Q3 2022 VTEX Earnings Call
[music].
Hello, and welcome to the <unk> reports third quarter 2022 financial results. My name is Elliot and I'll be coordinating your call today.
If you would like to register your question during the presentation you may do so by pressing star one on your telephone keypad.
I would now like to Honda, which all host Judy a fernandez the floor is yours. Please go ahead.
Hello, everyone and welcome to the earnings conference call for the quarter ended September 32022, I'm doing a better Fernandez Investor Relations director for <unk>.
Our senior executives' presenting today are most of your com their uncle CEO and I look at the food a finance executive officers.
Many of them do Friday, young founder and co CEO .
Financial officer will be available during today's Q&A session.
I would like to 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 corn, Dublin nation Youre question not to place undue reliance on these forward looking statements.
Risks and uncertainties are described under risk factors and forward looking statements sections of <unk> form 20-F for the year ended December 31st furniture to one another beat filings within the U S Securities and Exchange Commission, which are available on our Investor Relations website.
Finally, I would like to remind you that during 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 third quarter 2022 earnings press release available on our Investor Relations website now, let me turn the call over to get out that although the floor is yours.
Thank you Julia welcome everyone and thanks for joining our third quarter 2022.
Earnings Conference call.
Last quarter, we shared before.
Focus is for the company continue help your coach too much outperformed the markets keep improve your gross margin.
Optimize our expenses to K operational execution.
And most importantly.
All of that while we continue to build.
High growth brands.
With that nor did.
<unk> operational performance this quarter.
We're excited to announce that our business continues to deliver robust growth solidifying our position as a regional leader while also building momentum outside of Latin America.
A clear demonstration of our robust growth is that the Q3, our GMB growth accelerated to 29% year over year, both in USD and FX neutral.
Given a blue chip enterprise customer base <unk> customers continue to outperform the market consistent.
Our long term historical trend that we have been highlighting with more emphasis for the last three quarters.
Not only did the gmg and top line come stronger than expected.
Also both our cost and expenses came below as a result of a more agile organizational structure.
Our non-GAAP subscription gross margin increased by 506.
Year over year.
The margin expansion trend that started in the second half of last year.
Resection of gradual called optimization migration to more efficient servers operating systems and processes.
Immunizations of noncore cloud providers as well as operational leverage on our personnel support costs.
Although there could be some gross margin volatility as we migrate non core cloud providers. There is still a long hold the ahead of us on gross margin improvements and we are excited about what's to come in the medium and long term.
We plan to continue optimizing our cost base, while at the same time boosting our service levels up to provide the best solution for our customers.
I am extremely proud of what our team has accomplished on the expensive side.
As anticipated in our previous earnings call, we delivered significant operational leverage.
Team's efforts enable us to continue growing our top line at a robust pace.
Which is our main objective as a high growth company.
We're still finding incremental opportunities to operate our business with a leaner and more agile structure.
Now moving to our promotional update.
In the third quarter, we continue to attract and premier brands and retailers and some new customers that went live this quarter that didnt have one store presence in their respective countries before work.
<unk>, Brazil and <unk>.
Additionally, new customers that migrated from other platforms and went live this quarter.
<unk> provides the rising tumor <unk> Vida and pharma delivery in Brazil, Bill Cork in Colombia, and Chile should go in Mexico collateral in Peru, Therefore, Schemey group in South Africa.
WH kenzie.
On top of that we continue to build the entrenchment sticky relationship with our existing customers.
Premier brands and retailers that extended their operations with us by opening new stores in new countries. During the third quarter were <unk> Ham add storage Uruguay currently operating in.
Five countries in Latin America.
Motorola add a store in Saudi nation currently operating in 19 countries across the world with more than 20 stores and edginess, starting Germany currently operating in 16 countries across the world with more than 30 stores.
In the third quarter <unk>.
<unk> was named a visionary in the twin trailers to Gartner Magic quadrant for digital Commerce. We report these industry recognition followed the results we shared that the first quarter.
With customer recognition in the 2022, Gartner peer insight voice of the customer digital Commerce report, where <unk> was named a strong performer.
In July of this year, followed by <unk>.
Only combined report in which it evaluates ecommerce providers across key areas of interest in the beach, a bead technology buyer.
2022, <unk> was awarded Mad dose in each one of the categories that pilot diagnose tested. The Midmarket addition, with gold medal for exceptional performance or capability in marketplace promotion management and customer service and support.
The tax was the only vendor awarded the gold medal for marketplace capabilities.
Score supermodels awarded two vendors with superior capabilities and site search ability to execute total cost of ownership and vision and strategy.
We're grateful we're humble about the recognition from our multinational customers expanding their relationship with their opening new stores as well as from market experts such as gardeners and private bank.
This gave us the confidence and strength to continue pushing further with our strategic plan.
We stay committed to continue executing with excellence and precision.
But as we always say we know we cannot do all these alone.
Certain debt multiplied foresee of collaborations from the ecosystem, we've built around Gtx will continue to enable.
And two were locked even greater outcomes. So we will continue consistently nurture and expand those relationships.
Aligned with our payment partnership strategy and the further monetization of our ecosystem. We're excited to announce that could be launches the partnership with checkout that call a global payment service provider and <unk> able to do.
With the most rather both international and local payment methods.
As well as digital wallet.
They are resourceful solution, especially in new markets for Vitesse like North America, Europe , Middle East and Asia shipyards of course partnerships agreement.
International and local payment methods.
A vast and solid ecosystem of partners and solutions and promoting better conversion for our enterprise customers.
Additionally, a couple of quarters ago, we launched the news of our partnership with AWS.
We are now happy to share what the supporting GTECH.
<unk> actively enabling our global expansion as we become one of the preferred global partners. We're excited to announce that Gulfport is one customers among others that went live with the third quarters. Thanks to this partnership.
We are extremely excited about this positive momentum and GTECH is really looking forward to continue unlocking the potential of this partnership as Gws is also committing themselves to invest along with us in our global expansion, especially in Europe .
Great things yet to be done.
Before wrapping up I'd like to share with you some customer success stories as the success speaks volumes more than any other data points.
We don't in the baked in a vacuum and for us.
Now for guidance pillars are helping our customers achieve their goals is more than 15.
So let me go straight to it.
<unk> group one of the biggest fashion retailers in South Africa with more than 1000 stores, Dwayne and Brent and operation. When countries is now operating with Gtx gradually rolling out the brands, which are expected to increase over time.
With that solution, they will be able to centralize the 'twenty nine brands into our main marketplace.
Devising the login process for the end users, providing a frictionless consumer experience while at the same time help.
Helping them to have a single source of truth for the multi brand sales front.
We're more than pleased to welcome them to the tax family with confidence that we're going to do amazing things to get there.
Alex back stop one of the largest body shops in the U S with more than 30 Skus grew stores across the country chose detects should deliver superior shopping experience to bill and consumers.
Detect working hand in hand with added bag shop to do a complete revamp of the homepage and as a result, our customers benefited not only.
Strong higher stickiness on the website, which was reflected in lower bounce rates and higher number of page views for visitors, but also with a double digit improvement in their conversational rates cash and duration and number of page views per user five.
The average order value almost doubled.
Adding the leading textile and retail clothing company in Latin America with more than 800 stores chose <unk> tablets approach to providing end users with the best user experience across all channels for <unk> stores franchisees multi brand.
Pilot stores e-commerce, as well as additional sales channels, such as Facebook and Google shopping.
Thus, adding benefited from consistent improvements in order website performance metrics, such as page speed times conversion rate average six times bounce rates and carnival government rates among others.
Most of our U S. A pioneer in the mobile phone industry optimizer will detect the product detail page experience keeping the looking few while in gaming efficiencies for the page loading time.
Happy to share that together with being able to achieve an overall page load time improvement of 45% and 54% for desktop and mobile respectively.
Reaching an average time of one to two seconds Mozzarella now has active online stores in 19 countries operating with detect and continue expanding to new geographies. This year, they expanded to EMEA and Asia Pacific leveraging our marketplace architecture.
Blurring the lines between physical and reach two comments, we continue to see customers implementing a <unk> solution.
This quarter, we had companies such as Samsung and Ddos adopting these new wave that enables their physical stores to sell products from other stores franchisees and their commerce operations to enhance conversion in their physical stores.
Social Commerce continued to show a strong fit for enterprises to make and sell to consumers both from the preferred social media channels or at the discovery store.
<unk> of the product in live shopping event.
<unk> Corp, a multi level marketing beauty and personal care company presenting 13 countries.
With full commercial brand is already a heavy user of these future, which was one of the many reasons they decided to contribute there.
We believe that offering disk drive that can become an interesting LNG, thus growth energy tax deduction.
As we position ourselves as innovation front runners across the globe.
This quarter. We also had an important milestone we hosted our first event in Mexico pretax connect.
The event took place in Mexico City on September seven gathering more than 3000 in person nothing DS and with the participation of 65 speakers from 11 countries. We're proud to have hosted the largest e-commerce event in the country, which we believe marks a water.
Shed moment, our tax positioning in the country and in the region.
Wrapping up the operational uptick detection.
We'd like to thank our 405 detectors that are working to fulfill our mission as well as our customers partners and investors.
Now I'll turn the call to Ricardo So he can cover our financial progress report for the quarter.
Thank you, Jonathan Hi, everyone, a pleasure to be here update Q1, our financial performance for the third quarter of 2022.
As highlighted by Gerardo, our Q3, GMP performance accelerated to 29% growth year over year, both in U S dollars and FX neutral.
This is a clear demonstration of the resiliency of our Blue chip customer base and that we continue to help our customers to outperform the market.
Breaking our GMP performance down in more details in Q3, our existing customers same store sales went up to the high teens, demonstrating our robust performance in a market that is currently delivering flattish to single digit growth rate.
Also it's important to note that some countries such as Mexico. The U S and Europe grew at a stronger pace and the company's average.
Our more mature regions, such as Brazil are still growing at a robust pace just slightly below the overall company average we.
We expect these new regions to continue to compound and contributes to the tax high growth performance.
This quarter, our revenue increased to $38 8 million.
Year over year increase of 22% both in U S dollars and FX neutral.
Subscription revenue, which at $36 5 million in the third quarter of 2022.
<unk> $29 6 million in the same quarter last year, a year over year increase of 23% both in U S dollars and FX neutral.
This quarter subscription revenue accounted for 94% of total revenue versus 93% in the same quarter last year.
non-GAAP subscription gross profit was $26 9 million compared to $20 2 million in the third quarter of 2021.
non-GAAP subscription gross margin was 73, 8% in the third quarter of 2022 compared to 72, 5% last quarter and 68, 2% in the same quarter of 2021.
The 560 basis points year over year margin expansion shows the commitment of our team to keep improving our margins.
This margin improvement was mostly driven by the migration of noncore services to more efficient hosting providers.
And the optimization and operational leverage of our support cost.
We are more than proud about what we achieved in this front and we are excited about what's to come.
We've also continue improving our non-GAAP services gross margin, resulting in even higher non-GAAP gross margin expansion.
670 basis points year over year to be precise.
Our non-GAAP total operating expenses decreased to $32 4 million in the third quarter of 2022 from $43 3 million in the prior quarter.
And $32 8 million in the same period last year.
This is a reflection of the organizational restructuring we made last quarter plus additional areas of leverage our teams were able to find.
As a result of the better than expected margin improvement with the top line come in at a strong and robust basis. Our non-GAAP operating income improved from a negative 41, 6% margin in the same quarter last year to a negative 15, 5% margin in the third quarter of 2022.
Okay.
This represents a 26, one percentage point improvement year over year.
As of the three months ended September 32022, <unk> had a negative $3 3 million free cash flow.
Compared to negative $12 $7 million in the prior quarter and negative $10 $7 million free cash flow in the third quarter of 2021.
Now before I move to the outlook for the fourth quarter and fiscal year 2022.
I'd like to update you want our share repurchase program. We are proving August of this year.
As of September 32022, the remaining balance available for share repurchases under this authorization is almost $25 million.
We purchased is slightly less than one 3 million shares at an average price of $4 per share.
We expect to continue executing our plan based on the evaluation of market conditions and applicable legal requirements.
Onto our business outlook macroeconomic conditions remain uncertain, we continue to see the elongation of our sales cycle in the average time, our new customers are taking to implement Davita X platform.
More recently, we are also seeing a slower <unk> ramp up for new customers.
Finally during Q4, we will have for the first time the combination of the FIFA World Cup with the holiday shopping season, bringing additional uncertainty to the current macro scenario.
Against this challenging backdrop, we are currently targeting revenue in the 46.0 to $48 zero million dollars range for the fourth quarter of 2022.
Implying a year over year growth of 27% in U S dollars and 24% on an FX neutral basis in the middle of the range.
For the full year 2022, considering the incremental macroeconomic volatility we reduced our FX neutral year over year revenue growth target to 23% to 24%, implying a range of $158 million.
$160 million based on October average FX rates.
We are excited to continue contributing to our blue chip customers digital transformation journey.
In them to accelerate their sales with the right set of tools and products.
Our customer base continues to demonstrate the resiliency even through the uncertain times, we are currently navigating.
Also owner by our customers' continued trust in the VTS platform demonstrated by our stable annual revenue churn.
These results in a resilient business model for <unk> that will continue to compound growth sustainable and ambitious weight.
With that let's open it up for questions now thank you.
Thank you.
Ask a question. Please press star followed by one on your telephone keypad now.
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Our first question comes from Marcelo Santos from JP Morgan Your line is open.
Hi, good evening, thanks for the opportunity just to make the question I have two.
The first question would be given your margin performance would there be room to anticipate this target of breakeven at the end of last next year is there room to deliver this earlier.
Second question would be.
Your guidance implies an acceleration in FX neutral terms.
For the fourth quarter.
I think you grew 22% rate on this quarter into next year.
80, 424, what are the drivers behind this acceleration. Thank you.
So thanks for your question happy to take this one.
So we continue to be committed to reaching our positive non-GAAP operating income by the fourth quarter 2023, as we mentioned in previous earnings call.
High growth company operating in an Underpenetrated market.
Our active unit economics and high switching costs. So we will continue to prioritize growth at the same time, we will operate in a lean and agile way, which especially during uncertain times can create a lot of pain.
Having said that if there is any way for us to reach our breakeven sooner without jeopardizing growth, we would be delighted to deliver on that.
So on the second question on the acceleration as you mention we have been accelerating our growth if we look at the second quarter, we posted.
FX neutral revenue growth of about 20%.
And then 22% now in Q3.
We look at our Q4 guidance, it's in the middle of the range implied a 24% FX neutral.
So as you probably remember in the second quarter of 2021, there was a second wave of Covid. So it was a tough comp the second quarter of this year.
And that started to clean up a bit more in the in the third quarter. So you see some of that acceleration.
For this last quarter, we are seeing on the existing customer sites.
The same store sales going to be a high teens level as I mentioned in the prepared remarks.
And also we are having new customers, joining the platform and helping us with these additional acceleration. So hopefully that helps you on the question.
Thank you. Thank you very much thank you.
We now turn to Andreas <unk> from UBS. Your line is open.
Hi.
Good evening, everyone and thanks for taking my question.
We noticed there was a decrease in head count quarter over quarter could you give more clarity on that and potential implications on your business model and should be.
Do you expect it going forward.
And I have an additional question.
Additional question the figures.
They were slightly above our expectations, but I believe it is worth asking here.
We see a different growth dynamics between gmg, and net revenue, which would net revenue out slightly lower.
<unk> faced in GNP.
For the medium and long term should be should we expect this to their goes to move closer.
That will be it.
So I'll be very happy to answer about the first one about the lay off thank you for the question.
So Pete.
Yes, we are.
<unk>.
We are adjusting the copper to be the reality.
We've seen the Mark we test the pandemic and as we mentioned last quarter. The layoff was an adjustment to achieve optimal structure should be.
Delivered the growth plan is the best way possible, we decided to do this in the most responsible and respectful manner possible and we didn't necessarily adjustment on the on the second quarter of 2022, we decided to do all at once to turn the page on that matter.
The last few months, we've found some additional opportunities to fine tune and optimize the before the org structure.
Around the edges, we also had natural employee turnover.
Employee turnover some some position we're not seeing.
We've not seen the need to refill some we will review over time.
So we will keep our high bar on hiring so we're feeling some physicians might take some time, but we will.
Finally, it is important information that we are a high growth company, we will continue to invest to deliver a high growth brand and currently we feel like we are well invested structure that can support our growth for some time with just some marginal additional investment.
So the.
The head count that we have right now won't increase that much.
He kind of could you help me on the second question. Please.
Yes.
Yes happy to so regarding the dynamics of gmg versus revenue growth.
Before I go into the details it's important to recap that roughly one third of our revenue is efficacy and.
And two thirds is a take rate on our customers' GMT. Therefore, only two thirds of our customers' GMB growth automatically flow through as revenue growth for us in.
In other words as our share success model. There is an automatic implied take rate decrease for our customers.
We get more dollars out of them, it's a win win setup.
We do share some of our success with our customers in exchange for ultimately serving the increased e-commerce penetration.
If you divide our subscription revenue by our <unk> slight increasing take rate quarter over quarter, but a slight reduction year over year.
This implies year over year take rate decrease is driven by mix and our share success model that I just explained.
Other words, we are not seeing any like for like pricing pressure.
Finally, I would also highlight that we are passing through inflation to our <unk> portion of our contracts in most countries.
Is more challenging to do in developed economies, but we have been doing it in Brazil, and we are starting to do it in some countries in Latam ex Brazil as well.
Got it thank you.
Our next question comes from Diego Arago from Goldman Sachs. Your line is open.
Yes, good evening everybody. Thanks for taking my question actually is a follow up on maybe in Marcellus question.
Looking to the subscription growth gross margin. It is great to see that this metric is.
Spanning consistently during the year. So I guess my question is how should we think about further operating efficiency and maybe what is really the cause of the year. What are the key drivers for it that could continue to change the subscription gross margin level going forward.
I was just wondering if this is just because you are scaling up the <unk> platform in markets, where you are either at the discovery or validation phase and moving those markets should be acceleration.
<unk> is there any other reason behind it and my second question is somewhat correlated to the first is it seems that most of the incremental net operating margin.
Gain in this quarter came from lower marketing and sales.
So is this where most of the head count reduction is reflected on and also if you can give.
Give us some color on how to think about marketing and sales going forward given that I would say that part of the future growth of the company should come from investments in this line item. Thank you.
Hello, Hello, Hello, Thank you.
Happy to answer that.
First of all the gross margin is very.
Very recently linked it should the expansion in other countries, we have a single infrastructure a single system that to share across all the countries.
That we serve so it may impact the efficiency of sales at meeting back.
Sales efficiency.
<unk> got very little of the gross margin performance.
Most relevant improvement to our gross margin performance is related to hosting cost efficiencies.
Solid by supports optimization.
<unk> when you were a little bit more.
Just to recap our hosting represents roughly two thirds of our costs so being efficient in this strong has been a major focus for the company with great results So far.
When we talk about efficiency I am talking about migration to other processors from Intel to.
Yes.
Two arm gravity.
I'm also talking about transitioning some some of our obviously of ability logging a softer for logs.
From a solution that is third party fuel solution that is more.
Almost created not created but assembled by using more open source.
So it's important to mention that as we performed the migration of all of our models and continue to work towards this hosting optimization.
<unk> faced some volatility in our margin structure, especially in the beginning of each migration when we're running two providers at the same time and adjusting the codes and processes.
So so.
Most of the improve in.
Host is from from hosting costs.
But there's also on the support side side, which represents roughly one third of our cost and this is mostly personnel and so and as we have increased our revenue with.
<unk> not seen the need to increase the teams as much and this might be in some ways linked it should be.
Getting a little bit to be a good into.
And these new countries that we're exploring.
The second question you had.
Was the tradeoff between growth and profitability right.
So.
Yes.
I really don't see all the yes, so the.
Decreasing head count is mostly linked.
<unk>.
Sales and marketing area.
But the answer to that I'll give you is a no.
<unk>.
We don't I don't think this will jump or die.
To ensure future growth of <unk> for the next year or two or three years.
Aye.
The company is now optimized it.
Optimizing.
Ill.
Structure to continue to be high growth.
This there is a change in the landscape that we're adapting to our group I'll give you some historical context to illustrate my point a 19th we grew over 40% in FX neutral slightly positive free cash flow in 2012, there was a surge.
A huge demands right in Congress, we grew 95% in FX neutral with positive free cash flow.
We went to 10% of our revenue on that.
And then we accelerated our investments from the end of 2012 into the middle of 2022 of this year.
Now we have adjusted our structure to match the ecommerce market growth, which is still very attractive and long term in nature.
But given the low penetration in and.
The digitalization of the industry in general, but the growth that we saw in 2020 is not there and companies like ours and like a lot of other companies. We were we didn't want to miss the growth momentum through eventually.
We increased the size of our team more than <unk>.
And demand that we're seeing right now so I don't see.
Yes.
Sure.
Losing momentum in the growth given the current demand for Denmark.
That's very clear and very helpful. Thank you very much for these if I may just one more.
<unk> on your opening remarks, you mentioned a couple of new customers in the U S.
Mentioning like Eric's bike with a quite interesting shop by the way.
But given how relevant this market could be for the apex can.
Can you just comment a bit more about the demand you're seeing in that market.
Maybe commenting on your pipeline and provide some color on the customer profile for instance, if you think about like enterprise clients versus SMB clients I think that will be great. Thank you.
So for this.
I would hand over the question to Mariano Modena is very on top of what is happening in the U S.
Nice.
So in the U S. We are seeing momentum in b to B.
So Texas has.
Great.
<unk> marketplace.
Our scene.
Good opportunities coming.
Clinically on a b to B and then we are seeing also BTC.
Demand.
So we can as we mentioned the doublet candy, that's a group of <unk>.
Candy ornament shop is the same group and we are migrating all of them. So we are seeing <unk> b to b mid size, let's be more now.
Nailed down on that and B to C. We are seeing good momentum omni channel will be to see as well.
50, 50, let's say.
Very clear Mariano. Thank you. Thank you.
We now turn to Clarke Jeffries from Piper Sandler Your line is open.
Hi, Thank you for taking my question first question is could.
Could you maybe review for US how the AWS partnership is structured how theyre going to market.
With your solution and what really invest alongside you does that mean.
Generally trying to get a sense of how our partner fits into even though their own Amazon Dot com strategy.
Thank you for the question. So let me recap on the AWS partnership last year, we announced a multiyear collaboration agreement with them to delivery directly to consumer Commerce solutions to global Enterprises. AWS. Then include the vitek seem to their marketplace communicate.
This partnership internally to their reps in Europe , and U S and Latin America.
So their customers interest in digital commerce platform for <unk> to be capabilities, they could choose the checks.
Our sales team of AWS is matching effort with the tech solution engineering in the three continents and.
At the beginning we were conservative in how the contribution to our operations would occur.
But the good news is that we are gaining more momentum and traction on these partnerships. So we are grateful for all the opportunities AWS collaborating with us in the food for instance, as mentioned by you at all during the prepared markets. This quarter. We had the go live of our Bell Corp.
Some of that AWS <unk> has worked have been working together also be two beyond reach stratum is another case that we already announced that detects an AWS partners as well so it's coming along.
We are optimistic for the future of the partnership and.
Right.
Believe that the full Europe and U S. It would be it would be relevant.
Alright, Thank you very much and then.
Ricardo maybe.
Sure.
I'm wondering if I could ask.
Really for more color around how the new merchant new region or new store pipeline has has trended compared to your expectations thinking through the growth algorithm it sounds like high teens.
Same store sales growth and larger customers as an improvement year over year.
Just wondering how we should think about the other part of the equation.
As we get to what seems to be an implied.
Roughly 30% <unk> growth for 2022.
Yes, Hi, Clark happy to elaborate on that.
As we have been talking over time in previous earnings calls, we'd like to look at our P&L separate by existing customers and new customers. So we see these healthy dynamics with our existing customers and accelerating same store sales, which is very good to see with very stable.
Annual revenue churn. So this is.
Good news on the existing customers' P&L.
New customers P&L, we continue to see strong demand for four new customers.
<unk> has been more stable recently them accelerating but we continue to see strong demand for these new customers contributing to our overall growth.
I would say.
Maybe 60 40, new customers existing customers something in that neighborhood. If that's helpful.
Yes, that's perfect. Thank you very much.
As a reminder to ask any further questions. Please press star one on your telephone keypad now.
We now turn to Thiago <unk> from <unk>.
Line is open.
Hello, everyone. Thanks for the opportunity to make questions. So I just have two follow ups on the on the previous questions. So the first one just to understand a little bit what's embedded in the guidance for Q4.
And I'm, just asking this because you're pretty much at par.
Would it be right on your Q3 guidance, but you, but on the nominal numbers in U S dollars for the full year. The guidance is lower versus the guidance you provided in the last quarter right. So so I just wanted to understand.
What exactly is just like kit facts is there any specifics too.
The World Cup or elections in Brazil anything lately in terms of deals just wanted to get a little bit of a sense of what same here I just wanted to be conservative because of the macro so any any additional color on this.
It would be interesting and the other question I have is on the gross margins right casino.
You're making it very good.
Attraction here and I know the environment for the cloud providers Hasnt been that good rate we saw this in AWS.
Microsoft results right and just trying to get a sense of.
This improvement is related to a 100% to the operating leverage derogating from lower volumes or is there any sort of a renegotiation or even rule actually to get lower prices.
The tougher environment that.
The cloud providers are having Nols, where.
Thanks.
Yes happy to take the first question regarding regarding the guidance and the dynamics there.
And then I'll pass it over to Chad I'll, let you talk about the gross margin and the drivers. So on the guidance for Q4 right. As I mentioned, we are we continue to see an acceleration from Q2 to Q3 and in the middle of the guidance for Q4.
However, having said that as I mentioned, there was a beat for Q3 and it's not fully passing along to Q4.
So there is a slightly lower acceleration than we were expecting three months ago.
So let me share some context on what we're seeing here.
Over the last two quarters.
As we have been talking about there is an elongation of our sale cycle expressed by a decrease in the average time, our customers are taking to implemented at X platform.
The dynamic has remained stable over the past couple of quarters. He hasnt improvement, but he also has not deteriorated.
And we've been also talking about the strong performance of our existing stores throughout the year compared to the overall e-commerce market. So none of these factors impacted before.
Q4 guidance right.
But in addition to a challenging macro.
You mentioned some of the factors and the uncertainty of the FIFA World Cup during the holiday season.
I will say that there is the new piece of information that we are starting to see a slightly longer ramp up time for some of our new customers. These.
These means that some of our new customers are taking longer than I expected to reach their estimated level of sales.
Packed in the take rate portion of our revenue.
We will continue to monitor these dynamics at the end of the day, it's on our customer side should decide how many dollars to allocate to moving traffic to their E. Commerce site once it goes live.
So thats the key factor driving this Q4 guidance and this uncertainty of the FIFA World Cup. So we will keep you updated on these trends.
And about the gross margin I can I can give some color here.
I would say that.
Naturally there is some natural scale.
We process more orders with processed more.
More traffic and eventually the gross margin gets a little bit about it but this is not meaningful. This is not the reason why it's got it got better.
The other hypothesis that you brought up is related Shaw commercial conditions with hosting providers.
This is not the case for this year, we have launched.
Contracts with AWS are hosting providers.
Don't renegotiate all the time. This is this is something we do once in a while.
We didn't.
But this year specifically.
Most of the.
Increased efficiency of our gross margin comps for RMB efforts.
Or indeed that we spent to make one single service.
Good.
Same amount of throughput off of responses with a little bit less.
Money spending on AWS, a little bit less resources.
And on the AWS or hosting providers business.
We.
We will know during the pandemic.
If you look through our history.
Financial statements you will see that 2019.
Have a good some gross margin then you will see that during the pandemic I think at the beginning of the pandemic our gross margins works better because of the volume then there was a lot of features that we needed to develop for our customers and capabilities link it to the physical.
Stores relative to the order to the few can start including the physical store.
Commerce experience and you'll see that our gross margins get a little bit worse, because R&D efforts was like.
For the extra traffic that reward getting extra extra records is that we will get some and then for this year as we return to a normal path of growth we had bandwidth.
Two.
Q2 two.
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To put some resources on the R&D to include deficiency, and we see the results.
Slowly.
Very slow.
Can do that it's not there's no bullet.
Silver bullet to solve it.
The gross margin but.
But we can get better.
Better gross margin, if we invested behind you.
Great. Thanks, a lot for the color very helpful guys. Thanks.
Thank you.
This concludes our Q&A on one hand over to Charles Thomas for final remarks.
The third quarter results have been achieved in the context of full activity mix it macroeconomic performance globally.
Under these circumstances and considering the consistent strong delivery of results from all of the taxes, it's clear to us the strong resilience of our business model and customer base.
Give us the conviction to continue to reliably execute our business plan.
Also it highlights the immense opportunity we have in front of us as E. Commerce continues to penetrate the economies are starting to America countries globally.
The tax is demonstrating a clear path to become a relevant global player.
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Few in the early stages of a long journey and we are more convinced than NAV and the value we're creating in this omnichannel era detach.
<unk> has great potential.
In the years to come.
Excited to continue executing to deliver on that vision.
Thank you everyone for joining us today I'm looking forward to update you about our progress in our next call.
Today's call is now concluded. Thank you for your participation you may now disconnect your lines.
Yes.