MERCADOLIBRE INC

NOTE 1. NATURE OF BUSINESS

MercadoLibre, Inc. (“MercadoLibre” and together with its consolidated entities, 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 platform, MercadoLibre offers a comprehensive set of financial technology services to users of its e-commerce platform, and to users outside of its e-commerce platform; 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 products and services on the web; through Mercado Shops, MercadoLibre allows users to set-up, manage, and promote their own online 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 September 30, 2024, 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, Uruguay and Ecuador, 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, Peru and Ecuador.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying unaudited interim condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company, its wholly-owned subsidiaries and consolidated Variable Interest Entities (“VIEs”). Investments in entities where the Company holds joint control, but not control, over the investee are accounted for using the equity method of accounting. As of September 30, 2024, the Company had no investments where it has the ability to exercise joint control. These unaudited interim condensed consolidated financial statements are stated in U.S. dollars, except where otherwise indicated. Intercompany transactions and balances have been eliminated for consolidation purposes.

Substantially all net revenues and financial income, cost of net revenues and financial expenses and operating expenses, are generated in the Company’s foreign operations. Long-lived assets, intangible assets and goodwill and operating lease right-of-use assets located in the foreign jurisdictions totaled $2,405 million and $2,321 million as of September 30, 2024 and December 31, 2023, respectively.

These unaudited interim condensed consolidated financial statements reflect the Company’s consolidated financial position as of September 30, 2024 and December 31, 2023. These unaudited interim condensed consolidated financial statements include the Company’s consolidated statements of income, comprehensive income and equity for the nine and three-month periods ended September 30, 2024 and 2023 and statements of cash flows for the nine-month periods ended September 30, 2024 and 2023. These unaudited interim condensed consolidated financial statements include all normal recurring adjustments that Management believes are necessary to fairly state the Company’s financial position, operating results and cash flows.

Because all of the disclosures required by U.S. GAAP for annual consolidated financial statements are not included herein, these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2023, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) (the “Company’s 2023 10-K”). The Company has evaluated all subsequent events through the date these unaudited interim condensed consolidated financial statements were issued. The interim condensed consolidated statements of income, comprehensive income, equity and cash flows for the periods presented herein are not necessarily indicative of results expected for any future period. For a more detailed discussion of the Company’s significant accounting policies, see Note 2 to the financial statements in the Company’s 2023 10-K. During the nine-month period ended September 30, 2024, there were no material updates made to the Company’s significant accounting policies. For information regarding the change in the presentation of the statements of income, please refer to section “Change in the presentation of certain financial results and reclassification of prior year results” of Note 2 – Summary of significant accounting policies of these unaudited interim condensed consolidated financial statements.

Change in the presentation of certain financial results and reclassification of prior year results

Change in the presentation of certain financial results

Mercado Pago Fintech platform operations have significantly evolved during the last several years, not only because of the increase in the volume of transactions but also as a result of transitioning from being a non-regulated business to a regulated business, subject to the oversight of central banks and other regulators in the various countries in which the Company operates (refer to Note 3 – Fintech Regulations to the consolidated financial statements in the Company’s 2023 10-K for further details).

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Many of the regulations to which the Company is subject require the Company, among other things, to maintain liquidity reserves to guarantee the funds on users’ account balances in their Mercado Pago digital accounts. Depending on the country, these reserves can be partially or totally invested. During the last several years, these new regulations, coupled with the increase in the volume of transactions, have led the Company to view interest income and other financial gains from investments of these liquidity reserves as part of the Company’s operations.

Furthermore, the evolution of Mercado Pago’s activities themselves has resulted in the Company managing a significant volume of cash, cash equivalents and investments. This is due to an increase in users’ account balances in their Mercado Pago digital account managed by the Company, and an increase in the level of the Company’s indebtedness to finance those operations. As a result, these Mercado Pago’s funds, together with the financing activities, have generated a significant volume of interest income and other financial gains and interest expenses and other financial losses, respectively.

The Company believes that these regulatory trends and related activities will continue and, therefore, with the goal of creating a better measure of the performance of the Company, the Company decided to reclassify and present certain financial results from “Other income (expenses)” to “Net services revenues and financial income” and “Cost of net revenues and financial expenses,” in the statement of income, starting January 1, 2024 and for all prior periods presented.

The reclassified financial results are related to activities that are needed or mandatory for Mercado Pago’s operations, and consist of:

■interest income derived from investments and cash and cash equivalents, generated as part of the treasury strategy of the fintech business and because of the different regulations that require liquidity reserves, net of sales taxes;

■interest expense and other financing costs generated by the different sources of funding of the fintech activities; and

■gains and losses of derivatives hedging risks related to Mercado Pago’s activities.

Reclassification of prior year results

According to the Accounting Standards Codification (“ASC”) 205, Presentation of Financial Statements, the Company should present in a consistent manner all periods presented within the accompanying unaudited interim condensed consolidated financial statements. Therefore, prior period balances have been reclassified for consistency with the current presentation. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s 2023 10-K.

This reclassification did not have an impact on previously reported net income, earnings per share, retained earnings or other components of equity or total equity.

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The following tables, recast for the changes summarized above, present condensed statement of income line items affected by the revisions and reclassifications of previously reported financial statements, detailing amounts previously reported, the impact upon those line items due to reclassifications and amounts as currently revised within the financial statements:

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Furthermore, the following tables, recast for the changes summarized above, present net revenues per reporting segment (which have been disaggregated by similar products and services), detailing amounts previously reported, the impact upon those line items due to reclassifications and amounts as currently revised within the financial statements for the nine and three-month periods ended September 30, 2023:

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Use of estimates

The preparation of these unaudited interim condensed 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 and disclosures for allowance for doubtful accounts and chargeback provisions, 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, separation of lease and non lease components for aircraft leases, asset retirement obligation, compensation costs relating to the Company’s long term retention program, fair value of customer crypto-assets safeguarding assets and liabilities, fair value of certain loans payable and other financial liabilities, fair value of loans receivable, fair value of derivative instruments, income taxes, contingencies and determination of the incremental borrowing rate at commencement date of lease operating agreements. Actual results could differ from those estimates.

Customer crypto-assets safeguarding assets and liabilities

As of September 30, 2024 and December 31, 2023, the fair value of the crypto-assets held in customers’ names by third-party service providers that the Company recognized on its consolidated balance sheets for both the crypto-asset safeguarding liability and the corresponding safeguarding asset, which are included in “Customer crypto-assets safeguarding liabilities” and “Customer crypto-assets safeguarding assets,” respectively, was $81 million and $34 million, respectively, which consisted of $41 million and $18 million of Bitcoin, $14 million and $7 million of Ether, and $26 million and $9 million of other crypto-assets, respectively.

For further information related to customer crypto-assets safeguarding assets and liabilities please refer to Note 2 to the consolidated financial statements in the Company’s 2023 10-K.

Supplier finance programs

The Company and certain financial institutions participate in a supplier finance program that enables certain of the Company’s suppliers, at their own election, to request the payment of their invoices to the financial institutions earlier than the terms stated in the Company’s payment policy. As of September 30, 2024 and December 31, 2023, the obligations outstanding that the Company has confirmed as valid to the financial institutions amounted to $404 million and $381 million, respectively.

For further information related to Supplier Finance Programs please refer to Note 2 to the consolidated financial statements in the Company’s 2023 10-K.

Revenue recognition

Revenue recognition criteria for the services provided and goods sold by the Company are described in Note 2 to the consolidated financial statements in the Company’s 2023 10-K.

The aggregate gain included in “Financial services and income” revenues arising from financing transactions and sales of financial assets, net of the costs recognized on sale of credit card receivables, is $1,274 million and $439 million for the nine and three-month periods ended September 30, 2024, respectively, and$1,055 million and $379 million for the nine and three-month periods ended September 30, 2023, respectively.

Revenues recognized under ASC 606, Revenue from contracts with customers, amounted to $10,701 million and $3,895 million for the nine and three-month periods ended September 30, 2024, respectively, and $7,353 million and $2,709 million for the nine and three-month periods ended September 30, 2023, respectively. Revenues not recognized under ASC 606 amounted to $4,017 million and $1,417 million for the nine and three-month periods ended September 30, 2024, respectively, and $3,345 million and $1,218 million for the nine and three-month periods ended September 30, 2023, respectively.

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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. Accounts receivable and credit card receivables and other means of payments are presented net of allowance for doubtful accounts and chargebacks of $43 million and $42 million as of September 30, 2024 and December 31, 2023, respectively. See Note 6 – Loans receivable, net of these unaudited interim condensed consolidated financial statements for information related to the allowance for doubtful accounts with respect to the Company’s loans receivable.

Contract liabilities from contracts with customers consists of fees received related to unsatisfied performance obligations at the end of the period in accordance with ASC 606. Due to the generally short-term duration of contracts, the majority of the performance obligations are satisfied in the following months. Contract liabilities from contracts with customers as of December 31, 2023 was $51 million, of which$45 million was recognized as revenue during the nine-month period ended September 30, 2024.

As of September 30, 2024, total contract liabilities from contracts with customers recognized within current other liabilities was $85 million, mainly due to fees related to classifieds advertising services billed, subscriptions and loyalty programs, shipping services and inventory sales that are expected to be recognized as revenue in the coming months.

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 period-end exchange rates while income and expense accounts are translated at the average monthly rates in effect during the period, 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 income (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 interim condensed consolidated statements of income under the caption “Foreign currency losses, net”.

Argentine currency status and macroeconomic outlook

As of July 1, 2018, the Company transitioned its Argentine operations to highly inflationary status in accordance with U.S. GAAP, and changed the functional currency for Argentine subsidiaries from Argentine Pesos to U.S. dollars, which is the functional currency of their immediate parent company. Argentina’s inflation rate for the nine and three-month periods ended September 30, 2024 and 2023 was 101.6% and 12.1%, and 103.2% and 34.8%, respectively. Additionally, Argentina’s average inter-annual inflation rate for the nine and three-month periods ended September 30, 2024 was 262.8% and 236.4%, respectively.

The Company uses Argentina’s official exchange rate to account for transactions in the Argentine segment, which as of September 30, 2024 and December 31, 2023 was 970.50 and 808.45 Argentine Pesos, respectively, against the U.S. dollar. For the nine-month periods ended September 30, 2024 and 2023, Argentina’s official exchange rate against the U.S. dollar increased 20.0% and 97.5%, respectively. The average exchange rate for the nine-month periods ended September 30, 2024 and 2023 was 887.8 and 245.8, respectively, resulting in an increase of 261.1%.

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 September 30, 2024 and December 31, 2023:

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The following table provides information relating to net revenues and financial income and direct contribution (see Note 9 – Segments of these unaudited interim condensed consolidated financial statements for definition of direct contribution) for the nine and three-month periods ended September 30, 2024 and 2023 of the Company’s Argentine subsidiaries and consolidated VIEs:

Argentine exchange regulations

Since the second half of 2019, the Argentine government instituted exchange controls restricting the ability of companies and individuals to exchange Argentine Pesos for foreign currencies and their ability to remit foreign currency out of Argentina. An entity’s authorization request to the Central Bank of Argentina (“CBA”) to access the official exchange market to make foreign currency payments may be denied depending on the circumstances. As a result of these exchange controls, markets in Argentina developed trading mechanisms, in which an entity or individual buys U.S. dollar denominated securities in Argentina (i.e. shares, sovereign debt) using Argentine Pesos, and subsequently sells the securities for U.S. dollars, in Argentina, to access U.S. dollars locally, or outside Argentina, by transferring the securities abroad, prior to being sold (the latter commonly known as “Blue Chip Swap Rate”). The Blue Chip Swap Rate has diverged significantly from Argentina’s official exchange rate (commonly known as the exchange spread). In recent years, the Blue Chip Swap Rate has been higher than Argentina’s official exchange rate. As of September 30, 2024 and December 31, 2023, the exchange spread was 28.2% and 20.4%, respectively.

As part of the exchange controls, since 2019, the Argentine government imposes a tax on the acquisition of foreign currency through the official exchange market in certain circumstances. On July 24, 2023, through the Executive Power Decree No. 377/2023, the Argentine government extended the application of this tax to the following cases: (i) certain services acquired from abroad or services rendered by foreign residents in Argentina (i.e. technical, legal, accounting, management, advertising, engineering, audiovisual services, among others), which will be subject to a 25% tax rate, (ii) freight and other transportation services for import and export of goods, which will be subject to a 7.5% tax rate; and (iii) imported goods, which will be subject to a 7.5% tax rate, with certain exemptions (such as fuels and products of the basic food basket). Later, the Decree No. 29/2023, modified the tax rate for the cases mentioned above under ii) and iii) from 7.5% to 17.5%. On September 2, 2024, the Decree No. 777/2024 reestablished the tax rate for cases ii) and iii) mentioned above from 17.5% to 7.5%.

Income taxes

Income taxes’ accounting policy is described in Note 2 to the consolidated financial statements in the Company’s 2023 10-K.

The Company’s consolidated estimated effective tax rate for the nine and three-month periods ended September 30, 2024, as compared to the same periods in 2023, decreased from 38.1% to 23.8% and 32.5% to 23.7%, respectively, mainly as a result of (i) no foreign exchange losses recognition during the period related to the acquisition of our own common stock in the Argentine market, which was considered as a non-deductible expense, (ii) lower taxable foreign exchange gains accounted for in Argentina for local tax purposes that are not recorded for accounting purposes since, under U.S. GAAP, the Argentine operations’ functional currency is the U.S. dollar due to the highly inflationary status of the country, and (iii) higher deductions related to tax inflation adjustments in Argentina. This decrease was partially offset by the reversal of the valuation allowances in one of our Mexican subsidiaries accounted for in the third quarter of 2023.

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. In accordance with ASC 740, Management periodically assesses the need to either establish or reverse a valuation allowance for deferred tax assets considering positive and negative objective evidence related to the realization of the deferred tax assets. In its 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, which would be employed by the Company to prevent tax loss carryforwards from expiring unutilized.

Knowledge-based economy promotional regime in Argentina

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, established by the Law No. 27,506 and complemented by Argentina’s Executive Power Decree No. 1034/2020, Argentina’s Ministry of Productive Development’s Resolution No. 4/2021 and the Under Secretariat of Knowledge Economy’s Disposition No. 11/2021. On September 13, 2024, Argentina´s Secretariat of Entrepreneurs and Small and Medium Enterprises and Knowledge-Based Economy issued Resolution 267/2024, reducing the aggregate cap on base salaries used to calculate the tax credit bond to which companies that qualify for the regime are entitled from 40 million Argentine pesos to 5 million Argentine pesos; the tax credit bond represents 70% of the Company´s social security contributions for those employees whose jobs are related to the promoted activities, with a salary cap which has been reduced to the indicated limit. MercadoLibre S.R.L uses the tax credit bond to offset federal taxes.

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As a result, the Company recorded an income tax benefit of $6 million and $1 million, and $35 million and $14 million during the nine and three-month periods ended September 30, 2024 and 2023, respectively. The aggregate per share effect of the income tax benefit amounted to $0.13 and $0.03, and $0.69 and $0.27 for the nine and three-month periods ended September 30, 2024 and 2023, respectively. Furthermore, the Company recorded a social security benefit of $31 million for the nine-month period ended September 30, 2024, and $49 million and $16 million during the nine and three-month periods ended September 30, 2023, respectively. For the three-month period ended September 30, 2024, the Company recorded a social security benefit of $11 million and a negative adjustment of $12 million due to the retrospective impact of the aforementioned Resolution 267/2024.

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 for several reasons including to avoid the mismatch generated by the recognition of certain linked instruments / transactions, separately, in the interim condensed consolidated statements of income and interim condensed consolidated statements 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: i) foreign government debt securities, and ii) U.S. government debt securities.

Recently Adopted Accounting Standards

As of the date of issuance of these unaudited interim condensed consolidated financial statements there were no accounting pronouncements recently adopted by the Company.

Recently issued accounting pronouncements not yet adopted

On November 27, 2023, the FASB issued the ASU 2023-07 “Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures”. The amendments in this update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance should be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company will adopt this guidance in the fourth quarter of 2024 and provide the new disclosures that the adoption of this accounting pronouncement requires.

On December 14, 2023, the FASB issued the ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. The amendments in this update provide more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information, requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The other amendments in this update improve the effectiveness and comparability of disclosures by adding disclosures of pretax income (or loss) and income tax expense (or benefit) and removing disclosures that no longer are considered cost beneficial or relevant. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The guidance should be applied on a prospective basis while retrospective application is permitted. The Company is assessing the effects that the adoption of this accounting pronouncement may have on its financial statements.

On November 4, 2024, the FASB issued the ASU 2024-03 “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”. The amendments in this update improve financial reporting by requiring disclosure of additional information about certain costs and expenses in the notes to financial statements at interim and annual reporting, such as the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization included in each relevant expense caption; a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively; the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. The amendments are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments should be applied either prospectively to financial statements issued for reporting periods after the effective date of this update or retrospectively to any or all prior periods presented in the financial statements. The Company is assessing the effects that the adoption of this accounting pronouncement may have on its financial statements.

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NOTE 3. FINTECH REGULATIONS

Regulations issued by the central banks and other regulators of the countries where the Company operates applicable to its Fintech business are described in Note 3 to the consolidated financial statements in the Company’s 2023 10-K.

Brazil

In March 2022, the Central Bank of Brazil announced new rules for payment institutions based on their size and complexity and raised standards for required capital. The new framework, which was effective starting in July 2023 with full implementation by January 2025, will extend the application of the rule regarding proportionality of regulatory requirements (currently applicable to conglomerates of financial institutions) to financial conglomerates led by payment institutions. The new rules require a gradual increase, between 2023 and 2025, in the regulatory capital requirements applicable to the Company’s regulated Brazilian subsidiaries based on the following schedule: from July 2023 onwards, 6.75%, from January 2024 onwards, 8.75% and from January 2025 onwards, 10.50%.

On January 2, 2024, article 28 of Law 14,690 came into force, which caps the total amount that may be charged to a credit card holder in the form of interest and financial charges at the value of the original debt. The Central Bank of Brazil also defined rules on the Resolution CMN N° 5,112, clarifying the topic and defining criteria for calculating the original value of the debt in card revolving and invoice financing operations. To comply with the new regulation, the Company’s subsidiaries reduced the duration of the credit card invoice financing plans since January 2024.

On June 28, 2024, Law No. 14,905 was enacted, modifying Decree No. 22,626, known as the "Lei da Usura". The law will come into force on August 28, 2024, resulting in operations undertaken with institutions authorized by the Central Bank of Brazil, such as Mercado Pago Instituição de Pagamento Ltda., no longer being subject to the previously imposed interest rate cap.

On May 18, 2023, the Central Bank of Argentina (“CBA”) enacted a new regulation establishing that QR Codes must be interoperable with credit card payments, effective as from May 1, 2024. This regulation also expanded the payment services providers (“PSP” according to its Spanish acronym) registry and established that certain entities that accept, acquire, aggregate or sub-acquire payments must be registered. Under this regulation, MercadoLibre S.R.L. was required to register as both an acceptor and an aggregator of payments, and Mercado Pago Servicios de Procesamiento S.R.L. was required to register as an acquirer of payments. The Company’s subsidiaries completed their registrations as acceptor, acquirer and aggregator, as applicable, on April 9, 2024, February 23, 2024 and June 24, 2024, respectively.

On September 14, 2023, the CBA established that starting on December 1, 2023, DEBIN (debit immediate), the main and simple funding source of Mercado Pago users’ accounts, will be suspended and replaced with a pull transfer method that requires the consent of the client outside of Mercado Pago’s environment before the first use. After several extensions of the application of the rule, on April 30, 2024, the CBA approved a new method of pull transfer that no longer requires the consent of the client outside of Mercado Pago’s environment.

On June 6, 2024, the CBA established that payment service providers who offer payment accounts (“PSPOCP” according to its Spanish acronym) are no longer required to distribute the returns generated by their clients' funds. However, financial institutions are still required to set up a reserve of 100% of the customer funds deposited by Mercado Pago and may invest up to 45% of those funds in Argentine bonds.

Chile

On October 12, 2022, the Chilean Congress approved the Fintech and Open-Banking Law Project, which was published on January 4, 2023, and came into effect on February 3, 2023. This law established a regulatory framework for certain technological financial services that did not have their own legal framework. These services are: (i) Alternative Transaction Systems, (ii) Crowdfunding Financing Platforms, (iii) Financial Instrument Intermediation, (iv) Order Routing, (v) Credit Advisory, and (vi) Investment Advisory. Pursuant to this law, Mercado Pago Crypto S.A. shall file a license request with the Commission for the Financial Market (“CMF” according to its Spanish acronym) in order to continue offering Order Routing services through the “buy, hold and sell” product launched in 2023 in collaboration with Ripio Chile SpA. The rules governing the specifics of this filing and the license that CMF must grant, were issued on January 12, 2024, giving Mercado Pago Crypto S.A. until February 3, 2025 to file the license request.

On April 8, 2024, the Cybersecurity Law was published. Although Mercado Pago Chilean entities already comply with the law’s main obligations as a result of being regulated entities, as a result of this new law, such entities will be subject to a new regulator and must comply with certain reporting requirements for cyber security incidents. We expect that the Mercado Pago Chilean entities will be required to comply with these new reporting requirements sometime during 2025 or 2026.

On May 30, 2024, the Chilean Congress passed Law 21,673, amending Law 20,009, which, effective as of June 1, 2024, establishes a limited liability regime for users of prepaid cards in case of loss, theft, or fraud. Pursuant to Law 21,673, there may be instances in which an issuer may suspend a refund in the event of fraud or serious fault on behalf of the user claiming such refund on account of allegedly fraudulent charges. MercadoPago is in the process of implementing these measures for its compliance.

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Colombia

In June 2023, MercadoPago S.A. Compañía de Financiamiento obtained a license to operate as a financial institution in Colombia, and therefore is able to offer credits, digital accounts, investments and prepaid cards. On April 22, 2024, MercadoPago S.A. Compañía de Financiamiento started operations offering, for the moment, the “Ordinary Deposit” product only and is subject to minimum capital, reporting, consumer protection and risk management requirements. In accordance with regulations, deposits are now subject to regulatory liquidity, reserve, and solvency requirements to ensure the protection of customers' funds.

Uruguay

On April 12, 2024, MercadoPago Uruguay S.R.L. initiated a process with the Central Bank of Uruguay (“BCU”) to be authorized to act as a payment acquirer with transfers, as an activity related to electronic money issuances, in compliance with new regulations that came into effect on March 1, 2024.

On April 17, 2024, MercadoPago Uruguay S.R.L. was approved as a participant in the automated clearing house managed by Urutec S.A. This approval allows MercadoPago Uruguay S.R.L. to participate in the fast payment system and offer a new payment method to its users: interoperable QR transfer payments. In September 2024, the BCU announced that they approved the release of the interoperable QR transfer payment feature of the payment system.

On July 3, 2024, MercadoPago Uruguay S.R.L. received authorization from the BCU to offer acquiring services, which are being developed during the second half of 2024.

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NOTE 4. NET INCOME PER SHARE

Basic earnings per share for the Company’s common stock is computed by dividing, net income for the period by the weighted average number of common shares outstanding during the period.

In August 2018, the Company issued an aggregate principal amount of $880 million of 2.00% Convertible Senior Notes due 2028 (“2028 Notes”) which were fully converted or redeemed in November 2023. The conversion of these notes was included in the calculation for diluted earnings per share utilizing the “if converted” method for the nine and three-month periods ended September 30, 2023. Accordingly, conversion of these Notes was not assumed for purposes of computing diluted earnings per share if the effect was antidilutive.

The denominator for diluted net income per share for the nine and three-month periods ended September 30, 2023 did not include any effect from the capped call transactions entered into by the Company with certain financial institutions with respect to shares of the Company’s common stock (“2028 Notes Capped Call Transactions”), which were settled on September 1, 2023, because it would have been antidilutive. See Note 13 – Loans payable and other financial liabilities to these unaudited interim condensed consolidated financial statements and Note 17 to the financial statements for the year ended December 31, 2023, contained in the Company’s 2023 10-K for more details regarding the 2028 Notes and the 2028 Notes Capped Call Transactions.

Net income per share of common stock is as follows for the nine and three-month periods ended September 30, 2024 and 2023:

(1) Figures have been calculated using non-rounded amounts.

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NOTE 5. CASH, CASH EQUIVALENTS, RESTRICTED CASH AND CASH EQUIVALENTS AND INVESTMENTS

The composition of cash, cash equivalents, restricted cash and cash equivalents, short-term and long-term investments is as follows:

(1)Cash, cash equivalents and investments from securitization transactions are restricted to the payment of amounts due to third-party investors.

(2) Cash, cash equivalents, restricted cash and cash equivalents as reported in the interim condensed consolidated statements of cash flows.

(3) As of September 30, 2024 and December 31, 2023, includes $3,336 million and $2,283 million, respectively, considered restricted due to the Central Bank of Brazil’s mandatory guarantee. Also, as of September 30, 2024 and December 31, 2023, includes $6 million that guarantees a line of credit and is considered restricted. As of September 30, 2024, includes $13 million considered restricted due to the Central Bank of Uruguay’s mandatory guarantee.

(4) As of September 30, 2024, includes $47 million of collateral as part of credit card scheme arrangement rules in Brazil, and is considered restricted.

(5) As of September 30, 2024, $635 million foreign government debt securities and $2 million corporate debt securities are held by a consolidated VIE.

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NOTE 6. LOANS RECEIVABLE, NET

The Company classifies loans receivable as “On-line merchant”, “In-store merchant”, “Consumer”, and “Credit cards”. As of September 30, 2024 and December 31, 2023, the components of current and non-current Loans receivable, net were as follows:

The allowance for doubtful accounts with respect to the Company’s loans receivable amounts to $1,637 million and $1,102 million as of September 30, 2024 and December 31, 2023, respectively, which includes $25 million and $18 million related to unused agreed loan commitment on credit cards portfolio presented in Other liabilities of the interim condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively.

As of September 30, 2024 and December 31, 2023, the Company is exposed to off-balance sheet unused agreed loan commitments on credit cards portfolio, which expose the Company to credit risks for $2,498 million and $934 million, respectively. For the nine and three-month periods ended September 30, 2024, the Company recognized in provision for doubtful accounts $9 million and $5 million as expected credit losses, and $5 million and $2 million for the same periods in 2023, respectively.

The Company closely monitors credit quality for all loans receivable on a recurring basis to assess and manage its exposure to credit risk. To assess merchants and consumers seeking a loan under the Mercado Credito solution, the Company uses, among other indicators, risk models 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 user behavior related to credit/payment history, and with lower weight in the risk models, the Company uses the number of transactions in the Company’s ecosystem and the merchant’s annual sales volume, among other indicators. In addition, the Company considers external bureau information to enhance the model and the decision making process.

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The amortized cost of the loans receivable classified by the Company’s credit quality internal indicator was as follows:

As of September 30, 2024 and December 31, 2023, renegotiations represented 1.5% and 2.8% of the loans receivable portfolio, respectively.

The following tables summarize the allowance for doubtful accounts activity during the nine-month periods ended September 30, 2024 and 2023:

(1) The Company writes off loans when customer balance becomes 360 days past due.

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NOTE 7. GOODWILL AND INTANGIBLE ASSETS

Intangible assets

The composition of goodwill and intangible assets is as follows:

Goodwill

The changes in the carrying amount of goodwill for the nine-month period ended September 30, 2024 and the year ended December 31, 2023 are as follows:

Amortizable intangible assets

Intangible assets with definite useful life are comprised of customer lists, non-compete and non-solicitation agreements, hubs network, acquired software licenses and other acquired intangible assets including developed technologies and trademarks. Aggregate amortization expense for intangible assets for the nine-month periods ended September 30, 2024 and 2023 amounted to $4 million and $4 million, respectively, while aggregate amortization expense for intangible assets totaled $2 million and $1 million for the three-month periods ended September 30, 2024 and 2023, respectively.

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The following table summarizes the remaining amortization of intangible assets (in millions) with definite useful life as of September 30, 2024:

NOTE 8. INTANGIBLE ASSETS AT FAIR VALUE

The following tables present the digital assets name, cost basis, fair value, and number of units for each significant digital asset holding as of September 30, 2024 and December 31, 2023:

(1) Cost basis of the digital assets is net of $21 million of impairment losses recognized prior to the adoption of ASU 2023-08.

NOTE 9. SEGMENTS

Reporting segments are based upon the Company’s internal organizational structure, the manner in which the Company’s operations are managed and 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, Mexico, Argentina and Other Countries (which includes Chile, Colombia, Costa Rica, Ecuador, Peru and Uruguay).

Direct contribution consists of net revenues and financial income from external customers less direct costs, which include costs of net revenues and financial expenses, product and technology development expenses, sales and marketing expenses, provision for doubtful accounts and general and administrative expenses over which segment managers have direct discretionary control, such as advertising and marketing programs, customer support expenses, payroll and third-party fees. All corporate related costs have been excluded from the segment’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.

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The following tables summarize the financial performance of the Company’s reporting segments:

(1)Recast for consistency with the current presentation due to the change in the presentation of certain financial results. Please refer to Note 2 – Summary of significant accounting policies - Change in the presentation of certain financial results and reclassification of prior year results.

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(1)Recast for consistency with the current presentation due to the change in the presentation of certain financial results. Please refer to Note 2 – Summary of significant accounting policies - Change in the presentation of certain financial results and reclassification of prior year results.

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The following table summarizes net revenues and financial income per reporting segment, which have been disaggregated by similar products and services for the nine and three-month periods ended September 30, 2024 and 2023:

(1)Recast for consistency with the current presentation due to the change in the presentation of certain financial results. Please refer to Note 2 – Summary of significant accounting policies - Change in the presentation of certain financial results and reclassification of prior year results.

(2) Includes final value fees and flat fees paid by sellers derived from intermediation services and related shipping and storage fees, classified fees derived from classified advertising services and ad sales.

(3)Includes revenues from inventory sales and related shipping fees.

(4)Includes revenues from commissions the Company charges for transactions off-platform derived from use of the Company’s payment solution and asset management product, revenues as a result of offering installments for the payment to its Mercado Pago users, either when the Company finances the transactions directly or when the Company sells the corresponding financial assets, interest earned on cash and investments as part of Mercado Pago activities, including those required due to fintech regulations, net of interest gains pass through our Brazilian users in connection with our asset management product, Mercado Pago debit card commissions and insurtech fees.

(5)Includes interest earned on loans and advances granted to merchants and consumers, and interest and commissions earned on Mercado Pago credit card transactions.

(6)Includes sales of mobile point of sales devices.

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The following table summarizes the allocation of property and equipment, net based on geography:

The following table summarizes the allocation of the operating lease right-of-use assets based on geography:

The following table summarizes the allocation of the goodwill and intangible assets based on geography:

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NOTE 10. FAIR VALUE MEASUREMENT OF ASSETS AND LIABILITIES

Assets and liabilities measured and recorded at fair value on a recurring basis

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023:

(1) Measured at fair value with impact on the statement of income for the application of the fair value option. (See Note 2 – Summary of significant accounting policies – Fair value option applied to certain financial instruments).

(2) As of September 30, 2024 and December 31, 2023, includes $390 million and $269 million, respectively, of money market funds from securitization transactions. (See Note 5 – Cash, cash equivalents, restricted cash and cash equivalents and investments).

(3)As of September 30, 2024 and December 31, 2023, includes $19 million and $23 million, respectively, of investments from securitization transactions. (See Note 5 – Cash, cash equivalents, restricted cash and cash equivalents and investments).

The Company’s assets and liabilities measured and recorded at fair value on a recurring basis were 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’s assumptions. As of September 30, 2024 and December 31, 2023, there were no assets and liabilities measured and recorded at fair value using level 3 inputs.

There were no transfers to and from Levels 1, 2 and 3 during the nine-month period ended September 30, 2024, nor during the year ended December 31, 2023.

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The Company’s election of the fair value option applies to: i) foreign government debt securities and ii) U.S. government debt securities. The Company recognized fair value changes, which include the related interest income of those instruments, in net service revenues and financial income if it is related to Mercado Pago’s operations (please refer to Note 2 – Summary of significant accounting policies - Change in the presentation of certain financial results and reclassification of prior year results) or in interest income and other financial gains if not. Such fair value changes and interest income amount to gains of $224 million and $167 million in net service revenues and financial income, and $40 million and $28 million in interest income and other financial gains for the nine-month periods ended September 30, 2024 and 2023, respectively, and $83 million and $64 million in net service revenues and financial income and $18 million and $17 million in interest income and other financial gains, for the three-month periods ended September 30, 2024 and 2023, respectively.

As of September 30, 2024 and December 31, 2023, the cost of the Company’s investment in corporate debt securities classified as available for sale amounted to $256 million and $30 million, respectively, and the estimated fair value amounted to $261 million and $30 million, respectively. The cost of these securities is determined under a specific identification basis. As of September 30, 2024, the gross unrealized gains accumulated in the interim condensed consolidated statements of comprehensive income amounted to $5 million. As of December 31, 2023 the gross unrealized gains accumulated in the consolidated statements of comprehensive income were less than $1 million. For the nine and three-month periods ended September 30, 2024, the proceeds from sales of corporate debt securities amounted to $12 million and $9 million, respectively. There wereno sales of corporate debt securities during the nine and three-month periods ended September 30, 2023.

The following table summarizes the net carrying amount of the corporate debt securities classified as available for sale, classified by its contractual maturities:

The following table summarizes the net carrying amount of the debt securities not classified as available for sale, classified by its contractual maturities or Management expectation to convert the investments into cash:

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Financial assets and liabilities not measured and recorded at fair value

The following table summarizes the estimated fair value of the financial assets and liabilities of the Company not measured at fair value as of September 30, 2024 and December 31, 2023:

As of September 30, 2024 and December 31, 2023, the carrying value of the Company’s financial assets with determinable fair value (except for loans receivable) not measured at fair value approximated their fair value mainly because of their short-term maturity. If these financial assets were measured at fair value in the financial statements, cash and restricted cash would be classified as Level 1 (where cost and fair value are aligned) and the remaining financial assets would be classified as Level 2. The estimated fair value of the loans receivable would be classified as Level 3 based on the Company’s assumptions.

As of September 30, 2024 and December 31, 2023, the carrying value of the Company’s financial liabilities (except for 2026 Sustainability Notes and 2031 Notes) not measured at fair value approximated their fair value mainly because of their short-term maturity or because the effective interest rates are not materially different from market interest rates. If these financial liabilities were measured at fair value in the financial statements, these would be classified as Level 2. As of September 30, 2024 and December 31, 2023, the estimated fair value of the 2026 Sustainability Notes would be $352 million and $375 million, respectively, and the estimated fair value of the 2026 Notes would be $525 million and $599 million, respectively, which is based on Level 2 inputs.

NOTE 11. 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 it to be 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 September 30, 2024, the Company had accounted for estimated liabilities involving proceeding-related contingencies and other estimated contingencies of$157 million within other liabilities to cover legal actions against the Company for which 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 September 30, 2024, 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 of resulting in a loss for an estimated aggregate amount up to$223 million. No loss amounts have been accrued for such reasonably possible legal actions.

For further information related to contingent liabilities please refer to Note 15 to the consolidated financial statements in the Company’s 2023 10-K.

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Tax Claims

Brazilian preliminary injunction against the Brazilian tax authorities (withholding income tax)

The tax claim related to the Brazilian preliminary injunction against the Brazilian tax authorities is described in Note 15 to the consolidated financial statements in the Company’s 2023 10-K. On April 3, 2024, the Superior Court of Justice decided to analyze whether the matter under consideration is capable of becoming a binding precedent. In April 2024, the Company submitted a petition claiming that the case is fully capable of being judged as a binding precedent and the civil association, Câmara Brasileira da Economia Digital, submitted a petition asamicus curiae with the same arguments. On October 14, 2024, the Superior Court of Justice decided the matter under consideration will be judged as a binding precedent. On September 17, 2024, Mercado Crédito Sociedade de Crédito, Financiamento e Investimento S.A. filed a writ of mandamus and requested a preliminary injunction to avoid the withholding income tax over payment being remitted to Argentina by applying the convention signed between Brazil and Argentina to prevent double taxation (the "Brazil-Argentina Treaty") which was granted to the aforementioned entity. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is probable based on the technical merits of the Company’s tax position and the existence of adverse decisions issued by the Superior Court of Justice. For that reason, the Company has recorded a provision for the disputed amounts, which was$360 million as of September 30, 2024, and which was recorded in non-current other liabilities in the consolidated balance sheets, net of the corresponding judicial deposits for$326 million (which includes$61 million of interest income).

Considering that the Brazil-Argentina Treaty to prevent double taxation treaty was amended in 2017, the Company started a new tax claim for the period from January 2019 to September 30, 2024, and the court granted a preliminary injunction recognizing the right of collecting the withholding tax at a 10% rate was granted. As a result of this preliminary injunction, further judicial deposits of withholding tax will be based on a rate of 10%. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is possible based on the technical merits of the Company’s position;therefore the Company will maintain the provision considering a 15% rate.

Interstate rate of ICMS-DIFAL on interstate sales

Interstate rate of ICMS-DIFAL on interstate sales without Complementary Law

The tax claim related to the interstate rate of ICMS-DIFAL (Imposto sobre Circulaçao de Mercadorias, Serviços de Transporte Interestadual, Intermunicipal e Comunicação on interstate sales at a differential rate) without the existence of a complementary law is described in Note 15 to the consolidated financial statements in the Company’s 2023 10-K. In March 2024, one of the cases related to the State of Santa Catarina (where the risk of losing had been considered probable) received judgment in favor of the State and will no longer be reported. In June 2024, one of the cases related to the State of Rio de Janeiro (where the risk of losing had been considered remote) received judgment partially in favor of the Company. Therefore, the Company presented a motion of clarification which is now pending judgment. In September 2024, one of the cases related to the State of Paraná (where the risk of losing had been considered remote) had been received in the Superior Tribunal of Justice to the judgment of an Special Appeal filed by the State. In June 2024, one of the cases related to the State of Rio de Janeiro (where the risk of losing had been considered remote) received judgment partially in favor of the Company. Therefore, the Company presented a motion of clarification which is now pending judgment. In addition, a case related to the State do Goiás (where the risk of losing had been considered probable) received judgment in favor of the Company, as a result of which, in June 2024, the State filed an appeal that was rejected by the Court. The case has not become final and unappealable. The remaining cases pending as of December 31, 2023 had no updates during the nine-month period ended September 30, 2024. The Company maintains a$2 million provision as of September 30, 2024 for the disputed amounts related to the 3 ongoing cases where the risk of losing is considered by Management to be probable, based on the opinion of external legal counsel.

Exclusion of ICMS tax benefits from federal taxes base

The tax claim related to the exclusion of ICMS tax benefits from the tax base of the Corporate Income Tax (“IRPJ”) and of the Social Contribution on Net Profits (“CSLL”) is described in Note 15 to the consolidated financial statements in the Company’s 2023 10-K. On April 17, 2024, the Federal Regional Court ruled in favor of the Company. Therefore, the Federal Government presented a motion of clarification, which was rejected in August 2024. In response, the Federal Government filed a special appeal, but it was rejected on October 10, 2024. The case has not yet become final and unappealable. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is not more likely than not based on the technical merits of the Company’s tax position. For that reason, the Company has not recorded any expense or liability for the disputed amounts. As of September 30, 2024, the total amount under dispute was$61 million.

The tax claim related to the exclusion of ICMS tax benefits from tax base of the Social Contributions (PIS and COFINS) is described in Note 15 to the consolidated financial statements in the Company’s 2023 10-K. On April 25, 2024, a ruling favorable to the Company was issued recognizing the Company’s right to exclude the amounts of credits arising from ICMS tax incentives from the PIS and COFINS calculation basis. On June 7, 2024, the Federal Government filed an appeal. The Company responded to the appeal and the case was referred to the Court for judgment on the request for an appeal. The first instance court’s decision has not yet become final and unappealable. 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. For that reason, the Company has not recorded any expense or liability for the disputed amounts. The Company had recorded$17 million of PIS and COFINS tax benefits arising from the ICMS tax incentives as of September 30, 2024.

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Administrative Tax Claims

The tax assessment claiming corporate income taxes (IRPJ and CSLL), in relation to the 2016 taxable year, is described in Note 15 to the consolidated financial statements in the Company’s 2023 10-K. On October 9, 2024, the administrative court of second instance issued a decision in order to return the case of Ebazar.com.br Ltda. back to the first instance in an evidentiary proceeding. The Company will be required to provide more additional evidence that the relevant services were necessary and actually hired and paid by the Brazilian subsidiaries. It is expected that the case has not yet become final and unappealable. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is not more likely than not. For that reason, the Company has not recorded any expense or liability for the disputed amounts. As of September 30, 2024, the total amount under dispute related to IRPJ and CSLL was $13 million.

The tax assessment claiming corporate income taxes (IRPJ and CSLL), in relation to the 2017 taxable year, is described in Note 15 to the consolidated financial statements in the Company’s 2023 10-K. On July 24, 2024, the administrative body of first instance issued a decision in the case. The decision issued is partially favorable to the Company as it rejected the punitive fine of 150% over the tax charged and reduced it to 100%, but maintained the tax assessment and also the joint tax liability of the Senior Legal Director. The Company will present an appeal in the Federal Administrative Court. The case has not yet become final and unappealable. On August 28, 2024, after the administrative court of first instance issued an unfavorable decision and maintained the tax assessment, the Company filed an administrative appeal in the administrative court (CARF). The case has not yet become final and unappealable. Management’s opinion, based on the opinion of external legal counsel, is that the risk of losing the case is not more likely than not. For that reason, the Company has not recorded any expense or liability for the disputed amounts. As of September 30, 2024, the total amount under dispute related to IRPJ and CSLL was$72 million.

Buyer protection program

The buyer protection program (“BPP”) is designed to protect buyers in the Marketplace from losses due primarily to fraud or counterparty non-performance for all transactions completed through the Company’s online payment solution Mercado Pago (except for certain excluded categories). 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, arrives incomplete or damaged, does not match the seller’s description or if the buyer regrets the purchase. 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, 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 September 30, 2024 and December 31, 2023, Management’s estimate of the maximum potential exposure related to the Company’s buyer protection program is $5,155 million and $5,072 million, respectively, for which the Company recorded a provision of $10 million and $8 million, respectively.

Commitments

The Company committed to purchase cloud platform services based on the following terms:

1. for a total amount of $824 million, to be paid between October 1, 2021 and September 30, 2026. As of September 30, 2024, the Company had paid $601 million;

2. for a total amount of $200 million, to be paid between September 23, 2022 and September 23, 2025. As of September 30, 2024, the Company had paid $148 million in relation thereto. In August 2024, the Company amended this commitment whereby, effective as of August 20, 2024, the aggregate purchase commitment is $1,000 million, to be fully paid off between August 2024 and February 2030; and

3. for a total amount of $90 million, to be paid between November 2024 and June 30, 2030.

On April 8, 2022, the Company signed a 10-year agreement with Gol Linhas Aereas S.A. under which the Company is committed to contract a minimum amount of air logistics services for a total annual cost of $43 million (total amount once all the dedicated aircraft are in operation). Pursuant to the agreement, Gol Linhas Aereas S.A. provides logistics services in Brazil to Mercado Envios through six dedicated aircraft, all of which have already started operations as of September 30, 2024.

As of September 30, 2024, the Company has lease agreements for new warehouses in Brazil, Mexico and Argentina for a total amount of $1,497 million that has not yet commenced. Lease terms under the agreements are between 5 to 15 years.

Since October 2023, the Company signed 3-year agreements with certain shipping companies in Brazil, under which the Company is committed to contract a minimum amount of logistics services. As of September 30, 2024, the remaining commitment amounted to $109 million.

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On January 10, 2024, the Company signed a 5-year agreement for the naming rights of the Complexo Pacaembu (municipal stadium of the city of São Paulo), for a total amount of $56 million. The agreement has the option to extend the term for 5 additional independent periods of 5 years each, for the same amount indexed by the Brazilian inflation rate index IPCA.

NOTE 12. LONG TERM RETENTION PROGRAM

The following table summarizes the long term retention program accrued compensation expense for the nine and three-month periods ended September 30, 2024 and 2023, which are payable in cash according to the decisions made by the Board of Directors (the “Board”):

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NOTE 13. LOANS PAYABLE AND OTHER FINANCIAL LIABILITIES

The following tables summarize the Company’s Loans payable and other financial liabilities as of September 30, 2024 and December 31, 2023:

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(1) The carrying amount includes the effect of the derivative instruments that qualified for fair value hedge accounting. See Note 16 – Derivative instruments for further detail.

See Note 14 – Securitization transactions and Note 15 – Leases to these unaudited interim condensed consolidated financial statements for details regarding the Company’s collateralized debt securitization transactions and finance lease obligations, respectively.

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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 million aggregate principal amount of 2.375% Sustainability Notes due 2026 (the “2026 Sustainability Notes”) and $700 million aggregate principal amount of 3.125% Notes due 2031 (the “2031 Notes”, and together with the 2026 Sustainability Notes, the “Notes”).

During 2023, the Company repurchased $9 million and $70 million in principal amount of the outstanding 2026 Sustainability Notes and 2031 Notes, respectively, plus $1 million of interest accrued on the 2026 Sustainability Notes and 2031 Notes. The total amount paid during 2023 for those repurchases amounted to $66 million. During 2024, the Company repurchased $27 million and $51 million in principal amount of the outstanding 2026 Sustainability Notes and 2031 Notes, respectively. The total amount paid during 2024 for those repurchases amounted to $71 million.

For the nine-month periods ended September 30, 2023, the Company recognized $8 million as a gain in Interest income and other financial gains in the unaudited interim condensed consolidated statements of income. For the nine and three-month periods ended September 30, 2024, the Company recognized $8 million and $3 million as gain in Interest income and other financial gains in the interim condensed consolidated statements of income, respectively.

For additional information regarding the 2026 Sustainability Notes and the 2031 Notes please refer to Note 17 to the audited consolidated financial statements for the year ended December 31, 2023, contained in the Company’s 2023 10-K.

2.00% Convertible Senior Notes Due 2028 (“2028 Notes”)

On September 19, 2023, the Company announced its intention to redeem all its 2028 Notes on November 14, 2023. Holders of the 2028 Notes could elect to convert their notes at any time before November 13, 2023. Each $1,000 principal amount of 2028 Notes was convertible into 2.2952 shares of MercadoLibre common stock.

On November 13, 2023, holders of the 2028 Notes converted $439 million principal amount of 2028 Notes into 1,007,597 shares of the Company’s common stock which MercadoLibre held as treasury stock. As of December 31, 2023, no principal amount of 2028 Notes remained outstanding.

For the nine and three-month periods ended September 30, 2023, the Company recognized interest expense, including the amortization of issuance costs, of $7 million and $2 million, respectively.

For additional information regarding the 2028 Notes and the 2028 Notes Capped Call Transactions please refer to Note 17 to the audited consolidated financial statements for the year ended December 31, 2023, contained in the Company’s 2023 10-K.

Amended and Restated Revolving Credit Agreement

On September 27, 2024, the Company entered into a $400 million amended and restated revolving credit agreement (the “Amended and Restated Credit Agreement”) with the lenders party thereto and the Company’s subsidiaries MercadoLibre S.R.L., Ebazar.com.br Ltda., Mercado Pago Instituição de Pagamento Ltda., DeRemate.com de Mexico S. de R.L. de C.V., MP Agregador, S. de R.L. de C.V., MercadoLibre Chile Ltda., and MercadoLibre Colombia Ltda. as initial guarantors (collectively, the “Initial Guarantors”). The Company’s obligations under the Amended and Restated Credit Agreement are guaranteed by the Initial Guarantors.

The interest rates under the Amended and Restated Credit Agreement are based on Term SOFR (“Secured Overnight Funding Rate”) plus an interest margin of 1.00% per annum, which may be decreased to 0.90% per annum or increased to 1.15% per annum depending on the Company’s debt rating, as further provided under the Amended and Restated Credit Agreement. Any loans drawn from the Amended and Restated Credit Agreement must be repaid on or prior to September 27, 2028, which will be automatically extended to September 27, 2029 upon satisfaction, on or prior to August 28, 2027, of the Maturity Extension Conditions (as defined in the Amended and Restated Credit Agreement), as further provided in the Amended and Restated Credit Agreement. The Company is also obligated to pay a commitment fee on the unused amounts of the facility at a rate per annum equal to 25% of the then Applicable Margin, depending on the Company’s debt rating, as further provided under the Amended and Restated Credit Agreement.

As of September 30, 2024, no amounts have been borrowed under the facility.

NOTE 14. SECURITIZATION TRANSACTIONS

The process of securitization consists of the issuance of securities collateralized by a pool of assets through a special purpose entity (“SPEs”), often under a VIE.

The Company securitizes financial assets associated with its credit card receivables and loans receivable portfolio. The Company’s securitization transactions typically involve the legal transfer of financial assets to bankruptcy remote 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 generally precluded from recording the transfers of assets in securitization transactions as sales or is required to consolidate the SPE.

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The Company securitizes certain credit card receivables related to users’ purchases through Chilean SPEs. Under these SPE contracts, the Company has determined that it has no obligation to absorb losses or the right to receive benefits of the SPEs 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 vehicles, its assets, liabilities and related results are not consolidated in the Company’s financial statements.

Additionally, the Company securitizes certain credit card receivables related to users’ purchases through Brazilian SPEs. Under these SPE contracts, the Company has determined that it has the obligation to absorb losses or the right to receive benefits of the SPEs that could be significant because it retains subordinated interest in the SPEs. As the Company controls the vehicles, 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 or purchased from financial institutions that grant loans to the Company’s 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 for the securitization transactions as if they were secured financing and therefore the assets, liabilities and related results are consolidated in its financial statements.

The following table summarizes the Company’s collateralized debt under securitization transactions, as of September 30, 2024:

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(1) As of September 30, 2024, Loans payables owned by this trust were obtained through private placements. Mercado Crédito XXVII trust made a public bond offering in the Argentine stock market on October 7, 2024.

(2) Minimum and maximum maturity depending on the applicable interest rate within the range.

This secured debt is issued by the SPEs and includes collateralized securities used to fund the Company’s Fintech 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.

38 | MercadoLibre, Inc.

The assets and liabilities of the SPEs are included in the Company’s unaudited interim condensed consolidated financial statements as of September 30, 2024 and December 31, 2023 as follows:

NOTE 15. LEASES

The Company leases certain fulfillment, cross-docking and services centers, office space, aircraft, aircraft hangars, 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:

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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 as of September 30, 2024 and December 31, 2023:

(1) Includes discount rates of leases in local currency and U.S. dollar.

The components of lease expense were as follows:

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:

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NOTE 16. DERIVATIVE INSTRUMENTS

Cash flow hedges

As of September 30, 2024, 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 Real. The Company designated the foreign currency exchange contracts as cash flow hedges, the derivatives’ gain or loss is initially reported as a component of accumulated other comprehensive loss and subsequently reclassified into the interim condensed consolidated statements of income in the “Cost of net revenues and financial expenses” line item, in the same period the forecasted transaction affects earnings. As of September 30, 2024, the Company estimated that the whole amount of net derivative gains or losses related to its cash flow hedges included in accumulated other comprehensive loss will be reclassified into the interim condensed consolidated statements of income within the next 12 months.

In addition, the Company has entered into swap contracts to hedge the interest rate fluctuation of its financial debt held by one of its Brazilian subsidiaries. The Company designated the swap contracts as cash flow hedges. The derivatives’ gain or loss is initially reported as a component of accumulated other comprehensive loss and subsequently reclassified into the interim condensed consolidated statements of income in the “Cost of net revenues and financial expenses” line item within the next 12 months. As of September 30, 2024, there are no outstanding derivatives hedging the interest rate fluctuation of the financial debt designated as cash flow hedges.

Fair value hedges

The Company has entered into swap contracts to hedge the interest rate and the foreign currency exposure of its fixed-rate, foreign currency financial debt held by its Brazilian subsidiaries. The Company designated the swap contracts as fair value hedges. The derivatives’ gain or loss is reported in the interim condensed consolidated statements of income in the same line items as the change in the value of the financial debt due to the hedged risks. Since the terms of the interest rate swaps match the terms of the hedged debts, changes in the fair value of the interest rate swaps are offset by changes in the fair value of the hedged debts attributable to changes in interest rates. Accordingly, the net impact in current earnings is that the interest expense associated with the hedged debts is recorded at the floating rates.

Net investment hedge

The Company used cross currency swap contracts, to reduce the foreign currency exchange risk related to its investment in its Brazilian foreign subsidiaries and the interest rate risk. This derivative was designated as a net investment hedge and, accordingly, gains and losses are reported as a component of accumulated other comprehensive loss. The derivatives’ gain or loss is initially reported as a component of accumulated other comprehensive loss and subsequently reclassified into the interim condensed consolidated statements of income in the “Interest expense and other financial losses” and “Foreign currency losses, net” line items, in the same period that the interest expense affects earnings.

Derivative instruments not designated as hedging instruments

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 subsidiaries, whose functional currencies are the Brazilian Real. These transactions were not designated as hedges for accounting purposes. As of September 30, 2024, there are no outstanding derivatives hedging the foreign currency fluctuation not designated as hedging instruments.

Finally, as of September 30, 2024, the Company entered into swap contracts to hedge the interest rate fluctuation of a certain portion of its financial debt in its Brazilian subsidiaries and VIEs. These transactions were not designated as hedges for accounting purposes.

The following table presents the notional amounts of the Company’s outstanding derivative instruments:

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Derivative instrument contracts

The fair values of the Company’s outstanding derivative instruments as of September 30, 2024 and December 31, 2023 were as follows:

The effects of derivative contracts on the interim condensed consolidated statement of comprehensive income for the nine-month periods ended September 30, 2024 and 2023 were as follows:

The effect of the Company’s fair value hedge relationships on the interim condensed consolidated statements of income for the nine and three-month periods ended September 30, 2024 is a net gain of $24 million and a net loss of $2 million, respectively, and affected Cost of net revenues and financial expenses and foreign exchange losses, net. For the nine and three-month periods ended September 30, 2023, the Company recognized a loss of $9 million and a net gain of $4 million, respectively, that affected Cost of net revenues and financial expenses.

The carrying amount of the hedged items for fair value hedges included in the “Loans payable and other financial liabilities” line item of the interim condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023 was $181 million and $216 million, respectively.

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The effect of the Company’s fair value hedge relationships on the interim condensed consolidated balance sheets related to cumulative basis adjustments for fair value hedges as of September 30, 2024 and December 31, 2023 is less than $1 million.

The effects of derivative contracts not designated as hedging instruments on the interim condensed consolidated statements of income for the nine and three-month periods ended September 30, 2024 and 2023 were as follows:

NOTE 17. SHARE REPURCHASE PROGRAM

On February 21, 2023, the Board authorized the Company to repurchase shares of the Company’s common stock, for an aggregate consideration of up to $900 million.

The Company acquired shares of its own common stock in the Argentine market and paid for them in Argentine Pesos at a price that reflects the additional cost of accessing U.S. dollars through securities denominated in U.S. dollars, because of restrictions imposed by the Argentine government for buying U.S. dollars at the official exchange rate in Argentina (see Note 2 – Summary of significant accounting policies - Argentine currency status and macroeconomic outlook of these unaudited interim condensed consolidated financial statements). As a result, the Company recognized foreign currency losses of$386 million for the nine-month period ended September 30, 2023, while foreign currency losses for the three-month period ended September 30, 2023 amounted to $173 million. The share repurchase program expired on March 31, 2024. During the nine-month period ended September 30, 2024, the Company did not acquire any shares under the aforementioned share repurchase program.

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