Quarterly Report (10-q)

false--12-31Q12020AR00010995900001099590meli:DragoneerInvestmentGroupMemberus-gaap:SeriesAPreferredStockMember2019-03-290001099590meli:DragoneerInvestmentGroupMemberus-gaap:SeriesAPreferredStockMember2019-03-292019-03-290001099590us-gaap:CommonStockMember2019-01-012019-03-310001099590us-gaap:TreasuryStockMember2020-03-310001099590us-gaap:RetainedEarningsMember2020-03-310001099590us-gaap:AdditionalPaidInCapitalMember2020-03-310001099590us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310001099590meli:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2019-12-310001099590meli:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:TreasuryStockMember2019-12-310001099590meli:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:RetainedEarningsMember2019-12-310001099590meli:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AdditionalPaidInCapitalMember2019-12-310001099590meli:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001099590us-gaap:TreasuryStockMember2019-12-310001099590us-gaap:RetainedEarningsMember2019-12-310001099590us-gaap:AdditionalPaidInCapitalMember2019-12-310001099590us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001099590meli:CumulativeEffectPeriodOfAdoptionAdjustmentMember2019-12-310001099590meli:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMember2019-12-310001099590us-gaap:RetainedEarningsMember2019-03-310001099590us-gaap:AdditionalPaidInCapitalMember2019-03-310001099590us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-310001099590us-gaap:RetainedEarningsMember2018-12-310001099590us-gaap:AdditionalPaidInCapitalMember2018-12-310001099590us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310001099590us-gaap:BankTimeDepositsMember2020-03-310001099590meli:SovereignDebtSecuritiesSecuredLinesOfCreditGuaranteeMember2020-03-310001099590us-gaap:BankTimeDepositsMember2019-12-310001099590meli:SovereignDebtSecuritiesSecuredLinesOfCreditGuaranteeMember2019-12-310001099590us-gaap:CommonStockMember2020-03-310001099590meli:CumulativeEffectPeriodOfAdoptionAdjustedBalanceMemberus-gaap:CommonStockMember2019-12-310001099590us-gaap:CommonStockMember2019-12-310001099590us-gaap:CommonStockMember2019-03-310001099590us-gaap:CommonStockMember2018-12-310001099590meli:FintechMember2020-01-012020-03-310001099590meli:CommerceMember2020-01-012020-03-310001099590meli:FintechMember2019-01-012019-03-310001099590meli:CommerceMember2019-01-012019-03-310001099590meli:SovereignDebtSecuritiesSecuredLinesOfCreditGuaranteeMember2020-03-310001099590meli:SecuritizationTransactionsMember2020-03-310001099590meli:BankAccountArgentineContralBankRegulationMember2020-03-310001099590meli:SovereignDebtSecuritiesSecuredLinesOfCreditGuaranteeMember2019-12-310001099590meli:SecuritizationTransactionsMember2019-12-310001099590us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310001099590us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-03-310001099590us-gaap:AccumulatedTranslationAdjustmentMember2020-01-012020-03-310001099590us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2020-01-012020-03-310001099590us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2020-01-012020-03-310001099590us-gaap:DerivativeFinancialInstrumentsAssetsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-03-310001099590us-gaap:DerivativeFinancialInstrumentsAssetsMemberus-gaap:FairValueMeasurementsRecurringMember2020-03-310001099590us-gaap:DerivativeFinancialInstrumentsAssetsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001099590us-gaap:DerivativeFinancialInstrumentsAssetsMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001099590meli:LoansFromBanksCdi3.3504Member2020-03-310001099590meli:LoansFromBanksCdi2.30Member2020-03-310001099590meli:LoansFromBanksBadlar9.00Member2020-03-310001099590meli:LoansFromBanks2.96Member2019-12-310001099590meli:ForeignCountriesMember2020-03-310001099590country:US2020-03-310001099590meli:ForeignCountriesMember2019-12-310001099590country:US2019-12-310001099590us-gaap:RetainedEarningsMember2020-01-012020-03-310001099590us-gaap:RetainedEarningsMember2019-01-012019-03-310001099590us-gaap:SovereignDebtSecuritiesMember2020-03-310001099590us-gaap:OtherInvestmentsMember2020-03-310001099590us-gaap:CorporateDebtSecuritiesMember2020-03-310001099590us-gaap:SovereignDebtSecuritiesMember2019-12-310001099590us-gaap:OtherInvestmentsMember2019-12-310001099590us-gaap:CorporateDebtSecuritiesMember2019-12-310001099590us-gaap:ConsumerPortfolioSegmentMember2020-03-310001099590meli:OnlineMerchantMember2020-03-310001099590meli:InStoreMerchantMember2020-03-310001099590us-gaap:ConsumerPortfolioSegmentMember2019-12-310001099590meli:OnlineMerchantMember2019-12-310001099590meli:InStoreMerchantMember2019-12-310001099590meli:UnsecuredLineOfCredit9.11Member2019-12-310001099590meli:UnsecuredLineOfCredit30.25Member2019-12-310001099590meli:UnsecuredLineOfCredit1.72Member2019-12-310001099590meli:SecuredLinesOfCredit26.11Member2019-12-310001099590us-gaap:FairValueInputsLevel2Memberus-gaap:OtherLiabilitiesMember2020-03-310001099590us-gaap:FairValueInputsLevel2Memberus-gaap:LoansPayableMember2020-03-310001099590us-gaap:FairValueInputsLevel2Memberus-gaap:AccountsPayableMember2020-03-310001099590us-gaap:FairValueInputsLevel2Membermeli:PayablesMember2020-03-310001099590us-gaap:FairValueInputsLevel2Membermeli:IncomeTaxesPayableMember2020-03-310001099590us-gaap:FairValueInputsLevel2Membermeli:EmployeeBenefitObligationsMember2020-03-310001099590us-gaap:OtherLiabilitiesMember2020-03-310001099590us-gaap:LoansPayableMember2020-03-310001099590us-gaap:AccountsPayableMember2020-03-310001099590meli:PayablesMember2020-03-310001099590meli:IncomeTaxesPayableMember2020-03-310001099590meli:EmployeeBenefitObligationsMember2020-03-310001099590us-gaap:FairValueInputsLevel2Memberus-gaap:OtherLiabilitiesMember2019-12-310001099590us-gaap:FairValueInputsLevel2Memberus-gaap:LoansPayableMember2019-12-310001099590us-gaap:FairValueInputsLevel2Memberus-gaap:AccountsPayableMember2019-12-310001099590us-gaap:FairValueInputsLevel2Membermeli:PayablesMember2019-12-310001099590us-gaap:FairValueInputsLevel2Membermeli:IncomeTaxesPayableMember2019-12-310001099590us-gaap:FairValueInputsLevel2Membermeli:EmployeeBenefitObligationsMember2019-12-310001099590us-gaap:OtherLiabilitiesMember2019-12-310001099590us-gaap:LoansPayableMember2019-12-310001099590us-gaap:AccountsPayableMember2019-12-310001099590meli:PayablesMember2019-12-310001099590meli:IncomeTaxesPayableMember2019-12-310001099590meli:EmployeeBenefitObligationsMember2019-12-310001099590us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2020-03-310001099590us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2020-03-310001099590us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMembermeli:CentralBankOfBrazilMandatoryGuaranteeMember2020-03-310001099590us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2020-03-310001099590us-gaap:FairValueMeasurementsRecurringMembermeli:CentralBankOfBrazilMandatoryGuaranteeMember2020-03-310001099590us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2019-12-310001099590us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2019-12-310001099590us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMembermeli:CentralBankOfBrazilMandatoryGuaranteeMember2019-12-310001099590us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2019-12-310001099590us-gaap:FairValueMeasurementsRecurringMembermeli:CentralBankOfBrazilMandatoryGuaranteeMember2019-12-310001099590us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2020-01-012020-03-310001099590us-gaap:TrademarksMember2020-03-310001099590us-gaap:TrademarksMember2019-12-310001099590us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310001099590country:AR2019-01-012019-12-310001099590country:BR2020-01-012020-03-310001099590meli:OtherCountriesMember2019-01-012019-12-310001099590country:MX2019-01-012019-12-310001099590country:CO2019-01-012019-12-310001099590country:CL2019-01-012019-12-310001099590country:BR2019-01-012019-12-3100010995902019-01-012019-12-310001099590meli:OtherCountriesMember2020-01-012020-03-310001099590country:MX2020-01-012020-03-310001099590country:CO2020-01-012020-03-310001099590country:CL2020-01-012020-03-310001099590meli:OtherCountriesMember2020-03-310001099590country:MX2020-03-310001099590country:CO2020-03-310001099590country:CL2020-03-310001099590meli:OtherCountriesMember2019-12-310001099590country:MX2019-12-310001099590country:CO2019-12-310001099590country:CL2019-12-310001099590country:BR2019-12-310001099590country:AR2019-12-310001099590meli:OtherCountriesMember2018-12-310001099590country:MX2018-12-310001099590country:CO2018-12-310001099590country:CL2018-12-310001099590country:BR2018-12-310001099590country:AR2018-12-310001099590us-gaap:TrademarksMember2020-03-310001099590us-gaap:NoncompeteAgreementsMember2020-03-310001099590us-gaap:LicensingAgreementsMember2020-03-310001099590us-gaap:CustomerListsMember2020-03-310001099590us-gaap:TrademarksMember2019-12-310001099590us-gaap:NoncompeteAgreementsMember2019-12-310001099590us-gaap:LicensingAgreementsMember2019-12-310001099590us-gaap:CustomerListsMember2019-12-310001099590us-gaap:FinancingReceivables60To89DaysPastDueMember2020-03-310001099590us-gaap:FinancingReceivables30To59DaysPastDueMember2020-03-310001099590us-gaap:FinancingReceivables1To29DaysPastDueMember2020-03-310001099590us-gaap:FinancingReceivables60To89DaysPastDueMember2019-12-310001099590us-gaap:FinancingReceivables30To59DaysPastDueMember2019-12-310001099590us-gaap:FinancingReceivables1To29DaysPastDueMember2019-12-310001099590meli:PropertyAndEquipmentAccumulatedDepreciationMember2020-01-012020-03-310001099590meli:PropertyAndEquipmentAccumulatedDepreciationMember2019-01-012019-12-310001099590meli:PropertyAndEquipmentNetMember2020-03-310001099590meli:PropertyAndEquipmentAtCostMember2020-03-310001099590meli:LoansPayableAndOtherFinancialLiabilitiesMember2020-03-310001099590meli:PropertyAndEquipmentNetMember2019-12-310001099590meli:PropertyAndEquipmentAtCostMember2019-12-310001099590meli:LoansPayableAndOtherFinancialLiabilitiesMember2019-12-310001099590meli:LongTermRetentionPlanTwoZeroOneTwoMember2020-01-012020-03-310001099590meli:LongTermRetentionPlanTwoZeroOneFourMember2020-01-012020-03-310001099590meli:LongTermRetentionPlan2020Member2020-01-012020-03-310001099590meli:LongTermRetentionPlan2019Member2020-01-012020-03-310001099590meli:LongTermRetentionPlan2018Member2020-01-012020-03-310001099590meli:LongTermRetentionPlan2017Member2020-01-012020-03-310001099590meli:LongTermRetentionPlan2016Member2020-01-012020-03-310001099590meli:LongTermRetentionPlan2015Member2020-01-012020-03-310001099590meli:LongTermRetentionPlanTwoZeroOneTwoMember2019-01-012019-03-310001099590meli:LongTermRetentionPlanTwoZeroOneThreeMember2019-01-012019-03-310001099590meli:LongTermRetentionPlanTwoZeroOneOneMember2019-01-012019-03-310001099590meli:LongTermRetentionPlanTwoZeroOneFourMember2019-01-012019-03-310001099590meli:LongTermRetentionPlan2019Member2019-01-012019-03-310001099590meli:LongTermRetentionPlan2018Member2019-01-012019-03-310001099590meli:LongTermRetentionPlan2017Member2019-01-012019-03-310001099590meli:LongTermRetentionPlan2016Member2019-01-012019-03-310001099590meli:LongTermRetentionPlan2015Member2019-01-012019-03-310001099590country:AR2020-01-012020-03-310001099590srt:ScenarioForecastMembermeli:ForeignExchangeContractsForecastedPurchasesOfMposDevicesMember2020-09-300001099590srt:ScenarioForecastMembermeli:ForeignExchangeContractsForecastedPurchasesOfMposDevicesMember2020-08-310001099590srt:ScenarioForecastMembermeli:ForeignExchangeContractEnteredMember2020-08-310001099590srt:ScenarioForecastMembermeli:ForeignExchangeContractsForecastedPurchasesOfMposDevicesMember2020-07-310001099590srt:ScenarioForecastMembermeli:ForeignExchangeContractEnteredMember2020-07-310001099590srt:ScenarioForecastMembermeli:ForeignExchangeContractsForecastedPurchasesOfMposDevicesMember2020-06-300001099590srt:ScenarioForecastMembermeli:ForeignExchangeContractEnteredMember2020-06-300001099590srt:ScenarioForecastMembermeli:ForeignExchangeContractsForecastedPurchasesOfMposDevicesMember2020-05-310001099590srt:ScenarioForecastMembermeli:ForeignExchangeContractEnteredMember2020-05-310001099590meli:ForeignExchangeContractsForecastedPurchasesOfMposDevicesMemberus-gaap:SubsequentEventMember2020-04-300001099590us-gaap:ForeignExchangeContractMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-01-012020-03-310001099590us-gaap:OtherCurrentAssetsMemberus-gaap:NondesignatedMember2020-03-310001099590us-gaap:OtherCurrentAssetsMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-03-310001099590us-gaap:ForeignExchangeContractMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-03-310001099590us-gaap:OtherCurrentLiabilitiesMemberus-gaap:DesignatedAsHedgingInstrumentMember2019-12-310001099590us-gaap:OtherCurrentAssetsMemberus-gaap:NondesignatedMember2019-12-310001099590us-gaap:ForeignExchangeContractMemberus-gaap:DesignatedAsHedgingInstrumentMember2019-12-310001099590meli:MexicoSegmentMember2020-03-310001099590meli:UnsecuredLineOfCredit9.11Member2020-03-310001099590meli:UnsecuredLineOfCredit30.75Member2020-03-310001099590meli:UnsecuredLineOfCredit30.25Member2020-03-310001099590meli:UnsecuredLineOfCredit1.72Member2020-03-310001099590meli:SecuredLinesOfCredit26.11Member2020-03-310001099590meli:LoansFromBanks2.96Member2020-03-310001099590country:MXmeli:CollateralizedDebtDueNovember2022Member2020-01-012020-03-310001099590country:BRmeli:CollateralizedDebtDueMay2021Member2020-01-012020-03-310001099590country:BRmeli:CollateralizedDebtDueJune2021Member2020-01-012020-03-310001099590country:ARmeli:CollateralizedDebtDueMay2020Member2020-01-012020-03-310001099590country:ARmeli:CollateralizedDebtDueAugust2020Member2020-01-012020-03-310001099590srt:MinimumMembercountry:ARmeli:CollateralizedDebtDueMay2020Member2020-03-310001099590srt:MinimumMembercountry:ARmeli:CollateralizedDebtDueAugust2020Member2020-03-310001099590srt:MinimumMembercountry:ARmeli:CollateralizedDebtDueApril2020Member2020-03-310001099590srt:MaximumMembercountry:ARmeli:CollateralizedDebtDueMay2020Member2020-03-310001099590srt:MaximumMembercountry:ARmeli:CollateralizedDebtDueAugust2020Member2020-03-310001099590srt:MaximumMembercountry:ARmeli:CollateralizedDebtDueApril2020Member2020-03-310001099590meli:TwoThousandTwentyEightConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2019-11-300001099590meli:TwoThousandTwentyEightConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2019-06-300001099590meli:TwoThousandTwentyEightConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2018-11-300001099590meli:TwoThousandTwentyEightConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2018-08-310001099590meli:AdditionalIssuance2028ConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2018-08-310001099590meli:InitialIssuance2028ConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2018-08-240001099590meli:TwoThousandNineteenConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2014-06-300001099590meli:TwoThousandTwentyEightConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2018-08-240001099590country:MXmeli:CollateralizedDebtDueNovember2022Membermeli:DiarioOficialMember2020-01-012020-03-310001099590country:BRmeli:CollateralizedDebtDueMay2021Membermeli:BrazilianCiRateMember2020-01-012020-03-310001099590country:BRmeli:CollateralizedDebtDueJune2021Membermeli:BrazilianCiRateMember2020-01-012020-03-310001099590country:ARmeli:CollateralizedDebtDueMay2020Membermeli:BadlarRateMember2020-01-012020-03-310001099590country:ARmeli:CollateralizedDebtDueAugust2020Membermeli:BadlarRateMember2020-01-012020-03-310001099590meli:LoansFromBanksCdi3.3504Membermeli:CertificadoDeDepositoInterbancrioMember2020-01-012020-03-310001099590meli:LoansFromBanksCdi2.30Membermeli:CertificadoDeDepositoInterbancrioMember2020-01-012020-03-310001099590meli:LoansFromBanksBadlar9.00Membermeli:BadlarMember2020-01-012020-03-310001099590country:ARmeli:CollateralizedDebtDueApril2020Member2020-01-012020-03-310001099590us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2020-01-012020-03-310001099590country:MXmeli:CollateralizedDebtDueNovember2022Member2020-03-310001099590country:BRmeli:CollateralizedDebtDueMay2021Member2020-03-310001099590country:BRmeli:CollateralizedDebtDueJune2021Member2020-03-310001099590country:ARmeli:CollateralizedDebtDueMay2020Member2020-03-310001099590country:ARmeli:CollateralizedDebtDueAugust2020Member2020-03-310001099590country:ARmeli:CollateralizedDebtDueApril2020Member2020-03-310001099590country:BR2020-03-310001099590country:AR2020-03-3100010995902019-03-3100010995902018-12-310001099590meli:KisertyS.a.Member2020-03-092020-03-310001099590meli:KisertyS.a.Member2020-03-012020-03-310001099590meli:KisertyS.a.Member2020-03-310001099590us-gaap:SovereignDebtSecuritiesMemberus-gaap:ShortTermInvestmentsMembermeli:ArgentinaSegmentMember2020-03-310001099590meli:U.s.TreasuryNotesMemberus-gaap:ShortTermInvestmentsMember2020-03-310001099590meli:U.s.TreasuryNotesMemberus-gaap:OtherLongTermInvestmentsMember2020-03-310001099590us-gaap:SovereignDebtSecuritiesMemberus-gaap:ShortTermInvestmentsMembermeli:ArgentinaSegmentMember2019-12-310001099590meli:U.s.TreasuryNotesMemberus-gaap:ShortTermInvestmentsMember2019-12-310001099590meli:U.s.TreasuryNotesMemberus-gaap:OtherLongTermInvestmentsMember2019-12-310001099590us-gaap:MoneyMarketFundsMemberus-gaap:CashAndCashEquivalentsMember2020-03-310001099590us-gaap:MoneyMarketFundsMembermeli:RestrictedCashAndCashEquivalentsMember2020-03-310001099590us-gaap:CorporateDebtSecuritiesMemberus-gaap:ShortTermInvestmentsMember2020-03-310001099590us-gaap:MoneyMarketFundsMemberus-gaap:CashAndCashEquivalentsMember2019-12-310001099590us-gaap:MoneyMarketFundsMembermeli:RestrictedCashAndCashEquivalentsMember2019-12-310001099590us-gaap:CorporateDebtSecuritiesMemberus-gaap:ShortTermInvestmentsMember2019-12-310001099590us-gaap:CorporateDebtSecuritiesMemberus-gaap:OtherLongTermInvestmentsMember2020-03-310001099590us-gaap:CorporateDebtSecuritiesMemberus-gaap:OtherLongTermInvestmentsMember2019-12-310001099590us-gaap:OtherAssetsMemberus-gaap:FairValueInputsLevel2Member2020-03-310001099590us-gaap:LoansReceivableMemberus-gaap:FairValueInputsLevel2Member2020-03-310001099590us-gaap:CreditCardReceivablesMemberus-gaap:FairValueInputsLevel2Member2020-03-310001099590us-gaap:BankTimeDepositsMemberus-gaap:FairValueInputsLevel2Member2020-03-310001099590us-gaap:AccountsReceivableMemberus-gaap:FairValueInputsLevel2Member2020-03-310001099590us-gaap:OtherAssetsMember2020-03-310001099590us-gaap:LoansReceivableMember2020-03-310001099590us-gaap:FairValueInputsLevel2Member2020-03-310001099590us-gaap:CreditCardReceivablesMember2020-03-310001099590us-gaap:BankTimeDepositsMember2020-03-310001099590us-gaap:AccountsReceivableMember2020-03-310001099590us-gaap:OtherAssetsMemberus-gaap:FairValueInputsLevel2Member2019-12-310001099590us-gaap:LoansReceivableMemberus-gaap:FairValueInputsLevel2Member2019-12-310001099590us-gaap:CreditCardReceivablesMemberus-gaap:FairValueInputsLevel2Member2019-12-310001099590us-gaap:BankTimeDepositsMemberus-gaap:FairValueInputsLevel2Member2019-12-310001099590us-gaap:AccountsReceivableMemberus-gaap:FairValueInputsLevel2Member2019-12-310001099590us-gaap:OtherAssetsMember2019-12-310001099590us-gaap:LoansReceivableMember2019-12-310001099590us-gaap:FairValueInputsLevel2Member2019-12-310001099590us-gaap:CreditCardReceivablesMember2019-12-310001099590us-gaap:BankTimeDepositsMember2019-12-310001099590us-gaap:AccountsReceivableMember2019-12-310001099590us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310001099590us-gaap:AccumulatedTranslationAdjustmentMember2020-03-310001099590us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2020-03-310001099590us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2020-03-310001099590us-gaap:AccumulatedTranslationAdjustmentMember2019-12-310001099590us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2019-12-310001099590us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2019-12-310001099590meli:TrustCreatedInBrazilMember2020-03-310001099590meli:TrustCreatedInBrazilMember2019-12-310001099590us-gaap:AdditionalPaidInCapitalMember2019-01-012019-03-310001099590us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:SovereignDebtSecuritiesMember2020-03-310001099590us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2020-03-310001099590us-gaap:FairValueMeasurementsRecurringMemberus-gaap:SovereignDebtSecuritiesMember2020-03-310001099590us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2020-03-310001099590us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:SovereignDebtSecuritiesMember2019-12-310001099590us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2019-12-310001099590us-gaap:FairValueMeasurementsRecurringMemberus-gaap:SovereignDebtSecuritiesMember2019-12-310001099590us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2019-12-310001099590meli:CloudPlatformServicesMember2020-01-012020-03-310001099590meli:BuyerProtectionProgramMember2020-03-310001099590meli:BuyerProtectionProgramMember2019-12-310001099590meli:CentralBankOfBrazilMandatoryGuaranteeMember2020-03-310001099590meli:CentralBankOfBrazilMandatoryGuaranteeMember2019-12-310001099590us-gaap:AuctionRateSecuritiesMembermeli:DirectInvestmentMember2020-03-310001099590us-gaap:AuctionRateSecuritiesMembermeli:DirectInvestmentMember2019-12-310001099590meli:NewSoftwareDevelopmentLawMember2019-06-102019-06-100001099590meli:NewSoftwareDevelopmentLawMember2019-01-012019-03-310001099590us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-03-310001099590us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-03-310001099590us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001099590us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001099590us-gaap:OperatingSegmentsMembermeli:OtherCountriesSegmentMember2020-01-012020-03-310001099590us-gaap:OperatingSegmentsMembermeli:MexicoSegmentMember2020-01-012020-03-310001099590us-gaap:OperatingSegmentsMembermeli:BrazilSegmentMember2020-01-012020-03-310001099590us-gaap:OperatingSegmentsMembermeli:ArgentinaSegmentMember2020-01-012020-03-310001099590us-gaap:OperatingSegmentsMembermeli:OtherCountriesSegmentMember2019-01-012019-03-310001099590us-gaap:OperatingSegmentsMembermeli:MexicoSegmentMember2019-01-012019-03-310001099590us-gaap:OperatingSegmentsMembermeli:BrazilSegmentMember2019-01-012019-03-310001099590us-gaap:OperatingSegmentsMembermeli:ArgentinaSegmentMember2019-01-012019-03-310001099590meli:TwoThousandTwentyEightConvertibleSeniorNotesMemberus-gaap:FairValueInputsLevel2Member2020-03-310001099590meli:TwoThousandTwentyEightConvertibleSeniorNotesMemberus-gaap:FairValueInputsLevel2Member2019-12-310001099590meli:TwoThousandTwentyEightConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2018-08-242018-08-240001099590meli:CloudPlatformServicesMember2020-03-310001099590meli:TwoThousandTwentyEightConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2019-12-310001099590meli:TwoThousandTwentyEightConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2020-01-012020-03-310001099590meli:TwoThousandTwentyEightConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2019-01-012019-03-310001099590us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2020-03-310001099590us-gaap:FairValueMeasurementsRecurringMember2020-03-310001099590us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001099590us-gaap:FairValueMeasurementsRecurringMember2019-12-310001099590us-gaap:CommonStockMember2019-03-150001099590meli:PaypayInc.Memberus-gaap:CommonStockMember2019-03-152019-03-150001099590us-gaap:CommonStockMember2019-03-152019-03-150001099590meli:TwoThousandTwentyEightConvertibleSeniorNotesMemberus-gaap:ConvertibleDebtMember2020-03-310001099590us-gaap:SovereignDebtSecuritiesMemberus-gaap:ShortTermInvestmentsMember2020-03-310001099590us-gaap:SovereignDebtSecuritiesMemberus-gaap:OtherLongTermInvestmentsMember2020-03-310001099590us-gaap:SovereignDebtSecuritiesMemberus-gaap:CashAndCashEquivalentsMember2020-03-310001099590us-gaap:SovereignDebtSecuritiesMembermeli:RestrictedCashAndCashEquivalentsMember2020-03-310001099590meli:CentralBankOfBrazilMandatoryGuaranteeMemberus-gaap:ShortTermInvestmentsMember2020-03-310001099590us-gaap:ShortTermInvestmentsMember2020-03-310001099590us-gaap:OtherLongTermInvestmentsMember2020-03-310001099590us-gaap:CashAndCashEquivalentsMember2020-03-310001099590meli:RestrictedCashAndCashEquivalentsMember2020-03-310001099590us-gaap:SovereignDebtSecuritiesMemberus-gaap:ShortTermInvestmentsMember2019-12-310001099590us-gaap:SovereignDebtSecuritiesMemberus-gaap:OtherLongTermInvestmentsMember2019-12-310001099590us-gaap:SovereignDebtSecuritiesMemberus-gaap:CashAndCashEquivalentsMember2019-12-310001099590us-gaap:SovereignDebtSecuritiesMembermeli:RestrictedCashAndCashEquivalentsMember2019-12-310001099590meli:CentralBankOfBrazilMandatoryGuaranteeMemberus-gaap:ShortTermInvestmentsMember2019-12-310001099590us-gaap:ShortTermInvestmentsMember2019-12-310001099590us-gaap:OtherLongTermInvestmentsMember2019-12-310001099590us-gaap:CashAndCashEquivalentsMember2019-12-310001099590meli:RestrictedCashAndCashEquivalentsMember2019-12-3100010995902019-12-3100010995902020-03-3100010995902019-01-012019-03-3100010995902020-05-0400010995902020-01-012020-03-31meli:itemxbrli:pureiso4217:USDxbrli:sharesiso4217:USDxbrli:shares

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2020

-OR-

For the transition period from                      to                     

Commission file number 001-33647

MercadoLibre, Inc.

(Exact name of Registrant as specified in its Charter)

Delaware		98-0212790
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

Arias 3751, 7th Floor

Buenos Aires, Argentina, C1430CRG

(Address of registrant’s principal executive offices)

(+5411) 4640-8000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)			Name of each exchange on which registered
Common Stock, $0.001 par value per share	MELI			Nasdaq Global Select Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.    Yes   x     No   ¨

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

Large Accelerated Filer		x		Accelerated Filer		¨
Non-Accelerated Filer		¨		Smaller Reporting Company		¨
				Emerging Growth Company		¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

49,709,955 shares of the issuer’s common stock, $0.001 par value, outstanding as of May 4, 2020.

 

---

MERCADOLIBRE, INC.

INDEX TO FORM 10-Q

 

 

---

MercadoLibre, Inc.

Interim Condensed Consolidated Balance Sheets

As of March 31, 2020 and December 31, 2019

(In thousands of U.S. dollars, except par value)

(Unaudited)

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

---

MercadoLibre, Inc.

Interim Condensed Consolidated Statements of Income

For the three-month periods ended March 31, 2020 and 2019

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

(Unaudited)

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

 

---

MercadoLibre, Inc.

Interim Condensed Consolidated Statements of Comprehensive Income

For the three-month periods ended March 31, 2020 and 2019

(In thousands of U.S. dollars)

(Unaudited)

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

 

‎

---

MercadoLibre, Inc.

Interim Condensed Consolidated Statements of Equity

For the three-month periods ended March 31, 2020 and 2019

(In thousands of U.S. dollars)

(Unaudited)

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

---

MercadoLibre, Inc.

Interim Condensed Consolidated Statements of Cash Flow

For the three-month periods ended March 31, 2020 and 2019

(In thousands of U.S. dollars)

(Unaudited)

The accompanying notes are an integral part of these interim condensed 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 online and technology tools that allow businesses and individuals to trade products and services in the region. The Company enables commerce through its marketplace platform (including online classifieds for motor vehicles, vessels, aircraft, services and real estate), 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 online payments; through Mercado Envios, MercadoLibre facilitates the shipping of goods from 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. In addition, MercadoLibre develops and sells software enterprise solutions to e-commerce business clients in Brazil.

As of March 31, 2020, MercadoLibre, through its wholly-owned subsidiaries, operated online ecommerce 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. It also offers a shipping solution directed towards Argentina, Brazil, Mexico, Colombia, Chile and Uruguay.

2. Summary of significant accounting policies

Basis of presentation

The accompanying unaudited interim condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the accounts of the Company, its wholly-owned subsidiaries and consolidated Variable Interest Entities (“VIE”). These interim condensed consolidated financial statements are stated in U.S. dollars, except where otherwise indicated. Intercompany transactions and balances with subsidiaries have been eliminated for consolidation purposes.

Substantially all net revenues, cost of net revenues and operating expenses are generated in the Company’s foreign operations. Long-lived assets, intangible assets and goodwill located in the foreign jurisdictions totaled $337,930 thousands and $345,204 thousands as of March 31, 2020 and December 31, 2019, respectively.

These interim condensed consolidated financial statements reflect the Company’s consolidated financial position as of March 31, 2020 and December 31, 2019. These financial statements include the Company’s consolidated statements of income, comprehensive income, equity and of cash flows for the three-month periods ended March 31, 2020 and 2019. These interim condensed consolidated financial statements include all normal recurring adjustments that Management believes are necessary to fairly state the Company’s financial position, operating results and cash flows.

Because all of the disclosures required by U.S. GAAP for annual consolidated financial statements are not included herein, these unaudited interim condensed financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2019, contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”). The condensed consolidated statements of income, comprehensive income, equity and cash flows for the periods presented herein are not necessarily indicative of results expected for any future period. For a more detailed discussion of the Company’s significant accounting policies, see note 2 to the financial statements in the Company’s Form 10-K for the year ended December 31, 2019. During the three-month period ended March 31, 2020, there were no material updates made to the Company’s significant accounting policies, except for the adoption of ASC 326 as of January 1, 2020. See Note 2 to these interim condensed consolidated financial statements for more details.

‎

---

Revenue recognition

Revenue recognition criteria for the services mentioned above are described in note 2 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to customers. Receivables represent amounts invoiced and revenue recognized prior to invoicing when the Company has satisfied the performance obligation and has the unconditional right to payment. Receivables are presented net of allowance for doubtful accounts, loans receivable and chargebacks of $44,356 thousands and $38,079 thousands as of March 31, 2020 and December 31, 2019, respectively.

Deferred revenue consists of fees received related to unsatisfied performance obligations at the end of the period in accordance with ASC 606. Due to the generally short-term duration of contracts, the majority of the performance obligations are satisfied in the following reporting period. Deferred revenue as of December 31, 2019 and 2018 was $16,590 thousands and $5,918 thousands, respectively, of which $5,562 thousands and $3,188 thousands were recognized as revenue during the three-month periods ended March 31, 2020 and 2019, respectively.

As of March 31, 2020, total deferred revenue was $16,567 thousands, mainly due to fees related to listing and optional feature services billed and loyalty programs that are expected to be recognized as revenue in the coming months.

Allowances for doubtful accounts on accounts receivable and loans receivable

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) instore merchant and 3) consumers.

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, 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. The Company estimates this percentage using the transition matrix method mentioned above and the portfolio segment´s interest rate.

The measurement of CECL is based on probability-weighted scenarios (probability of default for each month), in view of past events (roll rates), current conditions and adjustments to reflect the reasonable and supportable forecast of future economic

---

conditions which were affected, among other factors, by the COVID-19 pandemic. 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 90 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.

Cash and cash equivalents, restricted cash and cash equivalents, short-term investments and credit cards receivable

The Company’s management assesses balances for credit losses included in cash and cash equivalents, restricted cash and cash equivalents, short-term investments (measured at amortized cost) and credit cards receivable, 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. As of March 31, 2020, the Company did not account for any credit loss.

Foreign currency translation

All of the Company’s consolidated foreign operations use the local currency as their functional currency, except for Argentina, which has used the U.S. dollar as its functional currency since July 1, 2018, as described below. 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.

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. 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.

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 which were not designated as hedges. The gains and losses on the foreign exchange derivative contracts economically offset gains and losses on certain foreign currency denominated monetary assets and liabilities recognized in earnings. 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 (loss) income.

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. Management’s judgments related to this assessment consider, 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. Based on Management’s assessment of available objective evidence and considering the future effect of the Company’s initiatives to capture long-term business opportunities, the Company accounted for a valuation allowance in certain subsidiaries in its Mexican operations of $14,186 thousands for the three-month period ended March 31, 2020.

On August 17, 2011, the Argentine government issued a software development law and on September 9, 2013, the Argentine government issued a regulatory decree establishing the requirements to become a beneficiary of the software development law, including a requirement to comply with annual incremental ratios related to exports of services and research and development. The law expired on December 31, 2019.

The Argentine Industry Secretary approved the Company’s application for eligibility under the law for the Company’s Argentine subsidiary, MercadoLibre S.R.L. As a result, the Company’s Argentine subsidiary was granted a tax holiday retroactive from September 18, 2014. A portion of the benefits obtained is a 60% relief of total income tax related to software development activities and a 70% relief of payroll taxes related to software development activities.

As a result of the Company’s eligibility under the new law, it recorded an income tax benefit of $3,319 thousands during the three-month period ended March 31, 2019. Aggregate per share effect of the Argentine tax holiday amounted to $0.07 for the three-month period ended March 31, 2019. Furthermore, the Company recorded a labor cost benefit of $2,396 thousands during the three-month period ended March 31, 2019. Additionally, $400 thousands were accrued to pay software development law audit fees during the first quarter of 2019.

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. Law No. 27,506 allows companies currently benefiting from the software development law, to apply for tax benefits under Law No. 27,506, which will be effective from January 1, 2020 to December 31, 2029. Eligible companies are entitled to i) a 15% corporate income tax rate (instead of the otherwise applicable 25% corporate income tax rate), ii) a freeze on the taxpayer’s overall federal tax burden, iii) a reduction in employer social security contributions and iv) a tax credit in the amount of 1.6 times the amount payable as social security contributions. The tax credit may be used to offset federal taxes, such as value-added tax and income tax.

The above mentioned regime was suspended on January 20, 2020 through a new resolution issued by Argentina’s Ministry of Productive Development until new rules for the application of the knowledge-based economy promotional regime are issued. The Company will analyze whether it will be eligible to benefit from the law and its related tax benefits once the new regulations are issued.

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 other 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 $12,004 thousands and $3,048 thousands as of March 31, 2020 and 2019, respectively.

Accumulated other comprehensive loss

The following table sets forth the Company’s accumulated other comprehensive loss as of March 31, 2020 and December 31, 2019:

					March 31,		December 31,
					2020		2019
					(In thousands)
Accumulated other comprehensive loss:
Foreign currency translation					$                           (502,696)		$                   (408,099)
Unrealized gains on investments					2,890		2,029
Unrealized gains (losses) on hedging activities					5,561		(250)
Estimated tax loss on unrealized gains					(2,479)		(351)
					$                           (496,724)		$                   (406,671)

‎

---

The following tables summarize the changes in accumulated balances of other comprehensive loss for the three-months ended March 31, 2020:

			Unrealized		Unrealized		Foreign		Estimated tax
			(Losses) Gains on		(Losses) Gains on		Currency		(expense)
			hedging activities, net		Investments		Translation		benefit		Total
					(In thousands)
Balances as of December 31, 2019			$                               (250)		$                                2,029		$                   (408,099)		$                  (351)		$                (406,671)
Other comprehensive income (loss) before reclassifications			5,852		2,890		(94,597)		(2,493)		(88,348)
Amount of loss (gain) reclassified from accumulated other comprehensive loss			(41)		(2,029)		—		365		(1,705)
Net current period other comprehensive income (loss)			5,811		861		(94,597)		(2,128)		(90,053)
Ending balance			$                             5,561		$                                2,890		$                   (502,696)		$               (2,479)		$                (496,724)

					Amount of (Loss) Gain
					Reclassified from
Details about Accumulated					Accumulated Other
Other Comprehensive Loss					Comprehensive		Affected Line Item
Components					Loss		in the Statement of Income
					(In thousands)
Unrealized gains on investments					$                                2,029		Interest income and other financial gains
Unrealized losses on hedging activities					41		Cost of net revenues
Estimated tax expense on unrealized losses on investments					(365)		Income tax expense
Total reclassifications for the period					$                                1,705		Total, net of income taxes

Use of estimates

The preparation of 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 for allowances for doubtful accounts and chargeback provisions, allowance for loans receivables, 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, recognition of 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.

---

Recently Adopted Accounting Standards

On June 16, 2016 the FASB issued the ASU 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of credit losses on financial instruments”. This update amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, this update eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however this topic will require that credit losses be presented as an allowance rather than as a write-down. The Company adopted this standard effective January 1, 2020 using a modified retrospective approach transition method, resulting in a decrease of $4,570 thousands (net of income tax) to the opening balance of retained earnings.

On August 29, 2018 the FASB issued the ASU 2018-15 “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)”. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company’s financial statements.

Recently issued accounting pronouncements not yet adopted

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 Company is assessing the effects that the adoption of this accounting pronouncement may have on its financial statements. 

‎

---

3. Net (loss) income per share

Basic earnings per share for the Company’s common stock is computed by dividing, net (loss) income available to common shareholders attributable to common stock for the period by the weighted average number of common shares outstanding during the period.

On June 30, 2014, the Company issued $330 million of 2.25% Convertible Senior Notes due 2019 and on August 24, 2018 and August 31, 2018 the Company issued an aggregate principal amount of $880 million of 2.00% Convertible Senior Notes due 2028 (see Note 11 to these interim condensed consolidated financial statements). Additionally, on March 29, 2019 the Company issued Preferred Stock (see Note 12 to these interim condensed consolidated financial statements). The conversion of these notes and the Preferred Stock are included in the calculation for diluted earnings per share utilizing the “if converted” method. Accordingly, conversion of these Notes and the redeemable convertible preferred stock are not assumed for purposes of computing diluted earnings per share if the effect is antidilutive.

The denominator for diluted net (loss) income per share for the three-month periods ended March 31, 2020 and 2019 does not include any effect from the 2019 Notes Capped Call Transactions or the 2028 Notes Capped Call Transactions (as defined in Note 11) 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 11) are designed to partially neutralize the dilutive effect of the shares that the Company would issue under the Notes. See Note 11 to these interim condensed consolidated financial statements and Note 15 of the financial statements as of December 31, 2019 on Form 10-K for more details. For the three-month periods ended March 31, 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 (loss) income per share of common stock is as follows for the three-month periods ended March 31, 2020 and 2019:

		Three Months Ended March 31,
		2020				2019
		(In thousands)
		Basic		Diluted		Basic		Diluted
Net (loss) income per common share		$                     (0.44)		$                     (0.44)		$                       0.13		$                       0.13
Numerator:
Net (loss) income		$                 (21,109)		$                 (21,109)		$                   11,864		$                   11,864
Amortization of redeemable convertible preferred stock		—		—		(5,841)		(5,841)
Dividends on preferred stock		(1,000)		(1,000)		—		—
Net (loss) income corresponding to common stock		$                 (22,109)		$                 (22,109)		$                     6,023		$                     6,023
Denominator:
Weighted average of common stock outstanding for Basic earnings per share		49,709,955		—		45,980,255		—
Adjusted weighted average of common stock outstanding for Diluted earnings per share		—		49,709,955		—		45,980,255

‎

---

4. Cash, cash equivalents, restricted cash and cash equivalent and investments

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

		March 31,		December 31,
		2020		2019
		(In thousands)
Cash and cash equivalents		$                    1,071,217		$                    1,384,740
Restricted cash and cash equivalents
Securitization Transactions		$                         47,010		$                         37,424
Sovereign Debt Securities (Secured lines of credit guarantee)		19,538		29,260
Bank account (Argentine Central Bank regulation)		127,618		—
Total restricted cash and cash equivalents		$                       194,166		$                         66,684
Total cash, cash equivalents, restricted cash and cash equivalents (*)		$                    1,265,383		$                    1,451,424
Short-term investments
Time Deposits		$                       320,747		$                       189,660
Sovereign Debt Securities (Central Bank of Brazil mandatory guarantee)		326,699		506,175
Sovereign Debt Securities (Secured lines of credit guarantee)		26,463		16,623
Sovereign Debt Securities		884,366		884,720
Corporate Debt Securities		50		63
Total short-term investments		$                    1,558,325		$                    1,597,241
Long-term investments
Sovereign Debt Securities		$                       266,159		$                       260,320
Corporate Debt Securities		156		173
Others Investments		3,640		3,490
Total long-term investments		$                       269,955		$                       263,983

(*) Cash, cash equivalents, restricted cash and cash equivalents as reported in the consolidated statements of cash flow.

Regulation issued by Argentine Central Bank

In January 2020, the Central Bank of Argentina enacted regulations related to the 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. According to these regulations, all payment service providers must apply to obtain a registry issued by the Central Bank of Argentina before March 31, 2020 (the required information for registration is currently under analysis by Central Bank of Argentina). These regulations sets forth certain rules that require payment services providers to, among other things, (i) segregate information related to users’ investments funds; (ii) deposit and maintain users’ funds in specific banks’ accounts, payable on demand; (iii) maintain different bank accounts to segregate the Company’s funds from users’ funds; (iv) introduce clarifications on advertising and documents about the standard terms and conditions of the payment service provider; and (v) implement a periodic reporting regime with the Central Bank of Argentina. As of March 31, 2020, in accordance with the regulation, the Company held $127,618 thousands in a bank account, payable on demand.

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 March 31, 2020 and December 31, 2019, respectively. As of March 31, 2020 and December 31, 2019, in accordance with the regulation, the Company held $326,699 thousands and $506,175 thousands deposited in Brazilian federal government bonds, respectively, as a mandatory guarantee.

‎

---

5. Loans receivable, net

The Company manages loans receivable as “consumer”, “online merchant” and “In-store merchant”. As of March 31, 2020 and December 31, 2019, Loans receivable, net were as follows:

		March 31,			December 31,
		2020			2019
	(In thousands)
Online merchant	$	102,228		$	130,102
Consumer		58,107			60,179
In-store merchant		18,326			18,707
Loans receivable		178,661			208,988
Allowance for uncollectible accounts		(30,363)			(20,444)
Loans receivable, net	$	148,298		$	188,544
Current	$	141,419		$	182,105
Non-current		6,879			6,439
Loans receivable, net	$	148,298		$	188,544

The credit quality analysis of loans receivables was as follows:

		March 31,			December 31,
		2020			2019
	(In thousands)
1-30 days past due	$	24,648		$	20,430
31-60 days past due		6,190			6,916
61 -90 days past due		7,180			7,580
Total past due		38,018			34,926
To become due		140,643			174,062
Total	$	178,661		$	208,988

The following table summarizes the allowance for uncollectible accounts activity during the three-months periods ended March 31, 2020 and 2019:

	March 31,
		2020			2019 (1)
	(In thousands)
Balance at beginning of year	$	20,444		$	6,636
Adoption of ASC 326 (2)		4,977			-
Charged/credited to Net (loss) income		24,419			6,605
Charges/Utilized/Currency translation adjustments/Write-offs		(19,477)			(4,285)
Balance at end of period	$	30,363		$	8,956