Q4 2024 VTEX Earnings Call
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Hello everyone and welcome to the VTEX Earnings Conference call for the quarter ended December 31st, 2024. I'm Julia Fernandez, VP of Investment Relations for VTEX.
Our Senior Executives presented today are Geraldo Thomaz Jr., Founder and Co-CEO, and Ricardo Camatas Sodre, Chief Financial Officer. Additionally, Mariano Gomirez Faria, Founder and Co-CEO, and Andres Polidoro, Chief Strategy Officer, will be available during today's Q&A session.
I would like to remind you that management may make forward-looking statements related 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 current available information, you are cautioned not to place undue reliance on these forward-looking statements.
Certain risks and uncertainties are described under risk factors and forward-looking statement sections of VTAC Form 20-F for the year-end of December 31st, 2024, and other VTAC filings within the U.S. Security and Exchange Commission, which are available on our industry-relation website.
Finally, I would like to remind you that during the course of this conference call, we might discuss some known gap measures. A reconciliation of those measures to the nearest comparable gap measures can be found in our fourth quarter 2024 earnings press release available on our investor relations website.
Geraldo: Now, let me turn the call over to Geraldo. Geraldo, the floor is yours.
Thank you, Julia.
Geraldo: Welcome, everyone, and thanks for joining our fourth quarter 2024 EARNINGS CONFERENCE CALL.
Geraldo: We close the year with our underlying business remaining stronger than ever.
Geraldo: Looking at the medium to long term, 2024 was a transformative year for VITECS.
Geraldo: We delivered significant milestones in our evolution as a global leader in digital commerce.
Geraldo: First, we continue to see a robust sales momentum in signing new enterprise customers onto the Vitex platform.
Geraldo: Demonstrated by the number of customers that pay us more than $250,000 per year, increasing from 126 to 155.
Geraldo: Second, our annual revenue churn remains stable in the mid-single-digit percentage range, an evidence of our customer satisfaction and our strong position in the competitive landscape.
Geraldo: Third, we introduced new products such as Vitex Add, Data Pipeline, and Shield, designed to empower our customers with AI-supported add-ons that enhance business outcomes and revenue generation.
Geraldo: delivering efficiency and tangible business results for our customers and potentially contributing to VTAC's monetization capabilities.
Geraldo: The three operational pillars highlighted above, adding new enterprise customers, maintaining low churn, and launching innovative products, are key to VTech's medium and long-term success.
Geraldo: While our revenue model, with two-thirds coming from a take rate on customer GMV, closely align our success with that of our customers and benefit us from the growth of digital commerce.
It also introduces short-term volatility.
Geraldo: This was evident this quarter and year, with revenue coming below expectations due to weaker same-store sales, particularly in Brazil, amid softer consumer spending and significant FX devaluation.
Ricardo will elaborate further on this in the financial section.
Now, going back to the three key operational growth drivers.
Geraldo: On adding new enterprise customers, in 2024, we saw a strong contract signature momentum with Brazil standing out as a highlight throughout the year and with notable contributions from U.S. and Europe in the second half.
Geraldo: As a result, our deferred revenue increased 29% year-over-year, which is a testament to the attractiveness of our value proposition for net new customers, an existing one that renewal after renewal keeps choosing VTUBS.
Geraldo: These achievements reaffirm Vitek's global ambitions of becoming the backbone for connected commerce.
Geraldo: be more than just a software provider, but the preferred comprehensive commerce suite by the bold CIOs and CEOs worldwide.
Geraldo: On keeping a low and stable churn, we further solidified our...
Geraldo: partnership with top-tier brands and retailers, demonstrating our ongoing upmarked trajectory with a 23% increase in number of customers generating over $250,000 in annual recurring revenue.
Geraldo: In 2024, we celebrated the go-live of several key customers, including H-Mart, MyEyeDoctor, JeffersPets, and Hearst's ongoing expansion in the U.S.
OBI, and Enterprise Multinational Fashion Retailer in Europe.
Geraldo: Motorola in Sweden and Whirlpool in Poland, Pashmina in India, Nike, Adidas and Electra across Latin America.
Geraldo: and Fast Shop, Hortifrut, and Demol in Brazil, among many others.
Geraldo: Although a total number of customers has slightly decreased year over year, that's driven by a lower intake of small customers that are not strategic nor financially relevant for Vitex.
Our annual revenue churn remains stable in the mid-single digits.
Geraldo: as our base of customers paying us more than $250,000 in ARR, growth and compounds over time. It further strengthens VTech's long-term growth and resilience.
Geraldo: on launching product innovations. Vitek is successfully transitioning from a single product platform into an integrated suite of solutions.
Geraldo: are offering now Spam, B2C, B2B, Sales App, Pick and Pack, Data Pipeline, Retail Media, Security Shield, and many more, empowering business through a well-connected ecosystem.
Geraldo: Our strategic investments, including a stake in Cinerise and the acquisition of Wenny, expanded our AI and conversational commerce capabilities, while enabling us to enter two new segments, retail media and post-sales markets.
Geraldo: This diversification strengthens our position as the most comprehensive suite of commerce solutions, going beyond software to serve as a trusted ally in executing our customers' growth strategies.
Geraldo: As we look ahead, we remain steadfast in building trust with our customers
and delivering on our promises alongside our ecosystem partners.
Geraldo: Trust is at the core of VTech's DNA and will continue to guide us as we solidify our leadership in digital commerce.
Geraldo: With this segue, let me go to the newly added customers during the fourth quarter of 2024, including Dakota Criações, Dona Carioca, Hortifruti, Hortobom and Rissu in Brazil.
Torri in Chile, an enterprise multinational fashion retailer in Ireland.
Geraldo: Coolbox, Hanes in Mexico, Tameca in Portugal, Haar Corporation and Lion Bakery in the US.
Geraldo: We've also focused on strengthening our relationship with existing customers, actively supporting the GROW initiatives.
Geraldo: During the fourth quarter, several premier brands and retailers chose Vitex to expand their operations with us, including Amo Beleza has launched a new brand, Mascavo, and now operates two B2C stores in Brazil.
Geraldo: Cartamundi has introduced the Grimald brand in France, extending its operation to Europe in addition to its two B2C stores in the US.
Geraldo: CUNY continues to expand its B2B presence across Europe, adding Germany to its Belgium, France, Netherlands and UK operations.
Geraldo: Mazda is further strengthening its European presence with the addition of France, which is now operating in four countries.
Geraldo: Sola has expanded to B2B in Colombia with two new accounts, Sola B2B and Distraves B2B, adding their two existing B2C stores in the country.
Geraldo: And Void has expanded its B2C presence into the U.S., complementing its operation in Mexico.
Geraldo: Additionally, in our continual pursuit of fostering our trusted ecosystem, we're thrilled to announce that we've launched a strategic partnership with Accenture ProLogic, the retail technology systems integrator.
Geraldo: This collaboration empowers U.S. enterprises to modernize this digital commerce infrastructure.
Addressing Shifting Buyer Trends and Rising Market Challenges
Geraldo: With record retail closures highlighting the urgency for transformation, Vitex and Accenture are united to help brands stay competitive by leveraging Vitex's Agile platform and Accenture's expertise in business transformation.
Geraldo: This partnership positions Vitex at the forefront of driving growth and resilience for U.S. companies in today's dynamic retail landscape.
Ricardo: Now, before leaving the stage to Ricardo, I would like to share some customer success cases demonstrating our platform's tangible impact and potential.
Ricardo: An enterprise multinational fashion retailer in Ireland partnered with Vitex to overcome significant technical and operational challenges.
Ricardo: Before Vitex, the company relied on a dedicated e-commerce textile platform that lacked scalability, functionality, and the flexibility needed to support its growing digital commerce ambitions.
Ricardo: VTech implemented its core platform with a white-label B2C operation to address this need and enhanced the user experience with out-of-the-box features like color and sizing options.
Speaker Change: The architecture was further strengthened by redesigned front-end and integrations facilitated by middleware from our partner, Logic.
Speaker Change: Early indications suggest improved sales efficiency and platform usability by integrating smart checkout.
Speaker Change: Carajás, the leader retailer in home improvement segment in Brazil, transformed its customer experience and boosted sales with WENI by Vitex.
Speaker Change: with 11 physical stores, 2 distribution centers, and over 20,000 SKUs ranging from decoration to construction products.
Speaker Change: Carajás needed an efficient post-sales channel to enhance customer service and drive incremental revenue.
Speaker Change: By integrating conversational commerce with Money by the Text, Carajá's automated key processes, including card recovery with optional human assistance,
Speaker Change: Order updates and financial solutions like invoice retrieval and fixed payments.
Speaker Change: This automation led to remarkable results, such as a 15 times higher conversion rate on WhatsApp than email, an expansion on their return on investment in abundant card recovery, which reached double digits.
Speaker Change: and a 68% message read rate, well above the 40% to 45% average for emails.
Speaker Change: We are proud to help Carajá embark in their conversational commerce journey, where WhatsApp has already become a comprehensive and efficient channel.
delivering trust, convenience, and competitive differentiation throughout the customer journey.
Speaker Change: Heineken Brazil, home of some of the most beloved alcoholic beverage brands
chose Vitex Ads to run their digital campaigns.
Speaker Change: It achieved exceptional results with above average return on net spend in the fourth quarter of 2024.
Speaker Change: The success was powered by identifying Zona Su highly qualified audience through first-party data, including transactional insights and search behavior on the platform.
Speaker Change: By analyzing shopper intent, Heineken campaigns were strategically optimized, targeting consumers with high purchase intent and ensuring maximum impact across many SKUs.
Speaker Change: Through this data-driven approach, Vitex Ads provides Heineken Brazil with actionable insights into key performance indicators like sell-out and market share, helping them define their strategy for even better results.
Speaker Change: Pashimina.com, the leading B2C e-commerce platform specialized in luxury handcrafted cashmere pashminas.
Speaker Change: has partnered with Vitex to transform its digital operations and accelerate global growth.
Speaker Change: With 85% of its business coming from international exports, Pashmina.com migrated from its legacy platform to Vitex platform to enhance scalability, flexibility and operation efficiency.
Speaker Change: This transition empowered the brand to offer personalized shopping experiences, multi-level support, and local currency options for its customers across the U.S., Europe, Australia, and India.
Speaker Change: This partnership allows Pashmina.com to expand its global presence while celebrating the rich heritage of Kashmir craftsmanship, all without the burden of managing its web infrastructure.
Speaker Change: Together, we aim to redefine India's digital retail landscape and set new benchmarks in global e-commerce innovation.
Speaker Change: Sony, the renowned global electronic company, has selected SalesApp as the primary platform to manage sales operations across Latin stores.
Speaker Change: These partnerships represent the first multi-country implementation of the sales app, with seven stores across Ecuador and Chile already becoming their main in-store sales platform.
Speaker Change: To meet its specific operational needs, Sony has extended SalesApp within the VTX ecosystem using Jitterbit, integrating it with their existing systems.
Speaker Change: Sony plans to expand sales app usage for four additional countries in LATAM, Peru, Panama, Colombia and Mexico.
bringing the total number of stores to 18.
Speaker Change: With SalesApp as its exclusive platform for all operations, this rollout underscores its potential to drive significant results across Sony's regional network.
Speaker Change: Walmart, the multinational discount store operator and one of the largest corporations in the global retail industry.
Speaker Change: is transforming the mobile shopping experience across Central America by launching new apps in Costa Rica and Guatemala.
Speaker Change: The apps offer a flexible, customized shopping solution for each country and store format from Walmart supercenters to supermarkets and discount stores.
Speaker Change: Leveraging VTech's IEO infrastructure and our API-first approach, the app's advanced architecture enhances load time and performance, while intuitive navigation improves user experience, driving higher customer satisfaction.
Speaker Change: This is just the beginning with the additional brands across the region set to go live.
Speaker Change: Through its digital expansion, Walmart is setting new standards for retail innovation in Central America, a development we proudly support.
Speaker Change: The Smart Storage Solutions Business Unit of Black & Becker successfully launched its Smart Storage Digital Commerce Store, migrating from a content-only Sitecore website to the VTEX FastStore platform.
Speaker Change: This new platform delivers a seamless catalog, browsing and purchasing experience for prominent brands like Vidmar, Lista and Cribmaster.
Speaker Change: built on the proven global architecture used for the Stanley Engineering Fastening website, also powered by Vitex.
Speaker Change: Smart storage expands installing assortment availability and commerce capabilities, positioning to meet the rising demand of digitally native B2B customers.
Speaker Change: The migration represents a pivotal step in enhancing operational efficiency and customer engagement in B2B digital commerce.
Speaker Change: To conclude this session, I want to express my gratitude to our 1,368 Vitex employees dedicated to making Vitex the backbone for Connected Commerce and to our customers, partners and investors.
Speaker Change: With that, I will now hand over the call to Ricardo to discuss our financial performance for the quarter and the full year of 2024.
Ricardo: Thank you, Geraldo. Hi, everyone. It's a pleasure to update you on our financial performance.
Ricardo: In the fourth quarter of 2024, our GMV reached $5.4 billion, representing a flat year-over-year growth in U.S. dollars and 11% increase in FX neutral.
Ricardo: With this, we concluded the full year 2024, reaching $18.2 billion in GMV, representing 10% and 16% growth in U.S. dollars and FX neutral, respectively.
Ricardo: Our revenue total is $61.5 million, growing year-over-year 1% in U.S. dollars and 12% in FX Neutral in the fourth quarter of 2024.
Ricardo: and Richard $226.7 million for the full year 2024, representing a 13% and 18% growth in US dollars and FX Neutron, respectively.
Ricardo: These results came below our guidance range of 14% to 17% FX neutral for the fourth quarter and 18.5% to 19.5% FX neutral for the full year.
Ricardo: The primary driver for the Gap vs. Our Expectations came from a softer-than-expected GMV from existing customers in Brazil, where consumer spending softened.
Ricardo: On top of this, the U.S. dollar's meaningful appreciation against most currencies, especially the Brazilian Real, further pressures our U.S. dollar reported results.
Ricardo: Despite Brazil's challenging consumption scenario, as mentioned by Geraldo, we remain confident in our ability to sustain a profitable growth trajectory based on the robust momentum in adding new enterprise customers, our stable and low churn, and our recent product innovation launches.
Ricardo: Double-clicking on our revenues, our subscription revenue reached $59.5 million in the fourth quarter of 2024.
Ricardo: representing a year-over-year increase of 2% in U.S. dollars and 13% in FX neutral. On top of last year's 36% in U.S. dollars and 27% in FX neutral growth.
Ricardo: For the full year, subscription revenue reached $217.7 million, up from $190.3 million in 2023, representing a 14% and 20% growth in U.S. dollars and FX Neutral.
In 2024, our existing store's revenue increased to $169 million.
Ricardo: A key driver to net revenue retention, our same-source sales growth reached 10% in FX Neutral.
Ricardo: Looking at same-source sales throughout 2024, for the first three quarters, same-source sales growth was in the teens level, while in Q4 it dropped to single-digit range.
Ricardo: given tougher comps in Argentina and softer consumer spending in Brazil.
Ricardo: It's important to mention that the upselling of new features, contract renewals at better terms and inflation adjustments have partially offset the impact in our net revenue retention from the weaker same-store sales from our customers.
Ricardo: On top of our existing store's growth, we continue attracting new stores, adding $27.9 million in revenue to our base, representing approximately 16% of our 2023 VitaX platform revenue.
Ricardo: The solid contract signature momentum is coupled with our LTV over CAC ratio that remains at strong fold, exceeding the six times cash-on-cash mark.
Ricardo: This year, a significant highlight is the continued progress of our existing stores P&L, reinforcing the strength of our inherent attractive business model.
Ricardo: Existing stores gross margin increased from 77% in 2023 to 81% in 2024, while operating margin reached 43%, marking 8 percentage points increase year-over-year.
Ricardo: Additionally, given our net revenue retention of 104% in FX-Neutral, our existing source P&L is significantly above the Rule of 40, giving us confidence in the Rule of 40 goal at maturity.
Ricardo: Meanwhile, for new stores margins, we delivered a 10 percentage point improvement in gross margin year-over-year and a 5 percentage point operational leverage improvement in R&D and
Ricardo: which were all basically reinvested into sales and marketing. Strategically positioned to seize the significant growth opportunity ahead.
Ricardo: Now, analyzing the geographical breakdown of our revenue, in 2024, revenue generated outside of Brazil accounted for 43.4% of our total revenues.
Ricardo: Looking at the year-over-year FX neutral growth by region, Brazil's subscription revenue grew 28% in FX neutral, a slight acceleration versus last year, mostly given the solid sales momentum mentioned throughout the year and despite the year-end softness in sales.
Ricardo: Latin America excluding Brazil's subscription revenue increased 6% in FX Neutral and removed the Argentina headwind, the region grew at a pace just slightly below Brazil's.
Ricardo: And the rest of the world's subscription revenue grew 34% in FX Neutral, demonstrating a relevant compounding rate even as we increase the baseline.
Ricardo: Moving down our P&L, we have maintained strong discipline on costs and expenses.
Ricardo: It is important to note that all figures I will now present are non-GAAP. You can find the reconciliation of those measures to the nearest comparable GAAP measures in our fourth quarter 2024 earnings price release on our investor relations website.
Ricardo: Our subscription gross profit reached $46.9 million, resulting in a 78.9% subscription gross margin, up from 78.6% in the same period last year.
Ricardo: Our total gross margin, which includes services, rose to 75.1% compared to 74.1% in Q4 2023.
Ricardo: Our total gross margin improvement was mostly driven by the lower mix of services revenue in our total revenue, as we are relying more on our ecosystem to provide implementation services.
Ricardo: and, to a smaller extent, by operational efficiencies in support costs despite the currency headwinds experienced in the fourth quarter.
Ricardo: Operating expenses were $33.8 million, slightly below the $34.2 million recorded in the prior quarter.
Ricardo: resulting in an operating income of 12.4 million dollars representing a 20.1% margin, up from 19.1% in the same quarter of the prior year.
Ricardo: Aligned with these, our free cash flow performance was equally strong, reaching the same $12.4 million and 20.1% margin.
consistent with the target model we communicated to the market.
Ricardo: The resiliency of our operating income and free cash flow margin clearly demonstrates our natural operational hedge against FX fluctuations.
Ricardo: As even though the weighted average of our basket of currencies depreciated approximately 10% year-over-year against the U.S. dollars, we still improved our operating income margin by 1 percentage point and our free cash flow margin by 4.5 percentage points.
Ricardo: Looking at the full year, the improvements have been even more significant.
Ricardo: Our subscription gross margin improved 196 basis points, reaching 78.2%, while our overall gross margin expanded by 402 basis points, reaching 74.1%.
Ricardo: Operating Margin improved 9 percentage points, reaching 13%, going from $7.7 million in 2023 to $29.5 million in 2024.
Ricardo: Pre-cash flow also significantly increased from $3.8 million in 2023 to $25.2 million in 2024.
Ricardo: We also did strategic capital allocations, like WENI, and a minority investment in Cinerise, and launched a new share repurchase program.
Ricardo: Approved by our Board of Directors on December 3rd, 2024, the program authorizes the repurchase of up to $30 million in Class A common shares and will remain in effect until December 2nd, 2025.
Ricardo: In the fourth quarter of 2024, we repurchased 1.8 million Class A common shares at an average price of $6.08 per share.
totaling 11.2 million dollars.
Ricardo: We will continue to allocate capital with diligence, aligned with our strategic vision and aiming to maximize long-term returns and value generation for VTACs, our customers, partners, employees, and investors.
Ricardo: As we move forward with our business outlook, we remain confident in our business resilience.
Ricardo: Despite Brazil's FX volatility and existing customers' GMV softness in the short term, we see an attractive opportunity to help our customers outperform the market, attract new customers,
Ricardo: cross-sell our suite of products to our base and efficiently manage our costs and expenses to deliver operational leverage.
Ricardo: Considering these, we are currently targeting FX neutral year-over-year subscription revenue growth of 13% to 15% for the first quarter of 2025.
implying a 51 to 52 million dollars range.
Ricardo: For the full year 2025, as we continue executing our Profitable Growth Strategy, we are targeting FX-neutral year-over-year subscription revenue growth of 14% to 17%.
Ricardo: implying a range of $235 to $241 million based on the quarter-to-date average FX rate.
Ricardo: We are targeting non-GAAP operating income and pre-cash flow margins of mid-teens.
Ricardo: Given the evolution of our partners' ecosystem, we plan to increasingly rely on VTAC's ecosystem of system integrators for new customers' implementations.
Ricardo: We view our lower short-term growth rate as temporary, influenced by the abrupt FX devaluation and a softening of consumption in Brazil.
Ricardo: Looking ahead, our operational and long-term indicators are showing strong performance.
Ricardo: We have seen a significant 23% increase in number of customers generating over $250,000 in ARR. And our deferred revenue has also meaningfully increased by 29% year-over-year.
Ricardo: Our annual revenue term remains in the mid-single digits, with larger customers experiencing low single-digit terms.
Ricardo: Finally, and not less important, we are excited to be expanding with compelling new products that are enhancing our offerings.
Ricardo: Overall, we remain optimistic about the future and look forward to the opportunities that lie ahead in the coming years.
Ricardo: With that, let's open it up for questions now. Thank you.
Speaker Change: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: We'll take our first question from Marcelo Santos at J.P. Morgan.
Hi, good evening. Thanks for taking my questions.
Thank you. Thank you.
Speaker Change: Maybe comparing how they grew last year like what are you kind of forecasting the main moving parts that you have on that guidance?
Speaker Change: That's the first question. And the second question, I think in the opening remarks, you commented that you're transitioning from a single product company to more of, I forgot the exact words, but more of a platform of solutions.
Speaker Change: What would be the P&L impacts over the long term of such transition? What should we expect in the different lines? Thank you very much.
Speaker Change: Hi Marcelo, thanks for the question. Happy to take the first one regarding the guidance for 2025. So our Q1 and full year 2025 guidance assumptions reflect a balanced view of consumption headwinds and the continuous strength of our operational execution.
Speaker Change: Remember that this was in the teens level during the first three quarters of 2024, but it decelerated to single digits in Q4.
Speaker Change: and, as mentioned in the prepared remarks, and for 2025, we are assuming a same-source sales growth rate in FX neutral, roughly aligned with what we saw in Q4, factoring in ongoing consumption pressures, particularly in Brazil.
Speaker Change: We are, going to your question on geographical right side, we are embedding a recovery in Argentina, where we are starting to see some signs of year over year consumption improvement.
Speaker Change: and then with that we are assuming Argentina should return to positive growth in 2025 although we still expect it to grow less than the average of the the company given the uncertainty of the speed of recovery of the country
Speaker Change: On the new customer front, we are assuming some increase in average implementation plus Ramp-up time, given the mix of larger customers we currently have in the backlog across the world.
And with that
Speaker Change: and given the meaningful new customers already signed in 2024, you can note that there is an implied acceleration from the midpoint of our Q1 guidance.
Speaker Change: to the midpoint of our four-year guidance. And this acceleration is mostly driven by operational drivers, not by macro recovery assumption. And these operational drivers are basically the expected go-lives of already signed new enterprise customers.
Marcelo Santos: And on the second question, Marcelo, if you could repeat it, please.
Marcelo Santos: I just wanted to understand better what would be the mid-term P&L impact of such transition, like as you add more solutions and products to your shelf, how does this impact the different parts of your P&L?
Thank you very much. Bye.
Speaker Change: Yeah, perfect. So, happy to start and then others feel free to...
Speaker Change: to chime in. So, we are undergoing this transition already, right? I mean, when we're talking about this commerce suite.
Marcelo Santos: We are talking about not just the all you can eat B2C platform.
Speaker Change: but also the B2B retail media, the sales app, the Vitek Shield.
Speaker Change: ideas, right? I mean these are products that have been launched and we have customers using them.
Speaker Change: So, we wouldn't expect any relevant impacts on the investment side of the P&L.
Speaker Change: and then on the other parts of the the P&L and thinking long term the way that we think about it is that some of these products they have a different buyer inside the organization.
Speaker Change: and then you can potentially increase the stickiness of the Vitek solution by having these different products being used.
Speaker Change: on, you know, not just on the commerce side, but also on the marketing side, the security side, the data side, and so on. So it's more about stickiness and
lifetime value of customers, then short-term impacts on the P&L.
Speaker Change: I can add something here. I can add something. The financial distress that the retailers and brands are suffering.
Speaker Change: creates the opportunity for a company like us to give them a out-of-the-box fully integrated solution so they can write off providers and unify in a very simple way what we are calling the simplification of the operation.
Speaker Change: When we call ourselves, that's what we disclaim in the VTACS 2028 Charter in our VTACS 2024 Annual Report, quote, VTACS is the commerce suite of choice for both CIOs and CEOs globally.
Speaker Change: That means that we will not provide only B2C anymore. So as we are testing those markets in the last two years, now we became a commerce suite. So you can have the B2C with us, you can have the B2B with us.
Speaker Change: but also you can have the add-ons, such as, for example, the Pick & Pack, the Vitex Ads, the Shield, Data Pipeline. All of this, it is to simplify the operation of our customers and allowing them to serve
these efficiency necessary ways they will be forced to serve.
Speaker Change: What we can expect in terms of P&L impact is, as Sodre said, not really much. What we can see is that the capacity that we do have inside our clients to guide them
Speaker Change: to use a simple solution is pretty strong and we are using it. So we already have clients that are using three or four products of eTechs and this is creating more stickiness and preparing the clients for the future.
Thank you.
Perfect, very clear, thank you very much.
Thank you for watching!
Thiago Kapolsky: We'll move to our next question from Thiago Kapolsky with ETAL BBA.
Thiago Kapolsky: Hi everyone. Thanks for the opportunity to ask questions. I also have two questions.
So, the first one...
Speaker Change: Just to get a little bit more color on the softness that you saw in Brazil this quarter, is there anything specific in terms of factors, verticals, regions?
Speaker Change: that you would call out, and also how are you thinking about that on your guidance looking into Q1, and also into the full year, how are you incorporating those effects?
And my second question is...
Speaker Change: More related to the environment in the U.S. given the new administration coming in. I know that by the end of last year, you know, there was a lot of pollution and everything. Just want to hear a little bit from you guys more on the pipeline of new deals and conversations.
Speaker Change: If the mood continues to be positive, if you change any color there, it will be great. Thank you.
Speaker Change: Great, thanks. Thanks, Thiago. Ricardo here, happy to take the first one, and I believe Mariano can address the second one. So, on the GMB softness and macro impact, before answering the question, let me take a step back and do a quick recap of our revenue model, as I think it helps on aligning the foundations.
So, as you know, Thiago, approximately...
Speaker Change: One-third of our revenue comes from a fixed fee while the remaining two-thirds are tied to our customers GMV
Speaker Change: We like these revenue model structures as it aligns our success with our customer success, provides us with long-term exposure to the continued penetration of e-commerce, and automatically protects us against inflation.
Speaker Change: Having said that, this revenue model may also introduce some short-term volatility in the positive consumption cycles. It's a tailwind to our short-term performance and in the negative cycles it's a short-term headwind.
Speaker Change: From an operational and medium to long-term perspective, our focus remain on signing new enterprise customers.
Speaker Change: keeping a high gross retention and helping our existing customers grow their GMV above the market.
Speaker Change: And from this perspective, we are seeing, you know, a strong performance. New customer contract signatures continue at a solid pace, which is reflected in our deferred revenue growing 29%, and the number of customers paying us more than $250,000 per year growing 23%.
Speaker Change: and also our annual revenue churn remains in line with historical levels in the mid single-digit range, where our fastest growing clusters of customers, the ones above $250,000, our revenue churn is even lower in the low single digits.
Speaker Change: So, on, you know, the GMB softness, let me just, you know, try to share some context in Brazil.
Speaker Change: The same-source sales that we saw in Brazil, which is the GMB growth of our existing customer base, for instance, the year-over-year same-source sales growth in FX Neutral in Brazil unexpectedly decelerated by roughly six percentage points from Q3 to Q4.
Speaker Change: The abrupt fax devaluation and the rising interest rates weighted on consumer spending and the significant appreciation of the U.S. dollars against most currencies, particularly the Brazilian real, also further pressure this type of consumption behavior.
Speaker Change: On specific segments we saw more relevant deceleration in home appliance and electronics but as you know this is you know volatile every quarter changes a bit but those were the the key segments that we saw some of this deceleration.
Hopefully that answers the question.
Speaker Change: Well, great. That's great, Calder. Thank you very much. Thank you.
Speaker Change: Our next question comes from Leonardo Olmos at UBS. Sorry, I think there was a second question. Yeah, there was a second one. Second question.
Speaker Change: It's about the new administration in the U.S., is that correct?
Speaker Change: Yes, if I'm still in, yes, about the environment, the administration, remember that by the end of last year.
Speaker Change: The environment was very positive overall in the U.S. and I guess that would be good for deals and everything. Just want to understand how you see how the new administration came in and how is the mood from, like, from the perspective of eventually signing deals or negotiating deals and that kind of thing.
Speaker Change: Okay, so I will answer in two aspects. The first one is in what matters for VTECs.
Speaker Change: So, we keep seeing the same sales momentum increasing the pipeline in the U.S. in B2C, B2B, grocery, so we continue to see the same trend and a good momentum to be created in the United States.
Speaker Change: What can the new administration affect this momentum? I am not sure if it will affect VTACs specifically, but let me say that if macro...
Speaker Change: that we cannot predict. If the new administration creates volatility that will affect inflation, that will affect interest rates, of course the retail and the brands will be affected.
Speaker Change: and on this scenario you do have a more kind of momentum for the companies to change and to simplify their operations.
Speaker Change: So, we always see a crisis on the retail as a good momentum for Vitex because the companies that used to have their own custom platform that's pretty expensive to maintain uses the crisis to make the decisions to simplify their process.
Speaker Change: So, we cannot anticipate that the volatility will be good or bad for Vitex in the US, and even that's a very small country for us, but we like a lot when crisis creates the momentum for companies to change, and we are seeing this in our pipeline.
All right, great. It's a clear. Thank you very much.
And now we'll go to Leonardo Olmos at UBS.
Hi, everyone.
Speaker Change: Good evening, can you discuss a little bit the assumptions for the guidance, I'm sorry to go back to Marcelo and Thiago's question.
Speaker Change: But just to understand, so we saw Latin America versus Brazil growing 6% in 2024.
Speaker Change: You said Argentina may go to zero, so if you could discuss a little bit the other countries, like Mexico, Brazil, and ex-Argentina.
Speaker Change: And Brazil has been doing great, so I assume you're putting some refraction in the guidance, which of course makes a lot of sense.
Speaker Change: However, the rest of the world, which is mainly in the U.S., is not that relevant. So there was a 37% growth in 2003, going down to 34%, almost.
Speaker Change: And then, what do you assume, is teaching this in relation to the rest of the world? So, I know you don't give guidance, but just to understand the assumptions, and Marcelo's question is, is this Argentina a little bit? I just was hoping you could discuss other countries as well online. Thank you.
Yeah, sure. Thanks. Thanks, Lau. Ricardo here.
Speaker Change: we grew roughly 13% year-over-year, right? So this is how we are exiting this year, right? And as we have been mentioning, there is a relevant headwind from the Argentina on this growth rate. That was...
expected.
Speaker Change: When we issued the guidance for the fourth quarter, the unexpected part was the deceleration on the same-source sales growth of our existing customers.
Speaker Change: by this roughly six percentage point deceleration that we saw in Brazil in Q4.
Speaker Change: So, we started from this base of roughly 13% growth that we saw in Q4, and then for Q1, if you look at the guidance, the midpoint of the guidance is 14%.
Speaker Change: Right, and that accelerates to a midpoint of 50 and a half for for the year. So part of these acceleration versus Q4
It's you know the
the decrease of the headwind of Argentina
Speaker Change: As I said, we are assuming some recovery and starting to see some recovery in Argentina.
Speaker Change: they are going to positive territory but there's still the assumptions that they will still grow less than the overall of the company so there is still some
had been there.
Speaker Change: although we do see, but then there is this now headwind off Brazil with these lower same-store sales and this consumption at a lower level.
Speaker Change: So these, you know, it's the key moving pieces of the guidance. And as I mentioned to Marcelo on the first question, on the new customer side, we are assuming some increase in average implementation plus RUNPAP time.
Speaker Change: Given the mix of larger customers that we have in the in the backlog So there is also some impact there and that's kind of across the the world Including you know US and Europe as we have you know customers under implementation that are more in this larger side
Thank you for watching!
Speaker Change: Understood. Thank you very much and have a good night, everyone.
Thank you all.
Next, we'll move to Luca Brendam at Bank of America.
Thank you.
Luca Brendam: Good afternoon, everyone. Thank you for taking my question. I have two here. The first one is on Brazil.
Luca Brendam: Regarding the payroll tax exemption, if you guys will be passing that through to clients in some way and what can we expect in terms of the impact for that?
and also second...
Luca Brendam: You guys showed the breakdown for the margins for existing stores and also the margins for new stores for 2024. And the margin for new stores actually went down and the one for existing stores went up. So I just want to check if this has to do with the profile with larger clients.
And how can we think about that going forward?
Luca Brendam: Most of the expansion should continue to come from the existing stores or if we should see an expansion for new stores as well. Thank you.
Speaker Change: Great. Thanks, Luca. Happy to take the questions here. So, on the payroll tax change in Brazil, as you know, after, you know, some back-and-forth for potential payroll tax regulation in Brazil, the situation seems to have accommodated with the progressive re-inclusion of taxes over the next few years.
Speaker Change: Given that we have also progressively improved our margins, the potential impact of the current proposed change in payroll taxes should not have any material impact to VTACs.
at the most under the current legislation approved.
Speaker Change: VTEX could face, you know, an annual impact of approximately, you know, low single-digit million dollars on our operating income and roughly half of that on our net income, as you have, you know, the tech shield on these additional expenses.
Speaker Change: Over time, we expect that these impacts to diminish and potentially disappear altogether as we continue to enhance our operating margin.
Speaker Change: and it's important to reinforce that you know regardless of the potential impact our target for the operating margin for the year, the mid-teens, remains intact.
Luca Brendam: And the first question, Luca, was about, sorry, could you please repeat?
Thank you for watching!
Luca Brendam: The other question is for the breakdown for the existing stores and new store margins that the margin for the new stores actually went down and that for existing stores went up and how can we think about that going forward and why the new stores went down if it was because of the larger clients coming in?
Yeah, perfect, Luca. So on the new stores...
Luca Brendam: We achieved a 10 percentage point improvement in gross margin year-over-year, right? So that's important to note
Luca Brendam: And this improvement is largely attributed to our increased reliance on the ecosystem for implementations.
Luca Brendam: which, you know, reduces the pressure on the service side. And we also realize 5 percentage point operational leverage improvement in R&D and G&A.
Luca Brendam: and then the drag on the margin on your question is that we chose to strategically reinvest.
Luca Brendam: These, you know, 10 percentage points from gross margin and the 5 percentage points Operating leveraging R&D and G&A in sales and marketing to capitalize on the growth opportunity So with that if you look at the operating level, it didn't change that much. It slightly reduced versus the prior year
Luca Brendam: And this is as we invest in sales and marketing to go after, you know, larger customers and expand geographically the company as well.
Luca Brendam: And I would say that it's also important to highlight that our LTV over CAC, right, which when we think about the new stores P&L, we lose money in the short term, but you get, you know, customers for us for the long term. So it's about, you know, the return on invested capital.
Luca Brendam: and the way that we think about return on invested capital is the LTV or CAC and that remains above six times cash-on-cash with a payback period around you know two and a half years.
Luca Brendam: So, this is a strong performance, you know, that underscores the attractiveness of our investment in acquiring new customers and making it, you know, a compelling proposition for the long-term growth of the company as well.
Perfect, very clear. Thank you for the answer.
Luca Brendam: And that concludes our Q&A session. I will now turn the conference back over to Geraldo for closing remarks.
Geraldo: 2024 was a transformative year for Vitex, defined by innovation, operational excellency, and robust momentum in both new and renewed contracts.
Wow!
Geraldo: The fourth quarter growth fell short of expectations due to short-term FX volatility and existing customers' GMV softness in Brazil. We have laid an exceptional strong foundation to propel Vitex into its next phase for the company.
Geraldo: We expanded our platform into a connected ecosystem with AI-powered solutions like VTX-Edge and Shield, enhancing customer outcomes and positioning VTX as the most comprehensive commerce suite.
Geraldo: Our strategic investments and evolving product portfolio have strengthened our leadership and opened new revenue streams, reinforcing confidence in our long-term growth potential.
We've made significant progress towards sustainable, profitable growth.
Geraldo: As we step into 2025, we're committed to building on this solid foundation, delivering value and driving innovation for our customers and shareholders.
Geraldo: Thank you for your trust and partnerships. We look forward to updating you at our next earnings call.
Geraldo: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Please wait, the conference will begin shortly.
Jordai and Riquardo