.
62
Table of Contents
Summarized balance sheet information for the Obligor Group as of December 31, 2021 and 2020 is provided in the table below:
(In millions)
Current assets (1) (2)
Non-current assets (3)
Current Liabilities (4)
Non-current Liabilities (5)
2021
2020
December 31,
$
$
6,193.4
1,770.3
4,937.9
2,011.7
(1)
(2)
(3)
(4)
(5)
Includes restricted cash and cash equivalents of $760.8 million and $402.0 million and guarantees in short-term investments of $602.2 million and $636.9 million as of December 31, 2021 and December 31, 2020, respectively.
Includes Current assets from non-guarantor subsidiaries of $287.1 million and $156.4 million as of December 31, 2021 and December 31, 2020, respectively.
Includes Non-current assets from non-guarantor subsidiaries of $204.2 million and $94.9 million as of December 31, 2021 and December 31, 2020, respectively.
Includes Current liabilities to non-guarantor subsidiaries of $725.5 million and $144.7 million as of December 31, 2021 and December 31, 2020, respectively.
Includes Non-current liabilities to non-guarantor subsidiaries of $134.5 million as of December 31, 2021.
Summarized statement of income information for the Obligor Group for the year ended December 31, 2021 is provided in the table below:
(In millions)
Net Revenues (1)
Gross Profit (2)
Income from operations (3)
Net loss (4) (5)
Year Ended
December 31, (*)
2021
$
4,339.4
1,121.2
3,298.2
944.3
6,067.4
2,256.8
221.0
(23.4)
(*)
(1)
(2)
(3)
(4)
(5)
On October 27, 2021, MercadoLibre, S. de R.L. de C.V. became an excluded subsidiary pursuant to the terms of the Notes and, therefore, it was automatically released from its Subsidiary Guaranty. On October 27, 2021, MP Agregador, S. de R.L. de C.V. became a Subsidiary
Guarantor under the Notes. As a result, our current period figures are not directly comparable to prior periods.
Includes Net revenues from transactions with non-guarantor subsidiaries of $144.1 million for the year ended December 31, 2021.
Includes charges from transactions with non-guarantor subsidiaries of $352.9 million for the year ended December 31, 2021.
In addition to the charges included in Gross profit, Income from operations includes charges from transactions with non-guarantor subsidiaries of $214.3 million for year ended December 31, 2021.
Includes other income from transactions with non-guarantor subsidiaries of $1.9 million for the year ended December 31, 2021.
Includes $49.2 million of loss on debt extinguishment and premium related to the 2028 Notes repurchase recognized in January 2021. See Note 16 of our audited consolidated financial statements for further detail on 2028 Notes repurchase.
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 (comprised of our payments for property and equipment (such as fulfillment centers), intangible assets (excluding digital assets) for the years ended December 31, 2021 and 2020 amounted to
$630.1 million and $254.1 million, respectively.
During 2021, we invested $218.5 million in information technology in Brazil, Argentina and Mexico, and $327.4 million in our Argentine, Brazilian and Mexican shipping premises and offices.
63
Table of Contents
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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks arising from our business operations. These market risks arise mainly from the possibility that changes in interest rates and the U.S. dollar exchange rate with local currencies, particularly the
Brazilian Real and Argentine Peso due to Brazil’s and Argentine’s respective share of our revenues, may affect the value of our financial assets and liabilities. Latin American countries in which we operate have been negatively affected
by the outbreak of COVID-19, which has generated macroeconomic instability and led to the devaluation of certain Latin American currencies.
We are also exposed to market risks arising from our long-term retention plans (“LTRPs”). These market risks arise from our obligations to pay employees cash payments in amounts that vary based on the market price of our
stock.
Foreign currencies
We have significant operations internationally that are denominated in foreign currencies, primarily the Brazilian Reais, Argentine Peso, Mexican Peso, Colombian Peso and Chilean Peso, subjecting us to foreign currency risk,
which may adversely impact our financial results. We transact business in various foreign currencies and have significant international revenues and costs. In addition, we charge our international subsidiaries for their use of intellectual
property and technology and for certain corporate services. Our cash flows, results of operations and certain of our intercompany balances that are exposed to foreign exchange rate fluctuations may differ materially from expectations
and we may record significant gains or losses due to foreign currency fluctuations and related hedging activities.
We use foreign currency exchange forward contracts and currency swaps to protect our foreign currency exposure and our investment in a foreign subsidiary from adverse changes in foreign currency exchange rates. These
hedging contracts reduce, but do not entirely eliminate, the impact of adverse foreign currency exchange rate movements. We designate these contracts as cash flow or net investment hedges for accounting purposes. The derivative’s
gain or loss is initially reported as a component of accumulated other comprehensive income (“AOCI”). Cash flow hedges are subsequently reclassified into the financial statement line item in which the hedged item is recorded in the
same period the forecasted transaction affects earnings. The accumulated gains and losses associated with the net investment hedge will remain in AOCI until the foreign subsidiary is sold or substantially liquidated, at which point they
will be reclassified into earnings.
As of December 31, 2021, we hold cash and cash equivalents in local currencies in our subsidiaries, and have receivables denominated in local currencies in all of our operations. Our subsidiaries generate revenues and incur most
of their expenses in the respective local currencies of the countries in which they operate. As a result, our subsidiaries use their local currency as their functional currency except for our Argentine subsidiaries, whose functional currency
is the U.S. dollar due to the inflationary environment. As of December 31, 2021, the total cash and cash equivalents, restricted cash and cash equivalent denominated in foreign currencies totaled $2,225.3 million, short-term investments
denominated in foreign currencies totaled $659.7 million and accounts receivable, credit cards receivable and other means of payment and loans receivable in foreign currencies totaled $3,196.9 million. As of December 31, 2021, we
had $35.8 million long-term investments denominated in foreign currencies. To manage exchange rate risk, our treasury policy is to transfer most cash and cash equivalents in excess of working capital requirements into U.S. dollar-
denominated accounts in the United States and to enter into certain foreign exchange derivatives, such as currency forwards contracts, in order to mitigate our exposure to foreign exchange risk. As of December 31, 2021, our U.S.
dollar-denominated cash and cash equivalents, restricted cash and cash equivalents and short-term investments totaled $1,572.5 million and our U.S. dollar-denominated long-term investments totaled $52.8 million.
For the year ended December 31, 2021, we had a consolidated loss on foreign currency of $109.3 million mainly related to higher foreign exchange losses attributable to the acquisition of our own common stock in the Argentine
market at a price that reflects the additional cost of accessing U.S dollars through an indirect mechanism due to restrictions imposed by the Argentine government for buying U.S. dollars at the official exchange rate (refer to Note 25 of
our audited consolidated financial statements for further detail), and higher foreign exchange losses from our Brazilian subsidiaries. (See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Results of operations—Other income (expenses), net” for more information).
See Note 2 to our audited consolidated financial statements for further detail on Argentina’s functional currency change.
64
Table of Contents
The following table sets forth the percentage of consolidated net revenues by segment for the years ended December 31, 2021, 2020 and 2019:
(% of total consolidated net revenues) (*)
Brazil
Argentina
Mexico
Other Countries
2021
%
55.3
21.7
16.6
6.5
Years Ended
December 31,
2020
%
55.2
24.7
14.5
5.6
2019
63.6 %
19.9
12.0
4.5
(*)
Percentages have been calculated using whole-dollar amounts rather than rounded amounts that appear in the table. The table above may not total due to rounding.
Foreign Currency Sensitivity Analysis
The table below shows the impact on our net revenues, expenses, other expenses and income tax, net loss and equity for a positive and a negative 10% fluctuation on all the foreign currencies to which we are exposed to as of
December 31, 2021 and for the year then ended:
Foreign Currency Sensitivity Analysis (*)
(In millions)
Net revenues
Expenses (**)
Income from operations
Other income/(expenses) and income tax related to P&L items
Foreign Currency impact related to the remeasurement of our Net Asset position
Net Income
-10%
(1)
$ 7,854.8
(7,333.3)
521.5
Actual
$ 7,069.4
(6,628.7)
440.7
+10%
(2)
$ 6,426.8
(6,052.2)
374.6
(263.3)
(111.5)
146.7
(248.1)
(109.3)
83.3
(235.6)
(107.6)
31.4
Total Shareholders' Equity
$ 1,856.8
$ 1,531.7
$ 1,134.5
(1)
(2)
(*)
(**)
Appreciation of the subsidiaries local currency against U.S. Dollar
Depreciation of the subsidiaries local currency against U.S. Dollar
The table above does not total due to rounding.
Includes cost of net revenues and operating expenses.
The table above shows an increase in our net income when the U.S. dollar weakens against foreign currencies because of the positive impact of the increase in income from operations. On the other hand, the table above shows a dec
Argentine Segment
In accordance with U.S. GAAP, we have classified our Argentine operations as highly inflationary since July 1, 2018, using the U.S. dollar as the functional currency for purposes of reporting our financial statements. Therefore,
no translation effect has been accounted for in other comprehensive income related to our Argentine operations since July 1, 2018.
As of December 31, 2021, the Argentine Peso exchange rate against the U.S. dollar was 102.72.
In the second half of 2019, the Argentine government instituted exchange controls restricting the purchase of foreign currencies. Because of Argentine exchange controls, many Argentine entities use a trading mechanism, in which
an entity buys U.S. dollar denominated securities in Argentina using Argentine Pesos, transfers the securities outside Argentina and sells the securities for U.S. dollars. The number of U.S. dollars that may be obtained through this
mechanism are lower than the ones that would have resulted from buying them at the official rate if such transaction was not restricted.
65
Table of Contents
Considering a hypothetical devaluation of 10% of the Argentine Peso against the U.S. dollar on December 31, 2021, the effect on non-functional currency net asset position in our Argentine subsidiaries would have been a foreign
exchange loss amounting to approximately $1.1 million in our Argentine subsidiaries.
See Item 7, “Management’s discussion and analysis of financial condition and results of operations—Critical accounting policies and estimates—Foreign Currency Translation” for details on the currency status of our Argentine
segment.
Brazilian Segment
Considering a hypothetical devaluation of 10% of the Brazilian Reais against the U.S. dollar on December 31, 2021, the reported net assets in our Brazilian subsidiaries would have decreased by approximately $139.3 million with
the related impact in Other Comprehensive Income. Additionally, we would have recorded a foreign currency loss amounting to approximately $31.9 million in our Brazilian subsidiaries.
Mexican Segment
Considering a hypothetical devaluation of 10% of the Mexican peso against the U.S. dollar on December 31, 2021, the reported net assets in our Mexican subsidiaries would have decreased by approximately $30.4 million with the
related impact in Other Comprehensive Income. Additionally, we would have recorded a foreign currency loss amounting to approximately $15.5 million in our Mexican subsidiaries.
Interest
Our earnings and cash flows are also affected by changes in interest rates. These changes could have an impact on the interest rates that financial institutions charge us prior to the time we sell our credit cards receivable and on the
financial debt that we use to fund our Mercado Pago and Mercado Credito’s operations. As of December 31, 2021, Mercado Pago’s funds receivable from credit cards and other means of payment totaled $1,839.4 million. Interest rate
fluctuations could also impact interest earned through our Mercado Credito solution. As of December 31, 2021, loans granted under our Mercado Credito solution totaled $1,260.1 million. Interest rate fluctuations could also negatively
affect certain of our fixed rate and floating rate investments comprised primarily of time deposits, money market funds and sovereign debt securities. In that regards, we use full cross currency swap contracts to hedge interest rate
fluctuation. Investments in both fixed rate and floating rate interest earning products carry a degree of interest rate risk. Fixed rate securities may have their fair value adversely impacted due to a rise in interest rates, while floating rate
securities may produce less income than predicted if interest rates fall.
As of December 31, 2021, the average duration of our available for sale debt securities, defined as the approximate percentage change in price for a 100-basis-point change in yield, was 1.2%. If interest rates were to
instantaneously increase (decrease) by 100 basis points, the fair value of our available for sale debt securities as of December 31, 2021 could decrease (increase) by $2.8 million.
As of December 31, 2021, our short-term investments amounted to $809.5 million and our long-term investments amounted to $88.6 million. These investments, except for the $602.2 million included in short-term investments
mainly related to the Central Bank of Brazil Mandatory Guarantee and $65.8 million included in long-term investments related to securitization vehicle investments and equity interest held at cost, can be readily converted at any time
into cash or into securities with a shorter remaining time to maturity. We determine the appropriate classification of our investments at the time of purchase and re-evaluate such designations as of each balance sheet date.
Equity Price Risk
Our board of directors, upon the recommendation of the compensation committee, approved the 2016, 2017, and 2018 Long Term Retention Plan (the “2016, 2017 and 2018 LTRPs”), respectively.
In order to receive an award under the 2016, 2017 and/or 2018 LTRP, each eligible employee must satisfy the performance conditions established by the Board of Directors for such employee. If these conditions are satisfied, the
eligible employee will, subject to his or her continued employment as of each applicable payment date, receive the full amount of his or her 2016, 2017, and/or 2018 LTRP award, payable as follows:
(cid:0)
(cid:0)
the eligible employee will receive a fixed payment, equal to 8.333% of his or her 2016, 2017, and/or 2018 LTRP bonus once a year for a period of six years starting no later than April 30, 2017, 2018 and/or 2019 respectively
(the “2016, 2017, or 2018 Annual Fixed Payment”, respectively); and
on each date we pay the respective Annual Fixed Payment to an eligible employee, he or she will also receive a payment (the “2016, 2017, or 2018 Variable Payment”, respectively) equal to the product of (i) 8.333% of the
applicable 2016, 2017, and/or 2018 LTRP award and (ii) the quotient of (a) divided by (b), where (a), the numerator, equals the Applicable Year Stock Price (as defined below) and (b), the denominator, equals the 2015 (with
respect to the 2016 LTRP), 2016 (with respect to the 2017 LTRP) and 2017 (with respect to the 2018 LTRP) Stock Price, defined as $111.02, $164.17 and $270.84 for the 2016, 2017 and 2018 LTRP, respectively, which was
the average closing price of our common stock on the NASDAQ Global Select Market during the final 60 trading days of 2015, 2016 and 2017, respectively. The “Applicable Year Stock Price” shall equal the average closing
price of our common stock on the NASDAQ Global Select Market during the final 60 trading days of the year preceding the applicable payment date.
66
Table of Contents
Our board of directors, upon the recommendation of the compensation committee, approved the 2019, 2020 and 2021 Long Term Retention Program (the “2019, 2020 and 2021 LTRPs”), respectively, under which certain eligible
employees have the opportunity to receive cash payments annually for a period of six years (with the first payment occurring no later than April 30, 2020, 2021 and 2022, respectively). In order to receive the full target award under the
2019, 2020 and/or 2021 LTRP, each eligible employee must remain employed as of each applicable payment date. The 2019, 2020 and 2021 LTRP awards are payable as follows:
(cid:0)
(cid:0)
the eligible employee will receive 16.66% of half of his or her target 2019, 2020 and/or 2021 LTRP bonus once a year for a period of six years, with the first payment occurring no later than April 30, 2020, 2021 and 2022
(the “2019, 2020 or 2021 Annual Fixed Payment”, respectively); and
on each date we pay the respective Annual Fixed Payment to an eligible employee, he or she will also receive a payment (the “2019, 2020 or 2021 Variable Payment”) equal to the product of (i) 16.66% of half of the target
2019, 2020 or 2021 LTRP award and (ii) the quotient of (a) divided by (b), where (a), the numerator, equals the Applicable Year Stock Price (as defined below) and (b), the denominator, equals the average closing price of
our common stock on the NASDAQ Global Select Market during the final 60 trading days of 2018, 2019 and 2020 defined as $322.91, $553.45 and $1,431.26 for the 2019, 2020 and 2021 LTRP, respectively. The
“Applicable Year Stock Price” shall equal the average closing price of our common stock on the NASDAQ Global Select Market during the final 60 trading days of the year preceding the applicable payment date.
As of December 31, 2021, the total contractual obligation fair value of our outstanding LTRP Variable Award Payment obligation subject to equity price risk amounted to $227.9 million. As of December 31, 2021, the accrued
liability related to the outstanding Variable Award Payment of the LTRP included in Salaries and Social security payable in our consolidated balance sheet amounted to $103.4 million. The following table shows a sensitivity analysis of
the risk associated with our total contractual obligation fair value related to the outstanding LTRP Variable Award Payment subject to equity price risk if our common stock price per share were to increase or decrease by up to 40%:
(In thousands, except equity price)
Change in equity price in percentage
MercadoLibre, Inc
Equity Price
As of December 31, 2021
2017, 2018, 2019, 2020 and 2021
LTRP Variable contractual obligation
40%
30%
20%
10%
Static(*)
-10%
-20%
-30%
-40%
1,890.74
1,755.68
1,620.63
1,485.58
1,350.53
1,215.47
1,080.42
945.37
810.32
319,093
296,301
273,509
250,716
227,924
205,131
182,339
159,547
136,754
(*) Present value of average closing stock price for the last 60 trading days of the year preceding the applicable payment date.
Regarding the acquisition of Kangú Participações S.A., former Kangú’s shareholders who after the acquisition became the Company’s employees will receive cash payments annually over a three-year period subject to certain
performance and stay conditions. The payments will be indexed based on changes in equity price of our Common Stock. As of December 31, 2021, the total contractual obligation fair value of the mentioned payments amounted to
$12.3 million.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and accompanying notes listed in Part IV, Item 15(a)-(1) of this report are included elsewhere in this report and incorporated herein by reference. Report of Independent Registered Public
Accounting Firm (PCAOB ID: 1088)
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
Not applicable.
67
Table of Contents
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on the evaluation of our disclosure control and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as required by Rules 13a-15(b) or 15d-15(b) under the Exchange Act, as of the end of the
period covered by this report, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to
Management as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding
the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Our Management, including our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control
Integrated Framework updated by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Management’s assessment included evaluation of elements such as the design and operating effectiveness of key
financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on its evaluation under the framework in Internal Control—Integrated Framework (2013), our Management
concluded that our internal control over financial reporting was effective as of December 31, 2021 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
reporting purposes in accordance with U.S. generally accepted accounting principles. We reviewed the results of Management’s assessment with the Audit Committee of our board of directors.
On November 3, 2021, and December 13, 2021, the Company completed the acquisition of Kangu Participações S.A. and Redelcom S.A., respectively (see Note 7 to the audited consolidated financial statements for further detail).
In accordance with interpretive guidance issued by the SEC, the Company’s management excluded Kangu Participações S.A. and Redelcom S.A. from its evaluation of internal control over financial reporting as of December 31, 2021.
The acquired companies represented the following percentages of our net revenues, net income and total assets as of and for the year ended December 31, 2021:
Kangu Participações S.A.
Redelcom S.A.
% of Net revenues
0.01
0.02
% of Net Income
- 8.60
- 0.43
% of Total Assets
0.06
0.15
The effectiveness of our internal control over financial reporting as of December 31, 2021, has been audited by Deloitte & Co. S.A., an independent registered public accounting firm, as stated in their report which appears in
Item 15(a) of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting as defined in Exchange Act Rule 13a-15(f) that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A
control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to
error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur
because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is
based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of
controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
68
Table of Contents
ITEM 9B. OTHER INFORMATION
Not applicable.
ITEM 9C. HOLDING FOREIGN COMPANY ACCOUNTABLE ACT
Not applicable.
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K within 120 days of the Company’s fiscal year ended December 31, 2021.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item will be provided in accordance with Instruction G(3) to Form 10-K within 120 days of the Company’s fiscal year ended December 31, 2021.
69
Table of Contents
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDERS MATTERS
Except for the information regarding shares authorized for issuance under equity compensation plans (which is set forth below), the information required by this Item will be provided in accordance with Instruction G(3) to Form
10-K within 120 days of the Company’s fiscal year ended December 31, 2021.
The following table presents information as of December 31, 2021 with respect to equity compensation plans under which shares of the Company’s common stock are authorized for issuance:
Plan Category
Equity compensation plans approved by security holders (1)
Total
Number of securities
to be issued upon
exercise of outstanding
options, Warrants
and Rights
(a)
Equity Compensation Plan Information
Weighted-average exercise price of
outstanding options, Warrants and
rights
(b)
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities reflected in column (a)) (2)
(c)
—
—
997,582
997,582
—
—
(1)
(2)
Represents our Amended and Restated 2009 Equity Compensation Plan which was approved by our stockholders on June 10, 2019.
Pursuant to SEC guidance, this table does not reflect grants of restricted stock made pursuant to our Amended and Restated 2009 Equity Compensation Plan. As of December 31, 2021, there were 528 shares of unvested restricted stock outstanding under such plan.
Description of our Amended and Restated 2009 Equity Compensation Plan (the “Amended and Restated 2009 Plan”)
Our Amended and Restated 2009 Plan was adopted by our board of directors on April 24, 2019. The Amended and Restated 2009 Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, to our employees and non-qualified stock options, restricted stock and other equity-based or equity-related awards to our employees, directors, officers and managers. Incentive stock options
and non-qualified stock options are referred to as “stock options,” and together with restricted stock and all other awards are referred to as “awards”. As of December 31, 2021, there were no outstanding stock options to purchase shares
of common stock under the Amended and Restated 2009 Plan.
No stock options were granted during the period from January 1, 2007 to December 31, 2021 and there were no stock-based compensation expenses related to stock options for the years ended December 31, 2021, 2020, 2019 and
2018. There is no stock option award outstanding under the Amended and Restated 2009 Plan. As of December 31, 2021, there were 997,582 shares of common stock available for additional awards under the Amended and Restated
2009 Plan.
Number of shares of common stock available under the Amended and Restated 2009 Plan. The maximum number of common stock reserved and available for delivery in connection with awards under the Amended and Restated
2009 Plan is 1,000,000 Shares of common stock underlying awards previously granted under the Amended and Restated 2009 Plan that terminate without being exercised, expire, are forfeited or canceled shall again be available
pursuant to the Amended and Restated 2009 Plan. The shares of common stock issuable pursuant to any award granted under the Amended and Restated 2009 Plan shall be (i) authorized but unissued shares, (ii) shares of common stock
held in the Corporation’s treasury, (iii) shares acquired by the Corporation on any stock exchange in which such shares are traded, or (iv) a combination of the foregoing.
Administration of the Amended and Restated 2009 Plan. The Amended and Restated 2009 Plan is administered by our board of directors or a committee appointed by the board of directors (the body in charge of administering the
Amended and Restated 2009 Plan is referred to as the “administrator”). If the common stock is registered under Section 12(b) or 12(g) of the Exchange Act, the board of directors shall consider in selecting the administrator and the
membership of any committee acting as administrator the provisions of Rule 16b-3 under the Exchange Act regarding “non-employee directors.” The administrator determines the recipients of awards, the times at which awards are
granted, the number of shares subject to each type of award, the time for vesting of each award and the duration of the exercise period for stock options. The administrator additionally has the power and authority to approve forms of
award agreements and other related documents used under the Amended and Restated 2009 Plan.
Price, exercise and termination of stock option awards . The exercise price for each share of common stock subject to a stock option is determined by the administrator, and in no event shall the exercise price be less than 100% of
the fair market value of the shares of common stock on the date of the grant (or 110% in the case of employees who directly or indirectly own more than 10% of the total combined voting power of all classes of our stock).
70
Table of Contents
Stock options are exercisable on their vesting date, which is determined by the administrator and set forth in the award agreement governing any particular stock option. Vesting dates can be accelerated on the occurrence of a
specified event, as provided in an award agreement, or can be accelerated at the discretion of the administrator.
If a stock option expires or is terminated or canceled without having been exercised, it shall become null and void and of no further force and effect. The term of a stock option may not exceed beyond the tenth anniversary on
which the stock option is granted (or the fifth anniversary in the case of incentive stock options granted to employees who directly or indirectly own 10% of the total combined voting power of all classes of our stock.) A stock option
terminates 30 days after a participant ceases to be an officer, manager, employee or director as a result of a termination without cause, and after 10 days of termination in the case of a termination for cause. Cause includes the conviction
of a crime involving fraud, theft, dishonesty or moral turpitude, the participant’s continuous disregard of or willful misconduct in carrying lawful instructions of superiors, continued use of alcohol or drugs that interfered with the
performance of the participant’s duties, the conviction of participant for committing a felony or similar foreign crime, and any other cause for termination set forth in a participant’s employment agreement. A stock option terminates
three months after the death or permanent disability of a participant, or, if the participant is a party to an employment agreement, the disability of such participant as defined in the employment agreement. Other reasons for termination
may be set out in the award agreement.
A stock option will not be considered an incentive stock option to the extent that the aggregate fair market value (on the date of the grant of the incentive stock option) of all stock with respect to which incentive stock options are
exercisable for the first time by a participant during any calendar year is greater than $100,000. No stock option shall be affected by a change of duties or position of a participant (including a transfer to our subsidiaries) as long as the
participant continues to be our employee or an employee of our subsidiaries.
Adjustments upon the occurrence of material transactions. In the event we undergo dissolution or liquidation, a reorganization, merger or consolidation in which we are not the surviving entity, or a sale of all or substantially all of
our assets (each, a “Material Transaction”), holders of stock options will be given 10-day prior written notice and will decide within those 10 days whether to exercise their respective stock options. Any stock option that is not so
exercised will terminate. However, such notice and exercise mechanism would not apply if provision is made in connection with a Material Transaction for assumption of outstanding stock options, or substitution of stock options for
new stock options or equity securities, with any appropriate adjustments as to the number, kind and prices of shares subject to stock options.
Transferability . Unless the prior written consent of the administrator is obtained, no stock option can be assigned or otherwise transferred by any participant except by will or by the laws of descent and distribution. Except in the
case of an approved transfer, a stock option may be exercised during the lifetime of a participant only by the participant or his/her legal representative if the participant is legally disabled.
Restricted stock . Restricted stock awards are awards of shares of common stock that vest according to the terms and conditions established by the administrator. The administrator may impose whatever restrictions on
transferability, risk of forfeiture and other restrictions as it determines. A holder of restricted stock has the rights of a stockholder, including the right to vote the restricted stock. During the restricted period applicable to the restricted
stock, it may not be sold, transferred, pledged, hypothecated, margined or otherwise encumbered. Except as otherwise determined by the administrator, restricted stock that is subject to restrictions is subject to forfeiture upon
termination of a participant’s employment.
Other awards . The administrator of the Amended and Restated 2009 Plan may grant additional equity-based or equity-related awards in such amounts and on such terms as it shall determine, subject to the terms and conditions set
forth in the Amended and Restated 2009 Plan. Each such award shall be denominated in, or shall have a value determined by reference to, a number of shares that is specified at the time of the grant of the award.
Amendment . Our board of directors may modify the Amended and Restated 2009 Plan at any time. The approval by a majority of our stockholders is necessary if required by law or necessary to comply with any applicable laws
and regulations. No amendment will affect the terms of any award granted prior to the effectiveness of such amendment, except with the consent of the holder of the award.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information presented under the heading “Certain Relationships and Related Transactions” and “Information on Our Board of Directors and Corporate Governance” in our 2022 Proxy Statement to be filed with the SEC is
incorporated herein by reference.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is included in our 2022 Proxy Statement to be filed with the SEC and is incorporated herein by reference.
71
Table of Contents
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
Financial Statements. The following financial statements are included in this report:
Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated balance sheets as of December 31, 2021 and 2020
Consolidated statements of income for the years ended December 31, 2021, 2020 and 2019
Consolidated statements of comprehensive income for the years ended December 31, 2021, 2020 and 2019
Consolidated statements of equity for the years ended December 31, 2021, 2020 and 2019
Consolidated statements of cash flows for the years ended December 31, 2021, 2020 and 2019
Notes to consolidated financial statements
(b)
Exhibits. The exhibits required by Item 601 of Regulation S-K are set forth under “Index to Exhibits” and is incorporated herein by reference.
ITEM 16. FORM 10-K SUMMARY
None.
72
Page
1
4
5
6
7
8
10
Table of Contents
EXHIBIT INDEX
Incorporated by Reference
Exhibit Number
Exhibit Description
Filed (*) or Furnished
(**) Herewith
3.01
3.02
4.01
4.02
4.03
4.04
4.05
4.06
4.07
4.08
10.01
10.02
10.03
10.04
10.05
10.06
10.07
10.08
10.09
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
21.01
22.01
23.01
31.01
31.02
32.01
32.02
101
104
Registrant’s Amended and Restated Certificate of Incorporation.
Registrant’s Amended and Restated Bylaws.
Form of Specimen Certificate for the Registrant’s Common Stock
Indenture with respect to the Registrant’s 2.00% Convertible Senior Notes due 2028, dated as of August 24, 2018, between the Registrant and Wilmington Trust,
National Association, as trustee.
Indenture, dated January 14, 2021, between MercadoLibre, Inc., 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. and The Bank of New York Mellon, as trustee.
First Supplemental Indenture, dated January 14, 2021, between MercadoLibre, Inc., 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. and The Bank of New York Mellon, as trustee.
Form of Global Note representing the Registrant’s 2.375% Sustainability Notes due 2026.
Form of Global Note representing the Registrant’s 3.125% Notes due 2031.
Description of Securities.
Second Supplemental Indenture, dated October 27, 2021 among MP Agregador, S. de R.L. de C.V., MercadoLibre, Inc. and The Bank of New York Mellon, as
Trustee
Form of Indemnity Agreement entered into by the Registrant with each of its directors and executive officers.
Management Incentive Bonus Plan of the Registrant.
Form of Employment Agreements with Officers.
Employment Agreement with Osvaldo Gimenez, dated as of March 26, 2008
Free Trade Zone Direct User Agreement Aguada Park (Item 5.A.), as amended, dated August 29, 2011, between MELI Uruguay S.R.L. and ITSEN S.A. dated
May 21, 2012 and May 22, 2012
Preliminary sales contract, as of May 8, 2013, by and among Mercadolibre S.R.L., Ribera Desarrollos S.A., Inc. S.A., Sociedad Anónima La Nación and
Desarrolladora Urbana S.A.
Amended and Restated 2012 Long-Term Retention Plan
Amended and Restated 2013 Long-Term Retention Plan
Amended and Restated 2014 Long-Term Retention Plan
Amended and Restated 2015 Long-Term Retention Program
Amended and Restated 2016 Long-Term Retention Program
Amended and Restated 2017 Long-Term Retention Program
Amended and Restated 2018 Long-Term Retention Program
Amended and Restated 2019 Long-Term Retention Program
Amended and Restated 2020 Long-Term Retention Program
2021 Long-Term Retention Program
Securities Purchase Agreement, dated as of March 11, 2019, by and between MercadoLibre, Inc. and PayPal, Inc.
MercadoLibre, Inc. 2019 Director Compensation Program
Amended and Restated 2009 Equity Compensation Plan
List of Subsidiaries
List of Subsidiary Guarantors for the Registrant’s 2.375% Sustainability Notes due 2026 and 3.125% Notes due 2031.
Consent of Deloitte & Co. S.A., Independent Registered Public Accounting Firm on Form S-3 and S-8
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
The following financial statements from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL: (i)
Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of
Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.
The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, formatted in Inline XBRL and contained in Exhibit
101
73
*
*
*
*
*
*
*
**
**
*
*
Form
S-1
S-1
10-K
8-K
8-K
8-K
8-K
8-K
10-K
S-1/A
S-1/A
10-K
10-Q
10-Q
10-Q
10-Q
10-Q
10-Q
10-Q
10-Q
10-Q
10-Q
10-Q
8-K
8-K
8-K
DEF 14A
Filing Date
May 11, 2007
May 11, 2007
February 27, 2009
August 24, 2018
January 14, 2021
January 14, 2021
January 14, 2021
January 14, 2021
February 14, 2020
July 13, 2007
July 13, 2007
February 27, 2009
August 3, 2012
August 7, 2013
August 5, 2016
August 5, 2016
August 5, 2016
May 6, 2021
May 6, 2021
May 6, 2021
May 6, 2021
May 6, 2021
May 6, 2021
May 5, 2021
March 13, 2019
August 7, 2019
April 26,2019
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
MERCADOLIBRE, INC.
By:
/s/ Marcos Galperin
Marcos Galperin
Chief Executive Officer
Date: February 23, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Marcos Galperin
Marcos Galperin
/s/ Pedro Arnt
Pedro Arnt
/s/ Mario Vazquez
Mario Vazquez
/s/ Susan Segal
Susan Segal
/s/ Nicolás Aguzin
Nicolás Aguzin
/s/ Nicolás Galperin
Nicolás Galperin
/s/ Emiliano Calemzuk
Emiliano Calemzuk
/s/ Henrique Dubugras
Henrique Dubugras
/s/ Roberto Balls Sallouti
Roberto Balls Sallouti
/s/ Richard Sanders
Richard Sanders
Signature
Title
Chief Executive Officer and Director (Principal Executive Officer)
Date
February 23, 2022
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
February 23, 2022
Director
Director
Director
Director
Director
Director
Director
Director
74
February 23, 2022
February 23, 2022
February 23, 2022
February 23, 2022
February 23, 2022
February 23, 2022
February 23, 2022
February 23, 2022
Table of Contents
To the shareholders and the Board of Directors of MercadoLibre, Inc.
Opinion on the Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheets of MercadoLibre Inc. and its subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income,
equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in
conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report, dated February 23, 2022, expressed an unqualified opinion on the
Company's internal control over financial reporting.
Changes in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, in 2019 the Company has changed its method of accounting for leases due to the adoption of ASU No. 2016-02, Leases (Topic 842), and in 2020 it has changed the
method of accounting for Credit Losses of Financial Instruments due to the adoption of ASU 2016-13 (Topic 326).
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Loans receivable — Assessment of allowance for doubtful accounts under the Expected Credit Loss (ECL) methodology — Refer to Notes 2, 6 and 18 to the financial statements
Critical Audit Matter Description
The Company estimates the allowance for uncollectible Loans receivable (ECL estimate) based on lifetime expected credit losses. Expected credit losses are determined based on probability-weighed scenarios of default over the life of
the Loans receivable. Probability of default models are estimated using a transition matrix method, which considers the expected future delinquency rate. The models include a macroeconomic outlook for projections and recent
performance. The Company estimates marginal monthly default probabilities for each delinquency bucket,
1
Table of Contents
type of product and country. These probabilities of default are combined with a set of Loss Given Default parameters, which depend on days past due, type product and country, and are estimated by measuring an average of historical
recovery rates from defaulted credits.
The loans receivable balance was $1,694.7 million and the corresponding allowance for uncollectible accounts was $434.6 million as of December 31, 2021. The respective allowance charge for the year ended December 31, 2021 was
$434.1 million.
We identified the assessment of the allowance for Loans receivable as a critical audit matter because the loans business was in a development stage, with limited historical information. The future collection estimates involved the use of
complex algorithms, and a high degree of subjectivity and estimation capability by management, including assessing whether the current economic model reflects the changing economic conditions, COVID-19 projected impacts on
borrower groups’ preferences and their repayment ability. This required a complex and high degree of auditor judgment, and an increased extent of audit effort, including the need to involve our actuarial specialists with credit risk
experience.
How the Critical Audit Matter Was Addressed in the Audit
The procedures we performed to address the ECL estimate relating to loans included, among others, the following:
(cid:0) We tested the effectiveness of controls over the ECL estimate, including those related to the (i) development and approval of the ECL methodology and (ii) determination of the relevant methods and assumptions,
including those used to estimate the expected future delinquency rates.
(cid:0) We assessed the ECL estimate replicating the ECL methodologies, including assessing the expected discounted cash flows. These procedures included, among others, testing that the mathematical calculations used in the
estimation of the ECL were performing correctly.
(cid:0) With the assistance of our actuarial specialists, we assessed the reasonableness of the ECL estimate by (i) evaluating the valuation methodology, (ii) evaluating the appropriateness of the models used in the estimate, (iii)
evaluating the relevant methods and assumptions, including those used to determine the expected future delinquency rates, (iv) testing the mathematical accuracy of the ECL estimate, and (v) evaluating the qualitative
criteria used in the ECL estimate.
(cid:0) We read and tested the accuracy and completeness of the related disclosures within the consolidated financial statements.
/s/ DELOITTE & Co. S.A.
Buenos Aires, Argentina
February 23, 2022
We have served as the Company's auditor since 2010.
2
Table of Contents
To the shareholders and the Board of Directors of MercadoLibre, Inc.
Opinion on Internal Control over Financial Reporting
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the internal control over financial reporting of Mercadolibre Inc. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on
criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the accompanying consolidated balance sheets of the Company as of December 31, 2021 and 2020,
the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial
statements”, of the Company) and our report dated February 23, 2022, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption in 2019 of a new method
of accounting for leases due to the adoption of ASU 2016-02 (Topic 842), and the adoption in 2020 of a new method of accounting for Credit Losses of Financial Instruments due to the adoption ASU 2016-13 (Topic 326).
As described in Management’s Report on Internal Control over Financial Reporting (Item 9A), management excluded from its assessment the internal control over financial reporting at Kangu Participações S.A. and Redelcom S.A.,
which were acquired on November 3, 2021 and December 13, 2021, respectively, and whose financial statements constitute 0.06% and 0.15% of total assets, 0.01% and 0.02% of net revenues, and -8.60% and -0.43% of net income,
respectively, of the consolidated financial statement amounts as of and for the year ended December 31, 2021. Accordingly, our audit did not include the internal control over financial reporting at Kangu Participações S.A. and
Redelcom S.A.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & Co. S.A.
Buenos Aires, Argentina
February 23, 2022
3
Table of Contents
MercadoLibre, Inc.
Consolidated Balance Sheets
As of December 31, 2021 and 2020
(In thousands of U.S. dollars, except par value)
Current assets:
Cash and cash equivalents
Restricted cash and cash equivalents
Short-term investments (602,193 and 636,949 held in guarantee - see Note 4)
Accounts receivable, net
Credit cards receivable and other means of payments, net
Loans receivable, net
Prepaid expenses
Inventories
Other assets
Total current assets
Non-current assets:
Long-term investments
Loans receivable, net
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Intangible assets, net
Deferred tax assets
Other assets
Total non-current assets
Total assets
Current liabilities:
Accounts payable and accrued expenses
Funds payable to customers
Amounts payable due to credit and debit card transactions
Salaries and social security payable
Taxes payable
Loans payable and other financial liabilities
Operating lease liabilities
Other liabilities
Total current liabilities
Non-current liabilities:
Amounts payable due to credit and debit card transactions
Salaries and social security payable
Loans payable and other financial liabilities
Operating lease liabilities
Deferred tax liabilities
Other liabilities
Total non-current liabilities
Total liabilities
Commitments and contingencies (Note 14)
Common stock, $0.001 par value, 110,000,000 shares authorized,
50,418,980 and 49,869,727 shares issued and outstanding at December 31,
2021 and December 31, 2020
Additional paid-in capital
Treasury stock
Retained earnings
Accumulated other comprehensive loss
Total Equity
Total Liabilities and Equity
Assets
Liabilities
Equity
The accompanying notes are an integral part of these consolidated financial statements.
4
2021
2020
December 31,
$ 2,584,586
1,063,377
809,522
98,193
1,839,389
1,199,059
40,426
253,077
287,350
8,174,979
88,598
61,011
807,367
461,175
148,243
44,974
181,266
133,545
1,926,179
$ 10,101,158
$ 1,035,860
2,393,179
336,863
313,192
291,456
1,285,416
92,343
88,393
5,836,702
3,893
20,215
2,233,255
371,614
62,496
41,292
2,732,765
$ 8,569,467
$ 50
2,439,345
(789,982)
397,419
(515,141)
1,531,691
$ 10,101,158
$ 1,856,394
651,830
1,241,306
49,691
863,073
385,036
28,378
118,140
152,959
5,346,807
166,111
16,619
391,684
303,214
85,211
14,155
134,916
67,615
1,179,525
$ 6,526,332
$ 767,336
1,695,424
37,671
207,358
215,918
548,393
55,246
108,534
3,635,880
—
49,852
860,876
243,601
64,354
20,191
1,238,874
$ 4,874,754
$ 50
1,860,502
(54,805)
314,115
(468,284)
1,651,578
$ 6,526,332
Table of Contents
MercadoLibre, Inc.
Consolidated Statements of Income
For the years ended December 31, 2021, 2020 and 2019
(In thousands of U.S. dollars, except for share data)
Net service revenues
Net product revenues
Net revenues
Cost of net revenues
Gross profit
Operating expenses:
Product and technology development
Sales and marketing
General and administrative
Total operating expenses
Income (loss) from operations
Other income (expenses):
Interest income and other financial gains
Interest expense and other financial losses (*)
Foreign currency losses
Net income (loss) before income tax expense
Income tax expense
Equity in earnings of unconsolidated entity
Net income (loss)
2021
$ 6,149,270
920,139
7,069,409
(4,064,357)
3,005,052
Year Ended December 31,
2020
$ 3,690,002
283,463
3,973,465
(2,264,255)
1,709,210
2019
$ 2,265,746
30,568
2,296,314
(1,194,191)
1,102,123
(590,328)
(1,509,493)
(464,528)
(2,564,349)
440,703
137,962
(228,704)
(109,333)
240,628
(352,474)
(902,554)
(326,490)
(1,581,518)
127,692
102,767
(106,690)
(42,454)
81,315
(223,807)
(834,022)
(197,455)
(1,255,284)
(153,161)
113,523
(65,876)
(1,732)
(107,246)
(148,802)
(8,522)
$ 83,304
(82,022)
—
$ (707)
(64,753)
—
$ (171,999)
(*)
Includes $49,247 thousands of loss on debt extinguishment and premium related to the 2028 Notes repurchase recognized in January 2021. See Note 16 to these audited consolidated financial statements for further detail on 2028 Notes repurchase.
Basic EPS
Basic net income (loss)
Available to shareholders per common share
Weighted average of outstanding common shares
Diluted EPS
Diluted net income (loss)
Available to shareholders per common share
Weighted average of outstanding common shares
2021
Year Ended December 31,
2020
2019
$ 1.67
49,802,993
$ (0.08)
49,740,407
$ 1.67
49,802,993
$ (0.08)
49,740,407
$ (3.71)
48,692,906
$ (3.71)
48,692,906
The accompanying notes are an integral part of these consolidated financial statements.
5
Table of Contents
MercadoLibre, Inc.
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2021, 2020 and 2019
(In thousands of U.S. dollars)
Net income (loss)
Other comprehensive loss, net of income tax:
Currency translation adjustment
Unrealized gains (losses) on hedging activities
Unrealized net gains on available for sale investments
Less: Reclassification adjustment for gains from accumulated other comprehensive loss (income)
Net change in accumulated other comprehensive loss, net of income tax
2021
Year Ended December 31,
2020
2019
$ 83,304
$ (707)
$ (171,999)
(56,169)
7,821
—
(1,491)
(46,857)
(58,470)
2,784
—
5,927
(61,613)
(13,793)
(164)
1,592
2,729
(15,094)
Total Comprehensive income (loss)
$ 36,447
$ (62,320)
$ (187,093)
The accompanying notes are an integral part of these consolidated financial statements.
6
Table of Contents
MercadoLibre, Inc.
Consolidated Statement of Equity
For the years ended December 31, 2021, 2020 and 2019
(In thousands of U.S. dollars)
Balance as of December 31, 2018
45,203 $ 45
$ 224,800
$ —
$ 503,432
Common stock
Shares
Amount
Additional
paid-in
capital
Treasury
Stock
Retained
Earnings
Accumulated
other
comprehensive
loss
$ (391,577)
Total
Equity
$ 336,700
Common Stock Issued
Exercise of Convertible Notes
Exercise of capped call option - shares retirement
Unwind Capped Call
Capped Call
Redeemable convertible preferred stock dividend
distribution ($9.99 per share)
Stock-based compensation — restricted shares
issued
Common Stock repurchased
Net loss
Amortization of Preferred Stock discount
Other comprehensive loss
Balance as of December 31, 2019
Changes in accounting standards
Balance as of December 31, 2019 Restated
Capped Call
Common Stock repurchased
Stock-based compensation — restricted shares
issued
Common Stock issued — converted Preferred
Shares
Exercise of Convertible Notes
Redeemable convertible preferred stock dividend
distribution ($9.99 per share)
Net loss
Other comprehensive loss
Balance as of December 31, 2020
Stock-based compensation — restricted shares
issued
Common Stock issued
Common Stock repurchased
Unwind Capped Call
Capped Call
Repurchase of 2028 Notes Conversion Option
Exercise of Convertible Notes
Net Income
Other comprehensive loss
Balance as of December 31, 2021
4,116
523
(132)
—
—
—
4
1
—
—
—
—
1
(1)
—
—
—
—
—
—
—
—
49,710 $ 50
—
49,710 $ 50
—
—
—
(49)
—
1
208
—
—
—
—
—
—
—
—
—
—
49,870 $ 50
1
1,000
(305)
(147)
—
—
—
—
—
—
1
(1)
—
—
—
—
—
—
50,419 $ 50
1,867,211
65,956
30
3
(96,367)
—
395
—
—
5,841
—
$ 2,067,869
—
$ 2,067,869
(306,789)
—
730
98,688
4
—
—
—
$ 1,860,502
755
1,519,544
—
646,031
(100,769)
(1,484,279)
(2,439)
—
—
$ 2,439,345
—
—
—
—
—
—
—
(720)
—
—
—
$ (720)
—
$ (720)
—
(54,085)
—
—
—
—
—
—
$ (54,805)
—
—
(485,885)
(249,292)
—
—
—
—
—
$ (789,982)
—
—
—
—
—
(3,000)
—
—
(171,999)
(5,841)
—
$ 322,592
(4,570)
$ 318,022
—
—
—
—
—
(3,200)
(707)
—
$ 314,115
—
—
—
—
—
—
—
83,304
—
$ 397,419
—
—
—
—
—
—
—
—
—
—
(15,094)
$ (406,671)
—
$ (406,671)
—
—
—
—
—
—
—
(61,613)
$ (468,284)
—
—
—
—
—
—
—
—
(46,857)
$ (515,141)
1,867,215
65,957
30
3
(96,367)
(3,000)
395
(720)
(171,999)
—
(15,094)
$ 1,983,120
(4,570)
$ 1,978,550
(306,789)
(54,085)
730
98,688
4
(3,200)
(707)
(61,613)
$ 1,651,578
755
1,519,545
(485,886)
396,739
(100,769)
(1,484,279)
(2,439)
83,304
(46,857)
$ 1,531,691
The accompanying notes are an integral part of these consolidated financial statements.
7
Table of Contents
MercadoLibre, Inc.
Consolidated Statement of Cash Flows
For the years ended December 31, 2021, 2020 and 2019
(In thousands of U.S. dollars)
Cash flows from operations:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Equity in earnings of unconsolidated entity
Unrealized devaluation loss, net
Impairment of digital assets
Depreciation and amortization
Accrued interest income
Non cash interest, convertible notes amortization of debt discount and amortization of debt issuance costs and other charges
Bad debt charges
Financial results on derivative instruments
Settlement of the call option
Stock-based compensation expense - restricted shares
Sale of fixed assets and intangible assets
LTRP accrued compensation
Deferred income taxes
Changes in assets and liabilities:
Accounts receivable
Credit cards receivable and other means of payments
Prepaid expenses
Inventories
Other assets
Payables and accrued expenses
Funds payable to customers
Amounts payable due to credit and debit card transactions
Other liabilities
Interest received from investments
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of investments
Proceeds from sale and maturity of investments
Payment for acquired businesses, net of cash acquired
Capital contributions in joint ventures
Receipts from settlements of derivative instruments
Payment from settlements of derivative instruments
Receipts from the sale of fixed assets and intangible assets
Purchases of intangible assets
Changes in principal loans receivable, net
Purchases of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Payments on convertible note
Purchase of convertible note capped calls
Excercise of Convertible Notes
Payments on repurchase of the 2028 Notes
Unwind of convertible note capped calls
Proceeds from loans payable and other financial liabilities
Payments on loans payable and other financing liabilities
Payment of finance lease obligations
Common Stock repurchased
Dividends paid of preferred stock
Proceeds from issuance of convertible redeemable preferred stock, net
Proceeds from issuance of common stock, net
Net cash provided by financing activities
Effect of exchange rate changes on cash, cash equivalents, restricted cash and cash equivalents
Net increase in cash, cash equivalents, restricted cash and cash equivalents
Cash, cash equivalents, restricted cash and cash equivalents, beginning of the year
Cash, cash equivalents, restricted cash and cash equivalents, end of the year
2021
Year Ended December 31,
2020
2019
$ 83,304
$ (707)
$ (171,999)
8,522
90,629
8,647
203,942
(35,880)
86,038
435,314
429
(10,674)
755
—
88,698
(29,481)
(26,331)
(1,062,794)
(12,715)
(142,382)
(174,682)
379,767
808,754
309,078
(79,007)
35,112
965,043
(7,370,742)
7,800,545
(50,615)
(5,113)
6,345
(19,747)
—
(36,567)
(1,347,710)
(572,929)
(1,596,533)
—
(100,769)
(3,137)
(1,865,076)
396,739
9,261,703
(6,781,612)
(16,524)
(485,886)
—
—
1,519,545
1,924,983
(153,754)
1,139,739
2,508,224
$ 3,647,963
—
89,329
—
104,992
(45,593)
15,033
132,944
(1,935)
—
730
3,814
129,575
(70,315)
12,069
(521,979)
16,204
(106,981)
(113,819)
584,281
900,513
37,126
(34,586)
51,857
1,182,552
(5,199,875)
5,532,463
(6,937)
—
17,779
(4,136)
274
(93)
(344,608)
(247,048)
(252,181)
—
(306,789)
—
—
—
2,396,717
(1,785,272)
(4,949)
(54,085)
(3,356)
—
—
242,266
(115,837)
1,056,800
1,451,424
$ 2,508,224
—
44,326
—
73,320
(54,309)
17,134
69,861
(301)
—
395
—
51,662
16,453
(507)
(29,315)
(17,956)
(4,148)
(49,390)
143,495
267,293
—
45,452
49,625
451,091
(4,490,678)
3,353,606
—
—
—
—
—
(72)
(173,848)
(136,798)
(1,447,790)
(25)
(96,367)
—
—
—
629,891
(472,897)
(1,929)
(720)
(2,844)
98,688
1,867,215
2,021,012
(37,584)
986,729
464,695
$ 1,451,424
The accompanying notes are an integral part of these consolidated financial statements.
8
Table of Contents
MercadoLibre, Inc.
Consolidated Statement of Cash Flows
For the years ended December 31, 2021, 2020 and 2019
(In thousands of U.S. dollars)
Supplemental cash flow information:
Cash paid for interest
Cash paid for income tax
Non-cash financing activities:
Stock-based compensation — restricted shares issued
Exercise of convertible notes
Finance lease obligations
Non-cash investing activities:
Contingent considerations and escrows from acquired business
Right-of-use assets obtained under finance leases
Acquired businesses, through call option
Acquisition of business
Cash and cash equivalents
Accounts receivable
Other current assets
Other non current assets
Intangible Assets
Fixed Assets
Total assets acquired
Accounts payable and accrued expenses
Other liabilities
Total liabilities assumed
Net assets acquired (liabilities assumed)
Goodwill and deferred tax liabilities
Hubs Network
Platform
Customer lists
Non Compete and Non Solicitation Agreement
Total purchase price
Cash and cash equivalents acquired
Total purchase price, net of cash acquired
2021
Year Ended December 31,
2020
2019
$ 57,590
$ 282,106
$ 53,781
$ 139,855
$ 40,523
$ 94,954
$ —
$ —
$ 20,051
$ 1
$ —
$ 12,228
$ 1
$ 65,957
$ 2,567
$ 11,943
$ 36,575
$ 10,674
2021 (1)
$ 4,206
5,481
18,333
893
105
1,193
30,211
19,437
6,612
26,049
4,162
67,843
3,479
914
905
135
77,438
4,206
$ 73,232
$ 2,399
$ 17,177
$ —
2020 (2)
$ 939
3,333
1,725
—
—
606
6,603
1,729
6,402
8,131
(1,528)
6,283
3,050
—
1,565
905
10,275
939
$ 9,336
$ —
$ 4,496
$ —
2019
$ —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ —
(1) Related to the acquisition of a delivery company and payment services company– See Note 7.
(2) Related to the acquisition of a software development company – See Note 7.
The accompanying notes are an integral part of these consolidated financial statements.
9
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
1.
Nature of Business
MercadoLibre, Inc. (“MercadoLibre” or the “Company”) was incorporated in the state of Delaware, in the United States of America, in October 1999. MercadoLibre is the largest online commerce ecosystem in Latin America,
serving as an integrated regional platform and as a provider of necessary digital and technology tools that allow businesses and individuals to trade products and services in the region.
The Company enables commerce through its marketplace platform, which allows users to buy and sell in most of Latin America. Through Mercado Pago, the fintech solution, MercadoLibre enables individuals and businesses to
send and receive digital payments; through Mercado Envios, MercadoLibre facilitates the shipping of goods from the Company and sellers to buyers; through the advertising products, MercadoLibre facilitates advertising services
for large retailers and brands to promote their product and services on the web; through Mercado Shops, MercadoLibre allows users to set-up, manage, and promote their own on-line web-stores under a subscription-based
business model; through Mercado Credito, MercadoLibre extends loans to certain merchants and consumers; and through Mercado Fondo, MercadoLibre allows users to invest funds deposited in their Mercado Pago accounts.
As of December 31, 2021, MercadoLibre, through its wholly-owned subsidiaries, operated online e-commerce platforms directed towards Argentina, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Peru,
Mexico, Panama, Honduras, Nicaragua, El Salvador, Uruguay, Bolivia, Guatemala, Paraguay and Venezuela. Additionally, MercadoLibre operates its fintech solution in Argentina, Brazil, Mexico, Colombia, Chile, Peru and
Uruguay, and extends loans through Mercado Credito in Argentina, Brazil, Mexico and Chile. It also offers a shipping solution directed towards Argentina, Brazil, Mexico, Colombia, Chile, Uruguay and Peru.
2.
Summary of significant accounting policies
Principles of consolidation
The accompanying consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of the Company, its wholly-
owned subsidiaries and consolidated Variable Interest Entities (“VIE”). Investments in entities where the Company holds joint control, but not control, over the investee are accounted for using the equity method of accounting.
These consolidated financial statements are stated in U.S. dollars, except for amounts otherwise indicated. Intercompany transactions and balances have been eliminated for consolidation purposes.
Substantially all net revenues, cost of net revenues and operating expenses, are generated in the Company’s foreign operations. Long-lived assets, intangible assets and goodwill located in the foreign jurisdictions totaled $977,900
thousands and $490,464 thousands as of December 31, 2021, and 2020, respectively.
Since the quarter ended March 31, 2021, the Company has disclosed Net product revenues as a separate line of Net revenues following its growth in significance relative to Net service revenues. As a result, the Company has
reclassified the corresponding amount for the years ended December 31, 2020 and 2019, to the line Net product revenues for an amount of $283,463 thousands and $30,568 thousands, respectively, for comparative purposes.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used for, but not limited to, accounting for allowance for doubtful accounts
and chargeback provisions, allowance for loans receivable, inventories valuation reserves, recoverability of goodwill, intangible assets with indefinite useful lives and deferred tax assets, impairment of short-term and long-term
investments, impairment of long-lived assets, compensation costs relating to the Company’s long term retention plan, fair value of convertible debt, fair value of investments, fair value of derivative instruments, income taxes and
contingencies and determination of the incremental borrowing rate at commencement date of lease operating agreements. Actual results could differ from those estimates.
10
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
2.
Summary of significant accounting policies (continued)
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased, consisting primarily of money market funds and time deposits, to be cash equivalents.
The Company’s management assesses balances for credit losses included in cash and cash equivalents and restricted cash and cash equivalents 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. The Company did not recognize any material credit loss on the cash and cash equivalent and restricted cash and cash equivalents in 2021,
2020 and 2019.
Money market funds and sovereign debt securities are valued at fair value. See Note 9 “Fair Value Measurement of assets and liabilities” for further details.
Investments
Time deposits are valued at amortized cost plus accrued interest. Debt securities classified as available-for-sale are recorded at fair value. Unrealized gains and losses on available-for-sale securities are reported as a component of
other comprehensive (loss), net of the related tax provisions or benefits.
Investments are classified as current or non-current depending on their maturity dates and when it is expected to be converted into cash.
The Company’s management assesses balances for credit losses included in short and long-term investments 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. The Company did not recognize any material credit loss on the short and long-term investments in 2021, 2020 and 2019.
Sovereign debt securities (including Central Bank of Brazil mandatory guarantee) are valued at fair value. See Note 9 “Fair Value Measurement of Assets and Liabilities” for further details.
Fair value option applied to certain financial instruments
Under ASC 825, U.S. GAAP provides an option to elect fair value with impact on the statement of income as an alternative measurement for certain financial instruments and other items on the balance sheet.
The Company has elected to measure certain financial assets at fair value with impact on the statement of income from January 1, 2019 for several reasons including to avoid the mismatch generated by the recognition of certain
linked instruments / transactions, separately, in consolidated statement of income and consolidated statement of comprehensive income and to better reflect the financial model applied for selected instruments.
The Company’s election of the fair value option applies to the: i) Brazilian federal government bonds and ii) U.S. treasury notes. As result of the election of the fair value option, the Company recognized gains in interest income
and other financial gains of $9,218 thousands and $8,433 thousands as of December 31, 2021, and 2020, respectively.
Credit cards receivable and other means of payments, net
Credit cards receivables and other means of payments mainly relate to the Company’s payments solution and arise due to the time taken to clear transactions through external payment networks either during the time required to
collect the installments or during the period of time until those credit cards receivable are sold to financial institutions.
Credit cards receivable and other means of payments are presented net of the related provision for chargebacks and doubtful accounts.
The Company is exposed to losses due to credit card fraud and other payment misuse. Provisions for these items represent the Company’s estimate of actual losses based on its historical experience, as well as economic conditions.
11
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
2.
Summary of significant accounting policies (continued)
Transfer of financial assets
The Company may sell credit cards coupon to financial institutions, included within “Credit cards receivable and other means of payments, net”. These transactions are accounted for as a true sale. Accounting guidance on transfer
of financial assets establishes that the transferor has surrendered control over transferred assets if and only if all of the following conditions are met: (1) the transferred assets have been isolated from the transferor, (2) each
transferee has the right to pledge or exchange the assets it received and (3) the transferor does not maintain effective control over the transferred assets. When all the conditions are met, the Company derecognizes the
corresponding financial asset from its balance sheet. Based on historical experience to date the Company assessed that it does not hold a significant credit risk exposure in relation to transfer of financial assets with recourse. The
aggregate gain included in net revenues arising from financing transactions, net of the costs recognized on sale of credit cards coupon, is $575,185 thousands, $452,892 thousands and $359,037 thousands, for the years ended
December 31, 2021, 2020 and 2019, respectively.
Loans receivable, net
Loans receivable represents loans granted to certain merchants and consumers through the Company’s Mercado Credito solution.
Loans receivable are reported at their outstanding principal balances plus estimated collectible interest, net of allowances. Loans receivable are presented net of the allowance for uncollectible accounts. The Company places loans
on non-accrual status at 90 days past due.
Through the Company’s Mercado Credito solution, merchants can borrow a certain percentage of their monthly sales volume and are charged with a fixed interest rate based on the overall credit assessment of the merchant.
Merchant and consumers credits are repaid in a period ranging between 3 and 24 months.
The Company closely monitors credit quality for all loans receivable on a recurring basis. To assess a merchant and consumers seeking a loan under the Mercado Credito solution, the Company uses, among other indicators, a risk
model internally developed, as a credit quality indicator to help predict the merchant’s and consumer’s ability to repay the principal balance and interest related to the credit. The risk model uses multiple variables as predictors of
the merchant’s and consumer’s ability to repay the credit, including external and internal indicators. Internal indicators consider merchant’s annual sales volume, claims history, prior repayment history, and other
measures. Merchants are rated based on an internally developed score. In addition, the Company considers external bureau information to enhance the scoring model and the decision making process. The internal rating and the
bureau credit score are combined in a risk matrix, which is also used to price the loans based on the risk profile.
Allowances for doubtful accounts on loans receivable, accounts receivable and credit cards receivable and other means of payment
Since January 1, 2020 the Company maintains allowances for doubtful accounts for Management’s estimate of current expected credit losses (“CECL”) that may result if customers do not make the required payments.
Measurement of current expected credit losses
The company estimates its allowance for credit losses as the lifetime expected credit losses of the accounts receivables mentioned above. The CECL represent the present value of the uncollectible portion of the principal, interest,
late fees, and other allowable charges.
Loans Receivable
Loans Receivable in this portfolio include the products that the company offers to: 1) on-line merchant, 2) in-store merchant , 3) consumers and 4) credit cards.
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.
12
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
2.
Summary of significant accounting policies (continued)
Allowances for doubtful accounts on loans receivable, accounts receivable and credit cards receivable and other means of payment (continued)
Loans Receivable (continued)
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, the Company estimates 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. The Company estimates 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. This percentage depends on days past due, type of product and country, and is estimated by measuring an average of historical recovery
rates from defaulted credits.
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. The Company will continue to monitor the impact of the pandemic on expected credit losses estimates.
The Company writes off loans receivable when the customer balance becomes 360 days past due.
Accounts Receivable
To measure the CECL, accounts receivable have been grouped based on shared credit risk characteristics and the number of days past due. The Company has 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.
The Company writes off accounts receivable when the customer balance becomes 180 days past due.
Credit cards receivable and other means of payment
Management assesses balances for credit losses included in credit cards receivable and other means of payment, 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.
The Company has arrangements with some unaffiliated entities under which MercadoLibre users are able to fund their Mercado Pago accounts by depositing an equivalent amount with the unaffiliated entity. In some of these
arrangements, MercadoLibre credits the Mercado Pago account before the unaffiliated entity transfers the funds to MercadoLibre to settle the transaction. The amounts pending settlement are recognized in the balance sheet as
credit cards receivable and other means of payment. In June 2020, the Company became aware that it had accumulated significant receivables from one such unaffiliated entity in Argentina. The aging of these receivables
exceeded the expected aging for transactions of this kind, hence, the Company recorded $27,006 thousands loss on doubtful accounts during the year ended December 31, 2020.
13
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
2.
Summary of significant accounting policies (continued)
Concentration of credit risk
Cash and cash equivalents, restricted cash and cash equivalents, short-term and long-term investments, credit cards receivable and other means of payment, accounts receivable and loans receivable are potentially subject to
concentration of credit risk. Cash and cash equivalents, restricted cash and cash equivalents and investments are placed with financial institutions and financial instruments that Management believes are of high credit quality.
Accounts receivable are derived from revenue earned from customers located internationally. Accounts receivable balances are settled through customer credit cards, debit cards and Mercado Pago accounts, with the majority of
accounts receivable collected upon processing of credit card transactions. Due to the relatively small dollar amount of individual accounts receivable and loans receivable, the Company generally does not require collateral on
these balances. The allowance for doubtful accounts is recorded as a charge to sales and marketing expense.
During the years ended December 31, 2021, 2020 and 2019, no single customer accounted for more than 5% of net revenues. As of December 31, 2021 and 2020, no single customer, except for credit card processing companies,
accounted for more than 5% of accounts receivable and loans receivable. Credit cards receivable and other means of payments, net line of the consolidated balance sheet shows the Company´s credit exposure to not more than 10
entities in each of the countries where the Company offers our payments solution.
Funds payable to customers
Funds payable to customers relate also to the Company’s payments solution and are originated by the amounts due to users held by the Company. Funds, net of any amount due to the Company by the user, are maintained in the
user’s current account until withdrawal is requested by the user. See Note 4 “Cash, cash equivalents, restricted cash and cash equivalent and investments” for additional information on regulations of Mercado Pago business.
Amounts payable due to credit and debit card transactions
Amounts payable due to credit and debit card transactions are originated by purchase transactions carried out by the Company´s customers with debit and credit cards issued by Mercado Pago.
Provision for buyer protection program
The Company provides consumers with a buyer protection program (“BPP”) for all transactions completed through the Company’s online payment solution (“Mercado Pago”). The Company is exposed to losses under this
program due to this program is designed to protect buyers in the Marketplace from losses due primarily to fraud or counterparty non-performance. Provisions for BPP represent the Company’s estimate of probable losses based on
its historical experience.
Inventories
Inventories, consisting of products and mobile point of sale (“MPOS”) devices available for sale, are accounted for using the weighted average price method, and are valued at the lower of cost or market value.
The Company accounts for an allowance for recoverability of inventories based on management´s analysis of the inventories, aging, consumption patterns, as well as the lower of cost or net realizable value.
Third-party sellers whose products are stored at the Company’s fulfillment centers, maintain the ownership of their inventories hence these products are not included in Company’s inventories balances.
Property and equipment, net
Property and equipment are recorded at their acquisition cost and depreciated over their estimated useful lives using the straight-line method. Repair and maintenance costs are expensed as incurred.
Costs related to the planning and post implementation phases of website development are recorded as an operating expense. Direct costs incurred in the development phase of website are capitalized and amortized using the
straight-line method over an estimated useful life of three years. During 2021 and 2020, the Company capitalized $188,140 thousands and $119,491 thousands, respectively.
14
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
2.
Summary of significant accounting policies (continued)
Goodwill and intangible assets
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination.
Intangible assets consist of customer lists, trademarks, licenses and others, non-solicitation, non-compete agreements and hubs network acquired in business combinations and valued at fair value at the acquisition date. Intangible
assets with definite useful life are amortized over the period of estimated benefit to be generated by those assets and using the straight-line method; their estimated useful lives ranges from three to twelve years. Trademarks with
indefinite useful life are not subject to amortization, but are subject to an annual impairment test, by comparing their carrying amount with their corresponding fair value. For any given intangible asset with indefinite useful life, if
its fair value exceeds its carrying amount no impairment loss shall be recognized.
Digital Assets
As of December 31, 2021, the Company had purchased an aggregate amount of $30,000 thousands in cryptocurrencies. The Company accounts for its digital assets as indefinite-lived intangible assets, in accordance with
Accounting Standards Codification (“ASC”) 350, Intangibles—Goodwill and Other. The Company has ownership of and control over its digital assets and uses third-party custodial services to store its digital assets. The
Company’s digital assets are initially recorded at cost. Subsequently, they are measured at cost, net of any impairment losses incurred since acquisition.
The Company performs an analysis each quarter to identify whether events or changes in circumstances, principally decreases in the quoted prices on the active exchange, indicate that any decrease in the fair values of the digital
assets below the carrying values for such assets subsequent to their acquisition will result in a recognition of impairment charges. The Company considers the lowest price of the digital asset on the active exchange since the
acquisition of the asset to perform the impairment analysis. MercadoLibre determines the fair value of its digital assets in accordance with ASC 820, Fair Value Measurement.
Impairment of long-lived assets
The Company reviews 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 an asset to the undiscounted future net cash flows expected to be generated by the 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 the fair value of such asset. As of December 31, 2021 there were no events or changes in circumstances that indicate that the carrying value of an asset
may not be recoverable.
Impairment of goodwill and intangible assets with indefinite useful life
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 segment of the Company as a reporting unit) by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of such reporting
unit.
As of December 31, 2021 and 2020, the Company elected to perform the quantitative impairment test for both goodwill and intangible assets with indefinite useful life.
For the year ended December 31, 2021, 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. The Company uses
discount rates to each reporting unit in the range of 14.9% to 20.8%. The average discount rate used for 2021 was 16.9%. That rate reflected the Company’s 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 and Active 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 the Company’s market share.
If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired. No impairment loss has been recognized in the years ended December 31, 2021, 2020 and 2019 as Management’s assessment of
the fair value of each reporting unit exceeds its carrying value.
15
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
2.
Summary of significant accounting policies (continued)
Impairment of goodwill and intangible assets with indefinite useful life (continued)
Digital Assets
Impairment losses are recognized in the period in which the impairment is identified. The impaired digital assets are written down to their fair value at the time of impairment and this new cost basis will not be adjusted upward for
any subsequent increase in fair value. Gains (if any) are not recorded until realized upon sale. In determining the gain to be recognized upon sale, the Company calculates the difference between the sales price and carrying value
of the digital assets sold immediately prior to sale.
Intangible assets with indefinite useful life are considered impaired if the carrying amount of the intangible asset exceeds its fair value. The Company recorded an impairment of digital assets of $8,647 thousands during the year
ended December 31, 2021. No impairment loss has been recognized in the years ended December 31, 2020 and 2019.
Revenue recognition
Revenues are recognized when control of the promised services or goods is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for them.
Contracts with customers may include promises to transfer multiple services including discounts on current or future services. Determining whether services are considered distinct performance obligations that should be
accounted for separately versus together may require judgment.
Revenues are recognized when each performance obligation is satisfied by transferring the promised service to the customer according to the following criteria described for each type of service:
a) Commerce transactions:
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
Revenues from intermediation services derived from final value fees paid by sellers. Revenues related to final value fees are recognized at the time that the transaction is successfully concluded.
Revenues from shipping services are generated when a buyer elects to receive the item through the Company’s shipping service and the service is rendered to the customer. When the Company acts as an agent, revenues
derived from the shipping services are presented net of the transportation costs charged by third-party carriers and when the Company acts as principal, revenues derived from the shipping services are presented in gross
basis. As part of the Company’s business strategy, shipping costs may be fully or partially subsidized at the Company’s option.
Revenues from inventories sales are generated when control of the good is transferred to the Company’s customers, which occurs upon delivery to the customer.
Advertising revenues such as the sale of banners are recognized on accrual basis during the average advertising period, and remaining advertising services such as sponsorship of sites and improved search standing are
recognized based on “per-click” (which are generated each time users on the Company’s websites click through text-based advertisements to an advertiser’s designated website) values and as the “impressions” (i.e., the
number of times that an advertisement appears in pages viewed by users of the Company’s websites) are delivered.
Classified advertising services are recorded as revenue ratably during the listing period. Those fees are charged at the time the listing is uploaded onto the Company’s platform and is not subject to successful sale of the items
listed.
b) Fintech services:
(cid:0)
Revenues from commissions we charge for transactions off-platform derived from the use of the Company’s on-line payments solution or Mercado Pago credit and debit cards, are recognized once the transaction is
considered completed, when the payment is processed by the Company, net of rebates granted. The Company also earns revenues as a result of offering financing to its Mercado Pago users, either when the Company finances
the transactions directly or when the Company sells the corresponding financial assets to financial institutions. When the Company finances the transactions directly, it recognizes financing revenue ratably over the period of
the financing. When the Company sells the corresponding financial assets to financial institutions, the result of such sale is accounted for as financing revenues net of financing costs at the time of transfer of the financial
assets. Revenues from sale of mobile points of sale products are recognized when control of the good is transferred.
16
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
2.
Summary of significant accounting policies (continued)
Revenue recognition (continued)
(cid:0)
Revenues from interest earned on loans and advances granted to merchants and consumers, and credit cards transactions are recognized over the period of the loan and are based on effective interest rates. The Company
places loans on non-accrual status at 90 days past due.
Contract Balances
Timing of revenue recognition may differ from the timing of invoicing to customers. Receivables represent amounts invoiced and revenue recognized prior to invoicing when the Company has satisfied the performance obligation
and has the unconditional right to payment. Receivables are presented net of allowance for doubtful accounts, uncollectible accounts and chargebacks. The allowance for doubtful accounts, uncollectible accounts and chargebacks
was $474,227 thousands and $126,661 thousands as of December 31, 2021 and 2020, respectively.
Deferred revenue consists of fees received related to unsatisfied performance obligations at the end of the year in accordance with ASC 606. Due to the generally short-term duration of contracts, the majority of the performance
obligations are satisfied in the following reporting period. Deferred revenue as of December 31, 2020 and 2019 was $32,519 thousands and $16,590 thousands, respectively, of which substantially all were recognized as revenue
during the years ended December 31, 2021 and 2020, respectively.
As of December 31, 2021, total deferred revenue was $34,034 thousands, mainly due to fees related to classified advertising services billed and loyalty programs that are expected to be recognized as revenue in the coming months.
Share-based payments
The liability related to the variable portion of the long term retention plans is remeasured at fair value. See Note 15 “Long Term Retention Plan” for more details.
Sales tax
The Company’s subsidiaries in Brazil, Argentina and Colombia are subject to certain sales taxes which are classified as cost of net revenues and totaled $569,080 thousands, $325,316 thousands and $189,313 thousands for the
years ended December 31, 2021, 2020 and 2019, respectively.
Advertising costs
The Company expenses the costs of advertisements in the period during which the advertising space or airtime is used as sales and marketing expense. Internet advertising expenses are recognized based on the terms of the
individual agreements, which is generally over the greater of the ratio of the number of clicks delivered over the total number of contracted clicks, on a pay-per-click basis, or on a straight-line basis over the term of the contract.
Comprehensive income (loss)
Comprehensive income (loss) is comprised of two components, net income (loss) and other comprehensive loss. This last component is defined as all other changes in the equity of the Company that result from transactions other
than with shareholders. Other comprehensive loss includes the cumulative adjustment relating to the translation of the financial statements of the Company’s foreign subsidiaries, unrealized gains and losses on investments
classified as available-for-sale and on hedging activities. Total comprehensive income (loss) for the years ended December 31, 2021, 2020 and 2019 amounted to $36,447 thousands, $(62,320) thousands and $(187,093) thousands,
respectively.
17
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
2.
Summary of significant accounting policies (continued)
Variable Interest Entities (VIE)
A VIE is an entity (i) that has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, (ii) that has equity investors who lack the characteristics of a controlling financial
interest or (iii) in which the voting rights of some equity investors are disproportionate to their obligation to absorb losses or their right to receive returns, and substantially all of the entity’s activities are conducted on behalf of the
equity investors with disproportionately few voting rights. The Company consolidates VIEs of which it is the primary beneficiary. The Company is considered to be the primary beneficiary of a VIE when it has both the power to
direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. See Note 21 to
these consolidated financial statements for additional detail on the VIEs used for securitization purposes.
Foreign currency translation
All of the Company’s foreign operations have determined the local currency to be their functional currency, except for Argentina, which has used the U.S. dollar as its functional currency since July 1, 2018. Accordingly, the
foreign subsidiaries with local currency as functional currency translate assets and liabilities from their local currencies into U.S. dollars by using year-end exchange rates while income and expense accounts are translated at the
average monthly rates in effect during the year, unless exchange rates fluctuate significantly during the period, in which case the exchange rates at the date of the transaction are used. The resulting translation adjustment is
recorded as a component of other comprehensive loss. Gains and losses resulting from transactions denominated in non-functional currencies are recognized in earnings. Net foreign currency transaction results are included in the
consolidated financial statements of income under the caption “Foreign currency losses” and amounted to $109,333 thousands, $42,454 thousands and $1,732 thousands for the years ended December 31, 2021, 2020 and 2019,
respectively.
Argentine currency status
As of July 1, 2018, the Company transitioned its Argentinian operations to highly inflationary status in accordance with U.S. GAAP, and changed the functional currency for Argentine subsidiaries from Argentine Pesos to U.S.
dollars, which is the functional currency of their inmediate parent company.
Since the second half of 2019, the Argentine government instituted certain foreign currency exchange controls which restrict or may partially restrict, the access of foreign currency, like the US dollar, for making payments abroad,
either of foreign debt or imports of goods or services, dividend payments, and others, without prior authorization. Those regulations have continued to evolve, sometimes making them more or less stringent depending on the
Argentine government´s perception of availability of sufficient national foreign currency reserves. The above has led to the existence of an informal foreign currency market where foreign currencies quote at levels significantly
higher than the official exchange rate. However, the only exchange rate available for external commerce and financial payments is the official exchange rate, which as of December 31, 2021, was 102.72.
The Company uses Argentina’s official exchange rate to record the accounts of Argentine subsidiaries. The following table sets forth the assets, liabilities and net assets of the Company’s Argentine subsidiaries and consolidated
VIEs, before intercompany eliminations, as of December 31, 2021 and December 31, 2020:
Assets
Liabilities
Net Assets
2021
December 31,
(In thousands)
$ 2,478,717
1,874,285
$ 604,432
2020
$ 1,470,885
1,230,326
$ 240,559
18
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
2.
Summary of significant accounting policies (continued)
Derivative Financial Instruments
The Company’s operations are in various foreign currencies and consequently are exposed to foreign currency risk. The Company uses derivative instruments to reduce the volatility of earnings and cash flows which were
designated as hedges. All outstanding derivatives are recognized in the Company’s consolidated balance sheet at fair value except for the derivatives related to the Capped Call Transactions (as defined in Note 16) which are
recognized in equity at cost paid. The effective portion of a designated derivative’s gain or loss in a cash flow hedge is initially reported as a component of accumulated other comprehensive (loss) income and is subsequently
reclassified into the financial statement line item in which the variability of the hedged item is recorded in the period the hedging transaction affects earnings. Designated derivative’s gain or loss in net investment hedge was
reported as a component of accumulated other comprehensive income. The accumulated gains and losses associated with this instrument will remain in other comprehensive income until the foreign subsidiary is sold or
substantially liquidated, at which point they will be reclassified into earnings.
The Company also hedges its economic exposure to foreign currency risk related to foreign currency denominated monetary assets and liabilities with foreign derivative currency contracts and interest rate fluctuation with swap
contracts which were not designated as hedges. Accordingly, these outstanding non-designated derivatives are recognized in the Company’s consolidated balance sheet at fair value, and changes in fair value from these contracts
are recorded in other income (expense), net in the consolidated statement of income.
Leases
At the beginning of the first quarter of 2019, the Company adopted ASC Topic 842, Leases. The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”)
assets and operating lease liabilities in the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term, which is a non-monetary asset, and lease liabilities represent the
Company’s obligation to make lease payments arising from the lease, which is a monetary liability. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments
over the lease term. As most of the leases do not provide an implicit rate, the Company uses incremental borrowing rates based on the information available at commencement date in determining the present value of lease
payments. The operating lease ROU asset also includes any lease prepaid payments made. In addition, the Company elected to not separate lease components and to keep leases with an initial term of 12 months or less off of the
balance sheet. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.
Income taxes
The Company is subject to U.S. and foreign income taxes. The Company accounts for income taxes following the liability method of accounting which requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are also recognized for tax loss carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets or liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date. The Company’s income tax expense consists of taxes currently payable, if any, plus the change during the period in the Company’s deferred tax assets and
liabilities.
A valuation allowance is recorded when, based on the available evidence, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized. Accordingly, Management periodically assesses the
need to establish a valuation allowance for deferred tax assets considering positive and negative objective evidence related to the realization of the deferred tax assets. In connection with this assessment, Management considers,
among other factors, the nature, frequency, and magnitude of current and cumulative losses on an individual subsidiary basis, projections of future taxable income, the duration of statutory carryforward periods, as well as feasible
tax planning strategies that would be employed by the Company to prevent tax loss carryforwards from expiring unutilized.
Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to global intangible low-taxed income (GILTI) as a current-
period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The Company selected the period cost method. Accordingly, the
Company was not required to record any impact in connection with the potential GILTI tax as of December 31, 2021 and 2020, respectively.
19
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
2.
Summary of significant accounting policies (continued)
Uncertainty in income taxes
The Company recognizes, if any, uncertainty in income taxes by applying the accounting prescribed by U.S. GAAP, for which a more likely than not recognition threshold and measurement attribute for the financial statement
recognition and measurement of an income tax position taken or expected to be taken in a tax return should be considered. It also provides guidance on de-recognition, classification of a liability for unrecognized tax benefits,
accounting for interest and penalties, accounting in interim periods and expanded income tax disclosures. The Company classifies interest and penalties, if any, within income taxes expense, in the statement of income.
The Company is subject to taxation in the U.S. and various foreign jurisdictions. The material jurisdictions that are subject to examination by tax authorities for tax years after 2015 primarily include the U.S., Argentina, Brazil and
Mexico.
Repurchase of 2.00% Convertible Senior Notes due 2028 – Extinguishment of debt
The derecognition of a convertible debt is based on the principle that an entity is extinguishing the liability component and reacquiring the equity component that was recognized at issuance. This approach is applied whether the
debt was settled in cash, shares, other assets (or any combination), or at maturity upon conversion or upon early extinguishment. The settlement consideration is first allocated to the extinguishment of the liability component equal
to the fair value of that component immediately prior to extinguishment. Any difference between that allocated amount and the net carrying amount of the liability component and unamortized debt issuance costs should be
recognized as a gain or loss on debt extinguishment. Any remaining consideration is allocated to the reacquisition of the equity component and recognized as a reduction of stockholders’ equity. Any paid premium included in the
repurchase price should be recognized as a loss when the debt is extinguished.
Treasury Stock
Equity instruments of the Company that are repurchased by the Company are recognized at cost and deducted from equity. If the repurchase of the Company’s stock is carried out at a price significantly in excess of the current
market price, there is a presumption that the repurchase price includes amounts attributable to items other than the stock repurchased; therefore, the Company uses the quoted market price of the common stock for purposes of
determining the fair value of the treasury stock.
Recently Adopted Accounting Standards
On December 18, 2019 the FASB issued the ASU 2019-12 “Income taxes (Topic 740)—Simplifying the accounting for income taxes”. The amendments in this update simplify the accounting for income taxes by removing certain
exceptions to the general principles and also improve consistent application by clarifying and amending existing guidance, such as franchise taxes and interim recognition of enactment of tax laws or rate changes. The amendments
in this update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company’s financial statements.
20
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
2.
Summary of significant accounting policies (continued)
Accounting Pronouncements Not Yet Adopted
On August 5, 2020 the FASB issued the ASU 2020-06 “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40)”. The amendments
in this update address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. For convertible
instruments, accounting models for specific features are removed and amendments to the disclosure requirements are included. For contracts in an entity’s own equity, simplifies the settlement assessment by removing some
requirements. Additionally, the amendments in this update affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The amendments in this update are effective for
fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company expects the primary impacts of this new standard will be to increase the carrying value of the 2028 Notes roughly
$123,000 thousands and a decrease of deferred tax liability roughly $26,000 thousands. In addition, the Company will reduce its reported interest expense and will be required to use the if-converted method for calculating diluted
earnings per share.
On October 28, 2021 the FASB issued the ASU 2021-08 “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. The amendments in this update improve
comparability for the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination by specifying for all acquired revenue contracts regardless of their timing of
payment (1) the circumstances in which the acquirer should recognize contract assets and contract liabilities that are acquired in a business combination and (2) how to measure those contract assets and contract liabilities. The
amendments provide consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The
amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years and should be applied prospectively to business combinations occurring on or after the
effective date of the amendments. The Company is assessing the effects that the adoption of this accounting pronouncement may have on its financial statements.
21
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
c
3.
Net income (loss) per share
Basic earnings per share for the Company’s common stock is computed by dividing, net income (loss) available to common shareholders attributable to common stock for the period by the weighted average number of common
shares outstanding during the year.
On August 24, 2018, and August 31, 2018, the Company issued an aggregate principal amount of $880,000 thousands of 2.00% Convertible Senior Notes due 2028 (please refer to Note 16 to these consolidated financial
statements for discussion regarding these debt notes). The conversion of these notes is included in the calculation for diluted earnings per share utilizing the “if converted” method. Accordingly, conversion of these Notes is not
assumed for purposes of computing diluted earnings per share if the effect is antidilutive. Additionally, on March 29, 2019, the Company issued Preferred Stock. The conversion of Preferred Stock was included in the calculation
for diluted earnings per share utilizing the “if converted” method. Accordingly, conversion of the redeemable convertible preferred stock was not assumed for purposes of computing diluted earnings per share if the effect was
antidilutive.The denominator for diluted net income (loss) per share for the years ended on December 31, 2021, 2020 and 2019 does not include any effect from the 2028 Notes Capped Call Transactions (as defined in Note 16)
because it would be antidilutive. In the event of conversion of any or all of the 2028 Notes, the shares that would be delivered to the Company under The Capped Call Transactions (as defined in Note 16) are designed to partially
neutralize the dilutive effect of the shares that the Company would issue under the Notes.
For the years ended December 31, 2021, 2020 and 2019, the effects of the conversion of the Notes and the redeemable convertible preferred stock would have been antidilutive and, as a consequence, they were not factored into
the calculation of diluted earnings per share.
Net income (loss) per share of common stock is as follows for the years ended December 31, 2021, 2020 and 2019:
Net income (loss) per common
share
Numerator:
Net income (loss)
Amortization of redeemable
convertible preferred stock
Dividends on preferred stock
Net income (loss) corresponding
to common stock
Denominator:
Weighted average of common
stock outstanding for Basic
earnings per share
Adjusted weighted average of
common stock outstanding for
Diluted earnings per share
2021
Year Ended December 31,
2020
(In thousands)
2019
Basic
Diluted
Basic
Diluted
Basic
Diluted
$ 1.67
$ 1.67
$ (0.08)
$ (0.08)
$ (3.71)
$ (3.71)
$ 83,304
$ 83,304
$ (707)
$ (707)
$ (171,999)
$ (171,999)
—
—
—
—
—
(3,200)
—
(3,200)
(5,841)
(3,000)
(5,841)
(3,000)
$ 83,304
$ 83,304
$ (3,907)
$ (3,907)
$ (180,840)
$ (180,840)
49,802,993
—
49,740,407
—
48,692,906
—
—
49,802,993
—
49,740,407
—
48,692,906
22
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
4.
Cash, cash equivalents, restricted cash and cash equivalents and investments
The composition of cash, cash equivalents, restricted cash and cash equivalents and investments is as follows:
Cash and cash equivalents
Restricted cash and cash equivalents
Securitization Transactions
Sovereign Debt Securities (Central Bank of Brazil mandatory guarantee)
Bank account (Argentine Central Bank regulation)
Bank account (Chilean Financial Market Commission)
Bank collateral account (Secured lines of credit guarantee)
Money Market Funds (Secured lines of credit guarantee)
Cash in bank account
Total restricted cash and cash equivalents
Total cash, cash equivalents, restricted cash and cash equivalents (*)
Short-term investments
Time Deposits
Sovereign Debt Securities (Central Bank of Brazil mandatory guarantee)
Sovereign Debt Securities (Secured lines of credit guarantee)
Sovereign Debt Securities
Securitization Transactions (**)
Total short-term investments
Long-term investments
Sovereign Debt Securities
Securitization Transactions (**)
Equity interest held at cost
Total long-term investments
(*) Cash, cash equivalents, restricted cash and cash equivalents as reported in the consolidated statement of cash flows.
(**) Investments from securitization transactions are restricted to the payment of amounts due to third-party investors.
As of December 31, 2021 and 2020, the Company has no securities considered held-to-maturity.
Regulation issued by Central Bank of Argentina (“CBA”)
2021
December 31,
(In thousands)
2020
$ 2,584,586
$ 1,856,394
$ 281,999
295,832
449,308
20,604
—
15,622
12
$ 1,063,377
$ 3,647,963
$ 15,788
602,020
—
191,541
173
$ 809,522
$ 22,783
13,059
52,756
$ 88,598
$ 249,872
144,249
237,511
—
574
19,469
155
$ 651,830
$ 2,508,224
$ 158,818
565,705
71,244
445,539
—
$ 1,241,306
$ 150,054
—
16,057
$ 166,111
a)
b)
In January 2020, the CBA enacted regulations related to payment service providers that applies to Fintech companies that are not financial institutions, but nevertheless provide payment services in at least one of the
processes of the payments system and offer a payment account to its customers. On July 7, 2020, the CBA approved the registration of the Argentine subsidiary in the registry for payment service providers who offer
payment accounts (“PSPOCP” according to its Spanish acronym). These regulations set forth certain rules that require PSPOCP to, among other things, (i) deposit and maintain users’ funds in specific local bank
accounts, payable on demand; (ii) implement a monthly reporting regime with the CBA; (iii) segregate information related to users’ investments funds; (iv) segregate the Company’s funds from users’ funds; and (v) to
comply with transparency provisions regarding PSPOCP’s advertising material and documents. As of December 31, 2021, in accordance with the regulation, the Company held customer’s funds for the amount of
$449,308 thousands representing the total amount of funds in payment accounts of customers, payable to them on demand.
In October 2020, the CBA issued a regulation that applies to non-financial credit providers. In accordance with this regulation, the Company had to register in the "Registry of other non-financial credit providers" before
December 1, 2020 and comply with monthly reporting requirements as from March 1, 2021. In turn, the regulation establishes that the Company must comply with the obligations established by CBA rules, regarding,
among other things: (i) interest rates in loan operations; (ii) protection of users of financial services; (iii) methods of communication with users of financial services; and (iv) such users’ access to information concerning
their contractual obligations. The rules regarding interest rates became effective as of January 1, 2021,
23
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
4.
Cash, cash equivalents, restricted cash and cash equivalents and investments (continued)
Regulation issued by Central Bank of Argentina (“CBA”) (continued)
and the rules regarding the protection of users of financial services, methods of communication and access to information became effective as of February 1, 2021.
c) On December 30, 2021, the board of the CBA issued a regulation that established that financial institutions must set up a reserve of 100% of the funds deposited by payment service providers that offer payment accounts
in which the customers' funds are deposited. According to this new regulation, as of January 1, 2022, these funds must also remain immobilized at the CBA, without any remuneration, and must remain available to users.
On January 13, 2022, we filed an appeal against such regulation which shall be decided by the CBA. As of the date of this report we were not served with any decision on the subject matter.
Sovereign Debt Securities (Central Bank of Brazil mandatory guarantee)
On November 1, 2018, the Company obtained approval from the Central Bank of Brazil to operate as an authorized payment institution. With this authorization, Mercado Pago in Brazil is subject to the supervision of the Central
Bank of Brazil and must fully comply with all obligations established by current regulations. Among other obligations, the regulations require authorized payment institutions to hold any electronic balance in a payment institution
account in either a specific account of the Central Bank of Brazil that does not pay interest or Brazilian federal government bonds registered with the “Sistema Especial de Liquidacao e Custodia.” 100% of electronic funds were
required to be deposited as of December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, in accordance with the regulation, the Company held $897,852 thousands and $709,954 thousands deposited in
Brazilian federal government bonds, respectively, as a mandatory guarantee.
Chilean subsidiaries regulated by Financial Market Commission
On November 5, 2021, by means of exempt resolution No. 6312, the Financial Market Commission (Comisión para el Mercado Financiero – “CMF”) authorized Mercado Pago Emisora S.A. to carry out the exclusive business of
non-bank issuer of payment cards with provision of funds. Mercado Pago Emisora S.A. became an institution regulated by the CMF, being obligated, among other things, to: (i) deliver information on its financial and operational
management on a regular basis; (ii) maintain certain minimum capital required; (iii) to set up a determine liquidity reserve; and (iv) to deposit and maintain users’ funds in specific banks’ accounts.
On November 9, 2021, by means of exempt resolution No. 6358, the CMF authorized MercadoPago S.A. to carry out the exclusive business of payment card operator. With this authorization, Mercado Pago S.A. became an
institution regulated by the CMF, being obliged, among other things, to: (i) provide information on its financial and operational management on a regular basis: (ii) maintain certain minimum capital required; and (iii) to constitute
a determined liquidity reserve.
As of December 31, 2021, in accordance with the regulations, the Chilean subsidiaries held $20,604 thousands as restricted cash related to liquidity reserves.
5.
Balance sheet components
Accounts receivable, net
Users
Advertising
Others debtors
Allowance for doubtful accounts
Accounts receivable, net
2021
December 31,
(In thousands)
2020
$ 72,428
24,586
9,528
106,542
(8,349)
$ 98,193
$ 42,012
11,185
3,788
56,985
(7,294)
$ 49,691
24
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
5.
Balance sheet components (continued)
Credit cards receivable and other means of payments, net
Credit cards and other means of payments
Allowance for chargebacks
Allowance for doubtful accounts
Credit cards receivable and other means of payments, net
Other assets
VAT credits
Income tax credits
Sales tax credits
Advance to ATM providers
Advance to suppliers
Derivative Instruments
Tax credit from promotional regime in Argentina
Incentives to be collected
Receivables with suppliers
Other
Current other assets
Judicial deposits
Derivative Instruments
Other
Non current other assets
Property and equipment, net
Equipment
Land & Building
Furniture and fixtures
Software
Vehicles
Accumulated depreciation
Property and equipment, net
(1)
Estimated useful life attributable to “Buildings”.
2021
December 31,
(In thousands)
$ 1,870,643
(13,926)
(17,328)
$ 1,839,389
2020
$ 904,624
(17,688)
(23,863)
$ 863,073
2021
December 31,
(In thousands)
2020
26,161 $
90,502
36,499
46,383
7,688
10,012
12,831
27,535
7,769
21,970
287,350 $
2021
December 31,
(In thousands)
2020
113,466 $
6,752
13,327
133,545 $
11,555
48,876
18,107
37,498
21,520
199
—
—
1,772
13,432
152,959
57,525
—
10,090
67,615
$
$
$
$
Estimated
useful life
(years)
3-5
50 (1)
3-10
3
4
2021
December 31,
(In thousands)
2020
$ 194,081
141,077
367,785
457,460
38,295
1,198,698
(391,331)
$ 807,367
$ 113,669
96,974
134,999
282,066
17,198
644,906
(253,222)
$ 391,684
25
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
5.
Balance sheet components (continued)
Cost of net revenues
Product and technology development
Sales and marketing
General and administrative
Depreciation and amortization
Accounts payable and accrued expenses
Accounts payable
Accrued expenses
Advertising
Buyer protection program provision
Professional fees
Other expense provisions
Accounts payable and accrued expenses
Other liabilities
Deferred revenue
Contingent considerations and escrows from acquisitions
Customer advances
Derivative instruments
Incentives collected in advance
Advanced Collections
Other
Current other liabilities
Provisions and contingencies
Contingent considerations and escrows from acquisitions
Joint venture
Incentives collected in advance
Other
Non current other liabilities
2021
$ 49,823
82,891
2,222
10,008
$ 144,944
Year Ended December 31,
2020
(In thousands)
$ 15,902
53,530
1,776
10,088
$ 81,296
2019
$ 8,873
40,920
2,076
7,517
$ 59,386
2021
December 31,
(In thousands)
2020
$ 987,513
$ 728,056
35,544
4,727
5,883
2,193
$ 1,035,860
24,135
8,364
5,415
1,366
$ 767,336
2021
December 31,
(In thousands)
2020
$ 34,034
5,728
30,048
6,149
3,211
—
9,223
$ 88,393
$ 32,519
4,540
39,054
13,964
—
15,041
3,416
$ 108,534
2021
December 31,
(In thousands)
2020
$ 12,772
11,996
3,414
11,469
1,641
$ 41,292
$ 10,929
3,291
—
4,680
1,291
$ 20,191
26
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
5.
Balance sheet components (continued)
Accumulated other comprehensive loss
Foreign currency translation
Unrealized gains on investments
Estimated tax benefit (expense) on unrealized gains (losses)
Unrealized gains (losses) on hedging activities
Accumulated other comprehensive loss
2021
$ (522,738)
—
(564)
8,161
$ (515,141)
December 31,
2020
(In thousands)
$ (466,569)
—
754
(2,469)
$ (468,284)
2019
$ (408,099)
2,029
(351)
(250)
$ (406,671)
The following table summarizes the changes in accumulated balances of other comprehensive loss for the year December 31, 2021:
Balances as of December 31, 2020
Other comprehensive income (loss) before reclassifications
Amount of (gain) loss reclassified from accumulated other
comprehensive income (loss)
Net current period other comprehensive income (loss)
Ending balance
Unrealized
(Loss) Gains on
hedging activities, net
$ (2,469)
8,371
2,259
10,630
$ 8,161
Foreign
Currency
Translation
(In thousands)
$ (466,569)
(56,169)
—
(56,169)
$ (522,738)
Estimated tax
benefit
(expense)
$ 754
(550)
(768)
(1,318)
$ (564)
Total 2021
Total 2020
$ (468,284)
(48,348)
1,491
(46,857)
$ (515,141)
$ (406,671)
(55,686)
(5,927)
(61,613)
$ (468,284)
The following table provides details about reclassifications out of accumulated other comprehensive loss for the year ended December 31, 2021:
Details about Accumulated
Other Comprehensive loss
Components
Unrealized losses on hedging activities
Estimated tax benefit on unrealized losses
Total reclassifications for the year
Amount of (Loss) Gain
Reclassified from
Accumulated Other
Comprehensive
loss
(In thousands)
Affected Line Item
in the Statement of Income
(2,259) Cost of net revenues
768 Income tax expense
$ (1,491) Total, net of income taxes
27
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
6.
Loans receivable, net
Loans receivable
Allowance for uncollectible accounts
Current loans receivable, net
0
Loans receivable
Allowance for uncollectible accounts
Non current loans receivable, net
2021
December 31,
(In thousands)
$ 1,606,509
(407,450)
$ 1,199,059
2020
$ 458,946
(73,910)
$ 385,036
2021
December 31,
(In thousands)
2020
$ 88,185
(27,174)
$ 61,011
$ 20,525
(3,906)
$ 16,619
The Company manages loans receivable as “On-line merchant”, “Consumer”, “In-store merchant” and “Credit Cards”. As of December 31, 2021 and December 31, 2020, Loans receivable, net were as follows:
December 31,
2021
December 31,
2020
On-line merchant
Consumer
In-store merchant
Credit Cards
Loans receivable
Allowance for uncollectible accounts
Loans receivable, net
$
$
28
(In thousands)
$
360,658
850,758
187,382
295,896
1,694,694
(434,624)
1,260,070
$
180,063
237,956
61,452
—
479,471
(77,816)
401,655
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
6.
Loans receivable, net (continued)
The credit quality analysis of loans receivable was as follows:
1-30 days past due
31-60 days past due
61 -90 days past due
91 -120 days past due
121 -150 days past due
151 -180 days past due
181 -210 days past due
211 -240 days past due
241 -270 days past due
271 -300 days past due
301 -330 days past due
331 -360 days past due
Total past due
To become due
Total
(1)
As from April 1, 2021, the Company writes off loans when customer balance becomes 360 days past due.
7. Business combinations, goodwill, and intangible assets
Business combinations
Acquisition of a payment services company in Chile
December 31
2021 (1)
(In thousands)
December 31,
2020
$
$
90,439
47,140
36,800
37,040
31,250
25,467
24,011
23,388
20,775
21,253
29,436
23,756
410,755
1,283,939
1,694,694
$
$
34,706
16,977
13,239
10,632
5,315
3,649
—
—
—
—
—
—
84,518
394,953
479,471
On December 13, 2021, the Company, through its subsidiaries Mercado Pago LLC and SFSC LLC, completed the acquisition of 100% of the equity interest of Redelcom S.A., a payment services provider that also offers point-of-
sales terminals with the latest technology to retailers in the Republic of Chile. Redelcom is located and organized under the laws of Chile. The objective of the acquisition was to consolidate the Company’s value proposition in
Chile and enhance the growth of its multiple payment tools and digital financial solutions.
The aggregate purchase price for the acquisition was $24,069 thousands, measured at its fair value amount, which included: (i) the total cash payment of $16,469 thousands; (ii) an escrow of $2,600 thousands and (iii) $5,000
thousands of contingent consideration.
The Company’s consolidated statement of income includes the results of operations of the acquired business as from December 2021. The net loss before intercompany eliminations of the acquired Company included in the
Company’s consolidated statement of income since the acquisition amounted to $359 thousands for the year ended December 31, 2021.
In addition, the Company incurred in certain direct costs of the business combination which were expensed as incurred.
29
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
7. Business combinations, goodwill, and intangible assets (continued)
Acquisition of a payment services company in Chile (continued)
The following table summarizes the purchase price allocation for the acquisition:
Cash and cash equivalents
Convertible notes agreements
Other net tangible liabilities
Total net tangible assets acquired
Customer lists
Platform
Deferred tax liability
Goodwill
Purchase Price
Redelcom S.A.
In thousands of U.S. dollars
1,026
1,407
(2,362)
71
517
914
(387)
22,954
24,069
$
$
The purchase price was allocated based on the provisional measurement of the fair value of assets acquired and liabilities assumed considering the information available as of the initial accounting date. The valuation of
identifiable intangible assets acquired reflects Management’s estimates based on the use of established valuation methods.
The Company recognized goodwill for this acquisition based on Management’s expectation that the acquired business will improve the Company’s business. Arising goodwill was allocated to each of the segments identified by the
Company’s Management, considering the synergies expected from this acquisition and it is expected that the acquisition will contribute to the earnings generation process of such segments. Goodwill arising from this acquisition is
not deductible for tax purposes.
The results of operations for periods prior to the acquisitions, individually and in the aggregate, were not material to the Company’s consolidated statements of income and, accordingly, pro forma information has not been
presented.
Acquisition of a delivery company in Brazil
On November 3, 2021, the Company, through its subsidiary Ebazar.com.br Ltda., completed the acquisition of 100% of the equity interest of Kangu Participações S.A. and its subsidiaries, a logistics technology platform which
connects sellers, e-commerce companies, transporters, third-party logistics providers and consumers through its vertically integrated network of drop-off and pick-up points throughout Brazil, Mexico and Colombia. The Company
is located and organized under the laws of Brazil. The objective of the acquisition was to enhance the capabilities of the Company in terms of logistics.
The aggregate purchase price for the acquisition was $53,369 thousands, measured at its fair value amount, which included: (i) the total cash payment of $38,352 thousands at the time of closing; (ii) an escrow of $4,343 thousands
and (iii) $10,674 thousands related to the fair value at the acquisition date of a call option to purchase 20% of the equity interest of Kangú Participações S.A. As result of the acquisition, the Company recognized a gain for the fair
value amount of the option.
The Company’s consolidated statement of income includes the results of operations of the acquired business as from November 2021. The acquired business contributed net income of $689 thousands for the period from
November 3, 2021 to December 31, 2021.
In addition, the Company incurred in certain direct costs of the business combination which were expensed as incurred.
30
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
7. Business combinations, goodwill, and intangible assets (continued)
Acquisition of a delivery company in Brazil (continued)
The following table summarizes the purchase price allocation for the acquisition:
Cash and cash equivalents
Other net tangible assets
Total net tangible assets acquired
Customer lists
Hubs Network
Non-compete agreements
Goodwill
Purchase Price
Kangu Participações S.A.
In thousands of U.S. dollars
3,180
911
4,091
388
3,479
135
45,276
53,369
$
$
The purchase price was allocated based on the provisional measurement of the fair value of assets acquired and liabilities assumed considering the information available as of the initial accounting date. The valuation of
identifiable intangible assets acquired reflects Management’s estimates based on the use of established valuation methods.
The Company recognized goodwill for this acquisition based on Management’s expectation that the acquired business will improve the Company’s business. Arising goodwill was allocated to each of the segments identified by the
Company’s Management, considering the synergies expected from this acquisition and it is expected that the acquisition will contribute to the earnings generation process of such segments. Goodwill arising from this acquisition
will be deductible for tax purposes in case of a merger between Ebazar.com.br Ltda. and Kangu Participações S.A.
The results of operations for periods prior to the acquisitions, individually and in the aggregate, were not material to the Company’s consolidated statements of income and, accordingly, pro forma information has not been
presented.
Acquisition of a software development company
In March 2020, the Company, through its subsidiary Meli Participaciones S.L., completed the acquisition of 100% of the equity interest of Kiserty S.A. and its subsidiaries, which is a software development company located and
organized under the law of Uruguay. The objective of the acquisition was to enhance the capabilities of the Company in terms of software development.
The aggregate purchase price for the acquisition was $10,899 thousands, measured at its fair value amount, which included: (i) the total cash payment of $8,500 thousands at the time of closing; (ii) an escrow of $225 thousands
and (iii) a contingent additional cash consideration up to $2,174 thousands.
The Company’s consolidated statement of income includes the results of operations of the acquired business as from March 9, 2020.
In addition, the Company incurred in certain direct costs of the business combination which were expensed as incurred.
The purchase price was allocated based on the measurement of the fair value of assets acquired and liabilities assumed considering the information available as of the initial accounting date. The valuation of identifiable intangible
assets acquired reflects Management’s estimates based on the use of established valuation methods.
The Company recognized goodwill for this acquisition based on Management’s expectation that the acquired business will improve the Company’s business. Arising goodwill was allocated to each of the segments identified by the
Company’s Management, considering the synergies expected from this acquisition and it is expected that the acquisition will contribute to the earnings generation process of such segments. Goodwill arising from this acquisition is
not deductible for tax purposes.
The results of operations for periods prior to the acquisitions, individually and in the aggregate, were not material to the Company’s consolidated statements of income and, accordingly, pro forma information has not been
presented.
31
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
7. Business combinations, goodwill, and intangible assets (continued)
Goodwill and intangible assets
The composition of goodwill and intangible assets is as follows:
Goodwill
Intangible assets with indefinite lives
- Trademarks
- Digital assets (1)
Amortizable intangible assets
- Licenses and others
- Non-compete agreement
- Customer list
- Trademarks
- Hubs Network
- Others
Total intangible assets
Accumulated amortization
Total intangible assets, net
(1) Digital assets are net of $8,647 thousands of impairment losses accounted for in General and Administrative expenses during the year ended December 31, 2021.
32
2021
December 31,
(In thousands)
2020
$ 148,243
$ 85,211
7,387
21,353
12,399
3,954
12,714
7,337
3,479
3,353
$ 71,976
(27,002)
$ 44,974
7,751
—
4,932
3,426
14,010
7,879
—
—
$ 37,998
(23,843)
$ 14,155
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
7.
Business combinations, goodwill and intangible assets (continued)
Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2021 and 2020 are as follows:
Balance,
beginning of the
year
Business
Acquisitions
Effect of
exchange rates
changes
Balance, end of
the year
Balance,
beginning of the
year
Business
Acquisitions
Disposals
Effect of
exchange rates
changes
Balance, end of
the year
Brazil
Argentina
Mexico
Year ended December 31, 2021
Chile
(In thousands)
Colombia
Other Countries
Total
$ 19,762
$ 10,594
$ 31,697
$ 16,996
$ 4,390
$ 1,772
$ 85,211
36,737
(1,065)
—
—
6,705
(1,008)
22,954
(2,556)
1,834
(501)
—
(68)
68,230
(5,198)
$ 55,434
$ 10,594
$ 37,394
$ 37,394
$ 5,723
$ 1,704
$ 148,243
Brazil
Argentina
Mexico
Year ended December 31, 2020
Chile
(In thousands)
Colombia
Other Countries
Total
$ 29,072
$ 6,991
$ 32,196
$ 14,872
$ 3,312
$ 1,166
$ 87,609
—
(3,480)
(5,830)
3,603
—
—
1,062
—
(1,561)
1,241
—
883
1,246
—
(168)
748
—
(142)
7,900
(3,480)
(6,818)
$ 19,762
$ 10,594
$ 31,697
$ 16,996
$ 4,390
$ 1,772
$ 85,211
33
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
7.
Business combinations, goodwill and intangible assets (continued)
Intangible assets with definite useful life
Intangible assets with definite useful life are comprised of customer lists and user base, non-compete and non-solicitation agreements, hub networks, acquired software licenses and other acquired intangible assets including
developed technologies and trademarks. Aggregate amortization expense for intangible assets totaled $5,624 thousands, $5,293 thousands and $3,912 thousands for the years ended December 31, 2021, 2020 and 2019,
respectively.
The following table summarizes the remaining amortization of intangible assets with definite useful life as of December 31, 2021:
For year ended 12/31/2022
For year ended 12/31/2023
For year ended 12/31/2024
For year ended 12/31/2025
Thereafter
8.
Segments
$ 5,540
4,698
2,233
663
3,100
$ 16,234
Reporting segments are based upon the Company’s internal organizational structure, the manner in which the Company’s operations are managed, resources are assigned, the criteria used by Management to evaluate the
Company’s performance, the availability of separate financial information, and overall materiality considerations.
Segment reporting is based on geography as the main basis of segment breakdown in accordance with the criteria, as determined by Management, used to evaluate the Company’s performance. The Company’s segments include
Brazil, Argentina, Mexico and other countries (which includes Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Peru, Panama, Honduras, Nicaragua, El Salvador, Uruguay, Bolivia, Guatemala, Paraguay and the
United States of America).
Direct contribution consists of net revenues from external customers less direct costs, which include costs of net revenues, product and technology development expenses, sales and marketing expenses and general and
administrative expenses over which segment managers have direct discretionary control, such as advertising and marketing programs, customer support expenses, allowances for doubtful accounts, payroll and third-party fees. All
corporate related costs have been excluded from the Company’s direct contribution.
Expenses over which segment managers do not currently have discretionary control, such as certain technology and general and administrative costs are monitored by Management through shared cost centers and are not evaluated
in the measurement of segment performance.
34
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
8.
Segments (continued)
The following tables summarize the financial performance of the Company’s reporting segments:
Net revenues
Direct costs
Direct contribution
Operating expenses and indirect costs of net revenues
Income from operations
Other income (expenses):
Interest income and other financial gains
Interest expense and other financial losses
Foreign currency losses
Net Income before income tax expense
Net revenues
Direct costs
Direct contribution
Operating expenses and indirect costs of net revenues
Income from operations
Other income (expenses):
Interest income and other financial gains
Interest expense and other financial losses
Foreign currency losses
Net income before income tax expense
Brazil
Argentina
Year Ended December 31, 2021
Mexico
(In thousands)
Other Countries
Total
$ 3,909,585
(3,233,208)
676,377
$ 1,531,027
(997,805)
533,222
$ 1,172,358
(1,138,851)
33,507
$ 456,439
(380,526)
75,913
$ 7,069,409
(5,750,390)
1,319,019
(878,316)
440,703
137,962
(228,704)
(109,333)
$ 240,628
Brazil
Argentina
Year Ended December 31, 2020
Mexico
(In thousands)
Other Countries
Total
$ 2,194,041
(1,765,981)
428,060
$ 980,276
(708,661)
271,615
$ 575,173
(586,022)
(10,849)
$ 223,975
(186,435)
37,540
$ 3,973,465
(3,247,099)
726,366
(598,674)
127,692
102,767
(106,690)
(42,454)
$ 81,315
35
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
8.
Segments (continued)
Net revenues
Direct costs
Direct contribution
Operating expenses and indirect costs of net revenues
Loss from operations
Other income (expenses):
Interest income and other financial gains
Interest expense and other financial losses
Foreign currency losses
Net loss before income tax expense
The following table summarizes the allocation of the long-lived tangible assets based on geography:
US property and equipment, net
Other countries
Argentina
Brazil
Mexico
Other countries
Total property and equipment, net
The following table summarizes the allocation of the goodwill and intangible assets based on geography:
US intangible assets
Goodwill and intangible assets
Argentina
Brazil
Mexico
Chile
Other countries
Total goodwill and intangible assets
Brazil
Argentina
Year Ended December 31, 2019
Mexico
(In thousands)
Other Countries
Total
$ 1,461,509
(1,245,382)
216,127
$ 456,332
(347,733)
108,599
$ 275,133
(390,158)
(115,025)
$ 103,340
(104,975)
(1,635)
$ 2,296,314
(2,088,248)
208,066
(361,227)
(153,161)
113,523
(65,876)
(1,732)
$ (107,246)
2021
December 31,
(In thousands)
2020
$ 1,331
$ 586
173,614
395,460
176,310
60,652
$ 806,036
$ 807,367
123,589
171,409
73,315
22,785
$ 391,098
$ 391,684
2021
December 31,
(In thousands)
2020
$ 21,353
$ —
$ 16,108
59,917
40,501
44,610
10,728
$ 171,864
$ 193,217
$ 12,617
19,958
35,338
24,707
6,746
$ 99,366
$ 99,366
Consolidated net revenues by similar products and services for the years ended December 31, 2021, 2020 and 2019 were as follows:
Consolidated Net Revenues
Commerce
Fintech
Total
2021
$ 4,635,443
2,433,966
$ 7,069,409
36
2020
(In thousands)
$ 2,559,770
1,413,695
$ 3,973,465
2019
$ 1,346,445
949,869
$ 2,296,314
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
9.
Fair value measurement of assets and liabilities
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and 2020:
Description
Assets
Cash and Cash Equivalents:
Money Market Funds
Sovereign Debt Securities
Restricted Cash and Cash
Equivalents:
Money Market Funds
Sovereign Debt Securities
(Central Bank of Brazil
mandatory guarantee)
Investments:
Sovereign Debt Securities
(Central Bank of Brazil
mandatory guarantee)
Sovereign Debt Securities
Other Assets:
Derivative Instruments
Total Financial Assets
Liabilities:
Contingent considerations
Long-term retention plan
Derivative Instruments
Total Financial Liabilities
Balances as of
December 31,
2021
Quoted Prices in
active markets for
identical Assets
(Level 1)
Significant other
observable inputs
(Level 2)
Unobservable
inputs
(Level 3)
Balances as of
December 31,
2020
(In thousands)
Quoted Prices in
active markets for
identical Assets
(Level 1)
Significant other
observable inputs
(Level 2)
Unobservable
inputs
(Level 3)
$ 1,079,064
16,219
$ 1,079,064
16,219
$ —
—
$ — $ 166,483
37,654
—
$ 166,483
37,654
$ —
—
$ —
—
210,307
295,832
602,020
227,556
210,307
295,832
602,020
227,556
—
—
—
—
—
—
—
—
257,695
144,249
565,705
666,837
257,695
144,249
565,705
666,837
—
—
—
—
—
—
—
—
16,764
$ 2,447,762
—
$ 2,430,998
—
$ —
199
$ 16,764 $ 1,838,822
16,764
—
$ 1,838,623
—
$ —
199
$ 199
$ 8,775
103,409
6,149
$ 118,333
$ —
—
—
$ —
$ —
103,409
—
$ 103,409
$ 8,775 $ 4,622
—
136,816
6,149
13,964
$ 14,924 $ 155,402
$ —
—
—
$ —
$ —
136,816
—
$ 136,816
$ 4,622
—
13,964
$ 18,586
As of December 31, 2021 and 2020, the Company’s financial assets valued at fair value consisted of assets valued using i) Level 1 inputs: unadjusted quoted prices in active markets (Level 1 instrument valuations are obtained
from observable inputs that reflect quoted prices (unadjusted) for identical assets in active markets); ii) Level 2 inputs: obtained from readily-available pricing sources for comparable instruments as well as instruments with
inactive markets at the measurement date; and iii) Level 3 inputs: valuations based on unobservable inputs reflecting Company assumptions. Fair value of derivative instruments are determined considering the prevailing risk free
interest rate and spot exchange rate.
37
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
9.
Fair value measurement of assets and liabilities (continued)
As of December 31, 2021, and 2020, the Company’s liabilities were valued at fair value using level 2 inputs and level 3 inputs (valuations based on unobservable inputs reflecting Company own assumptions). Fair value of
contingent considerations are determined based on the probability of achievement of the performance targets arising from each acquisition, as well as the Company’s historical experience with similar arrangements. Fair value of
derivative instruments are determined considering the prevailing risk free interest rate and spot exchange rate.
As of December 31, 2021 and 2020, the carrying value of the Company’s financial assets and liabilities measured at amortized cost approximated their fair value mainly because of its short term maturity. These assets and
liabilities included cash, cash equivalents, restricted cash and cash equivalents and short-term investments (excluding money market funds and debt securities), accounts receivable, credit cards receivable and other means of
payments, loans receivable, funds payable to customers, Amounts payable due to credit and debit card transactions, other assets (excluding derivative instruments), accounts payable, salaries and social security payable (excluding
variable LTRP), taxes payable, provisions and other liabilities (excluding contingent consideration and derivative instruments). As of December 31, 2021 and December 31, 2020 the estimated fair value of the 2028 Notes (liability
component), which is based on Level 2 inputs, is $330,799 thousands and $672,345 thousands, respectively, and were determined based on market interest rates. The rest of the loans payable and other financial liabilities
approximate their fair value because the interest rates are not materially different from market interest rates.
The following table summarizes the fair value level for those financial assets and liabilities of the Company measured at amortized cost as of December 31, 2021 and 2020:
Assets
Time Deposits
Accounts receivable, net
Credit Cards receivable and other means of payments, net
Loans receivable, net
Other assets
Total Assets
Liabilities
Accounts payable and accrued expenses
Funds payable to customers
Amounts payable due to credit and debit card transactions
Salaries and social security payable
Taxes payable
Loans payable and other financial liabilities (*)
Other liabilities
Total Liabilities
(*)
The fair value of the 2028 Notas (including the equity component) is disclosed in Note 16.
Balances as of
December 31,
2021
Significant other
observable inputs
(Level 2)
Balances as of
December 31,
2020
Significant other
observable inputs
(Level 2)
(In thousands)
$ 15,788
98,193
1,839,389
1,260,070
456,887
$ 3,670,327
$ 1,035,860
2,393,179
340,756
229,998
291,456
3,518,671
114,761
$ 7,924,681
$ 15,788
98,193
1,839,389
1,260,070
456,887
$ 3,670,327
$ 1,035,860
2,393,179
340,756
229,998
291,456
3,534,610
114,761
$ 7,940,620
$ 158,818
49,691
863,073
401,655
236,432
$ 1,709,669
$ 767,336
1,695,424
37,671
120,394
215,918
1,409,269
110,139
$ 4,356,151
$ 158,818
49,691
863,073
401,655
236,432
$ 1,709,669
$ 767,336
1,695,424
37,671
120,394
215,918
1,479,165
110,139
$ 4,426,047
As of December 31, 2021 and 2020, the Company held no direct investments in auction rate securities and does not have any non-financial assets or liabilities measured at fair value.
38
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
9.
Fair value measurement of assets and liabilities (continued)
As of December 31, 2021 and 2020, the fair value of money market funds and sovereign debt securities classified as available for sale securities are as follows:
Cash and cash equivalents
Money Market Funds
Sovereign Debt Securities (1)
Total Cash and cash equivalents
Restricted Cash and cash equivalents
Money Market Funds
Sovereign Debt Securities (Central Bank of Brazil mandatory guarantee) (1)
Total Restricted Cash and cash equivalents
Short-term investments
Sovereign Debt Securities (Central Bank of Brazil mandatory guarantee) (1)
Sovereign Debt Securities (1)
Total Short-term investments
Long-term investments
Sovereign Debt Securities (1)
Total Long-term investments
Total
Cost
Financial Gains
Financial Losses
Estimated Fair Value
December 31, 2021
(In thousands)
$ 1,079,064
16,196
$ 1,095,260
$ —
23
$ 23
$ —
—
$ —
$ 1,079,064
16,219
$ 1,095,283
$ 210,307
294,525
$ 504,832
$ —
1,307
$ 1,307
$ —
—
$ —
$ 210,307
295,832
$ 506,139
$ 594,568
191,840
$ 786,408
$ 7,452
29
$ 7,481
$ —
(155)
$ (155)
$ 602,020
191,714
$ 793,734
$ 35,280
$ 35,280
$ 693
$ 693
$ (131)
$ (131)
$ 35,842
$ 35,842
$ 2,421,780
$ 9,504
$ (286)
$ 2,430,998
(1)
Measured at fair value with impact on the consolidated statement of income for the application of the fair value option. (See Note 2 – Fair value option applied to certain financial instruments.)
39
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
9.
Fair value measurement of assets and liabilities (continued)
Cash and cash equivalents
Money Market Funds
Sovereign Debt Securities (1)
Total Cash and cash equivalents
Restricted Cash and cash equivalents
Money Market Funds
Sovereign Debt Securities (Central Bank of Brazil mandatory guarantee) (1)
Total Restricted Cash and cash equivalents
Short-term investments
Sovereign Debt Securities (Central Bank of Brazil mandatory guarantee) (1)
Sovereign Debt Securities (1)
Total Short-term investments
Long-term investments
Sovereign Debt Securities (1)
Total Long-term investments
Total
Cost
$ 166,483
37,595
$ 204,078
$ 257,695
144,098
$ 401,793
$ 559,487
514,894
$ 1,074,381
December 31, 2020
Financial Gains
(In thousands)
Estimated Fair Value
$ —
59
$ 59
$ —
151
$ 151
$ 6,218
1,889
$ 8,107
$ 166,483
37,654
$ 204,137
$ 257,695
144,249
$ 401,944
$ 565,705
516,783
$ 1,082,488
$ 149,938
$ 149,938
$ 116
$ 116
$ 150,054
$ 150,054
$ 1,830,190
$ 8,433
$ 1,838,623
(1)
Measured at fair value with impact on the consolidated statement of income for the application of the fair value option. (See Note 2 – Fair value option applied to certain financial instruments.)
The material portion of the Sovereign Debt Securities are U.S. Treasury Notes and Brazilian federal government bonds with no significant risk associated.
As of December 31, 2021, the estimated fair values (in thousands of U.S. dollars) of money market funds and sovereign debt securities classified by its effective maturities or Management expectation to convert the investments
into cash are as follows:
One year or less
One year to two years
Two years to three years
Three years to four years
Four years to five years
More than five years
Total
40
$ 2,395,156
1,490
5,640
3,867
3,075
21,770
$ 2,430,998
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
10. Common stock
Authorized, issued and outstanding shares
As of December 31, 2021 and 2020, as stated in the Company’s Fourth Amended and Restated Certificate of Incorporation (the “Fourth Amended Certificate of Incorporation”), the Company has authorized 110,000,000 shares of
Common Stock, par value $0.001 per share (“Common Stock”).
As of December 31, 2021 and 2020, there were 50,418,980 and 49,869,727 shares of common stock issued and outstanding with a par value of $0.001 per share.
Voting rights
Each outstanding share of common stock, is entitled to one vote on all matters submitted to a vote of holders of common stock, except for stockholders that beneficially own more than 20% of the shares of the outstanding
common stock, in which case the board of directors (the “Board”) may declare that any shares of stock above such 20% do not have voting rights. The holders of common stock do not have cumulative voting rights in the election
of directors.
11. Mandatorily redeemable convertible preferred stock
Pursuant to the Fourth Amended Certificate of Incorporation, the Company authorized preferred stock consisting of 40,000,000 shares of preferred stock, par value $0.001 per share. As of December 31, 2021, and 2020 the
Company has no preferred stock subscribed and or issued.
12. Equity compensation plan
On June 10, 2019, at the Annual Shareholders’ Meeting, the Company’s shareholders approved the adoption of the Amended and Restated 2009 Equity Compensation Plan (the “Amended and Restated 2009 Plan”), which
contains terms substantially similar to the terms of the “2009 Equity Compensation Plan” (the “2009 Plan”) that expired in 2019. As of December 31, 2021, there are 997,582 shares of common stock available for granting under
the Amended and Restated 2009 Plan.
Equity compensation awards granted under the Amended and Restated 2009 Plan are at the discretion of the Company’s board of directors and may be in the form of either incentive or nonqualified stock options. As of December
31, 2021, there were 528 shares of restricted stock outstanding under such plan.
41
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
13.
Income taxes
The components of pretax income (loss) in consolidated companies for the years ended December 31, 2021, 2020 and 2019 are as follows:
United States
Brazil
Argentina
Mexico
Other Countries
Income tax is composed of the following:
Income Tax:
Current:
U.S.
Non-U.S.
Deferred:
U.S.
Non-U.S.
Income tax expense
2021
$ (213,965)
188,642
389,263
(129,739)
6,427
$ 240,628
Year Ended December 31,
2020
(In thousands)
$ (54,425)
79,453
185,054
(133,582)
4,815
$ 81,315
2021
Year Ended December 31,
2020
(In thousands)
$ 23
178,260
178,283
(3,318)
(26,163)
(29,481)
$ 148,802
$ —
152,337
152,337
(5,397)
(64,918)
(70,315)
$ 82,022
2019
$ 2,900
25,693
61,217
(168,310)
(28,746)
$ (107,246)
2019
$ 8,705
39,595
48,300
(13,566)
30,019
16,453
$ 64,753
The following is a reconciliation of the difference between the actual provision for income taxes and the provision computed by applying the effective income tax rate for 2021, 2020 and 2019 to income before taxes:
2019
2020
2021
Net income (loss) before income tax
Income tax rate
Expected income tax expense (gain)
Permanent differences:
Federal and assets taxes
Transfer pricing adjustments
Non-deductible tax
Non-deductible expenses
Dividend distributions
Non-taxable income
Effect of rates different than statutory
Currency translation
Change in valuation allowance
Tax Inflation Adjustments
Inventory Adjustments
Argentine tax reform (including changes in income tax rate)
Deferred tax reversed by spin-off
True up
Income tax expense
$ 240,628
21%
$ 50,532
(185)
1,805
3,893
29,217
35,817
(32,015)
8,638
16,386
55,723
(19,478)
(545)
—
—
(986)
$ 148,802
(In thousands)
$ 81,315
21%
$ 17,076
146
1,243
2,641
17,885
9,381
(3,741)
(3,713)
11,775
40,874
(7,023)
—
—
—
(4,522)
$ 82,022
$ (107,246)
21%
$ (22,522)
203
1,161
683
9,309
2,594
(15,418)
(11,521)
(4,201)
113,426
(4,940)
—
(2,175)
(886)
(960)
$ 64,753
42
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
13.
Income taxes (continued)
Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in
which the differences are expected to reverse. The following table summarizes the composition of deferred tax assets and liabilities for the years ended December 31, 2021 and 2020:
Deferred tax assets
Allowance for doubtful accounts
Unrealized net gains on investments
Property and equipment, net
Accounts payable and accrued expenses
Payroll and social security payable
Foreign exchange effect
Taxes payable
Provisions
Foreign tax credit
Tax loss carryforwards
Inventories
Tax inflation adjustments
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net
Deferred tax liabilities
Property and equipment, net
Customer lists
Non compete agreement
Unrealized net losses on investments
Trademarks
Goodwill
Convertible notes and Capped Call
Accounts payable and accrued expenses
Payroll and social security payable
Outside Basis Dividends
Provisions
Inventories
Foreign exchange effect
Total deferred tax liabilities
2021
December 31,
(In thousands)
2020
$ 65,442
2,166
26,458
11,048
27,592
7,263
358
89,288
49,724
193,700
1,954
6,444
481,437
(261,566)
219,871
(18,106)
(802)
(125)
(1,654)
(72)
(3,173)
(25,978)
(3,413)
(6,879)
(36,242)
(4,615)
(42)
—
$ (101,101)
$ 118,770
$ 17,963
2,423
15,594
5,009
23,516
5,399
4,843
70,425
17,513
162,008
322
8,460
333,475
(179,177)
154,298
(5,771)
(713)
(743)
(121)
(86)
(2,962)
(57,813)
(1,783)
(5,527)
(5,974)
(2,143)
—
(100)
$ (83,736)
$ 70,562
43
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
13.
Income taxes (continued)
As of December 31, 2021, consolidated tax loss carryforwards for income tax purposes were $193,700 thousands. If not utilized, tax loss carryforwards will begin to expire as follows:
2025
2026
2027
2028
Thereafter
Without due dates
Total
$
$
6,457
5,491
21,724
24,998
113,965
21,065
193,700
Management considers the earnings of the Company’s foreign subsidiaries to be indefinitely reinvested, other than certain earnings of which the distributions do not imply withholdings, exchange rate differences or state income
taxes, and for that reason has not recorded a deferred tax liability except for the $36,242 thousands deferred tax liability accounted for of undistributed earnings from the Argentine segment.
Valuation allowance on deferred tax assets
Based on Management’s assessment of available objective evidence, the Company accounted for a valuation allowance on deferred tax assets of $261,566 thousands and $179,177 thousands as of December 31, 2021 and 2020,
respectively. This valuation allowance includes $49,724 thousands and $17,513 thousands to fully reserve the outstanding U.S. foreign tax credits as of December 31, 2021 and 2020, respectively.
Knowledge-based economy promotial regime in Argentina
On June 10, 2019, the Argentine government enacted Law No. 27,506 (knowledge-based economy promotional regime), which established a regime that provides certain tax benefits for companies that meet specific criteria, such
as companies that derive at least 70% of their revenues from certain specified activities related to the knowledge-based economy. The regime was suspended on January 20, 2020, until new rules for the application of the
knowledge-based economy promotional regime were issued.
On June 25, 2020, the Chamber of Deputies passed changes to the knowledge-based economy promotional regime. The Chamber of Senates proposed further amendments, which were returned to the Chamber of Deputies and
finally approved on October 7, 2020. The approved regime is effective as of January 1, 2020, until December 31, 2029.
Based on the amended promotional regime, companies that meet new specified criteria shall be entitled to: i) a reduction of the income tax burden of 60% (60% for micro and small enterprises, 40% for medium-sized enterprises
and 20% for large enterprises) over the promoted activities for each fiscal year, applicable to both Argentine source income and foreign source income, ii) stability of the benefits established by the knowledge-based economy
promotional regime (as long as the beneficiary is registered and in good standing), iii) a non-transferable tax credit bond amounting to 70% (which can be up to 80% in certain specific cases) of the Company’s contribution to the
social security regime of every employee whose job is related to the promoted activities (caps on the number of employees are applicable). Such bonds can be used within 24 months from their issue date (which period can be
extended for an additional 12 months in certain cases) to offset certain federal taxes, such as value-added tax, but they cannot be used to offset income tax.
On December 20, 2020, Argentina’s Executive Power issued Decree No. 1034/2020, which set the rules to implement the provisions of the knowledge-based economy promotional regime. Eligible companies must enroll in a
registry according to the terms and conditions to be established by the Application Authority, which will verify compliance with the requirements. The Decree also set the mechanism for calculating the level of investment in
research and development, the level of employee retention, exports, among others. It also establishes that exports of services from companies participating in this regime will not be subject to export duties.
44
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
13.
Income taxes (continued)
Knowledge-based economy promotial regime in Argentina (continued)
On January 13, 2021, Argentina’s Ministry of Productive Development –current Application Authority of the knowledge-based economy promotional regime– issued Resolution No. 4/2021, which was followed by Disposition N°
11/2021 issued by the Under Secretariat of Knowledge Economy on February 12, 2021. Both rules establish further details on the requirements, terms, conditions, application, and compliance procedures to be eligible under the
promotional regime. In August 2021, the Under Secretariat of Knowledge Economy issued the Disposition 316/2021 approving MercadoLibre S.R.L.’s application for eligibility under the knowledge-based economy promotional
regime. Tax benefits granted pursuant to the promotional regime to MercadoLibre S.R.L. are retroactive to January 1, 2020. As a result, the Company accounted for an income tax benefit of $14,332 thousands for the year ended
December 31, 2021, which $8,038 thousands corresponded to the period ended December 31, 2020. The aggregate per share effect of the income tax benefit amounted to $0.29 for the year ended December 31, 2021. Furthermore,
the Company recorded a social security benefit of $45,295 thousands for the year ended December 31, 2021, which $15,299 thousands corresponded to the period ended December 31, 2020. Given that the promotional regime
establishes that exports of services by eligible companies are not subject to export duties, the Company recognized a gain of $23,999 thousands related to export duties accrued from January 2020 to August 2021 that are no longer
required to be paid. Additionally, for the year ended December 31, 2021, we accrued a charge of $3,824 thousands to pay knowledge-based economy promotional law audit fees and FONPEC (“Fondo Fiduciario para la
Promoción de la Economía del Conocimiento”) contribution.
Corporate income tax reform in Argentina
In June 2021, Argentine Congress enacted Law 27,630, which increases corporate income tax rate for tax years beginning January 1, 2021, and onwards. The law replaced the 30% fixed tax rate with a progressive tax scale that
applies as follows: a) for accumulated net taxable income up to 5,000 thousands Argentine Pesos (roughly $48.7 thousands): 25% tax rate on net taxable income, b) for accumulated net taxable income from 5,000 thousands
Argentine Pesos to 50,000 thousands Argentine Pesos (roughly $486.8 thousands): a tax payment of 1,250 thousands Argentine Pesos (roughly $12.2 thousands) plus a 30% tax rate on accumulated net taxable income on any
amount exceeding 5,000 thousands Argentine Pesos, c) for accumulated net taxable income exceeding 50,000 thousands Argentine Pesos: a tax payment of 14,750 thousands Argentine Pesos (roughly $143.6 thousands) plus a
35% tax rate on accumulated net taxable income on any amount exceeding 50,000 thousands Argentine Pesos. In addition, the new law permanently extended the 7% withholding tax currently in force to dividend distributions.
The mentioned thresholds will be subject to inflation adjustment from 2022 onwards.
45
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
14. Commitments and Contingencies
Litigation and Other Legal Matters
The Company is subject to certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings. The Company accrues liabilities when it considers probable that future costs will be incurred and
such costs can be reasonably estimated. Proceeding-related liabilities are based on developments to date and historical information related to actions filed against the Company. As of December 31, 2021, the Company had
accounted for estimated liabilities involving proceeding-related contingencies and other estimated contingencies of $12,772 thousands to cover legal actions against the Company in which its Management has assessed the
likelihood of a final adverse outcome as probable. Expected legal costs related to litigations are accrued when the legal service is actually provided. In addition, as of December 31, 2021, the Company and its subsidiaries are
subject to certain legal actions considered by the Company’s Management and its legal counsels to be reasonably possible for an aggregate amount up to $65,816 thousands. No loss amounts have been accrued for such reasonably
possible legal actions, the most significant of which are described below.
Tax Claims
Annulment lawsuit against tax claims (income taxes)
On September 2, 2011, the Brazilian Federal tax authority asserted taxes and fines against the Brazilian subsidiary, Mercadolivre.com, relating to the income taxes (IRPJ and CSLL) for the 2006 period in an amount of $437
thousands according to the exchange rate in effect as of December 31, 2021, due to the disallowance of deductible expenses. On September 30, 2011, the Company presented administrative defenses against the authorities’ claim.
On August 24, 2012, the Company presented its appeal to the Board of Tax Appeals (CARF—Conselho Administrativo de Recursos Fiscais) against the tax authorities’ claims. On December 5, 2013, the Board of Tax Appeals
ruled against MercadoLivre’s appeal. The same Board of Tax Appeals recognized as due part of the tax compensation made by the Company, partially decreasing the outstanding debt. On November 21, 2014, the Company
appealed to the Board of Tax Appeals, which rejected the appeal on September 8, 2016. The Company filed an appeal against the decision, and the Câmara Superior de Recursos Fiscais (Superior Administrative Court of Tax
Appeals) ruled against the Company to uphold the claimed taxes and fines. This decision closed of the administrative stage. On July 28, 2017, the Company filed an annulment court lawsuit against the federal tax authority, which
to date remains in its evidentiary phase. In December 2017, the Company also presented a bank security bond in the amount of $437 thousands according to the exchange rate as of December 31, 2021. Management’s opinion,
based on the opinion of external legal counsel, is that the Company’s position is more likely than not to succeed in court, based on the technical merits of the tax position. For that reason, the Company has not recorded any
expense or liability for the controversial amounts.
Brazilian preliminary injunction against the Brazilian tax authorities (withholding Income tax)
On November 6, 2014, the Brazilian subsidiaries, Mercadolivre.com Atividades de Internet Ltda., Ebazar.com.br Ltda., Mercado Pago.com Representações Ltda. and the Argentine subsidiary, MercadoLibre S.R.L., filed a writ of
mandamus and requested a preliminary injunction with the Federal Court of Osasco against the federal tax authority to avoid the IR (income tax) withholding over payments remitted by the Brazilian subsidiaries to MercadoLibre
S.R.L. for the provision of IT support and assistance services by the latter, and requested reimbursement of the amounts improperly withheld over the course of the preceding five (5) years. The preliminary injunction was granted
on the grounds that such withholding income tax violated the convention signed between Brazil and Argentina that prevents double taxation. In August 2015, the injunction was revoked by the first instance judge in an award
favorable to the federal tax authority. The Company appealed the decision and deposited into court the disputed amounts. As of December 31, 2021, the total amount of the deposits were $103,971 thousands (which includes
$8,659 thousands of interest). Such amounts are included in non-current other assets of the consolidated balance sheet. In June 2020, the Company’s appeal was dismissed. The Company submitted a new remedy before the same
court in July 2020, which was dismissed on February 17, 2021. On March 18, 2021, the Company filed two appeals before the superior courts, which is now pending. Management’s opinion, based on the opinion of external legal
counsel, is that the risk of losing the case is reasonably possible but not probable based on the technical merits of the Company’s tax position and the existence of favorable decisions issued by the Federal Regional Courts. For that
reason, the Company has not recorded any expense or liability for the disputed amounts.
Administrative tax claims
On November 9, 2016, São Paulo tax authorities asserted taxes and fines against its Brazilian subsidiary, Ebazar.com.br Ltda, relating to the entitlement of PIS and COFINS credits from 2012 in an amount of $685 thousands,
according to the exchange rate as of December 31, 2021. The Company submitted administrative defenses against the authorities’ claim, which is pending judgment. The opinion of the Company´s management, based on the
opinion of external legal counsel, is that the risk of losing the case is reasonably possible, but not probable. For that reason, the Company has not recorded any expense or liability for the controversial amounts.
46
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
14. Commitments and Contingencies (continued)
Litigation and Other Legal Matters (continued)
Administrative tax claims (continued)
On December 16, 2016, São Paulo tax authorities assessed taxes and fines against its Brazilian subsidiary MercadoPago.com Representações Ltda., relating to the entitlement of PIS and COFINS credits from 2012 in an
approximate amount of $2,658 thousands according to the exchange rate as of December 31, 2021. On February 1, 2017, the Company presented administrative defenses against the authorities’ claim. On October 9, 2017, a
judgment was handed down recognizing that expenses with credit card companies are essential for payment institutions. On September 22, 2017, the award rendered was partially favorable to the Company, reducing the value of
the tax assessment notice by approximately 60%. The Company filed an administrative appeal, which is pending judgment. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is
reasonably possible but not probable. For that reason, the Company has not recorded any expense or liability for the controversial amounts.
On July 12, 2017, São Paulo tax authorities assessed taxes and fines against the Brazilian subsidiary Ibazar.com Atividades de Internet Ltda. relating to “ICMS” (tax on commerce and services) for the period from July 2012 to
December 2013 in an amount of $2,830 thousands according to the exchange rate as of December 31, 2021, supposedly due over internet advertising revenue. The Company filed administrative defenses against the claim, but the
São Paulo authorities ruled against the Company and upheld the claimed taxes and fines. On October 30, 2017, the Company filed an appeal with the Tribunal de Impostos e Taxas de São Paulo (São Paulo Tax Administrative
Court), which granted the appeal on February 23, 2018. The tax authorities filed a special appeal with the Câmara Superior (Superior Chamber of the Administrative Court), which was admitted on August 1, 2018 and is now
pending judgment. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is reasonably possible, but not probable. For that reason, the Company has not recorded any expense or
liability for the controversial amounts.
On October 30, 2020 and November 9, 2020, MercadoPago.com Representações Ltda. and Ebazar.com.br Ltda., respectively, received tax assessments claiming income tax payments for the 2016 fiscal year, with respective
penalties and fines. In these assessments, the tax authorities do not recognize certain expenses incurred by the Brazilian subsidiaries, such as technology services imported from MercadoLibre S.R.L., Meli Uruguay S.R.L., and
MercadoLibre Inc., as deductible for income tax purposes. The tax authorities concluded that the Brazilian entities failed to submit sufficient evidence during the tax assessment that these services were necessary and effectively
hired and paid by the Brazilian subsidiaries. The tax assessments that MercadoPago.com Representações Ltda. and Ebazar.com.br Ltda. received amounted to a total of $14,495 thousands and $11,746 thousands, respectively. The
subsidiaries filed their defenses on December 1, 2020 and December 8, 2020, respectively, arguing that the agreements and other documentation were submitted as evidence during the tax assessment. The defenses were also
complemented by specific descriptions for each project that was impacted by such services to justify the necessity of all the expenses in dispute. On May 25, 2021, MercadoPago.com received an unfavorable decision from the
administrative court in the first instance, and on June 28, 2021, Ebazar.com.br also received an unfavorable decision from the administrative court in the first instance. The Companies filed appeals in respect of both cases with the
administrative court in the second instance, which are now pending. The Management’s opinion, based on the opinion of external legal counsel, is that the Company’s position is more likely than not to succeed in court in both
cases, based on the technical merits of the tax position. For that reason, the Company has not recorded any expense or liability for the disputed amounts.
Other claims
Other parties have from time to time claimed, and others may claim in the future, that the Company was responsible for fraud committed against them, or that the Company has infringed their intellectual property rights. The
underlying laws with respect to the potential liability of online intermediaries like the Company are unclear in the jurisdictions where the Company operates. Management believes that additional lawsuits alleging that the
Company has violated copyright or trademark laws will be filed against the Company in the future.
Intellectual property and regulatory claims, whether meritorious or not, are time consuming and costly to resolve, require significant amounts of management time, could require expensive changes in the Company’s methods of
doing business, or could require the Company to enter into costly royalty or licensing agreements. The Company may be subject to patent disputes, and be subject to patent infringement claims as the Company’s services expand in
scope and complexity. In particular, the Company may face additional patent infringement claims involving various aspects of the payments businesses.
From time to time, the Company is involved in other disputes or regulatory inquiries that arise in the ordinary course of business. The number and significance of these disputes and inquiries are increasing as the Company’s
business expands and the Company grows larger.
47
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
14. Commitments and Contingencies (continued)
Buyer protection program
The Company provides consumers with a BPP for all transactions completed through Mercado Pago. This program is designed to protect buyers in the Marketplace from losses due primarily to fraud or counterparty non-
performance. The Company’s BPP provides protection to consumers by reimbursing them for the total value of a purchased item and the value of any shipping service paid if it does not arrive or does not match the seller’s
description. The Company is entitled to recover from the third-party carrier companies performing the shipping service certain amounts paid under the BPP. Furthermore, in some specific circumstances (i.e. Black Friday, Hot
Sale), the Company enters into insurance contracts with third-party insurance companies in order to cover contingencies that may arise from the BPP.
The maximum potential exposure under this program is estimated to be the volume of payments on the Marketplace, for which claims may be made under the terms and conditions of the Company’s BPP. Based on historical losses
to date, the Company does not believe that the maximum potential exposure is representative of the actual potential exposure. The Company records a liability with respect to losses under this program when they are probable and
the amount can be reasonably estimated.
As of December 31, 2021 and 2020, Management’s estimate of the maximum potential exposure related to the Company’s buyer protection program is $2,963,719 thousands and $2,535,041 thousands, respectively, for which the
Company recorded a provision of $4,727 thousands and $8,364 thousands, respectively.
Commitments
The Company committed to purchase cloud platform services from two U.S. suppliers based on the following terms:
a) for a total amount of $240,500 thousands to be fully paid off between June 1, 2020 and May 31, 2024. In September 2021, the Company amended this commitment whereby, effective as of October 1, 2021, the aggregate
purchase commitment is $824,000 thousands, to be fully paid off between October 1, 2021 and September 30, 2026. As of December 31, 2021, the Company had paid $40,551 thousands in relation thereto; and
b) for a total amount of $30,000 thousands to be fully paid off between November 24, 2019 and March 23, 2023. In September 2021, the Company amended this commitment whereby, effective as of September 17, 2021, the
aggregate purchase commitment is $108,000 thousands, to be fully paid off between September 17, 2021 and September 17, 2024. As of December 31, 2021, the Company had paid $7,418 thousands in relation thereto.
15. Long term retention plan
On May 5, 2021, the Board of Directors, upon the recommendation of the Compensation Committee, adopted the 2021 Long-Term Retention Plan (“2021 LTRP”). In addition to the annual salary and bonus of each employee,
certain employees (“Eligible Employees”) are eligible to participate in the 2021 LTRP, which provides for the grant to an Eligible Employee of a cash-settled fixed (a “2021 LTRP Fixed Award”) and cash-settled variable award, (a
“2021 LTRP Variable Award”, and together with any 2021 LTRP Fixed Award, the “2021 LTRP Awards”). In order to receive payment in respect of the 2021 LTRP Awards, each Eligible Employee must remain employed as of
each applicable payment date. The 2021 LTRP award is payable as follows:
(cid:0)
(cid:0)
the eligible employee will receive 16.66% of half of his or her target 2021 LTRP bonus once a year for a period of six years, with the first payment occurring no later than January 31, 2022 (the “2021 Annual Fixed
Payment”); and
on each date the Company pays the Annual Fixed payment to the eligible employee, he or she will also receive a payment (the “2021 LTRP Variable Payment”) equal to the product of (i) 16.66% of the applicable 2021 LTRP
Variable Award and (ii) the quotient of (a) divided by (b), where (a), the numerator, equals the Applicable Year Stock Price (as defined below) and (b), the denominator, equals the 2020 Stock Price (as defined below). For
purposes of the 2021 LTRP, the “2020 Stock Price” shall equal $1,431.26 (the average closing price of the Company’s common stock on the NASDAQ Global Select Market during the final 60 trading days of 2020) and the
“Applicable Year Stock Price” shall equal the average closing price of the Company’s common stock on the NASDAQ Global Select Market during the final 60 trading days of the year preceding the applicable payment date
for so long as the Company’s common stock is listed on the NASDAQ.
The rest of LTRP outstanding as of December 31, 2021, follows similar calculation method as explained above for 2021 LTRP, except that the 2015, 2016, 2017 and 2018 LTRP have performance conditions established by the
Board of Directors that must be achieved at the first year-end of each plan. Similar to the 2021 LTRP, the rest of the outstanding LTRPs additionally have eligibility conditions to be achieved at each year-end and require the
employee remain employed by the Company as of each payment date.
48
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
15. Long term retention plan (continued)
The following tables summarize the 2012, 2014, 2015, 2016, 2017, 2018, 2019, 2020 and 2021 LTRP Variable Award contractual obligation for the years ended December 31, 2021, 2020 and 2019:
Outstanding LTRP 2012
Outstanding LTRP 2014
Outstanding LTRP 2015
Outstanding LTRP 2016
Outstanding LTRP 2017
Outstanding LTRP 2018
Outstanding LTRP 2019
Outstanding LTRP 2020
Outstanding LTRP 2021
December 31, 2021
Weighted-average
Aggregate
Intrinsic
value
remaining
contractual
life (years)
December 31, 2020
December 31, 2019
Aggregate
Intrinsic
value
Weighted-average
remaining
contractual
life (years)
(In thousands)
Aggregate
Intrinsic
value
Weighted-average
remaining
contractual
life (years)
—
—
—
15,439
23,701
14,059
83,745
99,670
84,913
—
—
—
0.08
0.58
1.08
1.58
2.09
2.58
—
—
13,237
34,795
41,315
23,233
133,052
153,113
—
—
—
0.08
0.62
1.13
1.64
2.14
2.67
—
2,861
5,086
10,484
19,091
19,654
10,727
56,322
—
—
0.25
0.25
0.75
1.25
1.75
2.25
2.75
—
—
The following tables summarize the LTRP accrued compensation expense for the years ended December 31, 2021, 2020 and 2019:
LTRP 2011
LTRP 2012
LTRP 2013
LTRP 2014
LTRP 2015
LTRP 2016
LTRP 2017
LTRP 2018
LTRP 2019
LTRP 2020
LTRP 2021
Year ended December 31,
2020
(In thousands)
—
69
—
125
10,025
23,152
25,267
12,268
28,523
30,146
—
$ 129,575
2019
26
1,755
97
3,743
6,266
9,838
9,737
5,089
15,111
—
—
$ 51,662
2021
—
—
—
—
178
1,729
2,510
1,871
26,682
29,387
26,341
$ 88,698
49
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
16.
Loans payable and other financial liabilities
The following table summarizes the Company’s loans payable and other financial liabilities as of December 31, 2021 and 2020:
Type of instrument
Currency
Interest
Current loans payable and other financial liabilities:
Loans from banks
Weighted Average Interest
Rate
Maturity
December 31, 2021
December 31, 2020
(In thousands)
Book value as of
Chilean Pesos
Brazilian Reais
US Dollar
US Dollar
US Dollar
Mexican Peso
Mexican Peso
Mexican Peso
Argentine Pesos
Uruguayan Pesos
Uruguayan Pesos
Colombian Pesos
Chilean Pesos
Argentine Pesos
Argentine Pesos
Brazilian Reais
Mexican Peso
Uruguayan Pesos
Argentine Pesos
Brazilian Reais
Brazilian Reais
Brazilian Reais
Brazilian Reais
Fixed
—
Variable
Fixed
Fixed
Variable
Variable
Variable
—
Fixed
Fixed
Fixed
Fixed
Fixed
Fixed
—
Fixed
Fixed
Fixed
Variable
Fixed
Variable
Chilean Subsidiary
Brazilian Subsidiary
Brazilian Subsidiary
Brazilian Subsidiary
Brazilian Subsidiary
Mexican Subsidiary
Mexican Subsidiary
Mexican Subsidiary
Argentine Subsidiary
Uruguayan Subsidiary
Uruguayan Subsidiary
Colombian Subsidiary
Chilean Subsidiary
Secured lines of credit
Argentine Subsidiary
Argentine Subsidiary
Brazilian Subsidiary
Mexican Subsidiary
Unsecured lines of credit
Uruguayan Subsidiary
Argentine Subsidiary
Brazilian Subsidiary
Deposit Certificates
Brazilian Subsidiary
Brazilian Subsidiary
Brazilian Subsidiary
2028 Notes
2026 Sustainability Notes
2031 Notes
Finance lease obligations
Credit card collateralized debt
Collateralized debt
Other lines of credit
5.19
—
%
%
LIBOR 3M + 0.7408 %
%
%
%
%
%
%
%
%
%
1.30
1.70
TIIE + 2.20
TIIE + 2.20
TIIE + 2.20
—
6.69
6.16
5.06
2.46
%
$
January 2022
—
January - July 2022
December 2022
November 2022
May 2022
March 2022
November 2022
—
June 2022
January 2022
February - March 2022
January 2022 - December
2022
33.93
35.32
—
10.08
7.52
32.77
—
—
98% to 126.5% of CDI
6.9 - 12.85
CDI + 0.76
%
%
%
% January - September 2022
January 2022
January 2022
—
%
%
%
%
%
January 2022
January 2022
January 2022
January 2022 - December
2022
January 2022 - December
2022
February 2022
$
50
112,447
$
—
60,033
50,031
50,169
33,329
17,927
14,733
—
7,832
15,143
14,612
1,451
44,339
25,361
—
3,711
26,495
113,642
4,449
518,319
40,682
23,497
3,318
4,381
10,087
10,709
396
76,379
1,944
1,285,416
$
92,895
142,178
—
—
—
18,418
—
—
14,400
—
13,406
—
—
18,311
—
58,437
—
20,055
116,140
—
—
—
—
6,649
—
—
7,394
12,920
25,342
1,848
548,393
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
16.
Loans payable and other financial liabilities (continued)
Type of instrument
Currency
Interest
Weighted Average Interest
Rate
Maturity
Book value as of
December 31, 2021
December 31, 2020
(In thousands)
Non Current loans payable and other financial liabilities:
2028 Notes
2026 Sustainability Notes
2031 Notes
Financial Bills
Brazilian Subsidiary
Deposit Certificates
Brazilian Subsidiary
Finance lease obligations
Collateralized debt
Loans from banks
Chilean Subsidiary
Brazilian Subsidiary
Secured lines of credit
Mexican Subsidiary
Other lines of credit
Brazilian Reais
Brazilian Reais
Chilean Pesos
Brazilian Reais
Variable
Variable
Fixed
Variable
CDI + 1.10
%
July 2023
108% to 129% of CDI
April 2023 - January 2024
2.46
TJLP + 0.8
% January 2023 - April 2025
%
May 2024 - May 2031
311,542
396,835
693,785
92,702
2,642
35,632
674,436
3,527
4,032
Mexican Peso
Fixed
10.08
%
January 2023 - December
2026
$
17,224
898
2,233,255
$
595,800
—
—
—
—
16,261
248,815
—
—
—
—
860,876
See Notes 21 and 23 to these consolidated financial statements for details regarding the Company’s collateralized debt securitization transactions and finance lease obligations, respectively.
51
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
16.
Loans payable and other financial liabilities (continued)
2.375% Sustainability Senior Notes Due 2026 and 3.125% Senior Notes Due 2031
On January 14, 2021, the Company closed a public offering of $400,000 thousands aggregate principal amount of 2.375% Sustainability Notes due 2026 (the “2026 Sustainability Notes”) and $700,000 thousands aggregate
principal amount of 3.125% Notes due 2031 (the “2031 Notes”, and together with the 2026 Sustainability Notes, the “Notes”). The Company will pay interest on the Notes on January 14 and July 14 of each year, beginning on
July 14, 2021. The 2026 Sustainability Notes will mature on January 14, 2026, and the 2031 Notes will mature on January 14, 2031. In connection with the Notes, the Company capitalized $10,647 thousands of debt issuance
costs, which are amortized during the term of the Notes.
Certain of the Company’s subsidiaries (the “Subsidiary Guarantors”) fully and unconditionally guarantee the payment of principal, premium, if any, interest, and all other amounts in respect of each of the Notes (the “Subsidiary
Guarantees”). 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. On October 27, 2021, MercadoLibre, S. de R.L. de C.V. became an excluded
subsidiary pursuant to the terms of the Notes and it was released from its Subsidiary Guaranty. On October 27, 2021, MP Agregador, S. de R.L. de C.V. became a Subsidiary Guarantor under the Notes.
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.
2.00% Convertible Senior Notes Due 2028
On August 24, 2018, the Company issued $800,000 thousands of 2.00% Convertible Senior Notes due 2028 and on August 31, 2018 the Company issued an additional $80,000 thousands of notes pursuant to the partial exercise of
the initial purchasers’ option to purchase such additional notes, resulting in an aggregate principal amount of $880,000 thousands of 2.00% Convertible Senior Notes due 2028 (collectively, the “2028 Notes”). The 2028 Notes are
unsecured, unsubordinated obligations of the Company, which pay interest in cash semi-annually, on February 15 and August 15 of each year, at a rate of 2.00% per annum. The 2028 Notes will mature on August 15, 2028 unless
earlier redeemed, 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.
The Company will not have the right to redeem the notes prior to August 21, 2023. On or after August 21, 2023, if the last reported sale price of the Company’s common stock has been at or above 130% of the conversion price
during specified periods, the Company may (at its option) redeem all or any portion of the 2028 Notes for cash equal to the 2028 Notes’ principal amount plus accrued and unpaid interest to, but excluding the redemption date.
Holders were able to convert their 2028 Notes at their option at any time prior to February 15, 2028 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on
September 30, 2018 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the
last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day
period (the “measurement period”) in which the trading price per $1,000 principal amount of 2028 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the
Company’s common stock and the conversion rate on each such trading day; (3) if the Company calls any or all of the 2028 Notes for redemption, at any time prior to the close of business on the scheduled trading day
immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after February 15, 2028 until the close of business on the second scheduled trading day immediately preceding the
maturity date, holders may convert their 2028 Notes at any time, regardless of the foregoing circumstances.
52
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
16.
Loans payable and other financial liabilities (continued)
During the year ended December 31, 2021, 901 Notes were converted, for a total amount of $901 thousands. The Company reconfirmed during the fourth quarter of 2021 that the conversion threshold was met and the Notes
remain eligible for conversion. The determination of whether or not the Notes are convertible must continue to be performed on a quarterly basis. Upon conversion, the Company will pay or deliver, as the case may be, cash,
shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. As of the date of issuance of these consolidated financial statements, the Company did not
receive additional requests for conversion.
The Company has entered into capped call transactions with respect to shares of its common stock with certain financial institutions (the “2028 Notes Capped Call Transactions”). 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 the Company’s common stock is greater than the strike price and lower than the cap price of the 2028
Notes Capped Call Transactions. The amounts the Company has paid, including transaction expenses, are $91,784 thousands (August 2018), $11,472 thousands (November 2018), $88,362 thousands (June 2019), $104,095
thousands (June 2020), $82,682 thousands (August 2020), $120,012 thousands (November 2020) and $100,769 thousands (January 2021). In addition, the Company paid $8,005 thousands in November 2019 to amend the strike
and cap prices of the capped call transaction purchased in November 2018. The cost of the 2028 Notes Capped Call Transactions is included as a net reduction to additional paid-in capital in the stockholders’ equity section of the
consolidated balance sheets. In June and August 2021, the Company terminated certain of its 2028 Notes Capped Call Transactions and received as consideration $102,382 thousands in cash and 57,047 shares of Common Stock,
and $294,357 thousands in cash and 89,978 shares of Common Stock, respectively. Cash proceeds of terminating certain of the 2028 Notes Capped Call Transactions in June and August 2021 were used to repurchase 71,175
shares and 158,413 shares of Common Stock, respectively.
In January 2021, the Company repurchased $440,000 thousands principal amount of the outstanding of the 2028 Notes. The total amount paid amounted to $1,865,076 thousands, which includes principal, interest accrued and
premium. The settlement consideration was first allocated to the extinguishment of the liability component of the 2028 Notes repurchased. The difference of $29,953 thousands between the fair value of the liability component and
the net carrying amount of the liability component and unamortized debt issuance costs was recognized as a loss on debt extinguishment; in addition, $19,294 thousands paid as a premium was recognized as a loss in Interest
expense and other financial losses line in the consolidated statement of income in January 2021. The remaining consideration of $1,484,279 thousands (net of income tax effects) was allocated to the reacquisition of the equity
component and recognized as a reduction of stockholders’ equity.
The total estimated fair value of the 2028 Notes were $1,367,091 thousands and $3,416,819 thousands as of December 31, 2021 and December 31, 2020, respectively. The fair value was determined based on the closing trading
price per $100 principal amount of the 2028 Notes as of the last day of trading for the period. The Company considered the fair value of the 2028 Notes as of December 31, 2021 and December 31, 2020 to be a Level 2
measurement. The fair value of the 2028 Notes is primarily affected by the trading price of the Company’s common stock and market interest rates. Based on the $1,348.40 closing price of the Company’s common stock on
December 31, 2021, the if-converted value of the 2028 Notes exceeds their principal amount by $896,207 thousands.
53
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
16.
Loans payable and other financial liabilities (continued)
The following table presents the carrying amounts of the liability and equity components related to the 2028 Notes as of December 31, 2021 and 2020:
Amount of the equity component (1)
2.00% Convertible Senior Notes due 2028
Unamortized debt discount (2)
Unamortized transaction costs related to the debt component
Contractual coupon interest accrual
Contractual coupon interest payment
Net carrying amount
(1) Net of $3,082 thousands of transaction costs related to the equity component of the 2028 Notes.
(2) As of December 31, 2021, the remaining period over which the unamortized debt discount would be amortized is 6.7 years.
The following table presents the interest expense for contractual interest, the accretion of debt discount and the amortization of debt issuance costs:
December 31,
2021
2020
(In thousands)
163,653
439,092
(123,450)
(4,100)
50,833
(47,515)
314,860
$
$
$
327,305
879,993
(275,299)
(8,894)
41,409
(34,760)
602,449
$
$
$
Contractual coupon interest expense
Amortization of debt discount
Amortization of debt issuance costs
Total interest expense related to the 2028 Notes
17. Related Party Transactions
Indemnification agreements
2021
Year ended December 31,
2020
(In thousands)
$
$
9,424 $
14,889
360
24,673 $
17,600 $
25,929
574
44,103 $
2019
17,942
24,556
490
42,988
The Company has entered into indemnification agreements with each of the directors and executive officers of its local subsidiaries. These agreements require the Company to indemnify such individuals, to the fullest extent
permitted by the laws of the jurisdiction where these subsidiaries operate, for certain liabilities to which they may become subject by reason of the fact that such individuals are or were directors or executive officers of the local
subsidiaries of the Company.
Transactions with Venezuelan related parties
Subsequent to Venezuelan's deconsolidation, the Company recorded allocation of expenses to the Venezuelan's subsidiaries amounting to $59 thousands and $278 thousands as of December 31, 2021 and 2020, respectively, which
were expensed as incurred.
54
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
18. Valuation and qualifying accounts
The following table summarizes valuation and qualifying accounts activity during the years ended December 31, 2021, 2020 and 2019:
Balance at beginning of
Adoption of ASC 326 (1)
Charged/credited to Net
year
income / loss
(In thousands)
Charges
Utilized/
Currency translation
adjustments/
Write-offs and other
adjustments
Balance at end of
year
Allowance for doubtful accounts
Year ended December 31, 2019
Year ended December 31, 2020
Year ended December 31, 2021
Credit cards receivable and other means of payments allowance for chargebacks
Year ended December 31, 2019
Year ended December 31, 2020
Year ended December 31, 2021
Credit cards receivable and other means of payments allowance for doubtful accounts
Year ended December 31, 2020 (2)
Year ended December 31, 2021
Loans receivable allowance for uncollectible accounts
Year ended December 31, 2019 (3)
Year ended December 31, 2020
Year ended December 31, 2021
Tax valuation allowance
Year ended December 31, 2019
Year ended December 31, 2020
Year ended December 31, 2021
Contingencies
Year ended December 31, 2019
Year ended December 31, 2020
Year ended December 31, 2021
(1)
(2)
(3)
Cumulative pre-tax adjustments recorded to retained earnings as of January 1, 2020.
No amounts recorded as of December 31, 2019.
The comparative information has not been restated and continues to be reported under the accounting standard in place during 2019.
8,702
6,325
7,294
8,073
11,310
17,688
—
23,863
6,636
20,444
77,816
15,724
138,875
179,177
5,813
7,972
10,929
55
—
—
—
—
—
—
—
—
—
4,977
—
—
—
—
—
—
—
5,520
5,683
3,757
15,673
53,662
24,075
36,236
(2,564)
64,341
91,025
434,121
113,426
40,874
55,723
10,978
3,123
4,618
(7,897)
(4,714)
(2,702)
(12,436)
(47,284)
(27,837)
(12,373)
(3,971)
(50,533)
(38,630)
(77,313)
9,725
(572)
26,666
(8,819)
(166)
(2,775)
6,325
7,294
8,349
11,310
17,688
13,926
23,863
17,328
20,444
77,816
434,624
138,875
179,177
261,566
7,972
10,929
12,772
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
19. Quarterly Financial Data (unaudited)
The following tables present certain consolidated quarterly financial information for each of the last twelve quarters for the years ended December 31, 2021, 2020 and 2019:
2021
Net Revenues
Gross profit
Net (loss) Income
Net (loss) Income per share-basic
Net (loss) Income per share-diluted
Weighted average shares
Basic
Diluted
2020
Net Revenues
Gross profit
Net (loss) Income
Net (loss) Income per share-basic
Net (loss) Income per share-diluted
Weighted average shares
Basic
Diluted
2019
Net Revenues
Gross profit
Net Income (loss)
Net Income (loss) per share-basic
Net Income (loss) per share-diluted
Weighted average shares
Basic
Diluted
20. Cash Dividend Distribution
March 31,
June 30,
September 30,
December 31,
(In thousands, except for share data)
Quarter Ended
$ 1,378,441
591,377
(34,012)
(0.68)
(0.68)
$ 1,702,750
753,920
68,195
1.37
1.37
$ 1,857,452
806,590
95,225
1.92
1.92
$ 2,130,766
853,165
(46,104)
(0.92)
(0.92)
49,867,625
49,867,625
49,822,272
49,822,272
49,597,157
49,597,157
49,926,533
49,926,533
$ 652,091
312,814
(21,109)
(0.44)
(0.44)
$ 878,369
427,172
55,947
1.11
1.11
$ 1,115,701
480,190
15,035
0.28
0.28
$ 1,327,304
489,034
(50,580)
(1.02)
(1.02)
49,709,955
49,709,955
49,709,973
49,709,973
49,720,854
49,720,854
49,820,185
49,820,185
$ 473,770
237,004
11,864
0.13
0.13
$ 545,242
272,430
16,217
0.31
0.31
45,980,255
45,980,255
49,318,522
49,318,522
$ 603,031
284,342
(146,082)
(2.96)
(2.96)
49,710,723
49,710,723
$ 674,271
308,347
(53,998)
(1.11)
(1.11)
49,709,955
49,709,955
After reviewing the Company's capital allocation process the Board of Directors has concluded that it has multiple investment opportunities that can generate greater return to shareholders through investing capital into the
business over a dividend policy. Consequently, the Board of Directors suspended the payment of dividend to shareholders as from the first quarter of 2018.
56
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
21. Securitization transactions
The process of securitization consists of the issuance of securities collateralized by a pool of assets through a special purpose entity, often under a VIE.
The Company securitizes financial assets associated with its credit cards and loans receivable portfolio. The Company’s securitization transactions typically involve the legal transfer of financial assets to bankruptcy remote special
purpose entities (“SPEs”) or the acquisition of loans receivable portfolios through SPEs. The Company generally retains economic interests in the collateralized securitization transactions, which are retained in the form of
subordinated interests. For accounting purposes, the Company is precluded from recording the transfers of assets in securitization transactions as sales and is required to consolidate the SPE.
The Company securitizes certain credit cards receivable related to user’s purchases through Argentine SPEs. According to the SPE contracts, the Company has determinated that it has no obligation to absorb losses or the right to
receive benefits of the SPE that could be significant because it does not retain any equity certificate of participation or subordinated interest in the SPEs. As the Company does not control the vehicule, its assets, liabilities, and
related results are not consolidated in the Company’s financial statements.
Additionally, the Company intents to securitize certain credit cards receivable related to user’s purchases through Brazilian SPE. According to the SPE contract in place, the Company has determined that it has the obligation to
absorb losses or the right to receive benefits of the SPE that could be significant because it retains subordinated interest in the SPEs. As the Company controls the vehicule, the assets, liabilities, and related results are consolidated
in its financial statements.
The Company securitizes certain loans receivable through Brazilian, Argentine and Mexican SPEs, formed to securitize loans receivable provided by the Company to its users through Mercado Pago. According to the SPE
contracts, the Company has determined that it has both the power to direct the activities of the entity that most significantly impact the entity’s performance and the obligation to absorb losses or the right to receive benefits of the
entity that could be significant because it retains the equity certificates of participation, and would therefore also be consolidated. When the Company controls the vehicle, it accounts the securitization transactions as if they were
secured financing and therefore the assets, liabilities, and related results are consolidated in its financial statements.
57
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
21. Securitization transactions (continued)
The following table summarizes the Company’s collateralized debt as of December 31, 2021:
SPEs
Mercado Crédito I Brasil Fundo de
Investimento Em Direitos Creditórios Não
Padronizados
Fundo de Investimento Em
DireitosCreditórios Arandu
Mercado Crédito Fundo de Investimento
Em Direitos Creditórios Não Padronizado
Olimpia Fundo de Investimento Em
Direitos Creditórios
Mercado Crédito II Brasil Fundo De
Investimento Em Direitos Creditórios Nao
Padronizados
Mercado Crédito X
Mercado Crédito XI
Mercado Crédito Consumo V
Mercado Crédito Consumo VI
Mercado Crédito Consumo VII
Mercado Crédito XII
Fideicomiso de administración y fuente de
pago CIB/3756
Fideicomiso de administración y fuente de
pago CIB/3369
Collateralized debt as of
December 31, 2021
Interest rate
Currency
Maturity
144,124 CDI + 2.50%
178,639 CDI + 1.75%
18,529 CDI + 3.50%
89,970 CDI + 1.25%
54,222 CDI + 1.90%
7,672 Badlar rates plus 200 basis points with a min 30% and a max 45%
9,457 Badlar rates plus 200 basis points with a min 30% and a max 46%
12,789 Badlar rates plus 200 basis points with a min 30% and a max 46%
13,172 Badlar rates plus 200 basis points with a min 30% and a max 46%
13,187 Badlar rates plus 200 basis points with a min 30% and a max 46%
9,804 Badlar rates plus 200 basis points with a min 30% and a max 46%
Brazilian Reais
Brazilian Reais
May 2024
June 2023
Brazilian Reais
August 2023
Brazilian Reais
November 2024
Brazilian Reais
Argentine Pesos
Argentine Pesos
Argentine Pesos
Argentine Pesos
Argentine Pesos
Argentine Pesos
May 2028
June 2022
September 2022
June 2022
August 2022
October 2022
November 2022
100,823
98,427
The equilibrium interbank interest rate published by Banco de Mexico in the Diario
Oficial plus 1.9%
The equilibrium interbank interest rate published by Banco de Mexico in the Diario
Oficial plus 3.0%
Mexican Pesos
October 2023
Mexican Pesos
April 2024
This secured debt is issued by the SPEs and includes collateralized securities used to fund Mercado Pago and Mercado Credito business. The third-party investors in the securitization transactions have legal recourse only to the
assets securing the debt and do not have recourse to the Company. Additionally, the cash flows generated by the SPEs are restricted to the payment of amounts due to third-party investors, but the Company retains the right to
residual cash flows.
58
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
21. Securitization transactions (continued)
The assets and liabilities of the SPEs included in the Company’s consolidated financial statements as of December 31, 2021 and 2020 are as follows:
Current assets:
Restricted cash and cash equivalents
Short-term investments
Credit cards receivable and other means of payments, net
Loans receivable, net
Total current assets
Long-term investments
Loans receivable, net
Total non-current assets
Total assets
Assets
Liabilities
Current liabilities:
Accounts payable and accrued expenses
Loans payable and other financial liabilities
Total current liabilities
Non-current liabilities:
Loans payable and other financial liabilities
Total non-current liabilities
Total liabilities
22. Equity Offering
2021
December 31,
(in thousands)
2020
281,999
173
277,917
608,185
1,168,274
13,059
45,167
58,226
1,226,500
662
76,379
77,041
674,436
674,436
751,477
$
$
$
$
249,872
—
—
113,846
363,718
—
9,581
9,581
373,299
100
25,342
25,442
248,815
248,815
274,257
$
$
$
$
On November 18, 2021, the Company closed a public equity offering of $1,550,000 thousands of common stock at a public offering price of $1,550 per share (the “Offering”). Pursuant to the Offering, the Company issued
1,000,000 shares of common stock, par value $0.001 per share (the “Common Stock”). The Company raised funds in the amount of $1,519,545 thousands net of issuance costs paid.
59
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
23. Leases
The Company leases certain fulfillment, cross docking and service centers, office space, machines and vehicles in the various countries in which it operates. The lease agreements do not contain any residual value guarantees or
material restrictive covenants.
Supplemental balance sheet information related to leases was as follows:
Operating Leases
Operating lease right-of-use assets
Operating lease liabilities
Finance Leases
Property and equipment, at cost
Accumulated depreciation
Property and equipment, net
Loans payable and other financial liabilities
2021
December 31,
(In thousands)
2020
461,175
463,957
68,223
(13,807)
54,416
46,341
$
$
$
$
303,214
298,847
29,798
(4,086)
25,712
23,655
$
$
$
$
The following table summarizes the weighted average remaining lease term and the weighted average incremental borrowing rate for operating leases and the weighted average discount rate for finance leases at December 31,
2021:
Weighted average remaining lease term
Operating leases
Finance leases
Weighted average discount rate (*)
Operating leases
Finance leases
(*) Includes discount rates of leases in local currency and U.S dollar.
The components of lease expense were as follows:
Operating lease cost
Finance lease cost:
Depreciation of property and equipment
Interest on lease liabilities
Total finance lease cost
6 Years
4 Years
9 %
14 %
2021
Year ended December 31,
2020
2019
$
$
(In thousands)
79,631
$
8,761
4,953
13,714
$
42,508 $
2,474
2,813
5,287 $
29,515
1,514
1,798
3,312
60
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
23. Leases(continued)
Supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Finance leases
2021
Year ended December 31,
2020
2019
(In thousands)
71,260 $
16,524
40,339 $
4,949
229,424 $
36,575
137,679 $
17,177
25,381
1,929
93,160
4,496
$
$
The following table summarizes the fixed, future minimum rental payments, excluding variable costs, which are discounted by the Company’s incremental borrowing rates to calculate the lease liabilities for the operating and
finance leases:
Period Ending December 31, 2021
Operating Leases
Finance Leases
One year or less
One year to two years
Two years to three years
Three years to four years
Four years to five years
Thereafter
Total lease payments
Less imputed interest
Total
24. Derivative Instruments
Cash Flow Hedge
$
$
$
(In thousands)
104,173
102,637
97,372
85,704
60,676
146,901
597,463
(133,506)
463,957
$
$
$
16,478
16,105
14,190
8,171
3,287
2,341
60,572
(14,231)
46,341
As of December 31, 2021, the Company used foreign currency exchange contracts to hedge the foreign currency effects related to the forecasted purchase of MPOS devices in U.S. dollars owed by a Brazilian subsidiary whose
functional currency is the Brazilian Reais. The Company designated the foreign currency exchange contracts as cash flow hedges, the derivative’s gain or loss is initially reported as a component of accumulated other
comprehensive income and subsequently reclassified into earnings in the same period the forecasted transaction affects earnings. As of December 31, 2021, the Company estimated that the whole amount of net derivative gains
related to its cash flow hedges included in accumulated other comprehensive income will be reclassified into earnings within the next 12 months.
Net Investment Hedge
The Company used a cross currency swap contract, which matures in 2024, to reduce the foreign currency exchange risk related to its investment in its Brazilian foreign subsidiary. This derivative was designated as a net
investment hedge and, accordingly, gain and loss was reported as a component of accumulated other comprehensive income. The accumulated gains and losses associated with this instrument will remain in other comprehensive
income until the foreign subsidiary is sold or substantially liquidated, at which point they will be reclassified into earnings.
61
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
24. Derivative Instruments (continued)
Derivative instruments not designated as hedging instruments
As of December 31, 2021, the Company entered into certain foreign currency exchange contracts to hedge the foreign currency fluctuations related to certain transactions denominated in U.S. dollars of certain of its Brazilian and
Mexican subsidiaries, whose functional currencies are the Brazilian Reais and Mexican Peso, respectively. These transactions were not designated as hedges for accounting purposes.
In addition, the Company entered into full cross currency swap contracts to hedge the interest rate fluctuation and foreign currency fluctuations of its financial debt nominated in U.S. dollars held by its Brazilian subsidiaries.
These transactions were not designated as hedges for accounting purposes.
Finally, as of December 31, 2021, the Company entered into swap contracts to hedge the interest rate fluctuation of its financial debt related to its credit cards receivable securitization transactions in Brazil. These transactions were
not designated as hedges for accounting purposes.
The following table presents the notional amounts of the Company’s outstanding derivative instruments:
Designated as hedging instrument
Foreign exchange contracts
Cross Currency Swap Contracts
Not designated as hedging instrument
Interest rate contracts
Cross Currency Swap Contracts
Foreign exchange contracts
The fair values of the Company’s outstanding derivative instruments as of December 31, 2021 and December 31, 2020 were as follows:
Derivatives
Foreign exchange contracts not designated as hedging instruments
Cross currency swap contract not designated as hedging instrument
Foreign exchange contracts designated as cash flow hedges
Interest rate contracts not designated as hedging instruments
Cross currency swap Contract designated as net investment hedge
Cross Currency Swap contracts not designated as hedging instruments
Foreign exchange contracts not designated as hedging instruments
Interest rate contracts not designated as hedging instruments
Foreign exchange contracts designated as cash flow hedges
62
Notional Amount as of
December 31, 2021
(In thousands)
$
$
$
$
Balance sheet location
2021
December 31,
(In thousands)
2020
$
Other current assets
Other current assets
Other current assets
Other current assets
Other non current assets
Other current liabilities
Other current liabilities
Other current liabilities
Other current liabilities
— $
7,581
2,112
319
6,752
5,118
—
239
792
89,483
94,125
249,391
160,074
199
—
—
—
—
—
11,106
—
2,858
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
24. Derivative Instruments (continued)
The effects derivative Contracts on Consolidated Statement of comprehensive income as of December 31, 2021 and December 2020 were as follows:
Foreign exchange contracts designated as cash flow hedges
Cross currency swap contract designated as net investment hedge
$ (2,469)
—
(2,469)
$ 1,619
6,752
8,371
$ 2,259
—
2,259
$ 1,409
6,752
8,161
December 31,
2020
Amount of
gain (loss) recognized
in other comprehensive loss
Amount of (gain) / loss reclassified
from accumulated
other comprehensive loss (income)
(In thousands)
December 31,
2021
The effects of derivative Contracts on Consolidated Statement of Income during the year ended December 31, 2021 and December 2020 were as follows:
Foreign exchange contracts not designated as hedging instruments recognized in interest and other, net
Currency Swap contracts not designated as hedging instruments recognized in foreign exchange
Interest rate contracts not designated as hedging instruments recognized in interest and other, net
2021
$
Year ended December 31,
2020
2019
(In thousands)
(2,419) $
1,763
227
1,935 $
—
—
301
—
—
63
Table of Contents
MercadoLibre, Inc.
Notes to Consolidated Financial Statements
25. Share repurchase program
On August 30, 2020, the Board of Directors of MercadoLibre (“the Board”) authorized the Company to repurchase shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), for aggregate
consideration of up to $350,000 thousands. The share repurchase program expired on August 31, 2021. On August 4, 2021, the Board authorized the Company to repurchase shares of the Company’s common stock, for aggregate
consideration of up to $150,000 thousands. This authorization, which replaced and superseded the previous authorization, expires on August 31, 2022.
The Company expects to purchase shares at any time and from time to time, in compliance with applicable federal securities laws, through open-market purchases, block trades, derivatives, trading plans established in accordance with
SEC rules, or privately negotiated transactions. The timing of repurchases will depend on factors including market conditions and prices, the Company’s liquidity requirements and alternative uses of capital. The share repurchase
program may be suspended from time to time or discontinued, and there is no assurance as to the number of shares that will be repurchased under the program or that there will be any repurchases.
As of December 31, 2021, the Company had acquired 122,821 shares under the aforementioned share repurchase programs.
On June 7, 2021, the Board authorized the use of part or all of the cash proceeds of terminating certain of its 2028 Notes Capped Call Transactions to repurchase shares of common stock. The Board’s authorization is in addition to the
share repurchase authorization referred to above. Under this authorization the Company had acquired 229,588 shares. This authorization expired on December 31, 2021.
From time to time, the Company acquires shares of its own common stock in the Argentine market and pays for them in Argentine pesos at a price that reflects the additional cost of accessing US dollars through an indirect mechanism,
because of restrictions imposed by the Argentine government for buying US dollars at the official exchange rate in Argentina. As a result, the Company recognized a foreign currency loss of $90,390 thousands for the year ended
December 31, 2021.
64
Exhibit 4.08
This Second Supplemental Indenture, dated as of October 27, 2021 (this “Supplemental Indenture”), among MP Agregador, S. de R.L. de C.V., limited liability company (the “Additional
Subsidiary Guarantor”), MercadoLibre, Inc., a Delaware Corporation (together with its successors and assigns, the “Company”) and The Bank of New York Mellon, as Trustee under the
Indenture referred to below.
W I T N E S S E T H:
WHEREAS, the Company, the Trustee and the Subsidiary Guarantors named therein (each a “Subsidiary Guarantor” and together the “Subsidiary Guarantors”) have heretofore executed and
delivered an Indenture, dated as of January 14, 2021 (the “Base Indenture,” and as amended and supplemented by the First Supplemental Indenture, dated as of January 14, 2021 (the “First
Supplemental Indenture,” the “Indenture”), providing for the issuance of $700,000,000 aggregate principal amount of the Company’s 3.125% Notes due 2031 of the Company and of
$400,000,000 aggregate principal amount of the Company’s 2.375% Sustainability Notes due 2026 of the Company (collectively, the “Notes”); and
WHEREAS, pursuant to Section 10.1 of the Base Indenture, the Trustee and the Company are authorized to execute and deliver this Supplemental Indenture to supplement the Indenture,
without the consent of any Holder;
WHEREAS, pursuant to Section 3.4 of the Base Indenture, any Guarantor shall be automatically and unconditionally released and discharged from its Guarantee, and no further action by
such Guarantor will be required for such release upon such Guarantor becoming an Excluded Subsidiary;
WHEREAS, on October 27, 2021 the Company has determined that MercadoLibre S. de R.L. de C.V. (the “Release Guarantor”) became an Excluded Subsidiary pursuant to clause (ii) of the
definition thereof and therefore was automatically and unconditionally released from its Guarantee granted under the First Supplemental Indenture.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Additional Subsidiary Guarantor, the
Company and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:
Section 1.1
Defined Terms. Unless otherwise defined in this Supplemental Indenture, terms defined in the Indenture are used herein as therein defined.
ARTICLE I
DEFINITIONS
ARTICLE II
AGREEMENT TO BE BOUND; GUARANTEE
Section 2.1
and be subject to all of the obligations and agreements of a Subsidiary Guarantor under the Indenture. The Additional Subsidiary Guarantor hereby agrees to be bound by all of the
provisions of the Indenture applicable to a Subsidiary Guarantor and to perform all of the obligations and agreements of a Subsidiary Guarantor under the Indenture.
Agreement to be Bound. The Additional Subsidiary Guarantor hereby becomes a party to the Indenture as a Subsidiary Guarantor and as such shall have all of the rights
Section 2.2
Note Guarantees.
(a)
The Additional Subsidiary Guarantor hereby fully and unconditionally guarantees to each Holder of a Note authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the obligations of the
Company hereunder or thereunder, that (i) the principal of, premium on, if any, and interest, if any, on, the Notes and all other amounts payable by the
Company under the Indenture will be promptly paid in full when due, whether at Stated Maturity, by acceleration, redemption or otherwise, and interest on the
overdue principal of, premium on, if any, and interest, if any, on, the Notes, if lawful, and all other obligations of the Company to the Holders or the Trustee
hereunder or thereunder (such guaranteed obligations, the “Guaranteed Obligations”) will be promptly paid in full or performed, all in accordance with the
terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be
promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at Stated Maturity, by acceleration or
otherwise.
(b)
Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Additional Subsidiary
Guarantor, together with the Subsidiary Guarantors, will be obligated to pay the same immediately. The Additional Subsidiary Guarantor agrees that its Note
Guarantee is a guarantee of payment and not a guarantee of collection.
(c)
The Additional Subsidiary Guarantor hereby agrees that its obligations under its Note Guarantee are unconditional, irrespective of the
validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the
Notes or the Trustee with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or
any other circumstance which might otherwise constitute a legal or equitable discharge or defense of such Subsidiary Guarantor. The Additional Subsidiary
Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company,
any right to require a proceeding first against the Company, protest, notice and all demands
whatsoever and covenants that its Note Guarantee will not be discharged with respect to the Notes except by complete performance of the obligations contained in
the Notes and the Indenture.
(d)
(e)
If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Subsidiary Guarantors or any custodian, trustee, liquidator
or other similar officer acting in relation to either the Company or the Subsidiary Guarantors, any amount paid either to the Trustee or such Holder, each
Subsidiary Guarantor’s Note Guarantee, to the extent theretofore discharged, will be reinstated in full force and effect.
The Additional Subsidiary Guarantor agrees that it will not be entitled to any right of subrogation in relation to the Holders with respect to the Notes in
respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby with respect to the Notes. The Subsidiary
Guarantor further agrees that, as between the Subsidiary Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (1) the maturity
of the obligations guaranteed hereby may be accelerated as provided in Article VII of the Base Indenture for the purposes of the Subsidiary Guarantors’
Note Guarantees, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby,
and (2) in the event of any declaration of acceleration of such obligations as provided in Article VII of the Base Indenture, such obligations (whether or
not due and payable) will forthwith become due and payable by any Subsidiary Guarantor for the purpose of such Subsidiary Guarantor’s Note Guarantee.
(d)
The Additional Subsidiary Guarantors further expressly waives irrevocably and unconditionally:
(i)
Any right it may have to first require any Holder to proceed against, initiate any actions before a court of law or any other judge or authority, or enforce any other
rights or security or claim payment from the Company or any other Person (including any Subsidiary Guarantor or any other guarantor) before claiming from it under this Indenture;
(ii)
Any rights to the benefits of orden, excusión, división, quita and espera arising from Articles 2814, 2815, 2817, 2818, 2819, 2820, 2821, 2822, 2823, 2826, 2837,
2839, 2840, 2845, 2846, 2847 and any other related or applicable Articles that are not explicitly set forth herein because of the Subsidiary Guarantor’s knowledge thereof, of the
Código Civil Federal of Mexico and the Código Civil of each State of the Mexican Republic and for the Federal District of Mexico;
(iii)
Any right to which it may be entitled to have the assets of the Company or any other Person (including any Subsidiary Guarantor or any other guarantor) first be
used, applied or depleted as payment of the Company’s or the Additional Subsidiary Guarantors’ obligations hereunder, prior to any amount
being claimed from or paid by the Additional Subsidiary Guarantors hereunder; and
(iv)
Any right to which it may be entitled to have claims hereunder divided among the Subsidiary Guarantors and the Additional Subsidiary Guarantor.
Section 2.3
Limitation on Liability; Termination, Release and Discharge.
(a)
The Additional Subsidiary Guarantor, and by its acceptance of Notes, each Holder, hereby confirm that it is the intention of all such parties that the Guarantee of the Additional
Subsidiary Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or
any similar federal or state law to the extent applicable to this Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Additional Subsidiary Guarantor hereby
irrevocably agree that the obligations of the Additional Subsidiary Guarantor will be limited to the maximum amount that will, after giving effect to such maximum amount and all other
contingent and fixed liabilities of the Additional Subsidiary Guarantor that are relevant under such laws, result in the obligations of the Additional Subsidiary Guarantor under this Guarantee
not constituting a fraudulent transfer or conveyance.
The Note Guarantee of an Additional Subsidiary Guarantor shall be automatically and unconditionally released and discharged and shall thereupon terminate and be of no further
(b)
force and effect, and no further action by such Additional Subsidiary Guarantor, the Company or the Trustee is required for the release of such Additional Subsidiary Guarantor’s Note
Guarantee upon:
(1)
(2)
(3)
(4)
the sale, exchange, disposition or other transfer (including by way of consolidation or merger) of the Additional Subsidiary Guarantor or
the sale or disposition of all or substantially all the assets of the Additional Subsidiary Guarantor (other than to the Company or a
Subsidiary) otherwise permitted by the Indenture;
a Legal Defeasance or a Covenant Defeasance of the Notes pursuant to Article IX of the Base Indenture;
a satisfaction and discharge of this Indenture pursuant to Section 9.5 of the Base Indenture;
the release or discharge of the Note Guarantee by such Additional Subsidiary Guarantor of the Triggering Indebtedness or the
repayment of the Triggering Indebtedness, in each case, that resulted in the obligation of such Subsidiary to become a Subsidiary
Guarantor; or
(5)
such Additional Subsidiary Guarantor becoming an Excluded Subsidiary or ceasing to be a Subsidiary;
provided, in each case, such transactions are carried out pursuant to and in accordance with all applicable covenants and provisions thereof. At the option of the Company, the release of a
Subsidiary Guarantor may be evidenced by the delivery of an Officer's Certificate to the Trustee.
Section 2.4
Right of Contribution. If the Additional Subsidiary Guarantor makes a payment or distribution under its Note Guarantee, it will be entitled to a contribution from each
other Subsidiary Guarantor in a pro rata amount, based on the net assets of each Subsidiary Guarantor and the Additional Subsidiary Guarantor determined in accordance with GAAP. The
provisions of this Section 2.4 shall in no respect limit the obligations and liabilities of the Additional Subsidiary Guarantor to the Trustee and the Holders and the Additional Subsidiary
Guarantor shall remain liable to the Trustee and the Holders for the full amount guaranteed by the Additional Subsidiary Guarantor hereunder.
No Subrogation. The Additional Subsidiary Guarantor agrees that it shall not be entitled to any right of subrogation in respect of any Guaranteed Obligations until
Section 2.5
payment in full in cash or Cash Equivalents of all Guaranteed Obligations. If any amount shall be paid to the Additional Subsidiary Guarantor on account of such subrogation rights at any
time when all of the Guaranteed Obligations shall not have been paid in full in cash or Cash Equivalents, such amount shall be held by the Additional Subsidiary Guarantor in trust for the
Trustee and the Holders, segregated from other funds of the Additional Subsidiary Guarantor, and shall, forthwith upon receipt by the Additional Subsidiary Guarantor, be turned over to the
Trustee in the exact form received by the Additional Subsidiary Guarantor (duly endorsed by the Additional Subsidiary Guarantor to the Trustee, if required), to be applied against the
Guaranteed Obligations.
ARTICLE III
MISCELLANEOUS
Section 3.1
Notices. Any notice or communication delivered to the Company under the provisions of the Indenture shall constitute notice to the Additional Subsidiary Guarantor.
Section 3.2
legal or equitable right, remedy or claim under or in respect of this Supplemental Indenture or the Indenture or any provision herein or therein contained.
Parties. Nothing expressed or mentioned herein is intended or shall be construed to give any Person, firm or corporation, other than the Holders and the Trustee, any
Section 3.3
Governing Law, etc. This Supplemental Indenture shall be governed by the provisions set forth in Section 11.10 of the Base Indenture.
Section 3.4
Severability. In case any provision in this Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby and such provision shall be ineffective only to the extent of such invalidity, illegality or unenforceability.
Section 3.5
Ratification of Indenture; Supplemental Indenture Part of Indenture. Except for the release of the Release Guarantor referred to herein or as otherwise expressly amended
hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form
a part of the Indenture for all purposes, and every holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby. The Trustee makes no representation or warranty
as to the validity or sufficiency of this Supplemental Indenture.
Duplicate and Counterpart Originals. The parties may sign any number of copies of this Supplemental Indenture. One signed copy is enough to prove this Supplemental
Section 3.6
Indenture. This Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be an original, but all of them together represent the same
agreement. Delivery of an executed counterpart of a signature page of this Supplement Indenture by facsimile or in electronic format shall be effective as delivery of a manually executed
counterpart of this Supplemental Indenture.
Section 3.7
considered as a part hereof and shall not modify or restrict any of the terms or provisions hereof.
Headings. The headings of the Articles and Sections in this Supplemental Indenture have been inserted for convenience of reference only, are not intended to be
Section 3.8
The Trustee. The recitals in this Supplemental Indenture are made by the Company and the Additional Subsidiary Guarantor only and not by the Trustee, and all of the
provisions contained in the Base Indenture in respect of the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect of this Supplemental Indenture as
fully and with like effect as if set forth herein in full. The Trustee makes no representations or warranties as to the correctness of the recitals contained herein, which shall be taken as
statements of the Company, or the validity or sufficiency of this Supplemental Indenture and the Trustee shall not be accountable or responsible for or with respect to nor shall the Trustee
have any responsibility for provisions thereof. The Trustee represents that it is duly authorized to execute and deliver this Supplemental Indenture and perform its obligations hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.
MERCADOLIBRE, INC.
By:
/s/ Pedro Arnt
Name:
Title:
Pedro Arnt
CFO
MP Agregador, S. de R.L. de C.V. ,
as Additional Subsidiary Guarantor
By:
/s/ David Geisen
Name:
Title:
David Geisen
Sole Administrator
THE BANK OF NEW YORK MELLON,
as Trustee
By:
/s/ Wanda Camacho
Name:
Title:
Wanda Camacho
Vice President
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934
Exhibit 4.07
MercadoLibre, Inc. has the following classes of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended: (i) our common stock, par value $0.001 per share
(“common stock”), (ii) the 2.375% Sustainability Notes due 2026 (the “2026 Sustainability Notes”) and (iii) the 3.125% Notes due 2031 (the “2031 Notes”, together with the 2026 Sustainability
Notes, the “Notes”).
DESCRIPTION OF COMMON STOCK
The general terms and provisions of our common stock are summarized below. This summary does not purport to be complete and is subject to, and is qualified in its entirety by express reference to,
the provisions of our certificate of incorporation and bylaws, each of which is filed as an exhibit to the Annual Report on Form 10‑K of which this Exhibit 4.07 is a part. We encourage you to read our
charter and bylaws and the applicable provisions of the General Corporation Law of the State of Delaware (“DGCL”) for additional information.
In this section of Exhibit 4.07, when we refer to “MercadoLibre, Inc.” the “Company,” “we,” “us” or “our” or when we otherwise refer to ourselves, we mean MercadoLibre, Inc. and its consolidated
subsidiaries, unless the context indicates otherwise.
Authorized Shares
Pursuant to our certificate of incorporation, we have the authority to issue 110,000,000 shares of common stock, par value $0.001 per share.
Dividend Rights
Subject to any preferential rights of any series of preferred stock, holders of our common stock are entitled to receive dividends ratably, if as and when dividends are declared from time to time by our
board of directors (the “Board of Directors”) out of funds legally available for that purpose. The Board of Directors may, in its sole discretion, increase or decrease the amount of the quarterly
dividend per share, change the frequency with which the dividend is paid or eliminate or reinstate the dividend.
As of January 1, 2018, our Board of Directors declared the suspension of the payment of dividends to shareholders and we currently do not pay a quarterly dividend on shares of our common stock.
All dividends are declared at the discretion of our Board of Directors and depend on our earnings, our financial condition and other factors as our Board of Directors, in its sole discretion, may deem
relevant from time to time.
Voting Rights
Each outstanding share of our common stock is entitled to one vote on all matters submitted to a vote of holders of our common stock, except as otherwise required by law, as provided with respect to
any series of preferred stock, or for stockholders that beneficially own more than 20% of the shares of our outstanding common stock, in which case any shares of stock above such 20% do not have
voting rights. The holders of common stock do not have cumulative voting rights in the election of directors.
Preemptive or similar rights
Our common stock is not entitled to preemptive or other similar subscription rights to purchase any of our securities.
Liquidation Rights
Upon our liquidation, dissolution or winding up, the holders of our common stock are entitled to receive pro rata our assets which are legally available for distribution, after payment of all debts and
other liabilities and subject to the prior rights of any holders of preferred stock then outstanding.
Conversion rights
Our common stock has no conversion rights.
Preferred Stock
Our Board of Directors may, without further action by our stockholders, from time to time, direct the issuance of shares of preferred stock in series and may, at the time of issuance, determine the
rights, preferences and limitations of each series. Satisfaction of any dividend preferences of outstanding shares of preferred stock would reduce the amount of funds available for the payment of
dividends on shares of common stock. Holders of shares of preferred stock may be entitled to receive a preference payment in the event of our liquidation, dissolution or winding-up before any
payment is made to the holders of shares of common stock. Under specified circumstances, the issuance of shares of preferred stock may render more difficult or tend to discourage a merger, tender
offer or proxy contest, the assumption of control by a holder of a large block of our securities or the removal of incumbent management. Upon the affirmative vote of a majority of the total number of
directors then in office, the Board of Directors, without stockholder approval, may issue shares of preferred stock with voting and conversion rights which could adversely affect the holders of shares
of common stock.
Anti-takeover effects of the Delaware general corporation law and our amended and restated certificate of incorporation and by-laws
Our amended and restated certificate of incorporation and by-laws contain certain provisions that are intended to enhance the likelihood of continuity and stability in the composition of the Board of
Directors and which may have the effect of delaying, deferring or preventing a future takeover or change in control of the company unless such takeover or change in control is approved by the Board
of Directors, including:
Advance notice procedures. Our by-laws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations
of persons for election to the Board of Directors. Stockholders at an annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or
at the direction of the Board of Directors or by a stockholder who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given our
Secretary timely written notice, in proper form, of the stockholder’s intention to bring that business before the meeting. Although the by-laws do not give the Board of Directors the power to approve
or disapprove stockholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting, the bylaws may have the effect of precluding the conduct of
certain business at a meeting if the proper procedures are not followed or may discourage or defer a potential acquiror from conducting a solicitation of proxies to elect its own slate of directors or
otherwise attempting to obtain control of us.
No cumulative voting. The General Corporation Law of the State of Delaware, or DGCL, provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless
our amended and restated certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation expressly provides that no stockholder shall be entitled to cumulate
votes in the election of directors.
Voting limitations. Each outstanding share of our common stock is entitled to one vote on all matters submitted to a vote of holders of our common stock, except for stockholders that beneficially own
more than 20% of the shares of our outstanding common stock, in which case our Board of Directors may declare that any shares of stock above such 20% do not have voting rights.
No stockholder action by written consent. The DGCL permits stockholder action by written consent unless otherwise provided by our amended and restated certificate of incorporation. Our amended
and restated certificate of incorporation precludes stockholder action by written consent.
Business combinations under Delaware law. We are subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. In general, Section 203 prohibits a publicly-traded Delaware
corporation from engaging, under certain circumstances, in a business combination with an interested stockholder for a period of three years following the date the person became an interested
stockholder unless certain conditions are met.
Authorized but unissued shares. Our authorized but unissued shares of common stock and preferred stock are available for future issuance without stockholder approval. The existence of authorized
but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of a majority of our common stock by means of a proxy contest, tender
offer, merger or otherwise.
Ability to adopt a stockholder rights plan. Our amended and restated certificate of incorporation provides our Board of Directors the authority to adopt a stockholder rights plan, which, if adopted,
could render more difficult or discourage an attempt to obtain control of a majority of our common stock by means of a proxy contest, tender offer, merger or otherwise.
Classified board of directors. Our Board of Directors is classified in three classes, with each class elected every year for a term of three years. This would delay the ability of a majority stockholder to
gain majority representation in our Board of Directors.
Removal of directors. Our stockholders may not remove directors other than for cause, which consists of a declaration of unsound mind by an order of a court of competent jurisdiction, conviction of
a felony or of an offense punishable by imprisonment for a term of more than one year by a court of competent jurisdiction, or declaration of liability by a court of competent jurisdiction for gross
negligence or willful misconduct in the performance of such director’s fiduciary duties. If cause exists, a vote of two-thirds of our stockholders is required for such director’s removal.
Amendment to our amended and restated certificate of incorporation and by-laws. Our amended and restated certificate of incorporation and by-laws provide that the anti-takeover provisions therein
can only be amended or repealed with a vote of two-thirds of our stockholders. This would make any majority stockholder that does not have a two-thirds majority unable to amend any takeover
protections in our amended and restated certificate of incorporation or by-laws and therefore preclude such stockholder from exercising control over our management.
Transfer agent and registrar
The transfer agent and registrar for our common stock is Computershare Trust Company, N.A.
DESCRIPTION OF DEBT SECURITIES
The following description of the Notes does not purport to be complete and is subject to, and is qualified in its entirety by express reference to, the provisions of the indenture dated as of January 14,
2021 (the “Base Indenture”) among MercadoLibre, Inc., 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., as
guarantors, and The Bank of New York Mellon, as trustee (the “Trustee”), as supplemented by (i) the first supplemental indenture (the “First Supplemental Indenture”), dated as of January 14, 2021,
among the Company, the Guarantors and the Trustee and (ii) the second supplemental indenture (the “Second Supplemental Indenture”), dated as of October 27, 2021, among MP Agregador, S. de
R.L. de C.V., the Company and the Trustee (the Base Indenture, as supplemented by the First Supplemental Indenture and the Second Supplemental Indenture, and as may be amended or
supplemented from time to time, the “Indenture”), each of which is filed as an exhibit to the Annual Report on Form 10‑K of which this Exhibit 4.07 is a part. We encourage you to read the Indenture
for additional information. The Indenture is subject to and governed by the Trust Indenture Act of 1939, as amended.
You can find the definition of capitalized terms used in this section of this Exhibit 4.07 under “— Certain Definitions.” In this section, when we refer to:
·
·
the “Company,” we mean MercadoLibre, Inc. (parent company only) and not its Subsidiaries; and
the “Notes” in this section, we mean, unless the context otherwise requires, collectively, the 2026 Sustainability Notes and the 2031 Notes offered hereby and any corresponding
Additional Notes, as described below in “—General.”
General
The Notes:
•
•
•
•
•
are senior unsecured obligations of the Company;
rank equal in right of payment with all other existing and future senior unsecured indebtedness of the Company;
rank senior in right of payment to all existing and future subordinated indebtedness of the Company, if any;
are effectively subordinated to all existing and future secured indebtedness of the Company to the extent of the value of the assets securing such indebtedness;
are effectively subordinated to obligations of the Company preferred by statute or by operation of law;
are guaranteed by each Subsidiary Guarantor with such guarantee ranking equal in right of payment with all other existing and future senior unsecured indebtedness of such Subsidiary
•
Guarantor; and
•
are effectively subordinated to all existing and future indebtedness of any Subsidiary that does not provide a Subsidiary Guarantee.
The Company issued $400 million aggregate principal amount of 2026 Sustainability Notes and $700 million aggregate principal amount of 2031 Notes, but may issue an unlimited principal
amount of securities under the Indenture and may, without the consent of the Holders, issue additional Notes (“Additional Notes”) in one or more transactions, which have substantially identical terms
(other than issue price, issue date and date from which the interest will accrue) as Notes of the same series issued on the Issue Date. Any Additional Notes shall be consolidated and form a single
series with the Notes of the relevant series issued on the Issue Date, so that, among other things, Holders of any Additional Notes shall have the right to vote together with Holders of Notes of the
same series issued on the Issue Date as one class. Any Additional Notes shall be issued with a separate CUSIP number unless the Additional Notes are issued pursuant to a “qualified reopening” of
the original series of Notes, are otherwise treated
as part of the same “issue” of debt instruments as the original series of Notes or are issued with no more than a de minimis amount of original issue discount, in each case for U.S. federal income tax
purposes.
The Notes were issued in the form of one or more Global Notes without coupons, registered in the name of a nominee of DTC, as depositary. The Notes were issued in minimum denominations
of $200,000 and integral multiples of $1,000 in excess thereof.
Principal, Maturity and Interest
The 2026 Sustainability Notes shall mature on January 14, 2026 unless earlier redeemed in accordance with the terms of the Notes. The 2031 Notes shall mature on January 14, 2031 unless
earlier redeemed in accordance with the terms of the 2031 Notes. See “—Optional Redemption” below.
The Notes are not entitled to the benefit of any mandatory sinking fund.
Interest on the 2026 Sustainability Notes will accrue at the rate of 2.375% per year and interest on the 2031 Notes will accrue at the rate of 3.125% per year, each payable semi-annually in
arrears on January 14 and July 14 of each year, commencing on July 14, 2021. Payments will be made to the persons who are registered Holders at the close of business on the January 1 and July 1, as
the case may be, immediately preceding the applicable interest payment date (whether or not a Business Day) and at maturity.
Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from and including the Issue Date. Interest is computed on the basis of a
360-day year comprised of twelve 30-day months.
The Trustee currently acts as registrar, transfer agent and paying agent for the Notes. The Company may change the registrar, transfer agent and paying agent, without notice to Holders.
Payments on Global Notes shall be made to DTC in accordance with its applicable procedures.
If any scheduled interest or principal payment date or any date for early redemption of the Notes is not a Business Day, the payment will be made on the next Business Day. No interest on the
Notes will accrue as a result of this delay in payment.
Subsidiary Guarantees
The obligations of the Company pursuant to the Notes are fully and unconditionally guaranteed (a “Subsidiary Guarantee”), jointly and severally, on an unsecured basis, by MercadoLibre S.R.L.,
eBazar.com.br Ltda., Ibazar.com Atividades de Internet Ltda., MercadoEnvios Servicos de Logistica Ltda., MercadoPago.com Representações Ltda., DeRemate.com de México, S. de R.L. de C.V.,
MercadoLibre, S. de R.L. de C.V., MercadoLibre Chile Ltda., MercadoLibre Colombia Ltda. (collectively, the “Initial Subsidiary Guarantors”) and any other Subsidiary (other than an Excluded
Subsidiary) that becomes a guarantor in respect of Triggering Indebtedness (together with the Initial Subsidiary Guarantors, the “Subsidiary Guarantors”).
Each Subsidiary Guarantee is 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.
The Subsidiary Guarantee of a Subsidiary Guarantor shall terminate upon:
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;
•
defeasance or discharge of the Notes, as provided in “—Legal Defeasance and Covenant Defeasance” and “—Satisfaction and Discharge”;
the release or discharge of the Subsidiary Guarantee by such Subsidiary Guarantor of the Triggering Indebtedness 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
•
such Subsidiary Guarantor becoming an Excluded Subsidiary or ceasing to be a Subsidiary.
If any Subsidiary (other than an Excluded Subsidiary) becomes a guarantor of Triggering Indebtedness, within 60 business days of such event, the Company shall cause such Subsidiary to enter
into a supplemental indenture pursuant to which such Subsidiary shall become a Subsidiary Guarantor on terms substantially similar to other Subsidiary Guarantees, subject to modifications as
determined by the Company in good faith to take into account any legal requirements or limitations applicable to such Subsidiary Guarantor.
Other than as set forth in the immediately preceding paragraph, the Company shall have the right to designate, in its sole discretion, any Subsidiary as a Subsidiary Guarantor of the Notes.
Additional Amounts
All payments made by us or on our behalf in respect of the Notes will be made free and clear of and without withholding or deduction for or on account of any present or future taxes, duties,
levies, imposts, assessments or governmental charges of whatever nature (each a “Tax”), unless the withholding or deduction of such Tax is required by law or by official interpretation or
administration thereof.
If we are obligated to deduct any withholding Taxes from payments of interest to investors (or if a Subsidiary Guarantor is obligated to deduct any withholding Taxes from payments made under
a Subsidiary Guarantee) we will (or, with respect to a Subsidiary Guarantee, such Subsidiary Guarantor will) pay additional amounts on those payments and certain other payments to the extent
described below (“Additional Amounts”).
The Company and each Subsidiary Guarantor, will, subject to the exceptions set forth below, pay such Additional Amounts as may be necessary so that each payment by it (or its paying agent)
of interest, premium or principal in respect of the Notes will not be less than the amount provided for in the Notes after deducting or withholding an amount for or on account of any Taxes imposed
with respect to that payment by any jurisdiction where a Subsidiary Guarantor is incorporated, resident or doing business for tax purposes or from or through which any such payment is made, or any
political subdivision thereof (each a “Relevant Jurisdiction”), or by any taxing authority of a Relevant Jurisdiction.
The obligation to pay Additional Amounts is subject to several important exceptions. The Company and each Subsidiary Guarantor, will not be required to pay Additional Amounts to any Holder
for or on account of any of the following:
any Taxes that would not have been imposed but for any present or former connection between the Holder (or a fiduciary, settlor, beneficiary, member or shareholder of the Holder) and the
•
Relevant Jurisdiction (other than the mere receipt of a payment or the ownership or holding of a Note), including being a resident of such jurisdiction for tax purposes;
•
any estate, inheritance, capital gains, excise, personal property tax, sales, transfer, gift or similar Taxes;
any Taxes that would not have been imposed but for the failure of the Holder or any other Person to comply with any certification, identification or other reporting requirement concerning
•
the nationality, residence, identity or connection with the Relevant Jurisdiction, for tax purposes, of the Holder or any beneficial owner of the Note if compliance is required by law, regulation or
by an applicable income tax treaty to which the Relevant Jurisdiction is a party, as a precondition to exemption from, or reduction in the rate of, the Tax (including
withholding taxes payable on interest payments under the Notes) and we have given the Holders at least 30 days’ notice that Holders will be required to provide such certification, identification
or information;
•
any Taxes payable otherwise than by deduction or withholding from payments on or in respect of the Notes;
any Taxes with respect to a Note presented for payment, where presentation is required, more than 30 days after the date on which the payment became due and payable or the date on which
•
payment thereof is duly provided for, whichever occurs later, except to the extent that the Holder of such Note would have been entitled to such Additional Amounts on presenting such Note for
payment on any date during such 30-day period;
•
any Taxes required to be withheld by any paying agent of the Company from any payment of the principal of, or premium or interest on any Note, if such Taxes result from the presentation
of any Note for payment and the payment can be made without such withholding or deduction by the presentation of the Note for payment by at least one other reasonably available paying agent
of the Company;
•
any Taxes imposed by the United States, any state thereof, the District of Columbia or any political subdivision of the foregoing;
•
any Taxes imposed under Sections 1471 through 1474 of the United States Internal Revenue Code (the “Code”) (or any amended or successor version that is substantively comparable and
not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the Code and any
fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among governmental authorities and implementing such Sections of
the Code;
•
any payment on the Note to a Holder that is a fiduciary, a partnership, a limited liability company or a person other than the sole beneficial owner of any such payment, to the extent that a
beneficiary or settlor with respect to such fiduciary, a member of such a partnership, an interest holder in such a limited liability company or the beneficial owner of the payment would not have
been entitled to the Additional Amounts had the beneficiary, settlor, member or beneficial owner been the Holder of the Note; or
•
in the case of any combination of the items listed above.
The Company will provide the Trustee with documentation reasonably satisfactory to the Trustee evidencing the payment of taxes in respect of which we have paid any Additional Amount.
Copies of such documentation will be made reasonably available to the Holders of the Notes or the relevant paying agent upon request.
Any reference in the Indenture or the Notes to principal, premium, interest or any other amount payable in respect of the Notes by us shall be deemed also to refer to any Additional Amount that
may be payable with respect to that amount under the obligations referred to in this section.
Optional Redemption
Optional Redemption with a Make-Whole Premium
With respect to the 2026 Sustainability Notes, at any time prior the Par Call Date (as defined below), the Company has the right, at its option, to redeem any of the 2026 Sustainability Notes, in
whole or in part, at a redemption price equal to the greater of (1) 100% of the principal amount of such 2026 Sustainability Notes then outstanding and (2) the sum of the present value (as determined
by the Independent Investment Banker) of the remaining scheduled payments of principal and interest on such 2026 Sustainability Notes to be redeemed that would have been payable in respect of
such 2026 Sustainability Notes calculated as if such 2026 Sustainability Notes were redeemed on the Par Call Date (not including any portion of such payments of interest accrued to the date of
redemption) discounted to such date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 30 basis points, plus accrued and
unpaid interest on the principal amount being redeemed to the date of redemption.
With respect to the 2031 Notes, at any time prior to the Par Call Date, the Company has the right, at its option, to redeem any of the 2031 Notes, in whole or in part, at a redemption price equal to
the greater of (1) 100% of the principal amount of such 2031 Notes then outstanding and (2) the sum of the present value (as determined by the Independent Investment Banker) of the remaining
scheduled payments of principal and interest on such 2031 Notes to be redeemed that would have been payable in respect of such 2031 Notes calculated as if such 2031 Notes were redeemed on the
Par Call Date (not including any portion of such payments of interest accrued to the date of redemption) discounted to such date of redemption on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate plus 35 basis points, plus accrued and unpaid interest on the principal amount being redeemed to the date of redemption.
“Comparable Treasury Issue” means the United States Treasury security or securities selected by an Independent Investment Banker as having an actual or interpolated maturity that would be
utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities with a maturity of the Par Call Date.
“Comparable Treasury Price” means, with respect to any redemption date (1) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and
lowest such Reference Treasury Dealer Quotation or (2) if the Independent Investment Banker obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations.
“Independent Investment Banker” means one of the Reference Treasury Dealers appointed by the Company.
“Par Call Date” means (i) with respect to the 2026 Sustainability Notes, December 14, 2025 (one month prior to the maturity date of the 2026 Sustainability Notes) and (ii) with respect to the
2031 Notes, October 14, 2030 (three months prior to the maturity date of the 2031 Notes).
“Reference Treasury Dealer” means BofA Securities, Inc., Citigroup Global Markets Inc., Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC or their respective affiliates or successors
which are primary United States government securities dealers and not less than one other leading primary United States government securities dealer in New York City reasonably designated by the
Company; provided that if any of the foregoing cease to be a primary United States government securities dealer in New York City (a “Primary Treasury Dealer”), the Company will substitute
therefor another Primary Treasury Dealer.
“Reference Treasury Dealer Quotation” means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Independent Investment Banker, of
the bid and asked price for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Independent Investment Banker by such Reference
Treasury Dealer at 3:30 pm New York City time on the third Business Day preceding such redemption date.
“Treasury Rate” means, with respect to any redemption date, the rate per annum equal to the semi-annual equivalent yield to maturity or interpolated maturity (on a day count basis) of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date.
Optional Redemption Upon Tax Event
If the Company determines that, as a result of any amendment to or change in, the laws or treaties (or any rules or regulations, or if applicable, rulings promulgated thereunder) of a Relevant
Jurisdiction, any taxing authority thereof or therein affecting taxation, or any amendment to or change in an official interpretation or application (including judicial or administrative interpretation or
application, as applicable) of such laws, treaties, rules or, regulations or rulings, which amendment to or change in such laws, rules or, regulations or rulings is legislated or promulgated or, in the case
of a change in official interpretation or application (including judicial or administrative interpretation or application, as applicable), is announced or otherwise made available on or after the later of
January 14, 2021 and the date that the Relevant Jurisdiction becomes a Relevant Jurisdiction, the Company or a Subsidiary Guarantor would be
obligated, to pay any Additional Amounts in respect of a series (see “—Additional Amounts”), provided that the Company, in its business judgment, determines that such obligation cannot be avoided
by the Company taking reasonable measures available to it (including, without limitation, taking reasonable measures to change the paying agent), then, at our option, all, but not less than all, of the
Notes of such series may be redeemed at any time at a redemption price equal to 100% of the outstanding principal amount, plus any accrued and unpaid interest to the redemption date due thereon up
to but not including the date of redemption; provided that (1) no notice of redemption for tax reasons may be given earlier than 90 days prior to the earliest date on which the Company (or a
Subsidiary Guarantor) would be obligated to pay these Additional Amounts if a payment on such series of Notes were then due, and (2) at the time such notice of redemption is given such obligation
to pay such Additional Amounts remains in effect.
Prior to the giving of any notice of redemption pursuant to this provision, the Company will deliver to the Trustee:
an Officers’ Certificate stating that we are entitled to effect the redemption and setting forth a statement of facts showing that the conditions precedent to our right to redeem have occurred;
•
and
an Opinion of Counsel from legal counsel in a Relevant Jurisdiction (which may be our counsel) of recognized standing to the effect that we have or will become obligated to pay such
•
Additional Amounts as a result of such change or amendment.
Redemption at Par
In addition, the Notes of a series will be redeemable, at any time and from time to time, in whole or in part, at the Company’s option beginning on the applicable Par Call Date, at a redemption
price equal to 100% of the outstanding principal amount of such series of Notes to be redeemed, plus accrued and unpaid interest on the principal amount of such series of Notes being redeemed to,
but not including, the date of redemption. Notwithstanding the foregoing, payments of interest on such series of Notes that are due and payable on or prior to a date fixed for redemption of such series
of Notes shall be payable to the holders of those series of Notes registered as such at the close of business on the relevant record dates according to the terms and provisions of the Indenture.
Optional Redemption Procedures
Notice of any redemption shall be given at least 10 but not more than 30 days before the redemption date to Holders of Notes to be redeemed in accordance with the provisions described in “—
Notices” below.
We may make any redemption or redemption notice subject to the satisfaction of conditions precedent. If such redemption or notice is subject to the satisfaction of one or more conditions
precedent, such notice shall state that, in our discretion, the redemption date may be delayed until such time (but no more than 60 days after the date of the notice of redemption) as any or all such
conditions shall be satisfied, or such redemption may not occur and such notice may be rescinded in the event that any or all such conditions shall not have been satisfied by the redemption date, or by
the redemption date as so delayed. In addition, we may provide in such notice that payment of the redemption price and performance of our obligations with respect to such redemption may be
performed by another person.
Notes called for redemption will become due on the date fixed for redemption. The Company will pay the redemption price for the Notes called for redemption including accrued and unpaid
interest thereon to but not including the date of redemption. On and after the redemption date, interest will cease to accrue on such Notes as long as the Company has deposited with the paying agent
funds in satisfaction of the applicable redemption price including accrued and unpaid interest thereon pursuant to the Indenture. Upon redemption of the Notes by the Company, the redeemed Notes
will be cancelled and cannot be reissued.
If fewer than all of the Notes of a series are being redeemed, the Notes of such series to be redeemed shall be selected as follows: (1) if the Notes of such series are listed on an exchange, in
compliance with the requirements of such exchange, (2) if the Notes of such series are not so listed but are in global form, then by lot or otherwise in accordance with the procedures of DTC or the
applicable depositary or (3) if the Notes of such series are not so listed
and are not in global form, on a pro rata basis to the extent practicable, or, if the pro rata basis is not practicable for any reason, by lot or by such other method as the Trustee in its sole discretion shall
deem fair and appropriate; provided that the remaining principal amount of such Holder’s Note will not be less than $100,000. Upon surrender of any Note of a series redeemed in part, the holder will
receive a new Note of such series equal in principal amount to the unredeemed portion of the surrendered Note of such series. Once notice of redemption is sent to the Holders, Notes of such series
called for redemption become due and payable at the redemption price on the redemption date, and, commencing on the redemption date, Notes of such series redeemed will cease to accrue interest
(unless the Company defaults in the payment of the redemption price).
Change of Control
Upon the occurrence of a Change of Control Repurchase Event, each Holder of Notes of a series will have the right to require that the Company purchase all or a portion (in integral multiples of
$1,000; provided that the remaining principal amount of such Holder’s Note will not be less than $100,000) of the Holder’s Notes at a purchase price equal to 101% of the principal amount thereof,
plus any accrued and unpaid interest thereon through the purchase date (the “Change of Control Payment”).
Within 30 days following the date upon which the Change of Control Repurchase Event occurs, the Company must send a notice to each Holder, with a copy to the Trustee, offering to purchase
the Notes as described above (a “Change of Control Offer”) as described in “—Notices” below. The Change of Control Offer will state, among other things, the purchase date, which must be at least
30 but not more than 60 days from the date the notice is given, other than as may be required by law (the “Change of Control Payment Date”).
On the Business Day immediately preceding the Change of Control Payment Date, the Company will, to the extent lawful, deposit with the paying agent funds in an amount equal to the Change
of Control Payment, in respect of all Notes or portions thereof so tendered.
On the Change of Control Payment Date, as applicable, the Company will, to the extent lawful:
(1)
accept for payment all Notes or portions thereof properly tendered and not withdrawn pursuant to the Change of Control Offer; and
(2) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions thereof being
purchased by the Company.
If only a portion of a Note is purchased pursuant to a Change of Control Offer, a new Note in a principal amount equal to the portion thereof not purchased will be issued in the name of the
Holder thereof upon cancellation of the original Note (or appropriate adjustments to the amount and beneficial interests in a Global Note will be made, as appropriate). Notes (or portions thereof)
purchased pursuant to a Change of Control Offer will be cancelled and cannot be reissued.
The Company will have the right to redeem all of the Notes of a series at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of
redemption (subject to the right of holders of Notes of such series on a relevant record date to receive interest on an interest payment date occurring on or prior to the redemption date), following the
consummation of a Change of Control Repurchase Event if at least 90% of the Notes of such series outstanding prior to such consummation are purchased pursuant to a Change of Control Offer with
respect to such Change of Control Repurchase Event.
The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations to the extent any such rule, laws and regulations are
applicable in connection with the purchase of Notes in connection with a Change of Control Offer. To the extent that the provisions of any applicable securities laws or regulations conflict with the
Change of Control Repurchase Event provisions of the Indenture, the Company will comply with such securities laws and regulations and shall not be deemed to have breached its obligations under
the Indenture by doing so.
Other existing and future indebtedness of the Company may contain prohibitions on the occurrence of events that would constitute a Change of Control or require that Indebtedness be purchased
upon a Change of Control. Moreover, the exercise by the Holders of their right to require the Company to repurchase the Notes upon a Change of Control may cause a default under such indebtedness
even if the Change of Control itself does not.
If a Change of Control Repurchase Event occurs, the Company may not have available funds sufficient to make the Change of Control Payment for all the Notes that might be delivered by
Holders seeking to accept the Change of Control Offer. In the event the Company is required to purchase outstanding Notes pursuant to a Change of Control Offer, the Company expects that it would
seek third-party financing to the extent it does not have available funds to meet its purchase obligations and any other obligations it may have. However, we cannot assure you that the Company
would be able to obtain necessary financing, and the terms of the Indenture may restrict the ability of the Company to obtain such financing.
Holders will not be entitled to require the Company to purchase their Notes in the event of a takeover, recapitalization, leveraged buyout or similar transaction which is not a Change of Control.
The Company will not be required to make a Change of Control Offer upon a Change of Control if: (a) a third party makes the Change of Control Offer in the manner, at the times and otherwise
in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer or (b) prior to the date the Change of Control Offer is required to be made, the Company has given notice of redemption in respect of all of the outstanding Notes in
accordance with the Indenture.
The Company’s obligation to make a Change of Control Offer as a result of a Change of Control Repurchase Event may be waived or modified at any time prior to the occurrence of such
Change of Control Repurchase Event with the consent of the holders of a majority in principal amount of the Notes. See “—Modification of the Indenture.”
One of the events that constitutes a Change of Control under the Indenture is the disposition of “all or substantially all” of the Company’s assets under certain circumstances. This term varies
based upon the facts and circumstances of the subject transaction and has not been interpreted under New York State law (which is the governing law of the Indenture) to represent a specific
quantitative test. As a consequence, in certain circumstances there may be uncertainty in ascertaining whether a particular transaction involved a disposition of “all or substantially all” of the assets of
a Person. In the event that Holders elect to require the Company to purchase the Notes and the Company contests such election, there can be no assurance as to how a court interpreting New York
State law would interpret that phrase under certain circumstances.
Covenants
Limitation on Liens
The Company will not, and will not cause or permit any of its Subsidiaries to, directly or indirectly, Incur any Liens of any kind (except for Permitted Liens) against or upon any of their
respective properties or assets, whether owned on the Issue Date or acquired after the Issue Date, or any proceeds therefrom, to secure any Indebtedness, unless contemporaneously therewith effective
provision is made to secure the Notes, the Subsidiary Guarantees and all other amounts due under the Indenture equally and ratably with such Indebtedness (or, in the event that such Indebtedness is
subordinated in right of payment to the Notes or the Subsidiary Guarantees prior to such Indebtedness) with a Lien on the same properties and assets securing such Indebtedness for so long as such
Indebtedness is secured by such Lien. The preceding sentence will not require the Company or any Subsidiary to equally and ratably secure the Notes if the Lien consists of a Permitted Lien.
Limitations on Sale and Lease-Back Transactions
The Company will not, and will not permit any of its Subsidiaries to, enter into any Sale and Lease-Back Transaction with respect to any property of such Person, unless either:
(a)
the Company or that Subsidiary would be entitled pursuant to the provisions of the Indenture described above under “—Limitation on Liens” (including any exception to the
restrictions set forth therein) to issue, assume or guarantee Indebtedness secured by a Lien on any such property at least equal in amount to the Attributable Debt with respect to such Sale
and Lease-Back Transaction, without equally and ratably securing the Notes; or
(b)
the Company or that Subsidiary shall apply or cause to be applied, in the case of a sale or transfer for cash, an amount equal to the net proceeds thereof and, in the case of a sale or
transfer otherwise than for cash, an amount equal to the fair market value of the property so leased, to (1) the retirement, within 12 months after the effective date of the Sale and Lease-Back
Transaction, of any of the Company’s Indebtedness ranking at least pari passu with the Notes or Indebtedness of any Subsidiary, in each case owing to a Person other than the Company or
any of its Subsidiaries or (2) to the acquisition, purchase, construction or improvement of real property or personal property used or to be used by the Company or any of its Subsidiaries in
the ordinary course of business.
These restrictions do not apply to:
(1)
transactions providing for a lease term, including any renewal, of not more than three years; or
(2)
transactions between the Company and any of its Subsidiaries or between the Company’s Subsidiaries.
Limitation on Merger, Consolidation and Sale of Assets
The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person (whether or not the Company is the surviving or continuing Person),
or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Subsidiary to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company’s
properties and assets (determined on a consolidated basis for the Company and its Subsidiaries), to any Person unless:
(a)
either:
(1)
the Company is the surviving or continuing Person; or
the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease,
(2)
conveyance or other disposition the properties and assets of the Company and of the Company’s Subsidiaries substantially as an entirety (the “Surviving Entity”):
(A)
is a corporation or company organized or incorporated and validly existing under the laws of the United States of America, any State thereof or the District of Columbia; and
(B) expressly assumes, by supplemental indenture (in form and substance satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes and the performance and observance of the covenants of the Notes and the Indenture on the part of the Company to be
performed or observed;
(b)
immediately before and immediately after giving effect to such transaction, no Default or Event of Default has occurred or is continuing;
if the surviving or continuing Person is not the Company, each Subsidiary Guarantor has confirmed by supplemental indenture that its Subsidiary Guarantee will apply to the obligations of
(c)
the Surviving Entity in respect of the Indenture and the Notes; and
(d)
the Company or the Surviving Entity has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that the consolidation, merger, sale, assignment, transfer,
lease, conveyance or other disposition and, if required in connection with such transaction, the supplemental indenture(s), if any, comply with the applicable provisions of the Indenture and that
all conditions precedent in the Indenture relating to the transaction have been satisfied.
For purposes of this covenant, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or
more Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company (determined on a consolidated basis for the Company and
its Subsidiaries), will be deemed to be the transfer of all or substantially all of the properties and assets of the Company.
The provisions of clause (b) above will not apply to any merger or consolidation of the Company into an Affiliate of the Company incorporated solely for the purpose of reincorporating the
Company in another jurisdiction so long as the Indebtedness of the Company and its Subsidiaries taken as a whole is not increased thereby.
The foregoing provisions of this covenant shall not apply to (i) any transfer of assets by the Company to any Subsidiary, (ii) any transfer of assets among Subsidiaries, or (iii) any transfer of
assets to the Company.
Upon any consolidation, combination or merger or any transfer of all or substantially all of the properties and assets of the Company and its Subsidiaries in accordance with this covenant, in
which the Company is not the continuing Person, the Surviving Entity formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made will
succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture and the Notes with the same effect as if such Surviving Entity had been named as such
and the Company shall be relieved of its obligations under the Indenture and the Notes. For the avoidance of doubt, compliance with this covenant will not affect the obligations of the Company
(including a Surviving Entity, if applicable) under “—Change of Control,” if applicable.
No Subsidiary Guarantor may consolidate with or merge with or into any Person, or sell, convey, transfer or dispose of, all or substantially all of its assets as an entirety or substantially as an
entirety, in one transaction or a series of related transactions, to any Person, or permit any Person to merge with or into the Subsidiary Guarantor unless:
(a)
the other Person is the Company or any Subsidiary that is a Subsidiary Guarantor or becomes a Subsidiary Guarantor concurrently with the transaction;
(1) either (x) the Subsidiary Guarantor is the continuing Person or (y) the resulting, surviving or transferee Person expressly assumes by supplemental indenture all of the obligations of the
(b)
Subsidiary Guarantor under its Subsidiary Guarantee; and (2) immediately after giving effect to the transaction, no Default has occurred and is continuing; or
the transaction constitutes a sale or other disposition (including by way of consolidation or merger) of the Subsidiary Guarantor or the sale or disposition of all or substantially all the assets
(c)
of the Subsidiary Guarantor (in each case other than to the Company or a Subsidiary) otherwise permitted by the Indenture.
Reports to Holders
If at any point the Company is no longer subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will furnish or cause to be furnished to the Trustee in
English (for distribution only to the Holders of Notes):
(1) within 60 days after the end of the first, second and third quarters of the Company’s fiscal year (commencing with the quarter ending immediately following the Company no longer
being subject to such reporting requirements), quarterly unaudited financial statements (consolidated) prepared in accordance with GAAP of the Company for such period; and
(2) within 120 days after the end of the fiscal year of the Company (commencing with the first fiscal year ending immediately following the Company no longer being subject to such
reporting requirements), annual audited financial statements (consolidated) prepared in accordance with GAAP of the Company for such fiscal year and a report on such annual financial
statements by the Auditors.
Notwithstanding the foregoing, if the Company makes available the reports described in this covenant on its website, it will be deemed to have satisfied the reporting requirements set forth in
such clause. The Trustee shall have no duty to ascertain if or when any reports have been made available on the Company’s website. Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee’s receipt of such reports shall not constitute constructive notice of any information contained therein or determinable from information
contained therein, including the Company’s or any other Person’s compliance with any of its covenants under the Indenture or the Notes (as to which the Trustee is entitled to rely exclusively on
Officers’ Certificates).
The Trustee shall not be obligated to monitor or confirm, on a continuing basis or otherwise, the Company’s or any other Person’s compliance with the covenants described above or with respect
to any reports or other documents filed under the Indenture; provided, however, that nothing herein shall relieve the Trustee of any obligations to monitor the Company’s timely delivery of all reports
and certificates described in this section ”—Reports to Holders.”
Notices
Notices to Holders of non-Global Notes will be mailed to them at their registered addresses by the Company or, at the Company’s request, by the Trustee. Notices to Holders of Global Notes will
be given to DTC in accordance with its applicable procedures.
Notices will be deemed to have been given on the date of delivery to DTC or mailing, as applicable, or of publication as aforesaid or, if published on different dates, on the date of the first such
publication.
Events of Default
The following are “Events of Default” with respect to a series under the Indenture:
(1) default in the payment when due of the principal of or premium, if any, on (including, in each case, any related Additional Amounts) of Notes of such series, including the failure to
make a required payment to purchase Notes of such series tendered pursuant to an optional redemption or a Change of Control Offer;
(2) default for 30 days or more in the payment when due of interest (including any related Additional Amounts) on any Notes of such series;
the failure by the Company or any Subsidiary to comply with any other covenant or agreement contained in the Indenture or the Notes for 90 days or more after written notice to the
(3)
Company thereof from the Trustee or the Holders of at least 25% in aggregate principal amount of the outstanding Notes of such series;
(4) default by the Company or any Significant Subsidiary under any indebtedness for borrowed money which:
is caused by a failure to pay principal of or premium, if any, or interest on such indebtedness for borrowed money prior to the expiration of any applicable grace period provided in
(a)
such indebtedness for borrowed money on the date of such default; or
(b)
results in the acceleration of such indebtedness for borrowed money prior to its Stated Maturity;
and the principal or accreted amount of indebtedness for borrowed money covered by clause (a) or (b) at the relevant time aggregates $75 million (or the equivalent in other currencies) or
more;
failure by the Company or any of its Significant Subsidiaries to pay one or more final judgments against any of them, aggregating $75 million (or the equivalent in other currencies) or
(5)
more, which are not paid, discharged or stayed for a period of 90 days or more (to the extent not covered by a reputable and creditworthy insurance company);
(6)
certain events of bankruptcy affecting the Company or any of its Significant Subsidiaries; provided that in the case that a decree or order by a court having jurisdiction shall have
approved as properly filed an involuntary bankruptcy or insolvency petition, no Event of Default shall have occurred until such decree or order remains undischarged or unstayed and in
effect for a period of 90 days; or
(7)
except as permitted by the Indenture, any Subsidiary Guarantee is held to be unenforceable or invalid in a judicial proceeding or ceases for any reason to be in full force and effect or
any Subsidiary Guarantor denies or disaffirms its obligations under its Subsidiary Guarantee; provided that the Subsidiary Guarantee of a Subsidiary Guarantor becoming unenforceable or
invalid as a result of a change in law or regulations shall not constitute an Event of Default under the Indenture.
If an Event of Default of a series (other than an Event of Default specified in clause (6) above with respect to the Company) has occurred and is continuing, the Trustee or the Holders of at least
25% in principal amount of outstanding Notes of such series may declare the unpaid principal of and premium, if any, and accrued and unpaid interest on all the Notes of such series to be immediately
due and payable by notice in writing to the Company (if given by the Trustee or the Holders) and the Trustee (if given by the Holders) specifying the Event of Default and that it is a “notice of
acceleration.” If an Event of Default specified in clause (6) above occurs with respect to the Company, then the unpaid principal of and premium, if any, and accrued and unpaid interest on all the
Notes of such series will become immediately due and payable without any declaration or other act on the part of the Trustee or any Holder.
At any time after such a declaration of acceleration with respect to a series of the Notes has been made as described in the preceding paragraph, the Holders of a majority in principal amount of
the outstanding Notes of such series, by written notice to the Company and the Trustee, may rescind and cancel such declaration and its consequences:
(1)
if the rescission would not conflict with any judgment or decree;
(2)
if all existing Events of Default have been cured or waived, except nonpayment of principal or interest that has become due solely because of the acceleration;
to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of
(3)
acceleration, has been paid; and
(4)
if the Company has paid the Trustee its compensation and reimbursed the Trustee for its expenses, disbursements and advances outstanding at that time.
No rescission will affect any subsequent Default or impair any rights relating thereto.
The Holders of a majority in principal amount of the outstanding Notes of such series may waive any existing Default or Event of Default under the Indenture, and its consequences, except a
default in the payment of the principal of, premium, if any, or interest on any Notes of such series.
Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request, order or
direction of any of the Holders, unless such Holders have offered to the Trustee indemnity and/or security reasonably satisfactory to it. Subject to all provisions of the Indenture and applicable law, the
Holders of a majority in aggregate principal amount of the then-outstanding Notes of a series have the right to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the Trustee.
No Holder of any Notes shall have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless:
(1)
such Holder gives to the Trustee written notice of a continuing Event of Default for such series of Notes;
(2) Holders of at least 25% in principal amount of the then-outstanding Notes of a series make a written request to the Trustee to pursue the remedy;
(3)
such Holders of such series of Notes provide to the Trustee satisfactory indemnity;
(4)
the Trustee does not comply within 60 days; and
(5) during such 60-day period the Holders of a majority in principal amount of the outstanding Notes of such series do not give the Trustee a written direction which, in the opinion of the
Trustee, is inconsistent with the request;
provided that a Holder of a Note of such series may institute suit for enforcement of payment of the principal of and premium, if any, or interest on such Note on or after the respective due dates
expressed in such Note.
The Company is required, upon becoming aware of any Default or Event of Default, to deliver to the Trustee written notice of such Default or Event of Default, the status thereof and what action
the Company is taking or proposes to take in respect thereof. In the absence of any such notice of Default or Event of Default from the Company, the Trustee shall not be deemed to have notice or be
charged with knowledge of any Default or Event of Default. The Indenture provides that if a Default or Event of Default occurs, is continuing and is actually known to the Trustee, the Trustee give to
each Holder notice of the Default or Event of Default within 60 days after the occurrence thereof. Except in the case of a Default or Event of Default in the payment of principal of, premium, if any,
or interest on any Note and Additional Amounts, the Trustee may withhold notice if and so long as a committee of its trust officers in good faith determines that withholding notice is in the interests
of the Holders.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have its obligations discharged with respect to the outstanding Notes and all obligations of the Subsidiary Guarantors discharged with
respect to the Subsidiary Guarantees (“Legal Defeasance”). Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the
outstanding Notes on the 91st day after the deposit specified in clause (1) of the second following paragraph, except for:
(1)
the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on, the Notes when such payments are due from the trust referred to below;
the Company’s obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an
(2)
office or agency for payments;
(3)
the rights, powers, trust, duties and immunities of the Trustee and the Company’s obligations in connection therewith; and
(4)
the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have its obligations released with respect to certain covenants that are described under “—Covenants” (“Covenant
Defeasance”) and thereafter any omission to comply with such obligations will not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain
events (other than non-payment and bankruptcy, receivership, reorganization and insolvency events with respect to the Company) described under “—Events of Default” will no longer constitute an
Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders cash in U.S. dollars, certain direct non-callable obligations of, or guaranteed by, the
United States, or a combination thereof, in such amounts as shall be sufficient without reinvestment, in the case of obligations of the United States, in the opinion of a nationally recognized
firm of independent public accountants or investment bank, to pay the principal of, premium, if any, and interest (including Additional Amounts) on the Notes on the stated date for payment
thereof or on the applicable redemption date, as the case may be;
in the case of Legal Defeasance, the Company has delivered to the Trustee an Opinion of Counsel from a nationally recognized law firm in the U.S. reasonably acceptable to the
(2)
Trustee and independent of the Company to the effect that:
(a)
the Company has received from, or there has been published by, the Internal Revenue Service a ruling; or
(b)
since the Issue Date, there has been a change in the applicable U.S. federal income tax law;
in either case to the effect that, and based thereon such Opinion of Counsel shall state that, the beneficial owners of the Notes will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of such Legal Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(3)
in the case of Covenant Defeasance, the Company has delivered to the Trustee an Opinion of Counsel from a nationally recognized law firm in the U.S. reasonably acceptable to the
Trustee and independent of the Company to the effect that the beneficial owners of the Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such
Covenant Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(4) no Default or Event of Default has occurred and is continuing on the date of the deposit pursuant to clause (1) of this paragraph;
(5)
the Company has delivered to the Trustee an Officers’ Certificate stating that such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a
default under, the Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound;
the Company has delivered to the Trustee an Officers’ Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other
(6)
creditors of the Company or any Subsidiary of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; and
the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel from U.S. counsel reasonably acceptable to the Trustee and independent of the Company,
(7)
each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; and
the Company has delivered to the Trustee an Opinion of Counsel from U.S. counsel reasonably acceptable to the Trustee and independent of the Company to the effect that the trust
(8)
funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally.
Satisfaction and Discharge
The Indenture shall be discharged and shall cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the Notes, as expressly provided for in the
Indenture) as to all outstanding Notes,
and the Trustee, on written demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of the Indenture, when:
(1)
either:
all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore
(a)
been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for
cancellation; or
(b)
all Notes not theretofore delivered to the Trustee for cancellation have become due and payable at the Stated Maturity or will become due and payable within one year, including
by reason of the giving of a notice of redemption, and the Company has irrevocably deposited or caused to be deposited with the Trustee funds or Government Obligations sufficient
without reinvestment to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and accrued
and unpaid interest on the Notes to the date of deposit (in the case of Notes that have become due and payable) or to the Stated Maturity or to the redemption date, as the case may be,
together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment; and
(2)
the Company has paid all other sums payable under the Indenture and the Notes by it; and
the Company has delivered to the Trustee an Officers’ Certificate stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture
(3)
have been complied with.
Modification of the Indenture
From time to time, the Company, the Subsidiary Guarantors and the Trustee, without the consent of the Holders, may amend, modify or supplement the Indenture and the Notes for the following
purposes:
(1)
to cure any ambiguity, omission, defect or inconsistency contained therein;
(2)
to provide for the assumption by a Surviving Entity of the obligations of the Company or a Subsidiary Guarantor under the Indenture;
(3)
to add Subsidiary Guarantees or additional guarantees with respect to the Notes or release a Subsidiary Guarantee in accordance with the terms of the Indenture;
(4)
to secure the Notes;
(5)
to add to the covenants of the Company for the benefit of the Holders or surrender any right or power conferred upon the Company;
(6)
to provide for the issuance of Additional Notes in accordance with the Indenture;
(7)
to evidence the replacement of the Trustee as provided for under the Indenture;
(8)
if necessary, in connection with any release of any security permitted under the Indenture;
(9)
to make any other change that does not adversely affect the rights of any Holder in any material respect;
(10) to provide for uncertificated Notes in addition to or in place of certificated Notes; or
(11) to conform the text of the Indenture, the Subsidiary Guarantees or the Notes to any provision of this “Description of Notes.”
Other modifications to, amendments of, and supplements to, waivers to any existing Default or Event of Default and its consequences (other than regarding a Default or Event of Default in the
payment of the principal of, premium
on, if any, interest or Additional Amounts, if any, on, the Notes, except a payment Default resulting from an acceleration that has been rescinded) or compliance with any provision of, the Indenture or
the Notes or the Subsidiary Guarantees may be made with the consent of the Holders of a majority in principal amount of the then-outstanding Notes of a series issued under the Indenture, except
that, without the consent of each Holder of such series affected thereby, no amendment may (with respect to any Notes of such series held by a non-consenting Holder):
(1)
reduce the percentage of the principal amount of the outstanding Notes of such series whose Holders of Notes of such series must consent to an amendment, supplement or waiver;
(2)
reduce the rate of or change or have the effect of changing the time for payment of interest on any Notes of such series;
(3)
change any place of payment where the principal of or interest on the Notes of such series is payable;
reduce the principal of or change or have the effect of changing the fixed maturity of any Notes of such series, or change the date on which any Notes of such series may be subject to
(4)
redemption, or reduce the redemption price therefor;
(5) make any Notes of such series payable in currencies other than that stated in the Notes of such series;
(6) make any change in provisions of the Indenture entitling each Holder of Notes of such series to receive payment of principal of, premium, if any, and interest on such Notes of such
series on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of outstanding Notes of such series to waive Defaults
or Events of Default;
7)
reduce the premium payable upon a Change of Control Repurchase Event or, at any time after a Change of Control Repurchase Event has occurred, (i) amend, change or modify in any
material respect the obligation of the Company to make and consummate a Change of Control Offer relating thereto, or (ii) change the time at which the Change of Control Offer relating
thereto must be made or at which the Notes must be repurchased pursuant to such Change of Control Offer;
eliminate or modify in any manner a Subsidiary Guarantor’s obligations with respect to its Subsidiary Guarantee which adversely affects Holders of Notes of such series in any material
(8)
respect, except as contemplated in the Indenture;
(9) make any change in the provisions of the Indenture described under “—Additional Amounts” that adversely affects the rights of any Holder of Notes of such series or amend the terms
of the Notes of such series in a way that would result in a loss of exemption from any applicable taxes; and
(10) make any change to the provisions of the Indenture or the Notes of such series that adversely affects the ranking of the Notes of such series (for the avoidance of doubt, a change to the
covenants “Limitation on Liens” and “Limitations on Sale and Lease-Back Transactions” does not adversely affect the ranking of the Notes).
Governing Law; Jurisdiction
The Indenture, the Notes and the Subsidiary Guarantees are be governed by, and construed in accordance with, the law of the State of New York.
Each of the Company and the Subsidiary Guarantors has submitted to the jurisdiction of the U.S. federal and New York state courts located in The City of New York, Borough of Manhattan, and
the Company has appointed an agent for service of process with respect to any actions brought in these courts arising out of or based on the Indenture or the Notes.
According to the laws of the State of New York, claims against us for the payment of principal of and premium, if any, and interest on the Notes must be made within six years from the due date
for payment thereof.
The Trustee
The Bank of New York Mellon is the Trustee under the Indenture. The principal office of the Trustee is 240 Greenwich Street, New York, New York, 10286, Attention: Corporate Trust
Administration.
Except during the continuance of an Event of Default, the Trustee shall perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the
Trustee shall exercise such rights and powers vested in it by the Indenture, and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances
in the conduct of his own affairs.
No Personal Liability
No director, officer, employee, incorporator or similar founder, stockholder or member of the Company or any Subsidiary Guarantor will have any liability for or any obligations of the Company
under the Notes, the Indenture or any Subsidiary Guarantee or for any claims based on, in respect of or by reason of such obligations or their creation. By accepting a Note, each Holder waives and
releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the U.S. federal securities laws or
under corporate law of the State of Delaware.
Listing
The 2026 Sustainability Notes and the 2031 Notes are listed on the Nasdaq Bond Exchange under the symbol “MELI26” and “MELI31,” respectively.
Certain Definitions
The following sets forth certain of the defined terms used in the Indenture. Reference is made to the Indenture for full disclosure of all such terms, as well as any other terms used herein for
which no definition is provided.
“Acquired Indebtedness” means Indebtedness of a Person or any of its subsidiaries existing at the time such Person becomes a Subsidiary of the Company or at the time it merges or consolidates
with the Company or any of its Subsidiaries or is assumed in connection with the acquisition of assets from such Person. Acquired Indebtedness will be deemed to have been Incurred at the time such
Person becomes a Subsidiary or at the time it merges or consolidates with the Company or a Subsidiary or at the time such Indebtedness is assumed in connection with the acquisition of assets from
such Person.
“Additional Amounts” has the meaning set forth under “—Additional Amounts” above.
“Additional Notes” has the meaning set forth under “—General” above.
“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under common control with such specified Person. For the purposes of this
definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities or by agreement or otherwise.
“Attributable Debt” means, with respect to a Sale and Lease-Back Transaction, at the time of determination, the present value of the total net amount of rent required to be paid under such lease
during the remaining term thereof (including any period for which such lease has been extended), discounted at the applicable rate of interest set forth or implicit in the terms of such lease (or, if not
practicable to determine such rate, the weighted average interest rate per annum borne by the securities of all series then outstanding under the Indenture).
“Board of Directors” means the Board of Directors, managing partner or similar governing body of the Company, or any Subsidiary Guarantor, or any duly authorized committee thereof.
“Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company or any Guarantor, as applicable, to have been adopted by its Board of
Directors or pursuant to authorization by its Board of Directors and to be in full force and effect on the date of the certification and delivered to the Trustee.
“Business Day” means any day except a Saturday, a Sunday, or a legal holiday or a day on which commercial banks and foreign exchange markets in any of the City of New York, New York or a
place of payment are authorized or obligated by law, regulation or executive order to remain closed.
“Capital Stock” means (1) in the case of a corporation, corporate stock or shares in the capital of the corporation; (2) in the case of an association or business entity, any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or
membership interests; and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but
excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.
“Capitalized Lease Obligations” means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under
GAAP. For purposes of this definition, the amount of such obligations at any date will be the capitalized amount of such obligations at such date, determined in accordance with GAAP.
Notwithstanding the foregoing, the obligations of any Person that are or would have been treated as operating leases for purposes of GAAP prior to the issuance by the Financial Accounting
Standards Board on February 25, 2016 of an Accounting Standards Update (the “ASU”) shall continue to be accounted for as operating leases for purposes of all financial definitions and calculations
for purpose of the Indenture (whether or not such operating lease obligations were in effect on such date) notwithstanding the fact that such obligations are required in accordance with the ASU (on a
prospective or retroactive basis or otherwise) to be treated as Capitalized Lease Obligations.
“Change of Control” means the occurrence of one or more of the following events:
the direct or indirect sale, conveyance, assignment, transfer, lease or other disposition (other than by way of merger or consolidation), in one or more transactions or series of related
(1)
transactions, of all or substantially all of the assets of the Company and its Subsidiaries, determined on a consolidated basis, to any “person” (as that term is used in Section 13(d)(3) of the
Exchange Act); or
(2)
the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any person (including any “person” or “group” (as such
terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act)) is or becomes the “beneficial owner” (as defined in Section 13(d)(3) of the Exchange Act) of more than 50%
of the Voting Stock of the Company (including any Surviving Entity) measured by voting power rather than number of shares.
Notwithstanding the foregoing, a transaction will not be deemed to involve a Change of Control if (i)(A) the Company becomes a wholly-owned Subsidiary of a holding company and (B) the
Holders of the Voting Stock of such holding company immediately following that transaction are substantially the same as the Holders of the Company’s Voting Stock immediately prior to that
transaction, (ii) pursuant to a transaction in which the shares of the Voting Stock of the Surviving Entity immediately after giving effect to such transaction are substantially the same as the Holders of
the Company’s Voting Stock immediately prior to that transaction or (iii) the “person” referenced in clause (2) of the preceding sentence previously became the beneficial owner of the Company’s
Voting Stock so as to have constituted a Change of Control in respect of which a Change of Control Offer was made (or otherwise would have if not for the waiver of such requirement by the Holders
of the Notes).
“Change of Control Offer” has the meaning set forth under “—Change of Control.”
“Change of Control Payment” has the meaning set forth under “—Change of Control.”
“Change of Control Payment Date” has the meaning set forth under “—Change of Control.”
“Change of Control Repurchase Event” means the occurrence of both a Change of Control and a Rating Downgrade Event.
“Commodity Agreement” means, with respect to any Person, any commodity swap agreement, commodity cap agreement, commodity collar agreement, commodity or raw material futures
contract or any other agreement as to which such Person is a party designed to manage commodity risk of such Person.
“Common Stock” means, with respect to any Person, any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such
Person’s common equity interests, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common equity interests.
“Consolidated Total Assets” means, at any date of determination, the total assets of the Company and its Subsidiaries on a consolidated basis, as shown on the most recent quarterly financial
statements of the Company provided to the Trustee pursuant to “Covenants—Reports to Holders” (or required to be provided thereunder), calculated in accordance with GAAP and on a pro forma
basis to give effect to any acquisition or disposition of companies, divisions, lines of businesses or operations or assets by the Company and its Subsidiaries subsequent to such date and on or prior to
the date of determination.
“Covenant Defeasance” has the meaning set forth under “—Legal Defeasance and Covenant Defeasance.”
“Currency Agreement” means, with respect to any Person, any foreign exchange contract, currency swap agreement or other similar agreement as to which such Person is a party designed solely
to hedge foreign currency risk of such Person.
“Default” means any event which is, or after notice or passage of time or both would be, an Event of Default.
“Disqualified Capital Stock” means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option
of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature; provided, however, that only the portion of Capital Stock which so matures or is
mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such date will be deemed to be Disqualified Capital Stock; provided, further,
however, that, if such Capital Stock is issued to any employee or to any plan for the benefit of employees of the Company, any direct or indirect parent of the Company, or the Company’s Subsidiaries
or by any such plan to such employees, such Capital Stock will not constitute Disqualified Capital Stock solely because it may be required to be repurchased by the Company in order to satisfy
applicable statutory or regulatory obligations or as a result of such employee’s termination, death or disability; provided, further, that any class of Capital Stock of such Person that by its terms
authorizes such Person to satisfy its obligations thereunder by delivery of Capital Stock that is not Disqualified Capital Stock will not be deemed to be Disqualified Capital Stock.
“Event of Default” has the meaning set forth under “—Events of Default.”
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto.
“Excluded Subsidiary” means any Subsidiary that: (i) is not or ceases to be a Wholly Owned Subsidiary of the Company as a consequence of a third party investing in or acquiring Capital Stock
of such Subsidiary for fair market value, as determined in good faith by the Company; (ii) is prohibited or restricted by applicable law or regulation from being or becoming a Subsidiary Guarantor or,
if the guarantee of the Notes would require governmental (including regulatory) consent, approval, license or authorization, or is or becomes a regulated entity that is subject to net worth or net capital
or similar capital and surplus restrictions, and in each case, the Company reasonably determines that the granting or maintenance of a Subsidiary Guarantee by such Subsidiary is prohibited by, or
would be unduly burdensome under, applicable laws or regulations; or (iii) in the case of any Subsidiary other than an Initial Subsidiary
Guarantor, the Company reasonably determines that the granting or maintenance of a Subsidiary Guarantee by such Subsidiary would result in adverse tax consequences to the Company or any of its
Subsidiaries.
“Fair Market Value” means, with respect to any asset, the price (after taking into account any liabilities relating to such assets) which could be negotiated in an arm’s-length free market
transaction, for cash, between a willing seller and a willing and able buyer, neither of which is under any compulsion to complete the transaction; provided that the Fair Market Value of any such asset
or assets will be determined conclusively by the Board of Directors of the Company acting in good faith, and will be evidenced by a Board Resolution.
“Fitch” means Fitch Inc., a subsidiary of Fimalac, S.A., and its successors.
“GAAP” means accounting principles generally accepted in the United States of America.
“Government Obligations” means securities which are (i) direct obligations of The United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a
Person controlled or supervised by and acting as an agency or instrumentality of The United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation
by The United States of America, and which in the case of (i) and (ii) are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or
trust company as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the Government Obligation evidenced by such depository receipt.
“Guarantee” means a guarantee by a Guarantor of the Company’s obligations under this Indenture and any Securities and as provided in the applicable Board Resolution and Officer’s Certificate
or the applicable supplemental indenture establishing the terms of such Series of Securities.
“Guarantor” means the Initial Subsidiary Guarantors and any Person that issues a Guarantee of the Notes, either on the Issue Date or after the Issue Date in accordance with the terms of the
Indenture; provided that upon the release and discharge of such Person from its Guarantee in accordance with the Indenture, such Person shall cease to be a Guarantor.
“Hedging Obligations” means the obligations of any Person pursuant to any Interest Rate Agreement, Currency Agreement or Commodity Agreement.
“Holder” means a Person in whose name a Note is registered in the register maintained by the registrar pursuant to the terms of the Indenture.
“Incur” means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (including by conversion, exchange or otherwise), assume, guarantee or otherwise
become liable in respect of such Indebtedness (and “Incurrence” and “Incurred” will have meanings correlative to the foregoing); provided that (1) any Indebtedness of a Person existing at the time
such Person becomes a Subsidiary of the Company will be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary of the Company and (2) neither the accrual of interest nor the
accretion of original issue discount nor the payment of dividends on Disqualified Capital Stock or Preferred Stock in the form of additional shares of the same class of Disqualified Capital Stock or
Preferred Stock will be considered an Incurrence of Indebtedness.
“Indebtedness” means, with respect to any Person, without duplication:
(1)
the principal amount (or, if less, the accreted value) of all obligations of such Person for borrowed money;
(2)
the principal amount (or, if less, the accreted value) of all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments;
(3)
all Capitalized Lease Obligations of such Person;
all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all obligations under any title retention agreement (but
(4)
excluding trade accounts or other short term obligations to suppliers payable within 180 days, in each case in the ordinary course of business);
all reimbursement obligations in respect of letters of credit, banker’s acceptances or similar credit transactions (except to the extent incurred in the ordinary course of business and such
(5)
obligation is satisfied within 20 Business Days of Incurrence);
(6) guarantees and other contingent obligations of such Person in respect of Indebtedness referred to in clauses (1) through (5) above and clause (8) below;
all Indebtedness of any other Person of the type referred to in clauses (1) through (6) above which is secured by any Lien on any property or asset of such Person, the amount of such
(7)
Indebtedness being deemed to be the lesser of the Fair Market Value of such property or asset and the amount of the Indebtedness so secured;
all net obligations under Hedging Obligations of such Person (the amount of any such obligations to be equal at any time to the termination value of such agreement or arrangement
(8)
giving rise to such obligation that would be payable by such Person at such time);
all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or
(9)
involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any; provided that:
if the Disqualified Capital Stock does not have a fixed repurchase price, such maximum fixed repurchase price will be calculated in accordance with the terms of the Disqualified
(a)
Capital Stock as if the Disqualified Capital Stock were purchased on any date on which Indebtedness will be required to be determined pursuant to the Indenture; and
if the maximum fixed repurchase price is based upon, or measured by, the fair market value of the Disqualified Capital Stock, the fair market value will be the Fair Market Value
(b)
thereof.
The amount of Indebtedness of any Person at any date will be deemed to be: (i) with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise
to the obligations, provided that with respect to contingent obligations related to Permitted Securitization Financings, the amount that would appear as a liability on the balance sheet of such Person in
accordance with GAAP; (ii) with respect to any Indebtedness issued with original issue discount, the face amount of such Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness; (iii) with respect to any Hedging Obligations, the net amount payable if such hedging agreement terminated at that time to default by such Person reasonably
determined by the Company on the basis of customary “marked-to-market” methodology; and (iv) otherwise, the outstanding principal amount thereof.
“Initial Subsidiary Guarantor” has the meaning set forth under “—Subsidiary Guarantees” above.
“Interest Rate Agreement” means, with respect to any Person, any interest rate protection agreement (including, without limitation, interest rate swaps, caps, floors, collars, derivative instruments
and similar agreements) and/or other types of hedging agreements designed solely to hedge interest rate risk of such Person.
“Issue Date” means the first date of issuance of Notes under the Indenture.
“Legal Defeasance” has the meaning set forth under “—Legal Defeasance and Covenant Defeasance.”
“Lien” means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the
nature thereof and any agreement to give any security interest); provided that the lessee in respect of a Capitalized Lease Obligation or Sale and Leaseback
Transaction will be deemed to have Incurred a Lien on the property leased thereunder; provided that in no event shall an operating lease be deemed to constitute a Lien.
“Moody’s” means Moody’s Investors Service, Inc., or any successor thereto.
“Officer” means the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, President, any Vice-President, the Treasurer, a Director, the Chairman, the Secretary, any Assistant
Treasurer, Assistant Secretary or authorized officer of the Company or any Subsidiary Guarantor, as applicable.
“Officer’s Certificate” means a certificate signed by an Officer of the Company or any Subsidiary Guarantor, as applicable.
“Permitted Liens” means any of the following Liens:
(1) Liens existing on the Issue Date and any extension, renewal or replacement thereof, so long as the principal amount of Indebtedness secured thereby does not exceed the principal
amount of Indebtedness so secured at the time of such extension, renewal or replacement (except that, where an additional principal amount of Indebtedness is incurred to provide funds for
the completion of a specific project, the additional principal amount, and any related financing costs, may be secured by the Lien as well) and the Lien is limited to the same property subject
to the Lien so extended, renewed or replaced (and any improvements on such property);
statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of
(2)
business for sums not yet delinquent or being contested in good faith by appropriate proceedings;
(3)
(a) licenses, sublicenses, leases or subleases granted by the Company or any of its Subsidiaries to other Persons not materially interfering with the conduct of the business of the
Company or any of its Subsidiaries and (b) any interest or title of a lessor, sublessor or licensor under any lease or license agreement permitted by the Indenture to which the Company or
any Subsidiary is a party;
(4) Liens Incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security, including
any Lien securing letters of credit issued in the ordinary course of business in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds,
customs duties, bids, leases, government performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money);
(5) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person’s obligations in respect of bankers’ acceptances issued or created for the
account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(6) Liens on patents, trademarks, service marks, trade names, copyrights, technology, know-how and processes to the extent such Liens arise from the granting of license to use such
patents, trademarks, service marks, trade names, copyrights, technology, know-how and processes to any Person in the ordinary course of business of the Company or any of its
Subsidiaries;
(7) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and
proceeds thereof;
(8) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of the Company or a Subsidiary, including rights of
offset and set-off;
(i) Liens for taxes, assessments or other governmental charges, and (ii) attachment or judgment Liens, in each case, which are being contested in good faith by appropriate proceedings,
(9)
provided that reserves or other appropriate provisions, if any, as may be required pursuant to GAAP have been made in respect thereof;
(10) encumbrances, ground leases, easements or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone lines and other similar
purposes, or zoning, building codes or other restrictions (including, without limitation, minor defects or irregularities in title and similar encumbrances) as to the use of real properties or
Liens incidental to the conduct of the business of the Company or any of its Subsidiaries or to the ownership, lease or sublease of properties which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use in the operation of the business of the Company or any of its Subsidiaries;
(11) deposits in the ordinary course of business securing liability for reimbursement obligations of insurance carriers providing insurance to the Company or its Subsidiaries and any Liens
thereon;
(12) Liens arising solely by virtue of any statutory or common law provisions relating to banker’s Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds
maintained with a depositary institution;
(13) Liens in favor of the government of Argentina, Brazil, Mexico, Chile, Colombia and the United States or any political subdivision thereof, to secure payments pursuant to any contract
with such government or to any statute to which the Company or any of its Subsidiaries is subject;
(14) Liens securing the Notes or any guarantees of the Notes;
(15) Liens securing Hedging Obligations;
(16) Liens securing Indebtedness or other obligations of a Subsidiary owing to the Company or another Subsidiary;
(17) Liens securing Acquired Indebtedness not incurred in connection with, or in anticipation or contemplation of, the relevant acquisition, merger or consolidation; provided that
such Liens secured such Acquired Indebtedness at the time of and prior to the Incurrence of such Acquired Indebtedness by the Company or a Subsidiary and were not granted in
(a)
connection with, or in anticipation of the Incurrence of such Acquired Indebtedness by the Company or a Subsidiary; and
(b)
such Liens do not extend to or cover any property of the Company or any Subsidiary other than the property that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of the Company or a Subsidiary and are no more favorable to the lienholders than the Liens securing the Acquired Indebtedness prior to
the Incurrence of such Acquired Indebtedness by the Company or a Subsidiary.
(18) purchase money Liens securing Purchase Money Indebtedness or Capitalized Lease Obligations Incurred (or guarantees in respect thereof) to finance the acquisition or leasing of
property of the Company or a Subsidiary; provided that
the related Purchase Money Indebtedness does not exceed the cost of such property and will not be secured by any property of the Company or any Subsidiary other than the
(a)
property so acquired; and
(b)
the Lien securing such Indebtedness will be created within 365 days of such acquisition;
(19) Liens granted to secure Indebtedness from, directly or indirectly, any international or multilateral development bank, government-sponsored agency, export-import bank or agency, or
official export-import credit insurer;
(20) Liens incurred in connection with a Permitted Securitization Financing; or
(21) Liens securing an amount of Indebtedness or Attributable Debt outstanding at any one time not to exceed the greater of (a) $1,147.5 million (or the equivalent in other currencies) or (b)
20 % of Consolidated Total Assets.
For purposes of determining compliance with this covenant, (i) a Lien need not be incurred solely by reference to one category of Permitted Liens described above but are permitted to be
incurred in part under any combination thereof and of any other available exemption, and (ii) in the event that a Lien (or any portion thereof) meets the criteria of one or more of the categories of
Permitted Liens, the Company shall, in its sole discretion, classify or reclassify such Lien (or any portion thereof) in any manner that complies with the categories of Permitted Liens.
“Permitted Securitization Financing” means any of one or more financing facilities in respect of accounts receivables, credit card receivables, credit loans or any rights to receive payments in the
ordinary course of business (whether in the form of a securitization, factoring, discounting, individual or global/bulk assignment or other similar financing transaction) the obligations of which are
non-recourse to the Company or any Subsidiary (other than a Securitization Subsidiary or other Person that is not a Subsidiary), except for customary representations, warranties, covenants,
indemnities, legal or regulatory obligations with respect to the validity or existence of the assigned, discounted or secured right, and other customary carve outs or guarantees in connection with such
facilities, as amended, supplemented, modified, extended, renewed, restated or refunded from time to time.
“Person” means an individual, partnership, limited partnership, corporation, company, limited liability company, unincorporated organization, trust or joint venture, or a governmental agency or
political subdivision thereof.
“Preferred Stock” means, with respect to any Person, any Capital Stock of such Person that has preferential rights over any other Capital Stock of such Person with respect to dividends,
distributions or redemptions or upon liquidation.
“Purchase Money Indebtedness” means Indebtedness Incurred for the purpose of financing all or any part of the purchase price, or other cost of construction or improvement of any property;
provided that the aggregate principal amount of such Indebtedness does not exceed such purchase price or cost, including any Refinancing of such Indebtedness that does not increase the aggregate
principal amount (or accreted amount, if less) thereof as of the date of the Refinancing.
“Qualified Capital Stock” means any Capital Stock that is not Disqualified Capital Stock and any warrants, rights or options to purchase or acquire Capital Stock that is not Disqualified Capital
Stock that are not convertible into or exchangeable into Disqualified Capital Stock.
“Rating Agency” means (1) each of Fitch, Moody’s and S&P; and (2) if any of Fitch, Moody’s or S&P ceases to rate the Notes or fails to make a rating of the Notes publicly available for reasons
outside of our control, a “nationally recognized statistical rating organization” within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act, selected by us as a replacement agency for
Fitch, Moody’s or S&P, as the case may be.
“Rating Downgrade Event” means the rating on the Notes is lowered from their rating then in effect as a result of any event or circumstance comprised of or arising as a result of, or in respect of,
a Change of Control (or pending Change of Control) by at least two of the Rating Agencies on any date during the period (the “Trigger Period”) commencing on the earlier of (i) the occurrence of a
Change of Control and (ii) the first public notice of the intention by the Company to effect a Change of Control, and ending 60 days thereafter (which Trigger Period shall be extended so long as the
rating of the Notes is under publicly announced consideration for possible downgrade by any of the Rating Agencies). In the event that less than two Rating Agencies are providing a rating for the
Notes at the commencement of any Trigger Period, then a “Rating Downgrade Event” shall be deemed to have occurred during that Trigger Period. Notwithstanding the foregoing, no Rating
Downgrade Event will be deemed to have occurred as a result of any event or circumstance comprised of or arising as a result of, or in respect of, a Change of Control unless and until such Change of
Control has actually been consummated.
“Refinance” means, in respect of any Indebtedness, to issue any Indebtedness in exchange for or to refinance, replace, defease or refund such Indebtedness in whole or in part. “Refinanced” and
“Refinancing” have correlative meanings.
“Relevant Jurisdiction” has the meaning set forth under “—Additional Amounts” above.
“S&P” means Standard & Poor’s Rating Service or any successor thereto.
“Sale and Leaseback Transaction” means any direct or indirect arrangement with any Person or to which any such Person is a party providing for the leasing to the Company or a Subsidiary of
any property, whether owned by the Company or any Subsidiary at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or such Subsidiary to such Person or
to any other Person by whom funds have been or are to be advanced on the security of such Property for a sale price of $15 million (or its equivalents in other currencies) or more.
“Securitization Subsidiary” means a Subsidiary of the Company
(1)
that is designated a “Securitization Subsidiary” by the Board of Directors;
that does not engage in, and whose charter prohibits it from engaging in, any activities other than Permitted Securitization Financings and any activity necessary, incidental or related
(2)
thereto;
(3) no portion of the Indebtedness or any other obligation, contingent or otherwise, of which
(a)
is Guaranteed by the Company or any other Subsidiary of the Company,
(b)
is recourse to or obligates the Company or any other Subsidiary of the Company in any way,
or
(c)
subjects any property or asset of the Company or any other Subsidiary of the Company, directly or indirectly, contingently or otherwise, to the satisfaction thereof; and
(4) with respect to which neither the Company nor any other Subsidiary of the Company has any obligation to maintain or preserve its financial condition or cause it to achieve certain
levels of operating results; provided that, in respect of clauses (3) and (4), customary recourse pursuant to the definition of Permitted Securitization Financing shall be allowed.
“Significant Subsidiary” means a Subsidiary of the Company that would constitute a “Significant Subsidiary” of the Company in accordance with Rule 1-02 under Regulation S-X under the
Securities Act in effect on the Issue Date.
“Stated Maturity” when used with respect to any Note, means the date specified in such Note as the fixed date on which the final payment of principal of such Note is due and payable. “Stated
Maturity” when used with respect to indebtedness for borrowed money in this section, means the date specified as the fixed date on which the final payment of principal of such indebtedness for
borrowed money is due and payable.
“Subsidiary” means, with respect to any Person, any other Person of which such Person owns, directly or indirectly, more than 50% of the voting power of the other Person’s outstanding Voting
Stock.
“Subsidiary Guarantee” means the Guarantee by a Subsidiary Guarantor of the Company’s obligations under the Indenture and the Notes, pursuant to the provisions of the Indenture.
“Subsidiary Guarantor” has the meaning set forth under “—Subsidiary Guarantees” above.
“Surviving Entity” has the meaning set forth under “—Covenants—Limitation on Merger, Consolidation and Sale of Assets” above.
“Tax” has the meaning set forth under “—Additional Notes” above.
“Triggering Indebtedness” means (i) any U.S. Dollar or Euro debt securities of the Company (other than the Notes) issued in the international capital markets, or (ii) any bilateral or syndicated
credit facility extended by any financial institutions to the Company that has an aggregate principal amount at any one time outstanding in excess of $100 million.
“Voting Stock” means, with respect to any Person, securities of any class of Capital Stock of such Person then outstanding and normally entitled to vote in the election of members of the Board of
Directors (or equivalent governing body) of such Person. The term “normally entitled” means without regard to any contingency.
“Wholly Owned Subsidiary” means, with respect to a Subsidiary of a Person, a Subsidiary of such Person all of the outstanding Capital Stock of which (other than (x) director’s qualifying shares,
and (y) shares issued to foreign nationals to the extent required by applicable law) are owned by such Person and/or by one or more wholly owned Subsidiaries of such Person.
All subsidiaries are wholly-owned, directly or indirectly, by MercadoLibre Inc. unless otherwise indicated
MercadoLibre Inc.
LIST OF SUBSIDIARIES
Legal name
MercadoLibre S.R.L.
DeRemate.com de Argentina S.A.
Meli Log S.R.L.
First Label S.R.L
Tech Pack S.R.L.
MercadoPago Servicios de Procesamiento S.R.L.
Ibazar.com Atividades de Internet Ltda.
MercadoLivre.com Atividades de Internet Ltda.
MercadoPago.com Representações Ltda.
eBazar.com.br Ltda.
Mercado Envios Serviços de Logística Ltda.
Dabee Brasil Serviços de Intermediação e Facilitação de Negócios Ltda.
Mercado Crédito Holding Financeira Ltda.
Mercado Envios Transporte Ltda.
Mercado Crédito Sociedade de Crédito, Financiamento e Investimento S.A.
Mercado Pago Corretora de Seguros Ltda.
Kangu Transportes Ltda.
Kangu Participações S.A.
K2I Intermediação Ltda.
MercadoLibre Chile Ltda.
MercadoPago S.A.
Lagash S.A.
Mercado Pago Emisora S.A.
Redelcom S.A.
MercadoLibre Colombia Ltda.
MercadoPago Colombia Ltda.
Lagash Systems S.A.S. (en liquidación)
Mercadopago S.A. Compañia de Financiamiento
Kangu Tecnología Logistica S.A.S.
MercadoLibre Costa Rica S.R.L.
MercadoLibre Ecuador Cia. Ltda.
Meli Participaciones, S.L.
Dabee Technology India Private Limited (to be voluntarily wound up)
MercadoLibre, S.A. de C.V., Institución de Fondos de Pago Electrónico (pending publication of the autorization to act as IFPE) (Former name: MercadoLibre, S. de R.L. de C.V.)
DeRemate.com de México S. de R.L. de C.V.
PSGAC, S. de R.L. de C.V.
Mercado Lending, S.A. de C.V.
Meli Operaciones Logísticas, S. de R.L. de C.V.
Meli Operaciones Logísticas II, S. de R.L. de C.V.
Meli Global Imports, S. de R.L. de C.V.
ITCoding Consultoría Tecnológica & Desarrollo, S.A. de C.V. (en liquidación)
MP Agregador, S. de R.L. de C.V.
Mercado Insurtech Agente de Seguros, S.A. de C.V.
KT transportes digitales, S. de R.L. de C.V.
MercadoLibre Perú S.R.L.
MercadoPago Perú S.R.L.
Meli Uruguay S.R.L.
Tech Fund S.R.L
Deremate.com de Uruguay S.R.L.
Kiserty S.A.
MercadoPago Uruguay S.R.L.
Hammer.com, LLC
Servicios Administrativos y Comerciales, LLC
MercadoPago, LLC
Global Selling LLC (Former name: Mercado Pago International, LLC)
Autopark, LLC
Autopark Classifieds, LLC
Marketplace Investments, LLC
Meli Technology, Inc.
Classifieds LLC
SFSC, LLC
Meli Capital LLC
Meli Capital Ventures LLC
MELI KaszeK Pioneer Sponsor LLC (50% owned)
Exhibit 21.01
Jurisdiction
Argentina
Argentina
Argentina
Argentina
Argentina
Argentina
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Brazil
Chile
Chile
Chile
Chile
Chile
Colombia
Colombia
Colombia
Colombia
Colombia
Costa Rica
Ecuador
Spain
India
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Mexico
Peru
Peru
Uruguay
Uruguay
Uruguay
Uruguay
Uruguay
Delaware, USA
Delaware, USA
Delaware, USA
Delaware, USA
Delaware, USA
Delaware, USA
Delaware, USA
California, USA
Delaware, USA
Delaware, USA
Delaware, USA
Cayman Islands
Cayman Islands
The following subsidiaries of MercadoLibre, Inc. may be guarantors of debt securities issued by MercadoLibre, Inc.:
Exhibit 22.01
Name of the entity
MercadoLibre S.R.L.
Ibazar.com Atividades de Internet Ltda.
EBazar.com.br Ltda.
Mercado Envios Serviços de Logística Ltda.
MercadoPago.com Representações Ltda.
MercadoLibre Chile Ltda.
DeRemate.com de México, S. de R.L. de C.V.
MP Agregador, S. de R.L. de C.V.
MercadoLibre Colombia Ltda.
State or other jurisdiction of incorporation or organization
Argentina
Brazil
Brazil
Brazil
Brazil
Chile
Mexico
Mexico
Colombia
Exhibit 23.01
Deloitte & Co. S.A.
234 Florida St, 5th floor
C1005AAF
City of Buenos Aires
Argentina
Tel.: Tel.: (+54-11) 4320-2700
Fax: (+54-11) 4325-8081/4326-7340
www.deloitte.com/ar
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-230196 and 333-251835 on Form S-3 and Registration Statement Nos. 333-151063 and 333-159891 on Form
S-8 of our report dated February 23, 2022, relating to the financial statements of MercadoLibre, Inc. and our report dated February 23, 2022 relating to the effectiveness of MercadoLibre, Inc.’s
internal control over financial reporting as of December 31, 2021, appearing in this Annual Report on Form 10-K for the year ended December 31, 2021.
/s/ DELOITTE & Co. S.A.
Buenos Aires, Argentina
February 23, 2022
CERTIFICATION PURSUANT TO
RULE 13a 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.01
I, Marcos Galperin, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2021 of MercadoLibre, Inc. (the “registrant”);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of registrant’s board of directors (or persons performing the equivalent function):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
February 23, 2022
By:
/s/ Marcos Galperin
Marcos Galperin
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.02
I, Pedro Arnt, certify that:
CERTIFICATION PURSUANT TO
RULE 13a 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2021 of MercadoLibre, Inc. (the “registrant”);
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s
fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the
audit committee of registrant’s board of directors (or persons performing the equivalent function):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
February 23, 2022
By:
/s/ Pedro Arnt
Pedro Arnt
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.01
In connection with the Annual Report on Form 10-K of MercadoLibre, Inc. (the “Company”) for the year ended December 31, 2021, as filed with the Securities and Exchange Commission
on the date hereof (the “Report”), I, Marcos Galperin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that:
(1)
(2)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Marcos Galperin
Marcos Galperin
President and Chief Executive Officer
(Principal Executive Officer)
February 23, 2022
The foregoing certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and is not being filed for purposes of Section 18 of the Securities and Exchange
Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company whether made before or after the date hereof, regardless of any general incorporation language
in such filing. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed
form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.02
In connection with the Annual Report on Form 10-K of MercadoLibre, Inc. (the “Company”) for the year ended December 31, 2021, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), I, Pedro Arnt, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1)
(2)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Pedro Arnt
Pedro Arnt
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
February 23, 2022
The foregoing certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and is not being filed for purposes of Section 18 of the Securities and Exchange
Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company whether made before or after the date hereof, regardless of any general incorporation
language in such filing. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears
in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.