Q2 2022 VTEX Earnings Call
services. We also improved our service gross margin, which contributes to an overall non-GAAP gross margin improvement of 510 bps on a year-over-year basis. We expect to continue showing improvements in this line going forward, while also providing best-in-class service levels to our customers. From expenses, we will show significant operational leverage in the second half of the year, without jeopardizing our growth in the short, medium, or long term. As I mentioned before, we calibrated our organizational structure in order to deliver our adjusted priorities, which resulted in a one-off layoff of expenses in QQ on top of the already anticipated additional QQ expenses related to Vitex data, an event that is key for positioning our company among prospects, partners, and existing customers. In Q3, we expect to have a clean P&L that will start to clearly demonstrate the trajectory of our operating income. Now moving to our commercial update. In the second quarter, we continually attracted premier brands and retailers. Some new customers that went live this quarter that didn't have online store presence in their respective countries before were Elo, Thermot, Zabrins in Brazil, Steb Andes in Colombia, and BRF in Chile.
Additionally, new customers that migrated from other platforms that went live this quarter was Pernambu Canes and Ereg in Brazil, Garbarino in Argentina, Granger and Citrix in Mexico, Yamaja in Colombia, Momentum Textiles in the US, and Invitadísima in Spain.
On top of that, we continued building and trenching a sticking relationship with our existing customers.
Some premier brands and retailers that expanded their operation with us, opened new online stores in new countries during the second quarter war. AB InBav added Dominican Republic in addition to nine other countries in Latin America. And SUGO added Mexico in addition to other four countries in Latin America.
As mentioned last quarter, while the average number of months our new customers are taking to implement Vitex Platform continues to be above the historical average, we see no structural changes in the demand for Vitex Platform.
Therefore, we continue to be encouraged by the long-term opportunity we have ahead of us.
On that note, in May of this year, Vitex was named a contender in the first wave.
B2C Solutions teach you 2022.
The Forrester report stated that Vitex has recently begun to succeed in its mission to gain a foothold in markets outside Latin America.
and that Vitex is strong in digital products and subscriptions.
We are proud of this recognition and we will continue to work hard on our international expansion as we see a strong feed from our product and sales traction is increasing according to plan in this new geography.
We know we cannot do all this alone. We believe in the multiplying force of collaboration.
One of our key competitive advantages is our ecosystem, and that's why we will continue to nurture and expand our partners.
Aligned with our payment partnership strategy shared last quarter, we are excited to announce that we launched a partnership with Adyen, a global payment platform of choice for many of the world leading companies.
We're confident that the partnership brings a powerful value proposition to the ecosystem.
Both companies are committed to enabling enterprise brands and retailers to start having a nominee channel operation that drives business growth and provides a consistent customer experience in offline and online channels.
We are also focused on generating partnerships with independent software vendors or RSVs to boost innovation and keep expanding the offering and customization layers available in our platform. We are also focused on creating partnerships with independent software vendors or RSVs
The text acceleration program fix innovative e-commerce related solutions that can meet the needs of our customers.
The project is focused on fostering the global e-commerce ecosystem by integrating third-party apps with the Vitex App Store.
In the second quarter of 2022, we included a few new partners in this program. One of them was MailWAP, who launched an app called Bizzou in Brazil that helps customers have detailed control and analytics of their e-commerce operation.
Another one was woo-wop.
who added the CRM capability to our ecosystem, which enabled us to already win customers.
Before wrapping up, I'd like now to revisit our four strategic priorities.
focusing our innovation update section and success cases from our customers.
Pernan Bucan, a retailer which sells clothing and home appliances technologies with two business units and more than 400 stores in 200 cities in Brazil, chose Vitex for its headless approach.
They wanted to implement continuous customization in their website and mobile apps while avoiding any limitations.
Additionally, they wanted a solution that enabled them to keep a consistent experience between channels providing a true omnichannel experience.
The internal team from Pernambu Canas, with the support of the Vitex team, was able to implement this contract case in only 5 months.
Achieving our clients' goals to reformulate their online experience in an impressive timeline.
Last quarter, we mentioned that we were going to have our first live shopping event in the NewDI.
Now, looking back at the results, our customers experienced a nay-timing trend in conversion rate from viewers during that event, which led them to consider leveraging Live Shop not only for product launches, but also for sales events, social media campaigns, and product demonstrations.
Live stream is a global trend and we are encouraged to see our solution continue to penetrate our customer base.
In fact, this quarter we had 231 live shopping events, which represents a quarter over quarter an increase of almost 80%.
Britain's shuttle, world's largest producer of air-cooled petrol engines for outdoor power equipment chose ZTAC in the U.S. for the B2B project with three different business units supporting multi-language and multi-current with one single account.
They used it to run the operation with two different platforms and decided to relaunch with us in a single e-commerce platform resulting in a more consistent user experience, improving maintainability of the platform leveraging all of our out of the box e-commerce features.
including for example, our Quick Order app which provides a frictionless process to place the orders.
Embargo de la Vesta, a Home Appliance retailer in Spain with 20 physical stores, chose us to help them with our robust omni-channel capability in order to scale up their sales and unify the multiple sales channels.
The company has been experiencing a high growth trajectory over the last five years. In fact, they were recently included in the list of top 1000 highest growth companies in Europe by the Financial Times.
The in-house developer website was facing difficulties scaling up given the growth of SKUs.
The customers wanted to grow both their physical and online operations, generating synergies between them. A clear need for robust dominant channel capabilities.
They were also focused on improving the overall performance and usability of the website.
They are now leveraging VTEC, improving their checkout statistics, conversion rates, and other key e-commerce performance metrics, while also building a true omnichannel strategy by integrating the physical stores and other sales channels.
On the developer platform of choice for digital commerce, we are proud to announce that we continue attracting developers to our local platform.
gaining momentum in the community and scaling our capabilities.
Monthly active developers accessing Vitex Development Portal increased to more than 28,000 in the second quarter of 2022 from more than 24,000 in the first quarter of the time here.
Wrapping up the operational update section, I would like to thank our 1560 Vitexes that are working to fulfil our mission as well as our customers, partners and investors.
Now, I will turn the call to Ricardo so he can cover our financial progress report for the quarter.
Thank you Geraldo. Hi everyone, it's a pleasure to be here updating on our financial performance for the second quarter of 2022.
This quarter, our revenue increased to $38.7 million, a year-over-year increase of 25% in US dollars and 20% on FX neutral basis.
Subscription revenue reached $36.6 million in the second quarter of 2022 from $29.7 million in the same quarter last year, a year-over-year increase of 24% in US dollars and 17% on FX neutral basis. Taiwan's presidency and response to the pandemic fug FC Ser apparent based on the ranking biomemedicaleducation
This quarter, subscription revenue accounted for 95% of total revenue versus 96% in the same quarter last year, explained by the implementation of our backlog, which leads to increases in our services revenue.
non-GAAP subscription gross profit was $26.6 million compared to $20.4 million in the second quarter of 2021. non-GAAP subscription gross margin was 72.5% in the second quarter of 2022 compared to 68.8% in the same quarter of 2021.
The 370 basis points year-over-year margin expansion reflects operational hosting improvements as we migrate non-core hosting services and optimize our code's cloud and computing usage.
On top of the non-GAAP subscription gross margin expansion, we also improved our services gross margin which led to an overall non-GAAP gross profit reaching $25.7 million representing an year over year increase of 36% and a margin improvement of 510 basis points.
Our non-GAAP total operating expenses increased to $43.3 million in the second quarter of 2022 from $29.4 million in the same period last year.
This resulted in our non-GAAP loss from operations to be $17.5 million during the second quarter of 2022.
compared to $10.4 million in the second quarter of 2021.
The increase in expenses and loss from operations were primarily due to V-tax day and one-off layoff expenses.
both accounting for slightly more than $5 million, with B-DAC stay representing the majority of this amount.
Along this line, and reinforcing Geraldo's previous comments, we expect not only to continue delivering gross margin improvements, but also to see significant operational leverage in our expenses in the second half of 2022.
Leverage on the expenses side will come from our already well-invested structure as well as a result of the hard decision of laying off 193 employees.
A decision we handle with transparency, respect and utmost responsibility.
Our end market and business model make us confident in our ability to demonstrate attractive capital location, achieving top line growth for many years to come.
Our non-GAAP operating income margin from existing stores has ranged between 35% and 15% in 2020 and 2021 respectively.
giving us a clear path to continue executing our growth plan while also seeing our potential operating margin opportunities.
As of the three months ended June 30, 2022, V-tax had a negative $12.7 million per cash flow.
compared to $14.7 million negative free cash flow in the second quarter of 2021.
Since the beginning of 2022, we've been working digitally to optimize our working capital, which resulted in an improvement in cash flow despite the one-off expenses already mentioned.
This improvement in working capital is a result of operational improvements in our collection of receivables as well as the equipment optimization in our prepaid expenses and accounts payables.
Regarding our future outlook, we continue to see macroeconomic uncertainty impacting our new stores average time to implement the DITEX platform as well as generating volatility in our existing customers GMD performance.
We had a solid performance in Q2 and for the second half of the year we will continue focusing on helping our customers outperform the market while also improving our gross margin and operating income margins.
In the third quarter of 2022, although we are entering into cleaner comps, macroeconomic conditions remain uncertain.
Therefore, we are currently targeting revenue in the $37.0 to $38.0 million range for the third quarter of 2022.
implying a year-over-year group of 18% in US dollars and 20% on the FX neutral basis in the middle of the range. LindsayLearning tempered his evidence of a
For the full year 2022, despite the incremental volatility, we maintain our FX neutral year-over-year revenue growth target of 24-27%.
implying a range of $158 to $162 million based on July average FX rate.
Vitex is well positioned to navigate the current environment.
We have clear visibility of our path to break even.
We are capitalized with over 250 million dollars in liquidity in the balance sheet.
Considering our excess liquidity after funding our organic growth plans, we see three key areas as potentially interesting capital allocation opportunities.
We could use part of this capital to pursue M&A opportunities.
Although the bid and ask gap between public and private markets may pose short-term challenges, for the medium and long term, this could be an interesting capital deployment opportunity.
We could also use part of this capital to accelerate our international expansion.
Although in the early and intermediate stages of international expansion, capital should be deployed with caution, over the medium and long term, as we see clear evidence of commercial traction, this could be an interesting capital allocation.
Finally, as approved by our board of directors,
we now have shares with purchases as an additional tool for capital deployment, which could be useful in moments of market dislocations.
We will always digitally evaluate these options and allocate capital in the best interest of long-term shareholders of the company.
based on the evaluation of market conditions and applicable legal requirements.
Wrapping up today's call, we are clearly adding value to our customers by helping them outperform the market.
We continue to have a strong backlog undergoing implementation.
We have an expanding gross margin and expect to deliver operating income margin improvements in the second half of the year.
All these together give us confidence in our business today and in the long-term opportunities we have ahead of us.
We'll continue focusing on what makes Vitex unique.
Our blue chip and resilient customer base.
the quality of our platform's technology, product and features.
and a strong and difficult to replicate
With that, let's open it up for questions now. Thank you.
Thank you. We will now begin the Q&A session. If you would like to ask a question, please press star followed by one on your touchtone keypad. If for any reason you would like to remove that question, please press star followed by two.
Again, to ask a question, press star 1.
We will pause here briefly to allow questions to generate in key.
The first question is from the line of Fred Mendez.
With Bank of America, you may proceed.
Hello. Good afternoon, everyone, and thanks for the call. I have two questions here. The first one, you mentioned, again, a client in the U.S., Momentum Textiles. It looks like it's wrapping up this operation. So, whatever you can share in terms of the profile of these clients, the roadmap for gaining for their market share in the U.S. and anything. I think, anyway, if there's any kind of information on the U.S., Mark, that would be great. That would be my first question. Second question, when I look for the guidance,
Okay, so I'm gonna say Mariano here
I'm gonna answer for the expansion in the US and then I will pass to Soudre.
So on the US we keep seeing a strong pipeline.
We are seeing a change on the profile, a little bit more organic leads are coming. This is good in our view, this is the recognition of our visibility, increasing our ability to generate our own deals.
And the pipeline is as planned to be stronger as we announced in the beginning of the year. So all the clients that we are implementing in the US.
It is following the plan.
The momentum that you saw in the client, we're going to continue to focus in mid-size B2B, as bridge is threatened, as we put live them. We're going to continue to focus in the migration of old legacy platforms. Thanks for listening.
We are pretty much confident that we will be able to deliver the momentum that we plan to the US.
Perfect. And Mariano, just to compliment on the second question, hi Fred, this is Ricardo Sotre here. Thanks for the question regarding the implicit guidance for Q4. So we believe Q4 may show some acceleration versus Q2 in our guidance for Q3. That will be driven mainly by fourth quarter 2022 seasonality more aligned with previous years than the fourth quarter 2021 seasonality.
which was a little bit weaker than usual, as well as the GMB performance of our existing customers.
and the ramp up of our recently implemented new customers. So those are the key drivers for some acceleration in the fourth quarter.
Perfect. Super clear. Thank you, Mariano. Thank you, Ricardo.
The next question is from the line of Clark Jeffries with Piper Sandler. You may proceed.
Thank you for taking the question. From a high level, Ricardo, you guided the 20% FX neutral growth. You hit the 20% FX neutral growth. You're maintaining the full year. I guess beyond the GMV trends, you're maintaining the full year.
and sort of adjusting for that, what are you seeing in terms of pipeline bookings and especially comparing to Q1, how has the appetite changed as 2022 has gone on?
Thanks Jeff, happy to start and others for you to complement. So for the second quarter, we delivered the 20% effect neutral growth in the middle of the guidance and we are guiding for 20% in the middle of the guidance for Q3 as well and we are maintaining the guidance for the year. As we mentioned in the prepared remarks, we continue to see a strong demand for the Vitex platform.
e-commerce continues to have very attractive long-term opportunity. The omni-channel strategy and integrating different channels, both on the sales side and on the fulfillment side, it's of course important for the brands and retailers out there. Vitex helps a lot on that. So we continue to see a strong demand for the Vitex software, and that's the most important driver for the long-term of the company. It'll be Premier today.
Macroeconomics and uncertainties does impact some volatility in the GMB over there, our existing customers, but that's taking into account in our guidance for Q3 as we see it right now.watching below
All right, perfect. And any way to help us think through.
how to think through the margin expansion for the second half of the year. You know, might it be fair to say that operating expenses could go back to Q1 levels and then stay there for the rest of the year.
the year or any kind of insight there to help us think through what's possible on an expansion basis.
Yeah, great question. So we appreciate the opportunity to share some additional details on this topic. We believe a good way to look at it is that our layoff reduced our headcount by roughly 10% and we are also optimizing other expenses not related to headcount at a singular level. Therefore, after excluding V-tech and layoff impacts from our future principal Africa, Gates Quit is our partner assistance provide gas has itsShotVP consultant
you could expect 10% savings going forward. So in other words, that will translate into slightly more than 1 million dollar savings per month going forward.
Perfect. Thank you very much.
Thank you.
Thank you.
The next question is from the line of Diego Aragao with Goldman Sachs. You may proceed.
Yes, hi, thanks for taking my question. Two questions, if I may. The first one is maybe a follow-up on the previous one related to the cost-cutting initiative started during the quarter. I guess, Ricardo, what can you share with us regarding, let's say, any efficiency program in place, and how should we be thinking about potential impact at the EBITDA level, right? And not only for the next quarters, but just want to understand how this could be structured.
impact your business and eventually also change your views regarding the breakeven at the EBITDA level that if I'm not mistaken was expected for the end of 2023. So this is the first question. Thank you.
Great, thanks. Thanks, Diego, for the question. So maybe first, starting from the end there on the breakeven, as mentioned in the previous earnings call, we are aiming to reach non-GAAP operating income by the fourth quarter of 2023. That continues to be our commitment. The recent adjustments that we mentioned, the layoff, is a clear demonstration of this commitment. Now, if there is an opportunity to reach a breakeven sooner, while not impacting our growth plans.
$2.3 billion for a $3.3. So if we move the slightly more than $5 billion that we had from Vitex Day and layoff expenses, you get you $38 billion or something around that neighborhood. And then if you remove these slightly more than $5 billion per month, that would be kind of expected.
expenses going forward and then with that you can have a sense of the data impact. Hopefully I answered the question here, but if it's not clear please do a follow-up question.
No, no, this was very, very helpful Ricardo, thank you for that. And I guess we can jump into the second question, which is regarding the profitability of existing customers versus new customers. As I understand, the operating margin for existing stores in 2021 was around like 15%, which compared to a negative margin of 200% for new stores opening in the same year. But I was just wondering if you can.
if you are adding brands that have been using the Vitex platform in La Ronde in these regions. Thank you.
Great, Hugo. So starting with the margins on existing customers and how that evolved in the long term.
So we are not providing long term margins for the business, but we do believe that breaking down our P&L between the existing customers P&L and the new customers P&L, as we are doing on a yearly basis, it's very helpful to understand the potential margin of the business. And as you mentioned, in 2021, our existing customers P&L had roughly 15% of non-gap operating margins.
If you look back in 2020, this was actually 35%. So this shows the margin opportunity that we have ahead of us. And over time, customers tend not to change their margins after they turn from new customers into existing customers. Now, as we have been showing over the past few quarters, we are improving our subscription gross margin, which is the driver for the gross margin of existing customers.
And we believe there is an opportunity to continue improving the gross margins. So I think on the second question was more related to customers in the US. So Mariano if you want to take that one.
Yes.
Yes, so on the expansion of brands we are seeing brands expanding with Vitex. We can mention for example Whirlpool that launched India with us.
So it is a global contract with Whirlpool and every single new country that has been added it is It is added value for Vitex and we are very proud to support global clients like Whirlpool, Motorola, ABI, Bev and others.
organic as they go as they moving forward on their own kind of a digital transformation we are the backbone for it. On the profile of the clients on the US and in Europe there we are we are focusing in two profiles mid-size B2B companies mid-size online operations
for enterprise companies like Bridge Stratton, it is one, like CAE, that's already one that we disclaim. So we are seeing a momentum on these mid-sized B2Bs of enterprise in the US and in Europe . And the second one is a migration of legacy platforms on the B2B side, on the B2C side. So those will be, you can expect those as the profile.
Hey guys, this is Maddie on per Josh. Just to double click a bit on what you're just talking about and in terms of your capital allocation priorities.
What kind of investments do you think you need to make internationally?
from this point with the momentum that you're seeing? And could any of that be achieved through M&A? Are you looking through M&A in the product perspective or a geo perspective or any other color that would be helpful? Thanks.
So, Mariano here, please invite Soudre and Xelado to compliment.
The capital location will always be open for M&A as we always have been. What we are seeing is that we will be very curated in the way we analyze the M&A opportunities right now in this market in this location. So we want to see the kind of...
kind of the right prices for the right companies with the right values. So we will always be looking for M&As, but this is not the case that we are seeing heavy opportunities right now in the market.
The other way, we will continue to invest in our organic growth. This is our kind of plan, has always been our plan and we will continue to invest in our organic growth in Europe and the US. We are very conscious of our investments. We have this playbook of VITACs that gives us every unit of economics in each region that we are acting to be very responsible in how we are investing in our organic growth.
we go to market on those countries. And we are on track in our plan, and this should be shown in our numbers.
Thank you very much.
Sorry, just to complement on that. I believe we have a well-invested structure in US and Europe that we are looking to continue leveraging going forward. On many opportunities, we see some gap in the bid and ask between private and public markets, so that's something that we are mindful of in the short term.
related to capital allocation. We also have now the tool to do share repurchase as an additional option for capital allocation. So as a high growth company we will prioritize our organic growth plans, international expansion, product development, and many opportunities. Now considering the access to liquidities that we have in our balance sheet as well as current market volatility.
Having the ability to share with purchase during market in locations could be a very attractive capital location to the long term shareholders as well.
Awesome. And just one follow-up for me. Do you have any color on where you feel your most defensive verticals are in the perspective of your total GMV?
going forward.
going forward. Thanks.
Hello, hello. So this is Geraldo, nice to talk to you. I would say that the ideal customer profile of Vitex right now and in the future are customers that have multiple, that sell in multiple channels and have several physical stores. They can be grocery retailers, they can be fashion brands.
they can be B2B companies. As long as they are omni-channel, they want to serve multiple channels for a single source of truth, we are their platform. That's the ideal customer profile for us.
Thanks, I appreciate the color.
Okay.
Thank you.
There are no questions remaining in queue.
I would like to pass the call back over to Geraldo for closing remarks.
We are encouraged about our results in the second quarter and excited about the results to come, as we are already seeing opportunities coming from the engineering, sales and product team.
With Top Line coming at something.
We can control the macro, but we can for sure be bold in our actions in order to help our customers navigate this environment with the right set of tools to accelerate their business and thrive higher than the market growth.
Our discipline in capital allocation will continue to translate into high-growth companies with an extraordinary commitment to its mission to become the backbone for commerce globally.
The opportunity we have ahead of us is huge.
E-commerce penetration in Latin America still has a long road ahead.
While on top of that, our journey outside of the region is just starting. None of the fundamentals changed. Enterprise brands and retailers need to partner with companies such as Vtech to build the proper omnichannel strategy in order to stay relevant.
Stay tuned, the best is yet to come.
Thank you everyone for joining us today. I'm looking forward to update you about our progress in the next learning school.
That concludes today's conference call. Thank you for joining and enjoy the rest of your day.