Martin de Los Santos - Head, IR Pedro Arnt - CFO Marcos Galperín - CEO Osvaldo Gimenez - EVP, Payments

Mark Miller - William Blair Jordan Rohan – Stifel Nicolaus Gene Munster - Piper Jaffray Ross Sandler - Deutsche Bank Marcelo Santos - JPMorgan Michel Morin - Morgan Stanley Chad Bartley - Pacific Crest

Hello, everyone and welcome to MercadoLibre earnings conference call for the quarter ended March 31, 2014. I am Martin de Los Santos, VP of Finance and Head of Investor Relations for MercadoLibre.

Our senior management presenting today is Pedro Arnt, Chief Financial Officer; additionally, Marcos Galperín, Chief Executive Officer; and Osvaldo Gimenez, Executive Vice President of Payments will be available during today’s Q&A session. This conference call is also being broadcast over the internet and is available through the Investor Relations sections of our website.

I remind you that management may make forward-looking statements relating to such matters as continued growth prospects for the company, industry trends and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations, and projections about future events.

While we believe that our assumptions, expectations, and projections are reasonable in view of the currently available information. You are cautioned not to place undue reliance on those forward-looking statements.

Our actual results may differ materially from those discussed in this call for a variety of reasons, including those described in the Forward-Looking Statements and Risk Factors sections of our 10-K and other filings with the Securities and Exchange Commissions, which are available on our Investor Relations website. Finally, I would like to remind you that in the course of this conference call, we may discuss some non-GAAP measures.

A reconciliation of those measures to the nearest comparable GAAP measures can be found in our first quarter 2014 earnings press release available on our Investor Relations website. Now, let me turn the call over to Pedro.

Thank you, Martin. Good afternoon and welcome everyone to our first quarter 2014 earnings call.

MercadoLibre’s platform for e-commerce is off to a solid start this year and as always, I want to highlight for you all our key development metrics and areas of progress. Reviewing key metrics in the first quarter, registered users topped the 100 million marker, reaching a 102.7 million, up 21% year-on-year after adding 4.3 million new registered users during the period.

Successful agents grew 20% reaching 21.7 million. Gross merchandise volume grew 58% in local currencies reaching $1.8 billion.

Total payment transactions grew 36% to 9.2 million. Total payment volume grew 64% in local currencies reaching $664 million.

All this made it to solid revenue growth in local currencies at 60% year-on-year. Excluding our Venezuelan operations, revenue growth in local currencies came in at an equally solid 39% year-on-year.

Additionally, mobile sales reached 14% at GMVe, MercadoEnvio, our shipping solutions suppressed 11% of items sold in Brazil and Argentina combined and our mall initiative continued to move ahead as we on-boarded a growing number of brands onto our platforms. These are some of the headwinds.

But it will best summarize our first quarter with the consistent progress on stated goals which are already proven transformative to the user experience we offer our buyers and sellers. MercadoLibre has steered in on a set of fast growing initiatives which we view as value drivers to the company in the future.

Now many continue to be in their early stages, as we have consistently pointed out, we believe that our sustained commitment to these catalysts will ramp growth to the e-commerce for the company and they gathered further momentum and penetration. Consequently, these have been the key strategic priorities for MercadoLibre during the first quarter and will continue to be so for the remainder of 2014.

As you may be familiar by now, these include the promotion of our payments and shipping solutions as strategic facilitators for e-commerce helping to eliminate friction points and enhance user experience on and off our platforms. The ongoing development of mobile and category specific vertical capabilities for our users which are widening both our reach of consumers and of supply while generating new and customized markets for incremental trading on our platform.

The promotion of our open platform, making our services increasingly accessible to third parties, leaving outside developers building new solutions for our brands and retailers requiring technological integration in support for their business. Through this approach we strive to be the technological partner of choice for anyone looking to trade online throughout Latin America.

And finally, all of this necessarily is underpinned by on-going efforts to deliver a constantly improving overall customer experience. We are devoted to invitation on this front coming up with new solutions for the growing functionalities in futures that we offers and anticipating rather than reacting to the needs of our users through investments in our technology products and customer service operations.

Beyond the highlights I started out with, let me give you a little more data around how these have evolved during the first three months of 2014. Total payments penetration was up 291 basis points, with a strong push from on platform payments which reached new highs in our marketplace, 60% of GMVe in Brazil and 38% in Argentina by the end of the quarter.

That’s an on platform penetration increase of 13 percentage points and 8 percentage points of GMVe respectively year-over-year. Shipping also gained considerable ground, MercadoEnvios volume in Brazil went from 10% to successful items in December to more than 14% in March and from 3% to 4% in Argentina for the same period.

Our mobile efforts doubled their year-on-year penetration from March to March, from 7% to 14% of our GMVe, and our mobile app totalled 10 million downloads by the end of the quarter. Mobile remains accretive to our platform as new registrations from either mobile lab or app already account for approximately 20% of our total new users registering on our site during a given period.

We kept advancing our norm initiative efforts as we continued to on-board brands in Brazil and Argentina. By the end of the first quarter, we more than doubled our number of active official branded stores reaching a total of 85 stores by the end of March.

Our vertical category efforts continued to gain traction led by sports and apparel and finally our customer experience efforts remained in slow gear, and we confirm this with significant gains to our net promoter scores during the first quarter. So all in all, we made good progress across our strategic initiatives and we will continue to develop and execute our key business lines around these priorities during 2014.

We operate in a striving competitive environment where online shoppers are becoming increasingly sophisticated. As a growing number of business models compete for traffic and user acquisition, often ramping up their marketing spend to do so, we remain convinced that the best ROI comes from investing in technology that drives ever improving user experience.

Looking forward to the next few quarters, we must keep turning reliable payments and shipping into the norm on our platform by penetrating MercadoPago and MercadoEnvios further making sure we offer the best financing options, the most strategic settlement of transactions and delivery of product. We will cater to the ever more relevant mobile consumer by protecting our capabilities on those (screens) [ph] in these cases.

And we must keep expanding the mall concept on our platform, on boarding new brands at a faster pace but also building new relationships with large retailers and within the development community. Look for all this in the coming year.

Now I’d like to take a closer look at our financials. The business drivers we discussed yielded healthy growth rates to our P&L partially offset by year-on-year foreign exchange headwinds that we continue to experience across our major countries.

All growth rates are year-on-year unless I indicate otherwise. For the first quarter of 2014, net revenues were $115.4 million a 50% growth in local currencies and 12% in USD.

Excluding Venezuela, net revenues grew 39% in local currencies and 10% in dollars. Income from operations was 34 million a 19% growth in U.S.

dollars and 68% in local currencies. Excluding Venezuela, income from operations grew 5% in dollars and 29% in local currencies.

Net income before income and asset tax expenses was $39.1 million growing 54% in U.S. dollars and 117% in local currencies.

Net income was $30.3 million growing 73% year-on-year in U.S. dollars and 150% in local currencies.

Excluding Venezuela, net income grew 48% in local currencies and 16% in dollars. Resulting earnings per share was $0.69 for the quarter.

Excluding Venezuela’s impact on ForEx and income tax, earnings per share for the quarter would have been $0.63. Now let’s take a look at our top line growth for the quarter.

Marketplace revenues accelerated on strong revenues from optional placement fees with the listings, while final value fees maintained their solid year on year trend in line with stable growth of our unit volumes sold. Specifically for Brazil our largest market, items sold grew 25% year-on-year with local currency marketplace revenues outpacing that and showing year-on-year acceleration versus prior quarter mostly on favourable listing type mix.

Items sold in Venezuela grew 24% while local currency GMVe and related revenues were substantially higher due to inflation in that country partially offset by a significant devaluation of the Bolivar during the quarter. While on still in Venezuela I’d like to remind you that as we had informed earlier, we determined that the Venezuelan Sicad I exchange mechanism is the primary system through which the company could request U.S.

dollars to settle transactions during the first quarter. As a result, the exchange rate we have used to re-measure the monetary assets and Bolivar transactions of our Venezuelan operations, as of January 24, 2014, have been with Sicad I exchange rate the average of which was 10.1 Bolivars per U.S.

dollar during the first quarter of 2014. I will cover the P&L impact of this devaluation later on in my prepared remarks.

Additionally there have been further developments in terms of the Venezuelan exchange rate alternatives and we are monitoring these closely to determine what is appropriate for MercadoLibre. Specifically during late March of 2014, Venezuelan government introduced an additional exchange mechanism known as Sicad II which trades at approximately 50 Bolivars to the U.S.

dollar. We have not requested to exchange currency at this new rate but are currently evaluating the viability of Sicad II and its availability and accessibility during future periods.

The mechanism is still in its early stages and there is very limited information being published around it. Hence it is still very difficult to determine how this Sicad II exchange mechanism works and the volume constrains that would limit our ability to access it.

Depending on our final assessment of these issues and our ability to access the Sicad II market with consistency and regularity for both exchange and repatriation purposes, we could decide to start using this rate to re-measure the monetary assets and transactions on our Venezuelan operations. We will keep you posted on any developments along this front throughout the quarter.

Also to illustrate our sensitivity to a potential means to the Sicad II exchange mechanism for Venezuela reporting purposes we have included a detailed sensitivity analysis in our earnings press release and 10-Q documents to be filed with the SEC. Non-marketplace revenues grew about 30% year on year in local currencies, (robust with a) [ph] deceleration versus last quarter’s growth mainly driven by a slowdown in classifieds and advertising businesses.

The main effect came from classifieds which slowed down driven by a weak mortgage and real estate activity in our main countries but particularly in Venezuela which has a higher share of classifieds than in the rest of the our businesses. Payments continue to post high growth to both our financing revenue stream and our off platform processing revenues.

Financing was very much in line with prior quarter growing north of 40% in local currencies while off platform continued to outpace all other revenue streams accelerating in Brazil while decelerating in Argentina as some of the verticals through which we process payments were negatively impacted by the currency devaluation that occurred during the first quarter in that country. Summing up our top line performance, some of our revenues grew a robust 50% in local currencies constant versus last quarter’s growth.

Consolidated net revenues excluding Venezuela also maintained their previous quarter growth rate of 39% year-on-year in local currencies. And finally local currency revenues by country grew 30% for Brazil, also constant compared to the last quarter, 66% for Argentina 9% for Mexico, 116% for Venezuela and 31% for the segment that contains the remaining countries in which we operate.

Moving down our P&L, gross profit grew 13% in the fourth quarter to 83.8 million. Gross profit margin was 72.7% of revenues versus 72.1% in the first quarter of 2013 and 73.1% in the fourth quarter of 2013.

Year-on-year, higher payments processing fees resulting from growth in MercadoPago accounts for 121 basis points of margin contraction, partially offset by efficiency in taxes also related to our payment volume. With that scale of a 120 basis points in our customer support operations which accounts for the slight margin expansion versus prior year.

Operating expenses for the period totalled $49.8 million, 10% higher than in the same period of 2013. Operating expenses as a percent of revenues rose 43.2% in the first quarter versus 44.3% in the same quarter of last year and 34.4% in the fourth quarter of 2013.

Our yearly salary adjustments contributed a sequential margin compression as typically happens each start of the year. Year-on-year long-term retention plan accruals are lower by 124 basis points due to the lower stock price and our fraud loss provisions kept boosting year-on-year gains to a 300 basis point positive impact on margin.

This gets partially offset by a laid-off in tax credits, higher bad debt and higher product development spending year-over-year. Let me break this down for you line item by line item.

Sales and marketing, our largest operating expense line remained flat at $22.4 million or 19.4% of revenues versus 21.7% for the same period last year. A higher bad debt ratio than usual increased expenses by 105 basis points year-on-year and this was amply offset by scale coming from salaries and chargebacks.

Scale in salary accounts for 50 basis points of margin improvement. 5 basis points owing to lower long-term retention plan accrual year-on-year.

Chargebacks on our MercadoPago operation scaled almost 300 basis points year-on-year. Our efforts to substantially reduce our rate of chargebacks over total payment volume has definitely paid off meaning, that while payments far outpace revenue growth, the chargebacks will generate our scaling.

Product development expenses grew 31% to $12.3 million representing 10.6% of revenues in the first quarter versus 9.1% in the same period last year with higher infrastructure and lower outsourced development costs partially offset by 43 basis points in lower long-term retention plan cost. Finally, G&A increased 10% year-over-year to ($16.2) [ph] million in the first quarter or 13.2% in revenues versus 18.4% a year ago.

Salaries scaled 134 basis points, 77 of those coming from long-term retention plan and outside services are also scaled approximately 80 basis points from lower legal fees than last year. This scale is largely offset by more than 200 basis points worth of margin compression coming from a 2.4 million laid-off of certain tax credits that will expire with the current software development law that applies to us in Argentina.

While a new law replacing the old extending benefits for five more years, unused tax credits from the previous law expired generating these write-offs. As a result of all this, operating income margin for the quarter was 29.5% versus 27.8% in the first quarter of 2013.

Below operating income, we benefited from 3 million of interest income down 11% year-on-year as a result of lower amounts invested. In our ForEx line we saw a 3.1 million gain versus a 6.2 million loss in the first quarter of last year.

Last year’s loss resulted from the devaluation of Venezuela’s local currency cash balances which were considerable at the time. The current devaluation in Venezuela generates a ForEx loss of only $1.3 million.

The smaller impact and local currency holdings in Venezuela have been considerably reduced year-over-year after the purchase of commercial real estate in that country. These losses are more than offset by a 4.6 million ForEx gain resulting from the appreciation of U.S.

dollar current assets held by our Argentine subsidiary. Income tax expense was 8.8 million in the first quarter resulting in a blended tax rate of 22.4%, lower than usual and considerably lower than 30.9% in the same prior year quarter.

The prior year quarter had an unusually high tax rate due to Venezuela’s larger non-deductible FX loss in that period. In the current quarter U.S.

dollar liabilities on Venezuela’s balance sheet appreciated resulting in losses recognized under the Venezuelan GAAP driving Venezuela’s effective tax rate down to 2%. Excluding these impacts blended tax rate for the first quarter would have been 31.4%.

Net income margin came in at 26.3% in the first quarter versus 17.1% for the same quarter of 2013 resulting in a basic net income per common share of $0.69. Excluding the foreign exchange loss and income tax effects resulting from Venezuela’s (devaluation) [ph], earnings per share would have been $0.63.

Purchases of property, equipment and intangible assets during the quarter totalled $7.1 million primarily driven by upgrades in hardware and software critical to our business. From the period ended March 2014 these resulted in free cash flow defined as cash from operating activities less payment for the acquisition of property, equipment, intangible assets and acquired businesses net of cash acquired was $20.5 million versus $24 million last year.

Cash, short-term investments and long-term investments at the end of the quarter totalled $263.5 million. This ends my review of a solid start to the year, with financials accompanying solid performance from our business drivers.

I look forward to updating you throughout 2014 and keep working on the strategic goals we discussed today driving important improvements to our value proposition and helping to speed up the rate at which e-commerce takes hold of our region’s retail space. With that, we’d now like to take your questions.

Could you explain the wider differential in the growth rates between unit growth which was a stable 20% from the fourth quarter to the first quarter and then the acceleration in the local currency GMVe growth from 49 to 58?

So primarily when you look at the consolidated numbers, what we’re seeing there is that some of the markets where we operate have high inflation rates primarily Argentina and Venezuela. So that binds local currency GMVe growth in those markets primarily to accelerate significantly more than successful items, so it’s essentially an inflation issue.

And then the market growth for ecommerce, I guess I’d like to know your view of what that is right now in Brazil and across all your markets. In your view are you holding shares or gaining shares at this rate?

There are different measures of market growth; we believe we are growing at market or above markets, in the different markets. So we have started to grow between 20% and 30% per year, we believe ecommerce is growing roughly at those rates and that’s what we have been doing in the last several years and we have started to continue doing for the next several years.

And to be clear Marcos, are you talking in terms of unit growth or in terms of total dollar fee growth?

Well unit growth for us is very important, volume is very important and revenue is very important, so we look at all these metrics.

Okay, I guess moving on for the shipping solution you highlighted the importance of that as well as payments. What kind of company due to drive even faster penetration growth.

Is there anything you might consider for your sellers to pick that up at a faster pace? I know it’s moving nicely in Brazil, but how about across the enterprise?

So let me take the shipping part [indiscernible] take the payments part. I believe you asked about shipping and payments penetration.

Is that correct?

I mean basically on the shipping side it seems like a clear win for the customer experience and also my understanding is it’s a positive solution for the seller as well. So what are the constraints to you in moving that a lot faster and anything that we should expect this year that can cause a step function increase there?

Well shipping is growing really fast, we are very, very pleased with the evolution of MercadoEnvios, its growth continues unabated on a month by month -- actually weeks by weeks basis. And we expect to see the same growth trend in the future because we’re very happy with the way both seller and buyers are adopting this product.

As we’ve said, it’s bringing down cost in the system, it’s standardizing and improving the buyer experience with standardized shipping costs with tracking, so overall we’re very pleased with how this is evolving and hopefully we’ll continue to see a penetration of shipping going up and particularly in Brazil and Argentina where these are the two countries where we have launched a solution and this is more and better implementing.

And this is Osvaldo, on the side of payment we are growing between 13% and 18% of volumes again especially year-over-year in Argentina and [indiscernible] and the growth has been related especially, there profitability in sight and also a good synergy between payments and shifting mostly the growth salaries together and that has also driven penetration.

Thanks. And just a final question, I’ll turn it over, what should we expect to be the impact to you from the World Cup and to what extent might there be somewhat of a diminution in the rate of ecommerce purchases to the extent people are otherwise entertained and are there any positives for the marketplace over that period?

Thanks.

So the World Cup really is not a catalyst for additional trade or ecommerce, if anything what we have observed from previous World Cups is that consumers tend to not shop very much on those days. On top of that the World Cup is being held in our one of our markets this time which is something we don’t have experience with but I think in general retailers and it certainly applies to ourselves are saying that it’s probably a bit of a headwind if anything.

Can you talk about the shifting competitive landscape in Brazil with new entrance such as what you may have observed at all of Amazon’s intentions and some recent announcements by eBay that they’re launching some sort of an offering in Brazil for cross border trade and try to differentiate if you could your platform there and the level, scale and the role that MercadoLibre platform plays in Brazil. Tell us how you think it’s truly differentiated?

Thank you.

So I would say that Brazil and even more so for other markets are probably a few phases behind the U.S. market in terms of both consumer expectations but also the ability given existing infrastructure and logistics capabilities to deliver the kind of service that a U.S.

consumer is accustomed to. However I think we’re all working diligently to get to those levels as quick as we can.

So I would say that right now when you look at the sellers who have on-boarded our shipping solution in the different markets they’re actually offering a very competitive and very compelling shipping solution from both the time reliability and price standpoint. I think some of the pilot programs we have in Argentina and that we will launch very soon in Brazil that is very advanced even allows us to do things such as overnight and in some cases even same day deliver if you purchase an item before noon.

So we are very much I think on the front end in terms of the quality and reliability of the shipping solution. Our challenge is to continue to drive adoption.

So as we’ve said, we’re still in the mid-teens of adoption growing very rapidly and very pleased with those results, but the vast majority of the platform hasn’t on-boarded yet and that’s where most of the work is occurring right now.

Okay. And in Brazil do you see American owned companies offering a compelling service and particularly eBay which seems to have some sight set on Brazil?

So I think I would differentiate. I mean your question was around shipping and logistics, right.

The overwhelming majority of ecommerce in Brazil is occurring intra-Brazil, the cross border trade when we look at the overall volume of that is probably miniscule compared to the actual in-country ecommerce that’s occurring. Additionally I think when we’re talking about shipping and our belief has always been that one of the disadvantages of cross border trade into the region is that obviously the product takes a lot longer to get there.

So when we look at the competitive threat in terms of shipping and who is competing against us, we’re looking at the other Brazilian online retailers and what kind of offerings they have in terms of shipping on their platform. If you want a brief addressing of the eBay recently launched solution, essentially what we’ve seen is basically it’s primarily cross border trade and our focus continues to be on how we can better our solutions and drive value to our customers, not so much on what other players are doing.

Good afternoon and congratulations. If you could talk a little bit about [indiscernible] kind of the future as it rolls out is going to be more or less adoption of a traditional online payment or do you have aspirations around the digital law and then a follow up question.

Well, what we’ve seeing is lots of growth coming both from on platform and off platform and as we're moving forward we see massive opportunities [indiscernible] arena and if you think we’re doing very in most of the countries right.

Okay. So would you -- as PayPal talks about it, kind of a more enhanced wallet and Google talks about that, I mean is it the same kind of thought process you have is going far beyond just simple payments?

Am I hearing you correctly that that’s something that is on the roadmap or is it on a roadmap but so far down the road it doesn’t really matter?

Yes, hi this is Marcos. We -- as you know, we typically do not like to speculate on the forward looking statements about obviously we see a huge opportunity in payment.

We'll start with a non-platform product with some of the cross-platform to other websites. Obviously right now mobile is a huge opportunity and moving forward with the internal seems it’s likely to be many opportunities in many places.

We are opening up our platform in mobile as we have done with our core marketplace. So together with the community of developers that is already working on some of our platform we expect to take our mobile set our payment solutions to many services.

Okay, that’s helpful. And my second question is just regarding some of the gives and takes in the business in terms of comps going forward.

Obviously you don’t give guidance, but your comments about the World Cup were helpful for us to think about the June quarter. And can you just walk us through how you see the comps progressing in the back half of the year, whether it’s units sold comps or local GMVe and just which ones that you think we should be more aware of and that maybe helpful for us in kind of tuning the model for the year here?

Thank you.

Gene, too quick reactions to this. First one is again; we try to steer clear of forward looking projections or anticipations of how the business might evolve.

More macro answer is, we’re not facing any significant step function change in most of the comp of the key metrics, so I wouldn’t place undue focus on the comp issues. We’ve done that in the past and I think I’ve said this a few times, because we have seen step function accelerations in our business at time and therefore the comp issue becomes more relevant.

Right now we’re coming off of a fairly stable lack of growth rate. As Marcos said earlier within market growth ranges and so I think the focus should be more on how well we’re executing and what we’re doing in our strategic initiatives to drive the business rather than any specifics around comps.

Okay, thank you. And then I guess final question is the successful items sold, can you just remind me what the successful items sold growth was from Brazil in March versus December?

So Brazil grew in the March quarter 25% units down roughly 3% from 28 in the fourth quarter period.

All right, thank you.

Thanks guys. So the Brazilian growth you just called out seems to be holding up very well and you mentioned earlier that Pago penetration is now I think 60% or north of 60% in Brazil as a percent of GMVe.

So can you just talk about maybe how the high penetration of Pago in Brazil is kind of benefiting the whole Pago effect versus where penetration stands in other markets, where it might not be as high and so just to benefit you get from that. And then as you guys move from smaller sellers under your kind of tiered listing model to these new branded stores, can you just talk about the impact of -- on unit economics, is this the same pricing or if there is a different pricing scheme?

Thanks.

So with respect to the penetration of Pago in Brazil, the overall Brazil growth rate, Brazil is as Osvaldo mentioned before, within our settled market, the most advanced ecommerce market and it’s also the one where we have deployed better all of our tools, our ecommerce ecosystem tools, both payment and shipping have a substantially higher penetration there than in other markets relative to the U.S. still not the same type of ecommerce experience and relative to the other countries in Latin America, consumers in Brazil are faster adopters of shipping and payments et cetera.

So we believe that with respect to what there is in those markets, we are competing and we are happy to see that the ecosystem is working very well there. Clearly we like to have a shipping and a payments ecosystem and believe that when all the tools are working well, definitely one thing helps the other.

Pedro will help out with the pricing part of the question.

So the way we’re currently handling this is there isn’t any significant change to the unit economics. The opportunity is sell through the market prices actually a very compelling opportunity for many of these brands that are on-boarding, it’s a way to jump start their online operations and in some cases to start their online operations.

So the pricing has been very similar to what we’ve had already been charging large power sellers and power sellers. So right now when this is still in the very early days, there is no change to the unit economics, we’ll monitor that going forward, but up to now a very similar financial model for a large retailer, a brand or a power seller we had.

Got it. And one more just on -- Pedro, I think you called out an operating income gain from 2.5 million from this Argentina tax situation.

Can you just give us a little more clarification on that and is that one-time, did I hear you correctly? What exactly was that item?

Thanks.

So it’s naturally to one-time loss, it’s not a gain. We are beneficiaries of a tax holiday in Argentina because of the software law.

The original law expired this year, fortunately there is a new law that gives us an extension to these tax holidays for another five years, so that’s really the most relevant news. On the foot side of that, there are certain tax credits that we had, that we moved with the roll over to the new tax law and so that caused a one-off tax loss in the range of $2 million.

I have two questions. The first question is if you could from the operational point of view provide some update on how Venezuela is growing, because of inflation it's hard to see excluding the currency effects, how they are growing so, for example if you could provide item growth or just call it (period) [ph].

And second question is you showed lower expenses with legal fees, is this somewhat related to the improvement in customer experience that are linked there? They are my two questions.

I think the second part of the question related to legal expenses, that actually improved in driver scale and if there is a connect between that and an improved customer experience, there is, it might not be direct, but as we mentioned also, our net promoter scores are improving. We are seeing significantly better fraud loss and fraud number of cases on this site.

All of that eventually flows through to lower legal expenses. So there is a connection between those two things.

So just a follow up on the first question. I think in the previous quarter you had a 12% item growth in Venezuela.

So is there something specific that prompted this recovery in the sales?

Yes, so I think one thing you need to bear in mind is that Venezuela has been a very fluid situation. When we look at the first quarter of last year, that’s when Chavez passed away and they had elections.

So I think some of this improvement has to do with the fact that the comps is somewhat easier and also in general terms, the last quarter was quite difficult for Venezuela, so was this quarter but someone less so. And I think if you combine those two things, you get to the 24% growth in terms of units which is probably the best way to understand the actual health of the business.

And just to follow up on that earlier question on items sold in Venezuela, can you give us similar metrics in Argentina? What are you seeing there in light of the recent devaluation?

And also I think in your prepared remarks you called out the slower classified trends in Venezuela. But I think you also said that you were seeing weaker trends outside of Venezuela.

So I am just wondering if you can elaborate a little bit more on that. Thank you.

Argentina actually accelerated unit growth. We haven’t been calling out the unit growth for all the counties.

Argentina accelerated about 3 percentage points versus the fourth quarter, so if anything that this is they had delivered better numbers this quarter than the last quarter.

And with respect to classifieds and also Argentina the devaluation Argentina is also another country where we have a strong presence in classifieds particularly in the cars category which was probably impacted by a devaluation on restrictions et cetera in the car industry in the country, so that market has also had an impact in Q1.

Okay, that’s very helpful. And if I can throw another one in there, you saw divergent trends in Mexico and in the other countries.

I know they are smaller. But I am wondering if you can give us a little bit more colour.

I mean Mexico had been accelerating and was this a sharp slowdown this quarter and then the opposite happened in the other countries.

Yes, so Mexico in general for us it’s a country where we are not pleased with the evolution of our business, we would like to see substantially higher growth rates and absolute numbers coming from Mexico as I’ve indicated for a while now. And with respect to the other countries there is -- we don’t disclose on a country by country basis but yes I would there are some countries that are doing really well other countries that are not doing that well and every quarter that varies a little bit.

Hi. Thank you very much.

Certainly a lot of puts and takes around expenses in the quarter. I did want to ask you about the gross margin and operating margin expansion on a year-over-year basis that we saw.

Is that a trend that you guys are managing to? Is that something we should expect going forward or I guess just in general, any sort of update on how you’re thinking about managing operating margin particularly with some of the fluctuations in currencies and other variables?

Thank you.

Yes, Chad so I think you touched upon probably the two critical drivers there. So we continue to run a business that’s quite favourable.

I think sometimes for us the challenge is making sure that making the right investments in the right areas. If you look at the OpEx and where we’re scaling and where we’re not scaling, that’s exactly the way we think we should be running the business.

Product development continues to receive significant growth and investments, sales and marketing somewhat less and G&A the least. On the gross margin piece I think we continue to aggressively try to offset the margin compression that comes from the good results in the payments business.

And so that story should be the same going forward. The one additional factor that I think did help this quarter and we’ve always said that is that when we do see strong devaluations or currency movements in Argentina, although that hurts our top line, we have enough of a cost base in Argentina that it significantly dilutes some of our cost as well.

And so there are about slightly north of 250 basis points of OpEx margin improvement that comes from the devaluation of the Argentine peso and that’s something that should continue to be there at least until we lap the comp which is Q1 when the peso devalued significantly. So this is an example of something that we have been saying all along which is Argentina was a good place in a way to have a lot of our cost base because of the assumptions and now reality of the devaluation of the peso going forward.

Got it, that’s a good point, that’s helpful. Thank you.