01—Abstract
Summary
Summary of the 10-K/A filed December 23, 2020. Cited figures are marked; the original filing is the authoritative source.
MercadoLibre Inc. (MELI) filed an amendment to its 2019 Form 10-K on December 22, 2020, primarily addressing material weaknesses identified in its internal controls over financial reporting as of December 31, 2019.
These weaknesses stemmed from deficiencies in its payment processing controls, particularly concerning the reconciliation of accounts receivable from payment partners. Specifically, the company noted issues with risk assessment related to regulatory changes impacting the credit card industry in Argentina, inadequate IT systems for automated reconciliations, insufficient control activities for verifying and assessing the recoverability of receivables, and ineffective monitoring. Despite these control deficiencies, MELI stated that no material errors were found in its financial results and no restatement of prior financial statements was necessary.
While the company has outlined a remediation plan expected to be completed by the end of fiscal year 2020, the independent auditor, Deloitte & Co S.A., issued an adverse opinion on the effectiveness of MELI's internal control over financial reporting as of December 31, 2019. Investors should note that the material weaknesses are considered remediated only after controls have operated effectively for a sufficient period and have been tested. The filing also confirms that the company's disclosure controls and procedures were also deemed not effective as of December 31, 2019, due to these same control deficiencies.
02—Key points
Key Highlights
- Identified material weaknesses in internal control over financial reporting as of December 31, 2019, related to payment processing and accounts receivable reconciliation.
- A $27.0 million charge was recognized in Q2 2020 related to an accumulation of accounts receivable from an unaffiliated collection agent.
- No material errors were found in financial results, and no restatement of prior period financial statements is required.
- Independent auditor issued an adverse opinion on the effectiveness of internal control over financial reporting as of December 31, 2019.
- A remediation plan is underway, with completion expected before the end of fiscal year 2020, focusing on control enhancements, IT system upgrades, and increased resources.
- Disclosure controls and procedures were also concluded to be not effective as of December 31, 2019, due to the identified control weaknesses.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2019, Mercadolibre Inc lost $0.07.
- Revenue$2.30B100.0%
- Cost of revenue−$1.19B52.0%
- Gross profit$1.10B48.0%
- Operating costs−$1.26B54.7%
- Operating income−$153.2M6.7%
- Interest, other & tax−$18.8M0.8%
- Net income−$172.0M7.5%
04—Financials
Financial Highlights
Figures from 10-K/AFY2019filed December 23, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $2.30B$1.44B | +59.5% |
| Cost of Revenue | $1.19B$742.64M | +60.8% |
| Gross Profit | $1.10B$697.01M | +58.1% |
| R&D Expenses | $223.81M$146.27M | +53.0% |
| Operating Expenses | $1.26B$766.49M | +63.8% |
| Operating Income | -$153.16M-$69.48M | −120.4% |
| Net Income | -$172.00M-$36.59M | −370.1% |
| EPS (Basic) | $-3.71$-0.82 | −352.4% |
| EPS (Diluted) | $-3.71$-0.82 | −352.4% |
| Shares Outstanding (Basic) | 48.69M44.53M | +9.3% |
| Shares Outstanding (Diluted) | 48.69M44.53M | +9.3% |
05—Questions
Frequently Asked Questions
What are the primary concerns raised in this SEC filing amendment?
The primary concerns relate to material weaknesses identified in MercadoLibre's internal control over financial reporting as of December 31, 2019. These weaknesses are concentrated in the company's payment processing and accounts receivable reconciliation processes, particularly with third-party payment partners. An independent audit resulted in an adverse opinion on the effectiveness of these controls.
Did these control deficiencies lead to any restatement of financial results?
No, the filing explicitly states that while control deficiencies existed, they did not result in any material errors in the financial results or balances. Therefore, there was no need to restate prior period financial statements.
What is MercadoLibre doing to address these control weaknesses?
MercadoLibre is implementing a comprehensive remediation plan. This includes appointing new control owners, increasing control frequency, enhancing IT applications for reconciliation, implementing new controls for outstanding receivables, hiring additional expertise, conducting a thorough risk assessment, and bolstering its internal audit and finance teams. The company expects to complete these remediation steps before the end of fiscal year 2020.
What is the significance of the auditor's adverse opinion?
An adverse opinion from the independent auditor signifies that they found the company's internal controls over financial reporting to be ineffective as of the audit date (December 31, 2019). While MELI has a remediation plan, the auditor's opinion highlights the severity of the control issues that existed at that time.
06—Continue