Q3 2025 VTEX Earnings Call
Speaker #3: everyone , and welcome to VTEX earnings conference call for the third quarter of 2025 . I'm Julia Fernandez , VP of Investor Relations .
Speaker #3: Joining me are Geraldo Thomaz junior founder and co-CEO Ricardo Kamata , CFO . And for the Q&A , our founder and co-CEO Mariano de Faria and Chief Strategy Officer Andrés Polidoro .
Speaker #3: Will also join us . Before we begin , please note that today's remarks may include forward looking statements . Actual results may differ due to risks and uncertainties described in our form .
Speaker #3: 20 F for the year ended December 31st , 2024 and other filings available on our website . We will also Hello , reference certain non-GAAP measures , reconciliations to GAAP are included in our Q3 2025 earnings press release .
Speaker #3: In our IR website . With that , I'll turn the call over to Geraldo . Geraldo , the floor is all yours .
Speaker #4: Thank you . Julia . Good afternoon , and thanks for joining our third quarter 2020 earnings conference call . This quarter played out in line with the expectations we shared after Q2 .
Speaker #4: Our business continues to show the hallmarks of a durable profit growth model . Consistent execution , expanding margin , and the gradual ramp up of high potential revenue streams .
Speaker #4: Focusing on our consistent execution and expanding margins , profitability improved meaningfully this quarter . AI powered support automations continue to deliver sustainable efficiency gains , driving our non-GAAP subscription gross margins above 80% for the first time .
Speaker #4: We also achieved a 16% non-GAAP operating margin . And in a seasonally neutral quarter , our non-GAAP net income reached $10.6 million , a 41% growth year over year .
Speaker #4: Our margin expansion reflects a deeper AI driven transformation in how we operate the most tangible outcome so far is in customer support , where automation has structurally reduced costs while enhancing service quality .
Speaker #4: The vast majority of the recent read count optimization stems from these AI productivity gains in support . While the remainder reflects normal commercial adjustments to market demand levels .
Speaker #4: At the same time , we're partially reinvesting these savings into R&D , fueling innovation and future growth . Now , expanding on our gradual ramp up of high potential revenue streams , we're doubling down our four growth pillars global expansions , B2B use case customers , retail media and Agentic Commerce .
Speaker #4: Our global expansion continues to make solid progress . We are seeing rising demand for enterprise grade , composable commerce solutions , especially in B2B , as global brands modernize complex operations and migrate from legacy systems .
Speaker #4: A highlight this quarter is continued progress with a multibillion dollar US enterprise implementation . A strong validation of our ability to serve large , sophisticated customers globally .
Speaker #4: In Brazil , we expanded our enterprise footprint with wings such as H&M , Itau and Peek Pay . Reinforcing our competitive strength even in more penetrated markets across Latin America .
Speaker #4: The environment remains cautious , with longer decision cycles and slower top of funnel activities , but our reading rates remain stable , demonstrating the resiliency of our value proposition and our readiness to reassess as macro conditions improve .
Speaker #4: On the product front , B2B commerce is emerging as a major growth driver . Developed with an AI driven design focus on automation , scalability and deep integration into enterprise workflows .
Speaker #4: We're leveraging our existing customer base to expand into B2B . For instance , Electrolux , a long time B2C customer , now uses Vtex to sell spare parts directly to its service network .
Speaker #4: We're also pursuing flagship projects globally , including the migration of a large US enterprise from legacy mainframes to VTEX . Success here would further validate our enterprise capabilities and open doors to new opportunities in the US and Europe .
Speaker #4: While B2B today represents a mid-single digit percentage of our revenue , the new US deals are already roughly split between B2C and B2B , signaling a clear long term opportunity .
Speaker #4: Retail media continues to stand out as a key growth . Revenue unlocking monetization layers for our customers . Following a strategic partnership with global , Brazil's largest media network .
Speaker #4: This quarter , we achieved another milestone with the latter looks , launching the first integrated campaign connecting Globo's digital reach with retail media placements across Vtex powered stores .
Speaker #4: The campaign exceeded expectations, validating both the scale of the opportunity, and VTEX rose as the orchestrator of Brazil's first retail media ecosystem at scale.
Speaker #4: Finally , our AI transformation is redefining how we build and deliver software . The tech sits at the center of first party brand order commerce .
Speaker #4: As the platform orchestrating price promotions , payments , fulfillment service and loyalty . As AI accelerates fragmentation across customer touchpoints , this orchestration becomes increasingly critical .
Speaker #4: The new thing aggregators such as the Commerce Protocol are routing demand to brand owners channels , reinforcing the need for unifying platform like Vtex and our outcome based pricing are red aligns incentives so that we win as we help our customers win in this new AI channels .
Speaker #4: Additionally , through our multi-tenant cloud native architecture detects represents the collective intelligence of billions of click streams and transaction signals across hundreds of enterprises .
Speaker #4: This unified , aggregated data set , combined with our enterprise customer base , enables models that can predict behavior , increase conversion and personalize experiences at scale .
Speaker #4: Unlike on premise or single tenant systems . Vitex is structurally advantage to harness this Effects and to make it tangible . AI is already delivering real business outcomes today .
Speaker #4: First through data monetization . With retail media . AI now enables our clients to turn their commerce data into a profit center , building their own retail media networks and generating high margin revenue that can potentially double their margins over time .
Speaker #4: Our AI driven recommendation and intelligent search features are already better with leading customers and results have been excellent . Second , through automation that cut costs at scale when you buy Vitex , our AI network .
Speaker #4: customer support platform helps retailers reduce after sales services cost by up to ten times and in some cases saving millions by automating over 80% of call centers .
Speaker #4: Interactions . AI is also transforming how we operate , making us faster , leaner and more efficient across support , implementation and product development .
Speaker #4: And we are investing decisively behind in it , not as a feature , but as a full company transformation . An early demonstration in our subscription gross margin gains over the last year resulting from our AI empowered support at the heart of our roadmap , we're seeking to power new AI agents to connect commerce , advancing conversational experiences and simplifying complex workflow through automation and semantic understanding .
Speaker #4: We're reshaping our R&D and our mindsets to be fully AI negative because companies that don't embrace the shift risk being left behind . Just like those that missed the cloud revolution .
Speaker #4: That's the foundation of the next chapter for Vitex , one built on innovation , execution and profitable growth . Shifting gears , are focus on driving solid and consistent commercial progress remains unchanged .
Speaker #4: This quarter , we celebrated several important goals from new customers , including H&M , E2 , Shop and Pick in Brazil , Chromatic in Colombia , Cap Italia in Italy .
Speaker #4: Still in Mexico and Etihad in the United Arab Emirates . We also deepened relationships with existing customers , showcasing the scalability of our platform across models and markets .
Speaker #4: Belize Company launched the B2B store in Brazil , expanding beyond the VTEX powered B2C operations . It already runs for its recast and Vertex brands .
Speaker #4: Casa Pinheiro has launched a new operation and now runs two B2C stores in Portugal . Johnson and Johnson launched the Johnson and Johnson MedTech store in Brazil , expanding its B2B operations in the region .
Speaker #4: A leading German home improvement retailer expanded into Austria . Now operating in both Germany and Austria and US electrical services launched two new stores in the US .
Speaker #4: Walter Rosales Electric and Laid electric Supply , now running three VTEX powered stores , expanding our customer base through new wins and deeper relationships , is central to our growth strategy .
Speaker #4: Each successful customer success case serves as a proof point that attracts future customers . Consistent delivery builds trust , which we amplify through visibility .
Speaker #4: Initiatives like Vitex connect , our global flagship event series inspired by VTEX data . This quarter , Vitex Connect later in Mexico City , solidified its position as the leading digital commerce event for Spanish speaking Latin America , with record scale over 20,000 registrations , 60 sponsors and more than 40 speakers , including Netflix co-founder Marc Randolph .
Speaker #4: The event reinforced our brand leadership in the region and created new opportunities to deepen relationships and drive customer acquisition . Now , to illustrate the process , we are making on multiple fronts .
Speaker #4: Let's highlight a few customer success stories from this quarter featuring innovative brands that shows VTEX to accelerate their digital transformation , expanding into new business models and deliver superior experiences to their consumers .
Speaker #4: Ishihara , the Middle East largest state of art indoor entertainment venue in Abu Dhabi's Yabei Waterfalls , partnered with VTEX to launch a fully headless mobile commerce solution that powers food and beverage ordering during high profile events such as NBA games , UFC fights , and world class concepts designed to eliminate the long queues typical of larger venues .
Speaker #4: The app delivers real time ordering and payment capabilities , with zero tolerance for downtime . The app supports bilingual Arabic and English experiences and dynamically handles event specific menus tied to each guests seating area , so orders are routed right to the appropriate kitchen by orchestrating every transaction end to end with text enables Etihad Arena to offer a seamless , high performance digital experience for thousands of simultaneous users , setting a new standard for venue based commerce and marketing and strategic milestone in VTEX expansion into the Middle East .
Speaker #4: It all . Shopee the marketplace integrated into the super app of Utah , Latin America's largest private bank , migrated to Vtex in order to power the next stage of its digital commerce growth .
Speaker #4: The initiative build the platform end to end to support faster expansion , greater reliability , and an even better shopping experience for millions of customers with stronger and more flexible foundation .
Speaker #4: It can now onboard new sellers more quickly, expand its product assortment with ease, and handle seasonal peaks and large campaigns with confidence and efficiency.
Speaker #4: Early results are show significant growth in the number of sellers , along with higher click through and conversion rates , and noticeable gains in overall performance .
Speaker #4: More than a technology refresh , this new chapter gives it the agility to introduce new services , loyalty programs and shopping benefits at speed , all while keeping the customer experience at the center and strengthening engagement and long term loyalty .
Speaker #4: A leading German home improvement retailer selected VTEX as the backbone for its global commerce strategy to unify channels and accelerate international rollout . Operating in Germany and now adding Austria after consolidating its home market on VTEX composable platform , the customer activated marketplace capabilities integrated 350 plus store accounts under a single control plane and delivered a truly omnichannel journey with rapid options like two hour pickup .
Speaker #4: The result is faster time to market , greater developer autonomy , and the agility to tailor features by country without disrupting core operations .
Speaker #4: This streamlined infrastructure and automated business logic equipped them to scale efficiently across Europe and customer convenience and innovate continuously as highlighted by the leadership turning Austria into a blueprint for resilient , high velocity expansion .
Speaker #4: Big Bay , one of the largest digital banks , has entered a new phase in its commerce strategy by integrating pick Bay shop , its marketplace , into the app to detect platform , marking a major milestone in the company's evolution from an affiliate model to a fully integrated commerce ecosystem .
Speaker #4: Previously limited to product showcases that redirected users to external sites , Pick Pay now allows customers to browse , purchase , and complete the transaction entirely within the app , seamlessly positioning the platform as the unique hub where commerce and digital banking converge in parallel .
Speaker #4: Bigpay adds . Powered by VTEX adds enables brands and retailers to promote products directly within Bigpay shop , reaching a highly engaged audience at the moment of purchase , acting as both technology and commercial partner .
Speaker #4: VTEX adds , integrates product catalog and inventory and performance data while leveraging its network to onboard new advertisers and expand pick page monetization ecosystem .
Speaker #4: This partnership combines pick based scale financial intelligence and consumer reach with Vitex commerce and retail media leadership , creating a powerful new benchmark for convergence between media payment and commerce in Brazil .
Speaker #4: Perfora , a global beauty retailer with a strong and loyal customer base , expanded its retail media strategy by becoming a publisher in the VTEX , adds network , creating new opportunities for brands to reach a highly qualified audience .
Speaker #4: Building on its previous retail media experience . Tefahot transitioned seamlessly from its former setup to the text ads enabling makeup , skincare , fragrance and Dermocosmetic brands to advertise directly within its digital experience , ensuring visibility across high impact touchpoints .
Speaker #4: With this move, Tefahot offers its partners a premium media environment powered by VTEX technology, turning its digital storefronts into a performance-driven channel for brand growth and measurable results.
Speaker #4: US electrical Services , one of the largest electrical distributors in the US , is transforming its digital experience with the text to better serve customers and meet evolving expectations with an extensive branch network and a highly diverse product catalog , the company needed a scalable platform capable of delivering seamless , consistent and personalized interactions across online , mobile and in-branch channel .
Speaker #4: By adopting VTEX US electrical services use unify , its customer experience into a single connected environment , enabling real time access to accurate product data , faster support and flexible fulfillment options from in-store pickup to delivery .
Speaker #4: This integrated approach creates a smoother , more intuitive buying journey that builds trust , strengthens loyalty , and drives repeat business . While VTEX flexibility allows the company to continuously introduce new services and stay agile in a rapidly changing marketplace .
Speaker #4: As the business continues to grow . VTEX will support them in delivering higher quality engagements and value added solutions , and sharing company remains customer centric , competitive and future ready .
Speaker #4: Before handing it over to Ricardo . I want to extend my appreciation to the 1234 VTEX across our global offices . Who's work is essential in shaping the future of commerce .
Speaker #4: I also want to thank your customers , partners and investors whose trust and partnership continue to inspire us and prosper our journey forward .
Speaker #4: With that , I'll hand the call over to Hikaru .
Speaker #5: Thank you . Geraldo . Hi everyone . I'm pleased to share with you financial results in Q3 2025 . GMV reached $5.0 billion , up 13% in US dollars and 12% FX neutral .
Speaker #5: Subscription revenue was $58.4 million , versus $53.9 million in Q3 2024 , an increase of 8% in US dollars and 7% FX neutral .
Speaker #5: Given our Q2 performance . We had already adjusted expectations for Argentina . The country faced additional challenges in Q3 , so performance was worse than expected , with no signs of short term recovery .
Speaker #5: A mid weak consumer sentiment . Moving north , Brazil performed in line with expectations , showing a modest deceleration of a couple percentage points quarter over quarter .
Speaker #5: Within this context , in Q3 , our non-GAAP subscription gross margin reached 80% , underscoring the success of the efficiency initiatives we've been highlighting over the past several quarters , particularly the continued deployment of AI powered automation in customer support .
Speaker #5: These initiatives are consistently delivering structural gains in customer support , productivity , and cost reduction , reinforcing the durability of our margin improvement and the scalability of our business model .
Speaker #5: Our total gross margin , including services , reached 77.5% and expansion of 270 basis points year over year . This continued improvement reflects not only the steady gains in subscription gross margin , but also the ongoing shift of services in our revenue mix as our global ecosystem of partners increasingly takes the lead in complex implementation projects .
Speaker #5: Our expense management continues to reflect our disciplined and alignment with long term growth priorities . Total non-GAAP operating expenses in the third quarter were $36.7 billion , up 7% year over year and down 1% quarter over quarter .
Speaker #5: Even though Latam currencies appreciation drove most of our expenses up in US dollar terms , we delivered savings in S&M and Jenna , and we chose to reinvest through R&D in innovation , product development and AI capabilities that strengthen our competitive position .
Speaker #5: In other words , while optimizing margins , we are building a more efficient engine for sustainable , profitable growth . As a result , our non-GAAP income from operations reached $9.5 million , up from $7.6 million in Q3 2020 .
Speaker #5: For a 25% growth in US dollars . This also represented a non-GAAP operating margin of 16% . And improvement of 230 basis points year over year .
Speaker #5: In short , our operational discipline continues to translate into stronger margins and a more profitable growth trajectory . non-GAAP net income was $10.6 million in Q3 2025 , up 41% year over year .
Speaker #5: This earnings step up reflects structural profitability driven by operating leverage and efficiency gains and reinforces the sustainability of our model . This continued profitability gains keep showing up in our cash generation , which remained strong once again this quarter .
Speaker #5: Free cash flow for the quarter was $7.5 million , reaching a free cash flow margin of 13% . Our capital allocation strategy remains grounded in disciplined , long term value creation and efficient use of our strong financial position .
Speaker #5: We end up the quarter with approximately $200 million in cash , representing about 25% of our market capitalization . With a business that consistently generates positive free cash flow , we have the flexibility to fund innovation , pursue strategic growth opportunities , and return capital to shareholders .
Speaker #5: Our priority remains organic growth , particularly through continued investment in becoming a multi-product , AI driven platform . As Gerardo highlighted earlier , this may be complemented by selective M&A focus on accelerating capabilities that can scale across our base , such as the new acquisition in retail media and many in AI .
Speaker #5: Power . After sales support . We continue to allocate capital with the same rigor that defines our operating model investing where returns are measurable , risk adjusted and accretive to shareholder value .
Speaker #5: We also maintain a disciplined and opportunistic approach to share repurchases . As of September 30th , we purchased almost $100 million of shares across four programs under the 40 million .
Speaker #5: Dollars authorization approved in July 2025 . We repurchased 4.5 million shares in Q3 at an average price of $4.14 per share , a total of $18.8 million .
Speaker #5: As we look ahead to the fourth quarter , our focus remains on disciplined execution amid a persistently complex macro environment in Latin America .
Speaker #5: We expect the headwinds seen in prior quarters to continue in Argentina . Consumption may remain weak and highly volatile , while in Brazil , elevated interest rates are likely to keep pressuring demand and extending enterprise decision cycles .
Speaker #5: While top of funnel activity is softer than last year , our win rates remain stable and the quality of late stage opportunities continue to reinforce our confidence in the long term relevance of our platform .
Speaker #5: In this environment , we are using the current cycle to deepen our focus on four core strategic priorities . Scaling in the US and Europe , expanding B2B and our retail media products and accelerating the AI transformation of our products and processes .
Speaker #5: Supported by strong cash generation and expanding margins . These priorities position us to create sustainable , long term value even amid short term volatility .
Speaker #5: With that in mind , for the fourth quarter of 2025 , we are targeting FX neutral year over year subscription revenue growth of 5 to 10% , implying 65.8 to $68.8 million .
Speaker #5: Additionally, we are targeting for the fourth quarter a non-GAAP income from operations margin in the mid-20s and a free cash flow margin in the high teens range for the full year 2025.
Speaker #5: We are targeting FX-neutral year-over-year subscription revenue growth of 9.3% to 10.7%, implying a range of $234 million to $237 million.
Speaker #5: Based on October's average FX rates, we remain confident in our ability to accelerate our growth over the coming quarters and years through our commercial expansion into the U.S. and Europe, as well as our product innovation in B2B retail, media, and AI-powered solutions.
Speaker #5: With that , let's open it up for questions now . Thank you .
Speaker #6: Thank you . And at this time , I would like to remind everyone , in order to ask a question , press star .
Speaker #6: Then the number one on your telephone keypad . Once again , star one . And we will pause just a moment to compile the Q&A roster .
Speaker #6: All right . Our first question today comes from the line of Marcelo Santos with J.P. Morgan . Marcelo , please go ahead .
Speaker #7: Hi . Good evening . Thanks for taking my questions . I have two . The first I wanted to explore a bit the sequential increase in R&D expenditures at the same time , I think the number of employees declined around 49 employees .
Speaker #7: So just wanted to to get a bit more color on what you're doing , what if if you hire more people or not ?
Speaker #7: And why did employees decline ? Just want to connect these two things . And the second thing , second question is could you discuss qualitatively how your churn is trending ?
Speaker #7: Has the weakness in the market of in the Latin market also reflected in a somewhat higher client disconnection , or is it more linked to GMV and maybe a longer cycle to close the new deals ?
Speaker #7: Thank you .
Speaker #4: Marcelo . Hello . This is Geraldo . How are you ? I'll talk a little bit about the R&D investment . Thank you for your question .
Speaker #4: So we are continuing to invest heavily in R&D because we see this as a positive moment for the company, for the whole world, actually—one where technology, and especially AI, is redefining the entire commerce landscape.
Speaker #4: In 2026 , we expect R&D to investment to continue to increase , reflecting our conviction that now is the time to build the VTEX platform of the future .
Speaker #4: Our priorities are clear and centered on four strategic pillars AI transformation . The biggest one B2B commerce that will grow us in outside of Latin and inside of Latin retail media that will make our customers viable and profitable and will give a lot of revenue to to us as well .
Speaker #4: And we will also strengthen our commerce , core commerce , foundation informed by AI . First , the AI transformation is at the center of everything we're doing .
Speaker #4: We're rethinking both how we build software and what software we build . That means that evolving from static admin tools to fully AI driven workspace powered by autonomous agents that automate commerce workflows from onboarding products to launching promotions or optimizing searching on pricing and pricing .
Speaker #4: So this is how we will become the AI native backbone for connected commerce . Second , B2B is an investment that we are accelerating , which we see as a massive global opportunity .
Speaker #4: We're developing a comprehensive B2B platform , including AI assisted sales interfaces that connect buyers and wraps in a single digital experience . Third , we tell media is becoming an increasingly strategic part of our roadmap .
Speaker #4: We're helping retailers monetize their traffic and data by creating one of the largest retail media networks in Latin America , combining on site , off site , offline media with AI powering personalization recommendations and attribution , and finally , we continue to strengthen our core commerce and omnichannel platform , advancing in areas like semantic search , product recommendations , delivery promise , physical store integration to make the overall experience more intelligent and connected across all this , the common thread that is , is AI not as a buzzword , but as an enabler for efficiency , growth and differentiation .
Speaker #4: We investing to lead this transition just as we did when we became a cloud native company a decade ago . So , in short , our focus is about building the next generation VTEX one that is A.I.
Speaker #4: native , outcome driven , and ready to power the future of global commerce . So you're going to see us going , continue investing in R&D .
Speaker #4: Marcelo .
Speaker #7: Perfect . Thank you .
Speaker #4: On the churn on the churn . Know the churn is stable . It's not the what we're seeing is less momentum in sales .
Speaker #4: And we can elaborate this more if if the other audience wants to .
Speaker #7: Okay . Thank you very much for the Marcelo .
Speaker #5: I can .
Speaker #7: I can .
Speaker #8: Elaborate a little bit more on the sales and on said it's Mariano here . So as Gerald says , is stable , we are seeing more in tier three .
Speaker #8: But the overall number of the company stays the same . Not not a point of attention here in a in a demand . We can elaborate a little bit more .
Speaker #8: The demand environment remains mixed soft in Latin America , but resilient in the US and EMEA . In Brazil and across Latin America , high interest rates are is lowering the consumer spending and continue to wait on activity .
Speaker #8: So we are seeing sales cycles are longer and overall bookings remain below last year's record levels . That said , we are not losing deals to competitors .
Speaker #8: Decisions are simply taking more time and sometimes being postponed . Importantly , our customers remain engaged and retention is strong and we help them to navigate these very , very macro backdrop at the same time , we are gaining share through new growth levers .
Speaker #8: B2B solution adoption in the region is picking up and also our retail media platform and AI , our AI support platform offering is helping retailers to monetize and make more margin .
Speaker #8: Their initiatives , reinforce customer economics and deep , longer term challenging relationship between Vtex and our customers outside Latin America . The main remains resilient .
Speaker #8: The US and may continue to grow roughly twice as fast as the company overall , driven by our focus . Go to market strategy and the migration of large enterprises from outdate and high cost legacy platforms .
Speaker #8: Roughly half of our new deals in the US and EMEA are now B2B , validating both our position and product strategy competitively . Our position remains strong , our comprehensive product offers a unique advantage B2C and B2B in a single platform against legacy providers .
Speaker #8: We win on modernization and cost efficiency against the market . Moving competitors . We win on death , composability and high touch enterprise service .
Speaker #8: Our public companies credibility and consistent execution are helping us to secure large strategic deals with global brands . So while in the macro environment in Latin America is still a headwind , pretty uncertain , our sales momentum and competitiveness remains solid .
Speaker #8: We see attractive opportunities in our global expansion . The B2B solutions use case customers , the retail media and the Agentic commerce . The foundations are intact .
Speaker #8: Our pipeline is healthy and we are confident that we're building the right base for Reacceleration . As continues improve .
Speaker #7: Right . Thanks a lot .
Speaker #6: All right . Thank you Marcelo . And our next question comes from the line of Maria Clara Santos with Itau . Maria . Please go ahead .
Speaker #9: Hi everyone . Thanks for taking my question . The first one is related to Argentina . Now that the elections are behind us and we are seeing more signs of macro stabilization , there's this change .
Speaker #9: Anything on your outlook for the region ? Can you comment briefly on how you perceive things evolving there ? Please ? And the second question are more structural and qualitative .
Speaker #9: One , if you could please develop on how you see AI investments leveraging the way you monetize your clients going forward . Thank you so much .
Speaker #8: Okay , I'm gonna take the first one about Argentina . So Argentina continues to be a tough market . The toughest we operate in the macroeconomic environment remains extremely challenging with a very high interest rates close to 50% nominal against a roughly 25% inflation .
Speaker #8: So it's a pretty tough environment . Credit systems are largely paralyzed in Argentina . Retailers effectively operate as banks . The tier one retailers operates as banks .
Speaker #8: And what what's breaking today is not retail itself , but the banking capacity to fund inventory and the financing of consumption . The famous quotas in Argentina , right .
Speaker #8: So that's mainly what's driving the weakness we are seeing in GMV . And ultimately in revenue after the sharp reversal , we saw early in the year , Q3 underperform our expectations .
Speaker #8: And while we recent elections , the recent elections were received positively by the market on the ground consumption , haven't improved yet . Visibility remains limited .
Speaker #8: So we we continue to model Argentina with very cautious for the rest of the year . We are staying very close to our customers .
Speaker #8: They're our teams are on the ground having tough conversations with them on a weekly basis . What is clear is that the issue isn't lack of will .
Speaker #8: It's credit . The entire system runs on financing and without access to affordable credit consumption , simply stalls . In the end , for better or for worse , we don't provide financing ourselves .
Speaker #8: We need to rely on our ecosystem and the macro to do so . In parallel , we are helping customers protecting their margins and straining their competitiveness .
Speaker #8: We are showing them how AI can cut operational costs . For example , our AI customer support platform can automate call centers and save a lot of money .
Speaker #8: We can save up to 1% of the revenue or more . Also , in monetizing their traffic through retail , media . So it's us delivering on the ground operational efficiency for them .
Speaker #8: And preparing them to the bounce back of the market . One interesting point here is what we are seeing an entire new set of players like Chinese brand appearing , popping up in all Latin America , in Brazil , we've already secured some of those relationships .
Speaker #8: Brands like Midia and we are working to replicate that success in Argentina as well . So overall , while Argentina remains as a headwind for us , it's also a market where we understand really deep .
Speaker #8: We close , we are really close to our customers and help them to go through these moments . We are positioning ourselves and themselves to capture the upside when the condition is finally stabilize .
Speaker #10: Thank you . Mariana and Maria . I'll take this . This AI question about the monetization . So monetization is as a matter of product positioning and also we need to benchmark with the competition .
Speaker #10: So monetization is kind of a separate .
Speaker #4: Topic that that we don't couple exactly with the AI . AI for us is much bigger than a source of monetization . Although it can create some new services that we eventually can monetize to our company .
Speaker #4: So AI for us is not just a technology or monetization tool , but it's like a once in a decade transformation similar to the move to the cloud .
Speaker #4: More than ten years ago . Back then , you know , rebuilding our platform natively for the cloud allow us to leapfrog incumbents and become the e-commerce leader in Latin America .
Speaker #4: Today , we're approaching AI with the same urgency , ambition and clarity . AI is reshaping enterprise software and commerce value chain . So we believe that it will strengthen decentralized , brand owned channels where the text is strictly advantaged .
Speaker #4: Unlike marketplace aggregators , we power first party channels , helping brands on the transactions . The data and the customer relationship . These new as new agentic model emerge .
Speaker #4: Routing demand back to this proprietary channel . The text becomes even more essential especially the as the orchestration layers that connect price promotion , fulfillment , loyalty and services across all digital touchpoints .
Speaker #4: So we have a product roadmap that reflects this conviction . We're building autonomous agents and AI copilots that automate key commerce workflows from onboarding products , and launching promotions to analyzing data and managing logistics .
Speaker #4: These agents integrate natively into our ecosystem to accelerate time to value , improve outcomes , and free users to focus on strategy . So key things that we are doing just to illustrate .
Speaker #4: So we're doing a data insights agents for performance agnostic and action . We're doing a visual editor agent for storefront updates . We're doing book import agents .
Speaker #4: We're doing developer assistant agents . So we're doing a lot of things . And we're developing what we call the AI workspace , which is our next generation admin experience designed to make commerce operation outcome driven , proactive and personalized over time .
Speaker #4: This will transform how merchants work , reduce cost , improve conversion and lower time to market . What makes all this possible is our multi-tenant architecture , which gives us access to R&D purposes for R&D , access for R&D purposes .
Speaker #4: With customer consent to billions of commerce data points across hundreds of enterprises . This allows us to train and fine tune models specifically for commerce , something few others can do at our scale .
Speaker #4: Finally , we're also embedding AI deeply into our own operations , improving productivity , speeding up implementation , and reducing cost . To serve .
Speaker #4: This addresses Marcelo question as well . Marcelo , because when you ask about the head count that it's going down , it's it's going down because we're evolving our processes to incorporate AI into our internal processes .
Speaker #4: So this is not a , a just a product evolution or a monetization tool . We're going through a full company transformation here .
Speaker #4: So just as we became a cloud native commerce leader , like ten years ago , we're now building VTEX to be the AI native backbone .
Speaker #4: For connected commerce , which is outcome driven , intelligent and designed to help brands to sell more , spend less and operate smarter .
Speaker #4: So that's the AI is is just like cloud for us . Like we were born into the cloud revolution . We will be reborn into the AI revolution .
Speaker #9: Thank you . Very clear .
Speaker #6: All right . Thank you Maria . And our next question comes from the line of Victor Tomita with Goldman Sachs . Victor , please go ahead .
Speaker #11: Hello . Good evening . And thanks for taking your questions . Since the topic is already addressed , I would like to ask a few questions more about the the free cash flow side .
Speaker #11: Specifically looking at what , nine months results in your Q4 guidance imply for the full year . Am I correct in understanding that you remain confident on the prior expectation of high teens ?
Speaker #11: Margin in income from operations , but have become a bit more conservative on the free cash flow side , where you were anticipating high teens margin as well .
Speaker #11: And my second question also related to this . How are your initiatives related to working capital optimization ? Other cash flow drivers progressing ?
Speaker #11: If there were any surprises on that area , this water and if we should . Especially , for example , expect CapEx to remain a bit higher than usual in 24 .
Speaker #11: Thank you very much .
Speaker #5: Hi . Thanks for the questions , Ricardo . Here . So on the free cash flow , I'll take the opportunity to take a step back and talk about the Q4 guidance and 2025 guidance more broadly , and I'll go into the profitability metrics as well .
Speaker #5: So for Q4 , our guidance reflects a balance and realistic view . Although subscription revenue in October grew faster than in Q3 , we continue to see persistent GMV volatility .
Speaker #5: For example , the Cyber Monday event in Argentina , which started this week , was softer than expected . So given this volatility and the uncertainty around holiday season , GMV performance , we are providing a wider range for our Q4 guidance .
Speaker #5: When we look forward , we remain confident in our ability to . Accelerate our growth over the coming quarters and years . Our key levers should do that .
Speaker #5: As we mentioned in the earnings call , prepared remarks is the commercial expansion into the US and Europe and our product innovation in B2B retail media and AI powered solutions .
Speaker #5: For instance , each one of these four levers is currently running above double digit growth rate . And with a long runway ahead .
Speaker #5: Now on on profitability and free cash flow , we expect another solid quarter with non-GAAP operating margin in the mid 20s and free cash flow margin in the high teens .
Speaker #5: That reflects both the natural seasonality of Q4 and the structural efficiencies we built through the AI powered support automation . On the cost side , as well as continue discipline on DNA .
Speaker #5: And Sam , on the on the expense side . Now on free cash flow , as we discussed in prior earnings calls , our model is structurally frontloaded meaning for the fixed fee portion of our contracts , we typically view customers upfront when new contracts are signed .
Speaker #5: And as a result , cash flow can fluctuate depending on the the pace and timing of new bookings , especially with decision making cycles elongating .
Speaker #5: In Latin America , even while our competitive position and win rates remain stable . So if you look at the full year for free cash flow , we are more in the high end of meetings than in the high teens .
Speaker #5: For the full year . But we are in the high teens for for the quarter and for the non-GAAP Ebit . We are in mid 20s and still in the high teens , mid 20s for the quarter and still in the high teens for the for the year .
Speaker #5: So overall , despite a challenging environment , we remain focused on , we accelerating our growth rate while continuing to advance on our profitability metrics .
Speaker #5: And we see attractive opportunities ahead in the US and Europe . In B2B ads and AI . And we are executing behind them .
Speaker #5: And I think the second question was related to working capital . So I can cover this one as well . Working capital in this quarter reflected the market environment .
Speaker #5: So although we managed collections well , reducing our receivables , the longer decision making cycles in Latin America impacted our deferred revenue line .
Speaker #5: So this is normal . You timing effect , no structural change . Given our upfront annual billing model . So working capital can fluctuate with due timing and booking pace .
Speaker #5: So we continue to manage with discipline balancing customer support and cash efficiency . And we expect conversion to improve as conditions stabilize . And new book is also stabilized .
Speaker #12: Thank you .
Speaker #6: All right . Thank you Victor . And our next question comes from the line of Cesar from Santander . Cesar , please go ahead .
Speaker #13: Hi , guys . Thank you for having me . Question I have one here regarding Brazil last mention that the total GMV , FX neutral growth in Brazil was in low 20s , but that you had a mixed shift towards new and large enterprise which of course lowered the implied rate .
Speaker #13: What you can comment about these numbers for the third quarter and what you have been expecting this to evolve towards the fourth quarter and so on .
Speaker #5: Yeah . Happy to take the question specifically on Brazil . So as I mentioned on the prepared remarks of the call , Brazil performed largely in line with expectations .
Speaker #5: Q3 unfolded largely in line with expectations , right ? If you look at the the number , we came slightly below the midpoint of the guidance in FX neutral and slightly above the midpoint in US dollar terms .
Speaker #5: And Argentina performance was weaker than expected , with no tangible signs of short term recovery in Brazil was no largely aligned with expectations , and with a modest deceleration of a couple percentage points quarter over quarter .
Speaker #5: So we were in the low 20s last quarter . This quarter , we were in the in the high teens and all other countries were , you know , mostly aligned with with expectations .
Speaker #5: So I think that's that covers it . If we look at Q4 for for Brazil , we continue to see a high interest rate .
Speaker #5: Environment . So we would expect Brazil to be stable to slightly decelerating Q4 versus Q3 .
Speaker #13: Perfect . Thank you guys .
Speaker #6: All right . Thank you , Cesar . And our next question comes from the line of Luca Brendan with Bank of America . Luca , please go ahead .
Speaker #14: Hi . Good afternoon everyone . Thank you for taking my questions . I disconnected for a little bit . So I'm sorry if any of those have already been answered .
Speaker #14: So first , if you could give us an update on the US operations , if everything is still on track or there have been any delays with the larger customers that we're expecting at the start of the year , and then second , for the past few months we have seen Meli and Shopee announcing the launch of several official stores .
Speaker #14: For some enterprise customers . Have you seen this having any impact on your operations ? Have you seen GMV migrating for some of those official stores or something that has not impacted your operations ?
Speaker #14: Thank you .
Speaker #8: Okay , so we continue to see I'm going to answer Mariano here . I'm going to answer first the the US and EMEA momentum and and then I go to comments on the on the marketplace .
Speaker #8: We continue to see a strong traction in the US and EMEA . In the US , our go to market strategy is pretty focused and and clearly paying off .
Speaker #8: We are executing a well-defined playbook targeting large enterprise , specially those migrating from legacy B2B platforms . The segment represents our largest growth opportunity in the US and EMEA , and is providing to be the right bet .
Speaker #8: Our competitive differentiation is resonating . We combine the sophistication needed to replace complex legacy systems with the agility and composability to modern enterprise .
Speaker #8: That to execute today , roughly half of our deals in the US and EMEA are B2B , underscoring how our strategy to lead the enterprise commerce is taking shape .
Speaker #8: We are also making encouraging progress on both the commercial and execution fronts . We continue to advance the multibillion dollar enterprise migration in the US , which remains a major validation milestone for our capabilities .
Speaker #8: Global CIOs and CTOs are choosing Vtex for its comprehensive functionalities . Recent wins , such as KitchenAid e-commerce launch and the expansion of a US electrical service with two new stores , highlight both new logo wins and deeper adoption with existing customers in EMEA , progress remains steady .
Speaker #8: This quarter . A leader , the operation expand cross country and open Austria as a new goal to life . Another client that we can quote is Etihad Arena .
Speaker #8: That opened and went live in United Arab Emirates , reinforcing our scalability across diverse regions and business models . So overall , our global pipeline is robust and contract momentum continues to build .
Speaker #8: While we've made meaningful progress , we are still in the early stage of what we believe is a long run ahead . Our position as a complete and composable enterprise solution , and to have both B2B and B2C solutions in a single commerce platform is resonating , and it is resonating in us .
Speaker #8: And in so we are seeing increasingly in competing . Capabilities and winning markets . Once were dominated by these legacy players . This is about the the Europe and US market .
Speaker #8: And now you asked about the marketplace in Latam , right ? You mentioned specifically Shopee . So we see marketplaces as a defining forces in digital commerce , but not as an existential threat .
Speaker #8: Brands and retailers will continue to value owning their customer relationships . Marketplaces operate under vertical model . They , the merchant of record .
Speaker #8: They control the data , the logistics , the consumer relationship , and they ask a pretty high stake . 10 to 20% of GMV to operate .
Speaker #8: So while this gives a customer kind of convenience , but actually it weakens the brand equity over time for brands that use Vtex , marketplaces are one of the channels we support .
Speaker #8: So the marketplace is thriving , actually . Drives also volume for Vtex as well . So it's it's a balance as more companies join the marketplace , race , diluting the power of a 1 or 2 marketplaces .
Speaker #8: Actually , it is good for platforms that orchestrate their operations in the backbone . And this is our our motto , right ? The backbone for connected commerce .
Speaker #8: So as more operators in marketplaces joins Latin America , more vtex strength , their position as the backbone for the brands that operate in Latin America .
Speaker #8: Most of our electronics and home appliance brands in Brazil rely on Vtex as the core platform , supporting their marketplace channels . On the other hand , Vtex also powered proprietary brand owned channels .
Speaker #8: The organic channels . As we call first party apps , first party stores , direct to consumer experience , where bronze , where brands own the transaction , the margin and the relationship and make no mistake , there is not .
Speaker #8: The organic go to market . DTC is not going away . The DTC and marketplace will coexist . In fact , we believe new technology such as AI and commerce will rebalance the ecosystem in favor of those proprietary channels .
Speaker #8: We are also seeing the rise of a new aggregators that in fact , are a thin layers directly in traffic and leads back to the brands instead of capturing the full transaction as the marketplace do .
Speaker #8: I'm talking about the new tools on AI that creates a more open ecosystem , and it makes platforms like Vtex even more valuable as the backbone that orchestrates those transactions .
Speaker #8: In between that , channels , I believe this is our point of view on marketplaces .
Speaker #14: Very clear. Thank you for the answers.
Speaker #6: All right . Thank you , Luca . And our next question comes from the line of Matti Schrag with KeyBanc Capital Markets . Matti , please go ahead .
Speaker #15: Hey guys . And thank you for the question . I was just wondering where does B2B sit in terms of your new logo pipeline today ?
Speaker #15: And maybe what unique features is getting you guys to win those deals ? Thanks .
Speaker #8: I can take . Could you repeat the question , please ?
Speaker #15: Yeah , I was saying in your new logo pipeline , how much of those would be B2B customers versus a B2C customer ? And then what's helping you guys win those deals ?
Speaker #8: Yeah , most of all , I believe the B2B is the B2B offering . The solution that we offer in the same platform .
Speaker #8: So it's the same product . Commerce platform that we offer B2C and B2B , and that's resonating as a comprehensive solution . When companies want to migrate from the legacy systems to the new platform , they are now choosing for the platform that provides the most comprehensive solution where they can explore multiple channels .
Speaker #8: So this is our main differentiating . We don't disclaim on overall pipeline . How much is B2B , what we are disclaiming is that on the United States and B2B , roughly represents 50% of the deals that we are landing , including a multibillion operation that we are migrating from .
Speaker #8: Legacy systems . So as we establish , we only disclaim new clients when they go live . And I invite you to wait for the quarters to come where we can disclaim more on the customers that we are putting live on B2B in those regions .
Speaker #15: Perfect . And then my second question for you is you guys obviously called out the customers more support line utilizing AI to cut cost , cut costs .
Speaker #15: I'm wondering how much cost are left to be taken out of that line item , or if there's other areas that you guys think you'll implement AI to replace heads .
Speaker #15: Thanks .
Speaker #5: Thanks , Maria . Happy . Happy to start on this one . And I don't know , feel free to chime in as well .
Speaker #5: So on the customer support we started these in Q4 of last year and we roll it out over time and we continue to do so .
Speaker #5: Most of the savings have been captured . We we still could , you know , capture additional savings , but for a very large tier one customers , they still expect some level of personal engagement , not just through through AI .
Speaker #5: And there is also complex support problems that usually a person needs to get involved and not fully AI . So there could be additional .
Speaker #5: Savings , but they they need to , you know , go through these challenges . Let's say . But most of the savings have been captured .
Speaker #5: At this moment . From what we see .
Speaker #8: Yeah . And I would like just adding up here the focus now is to increase quality and how to orchestrate multiple agents to keep our support level in , in the high as we are really recognizing the market as one of the best companies that provide customer support .
Speaker #8: This is a gardener recognition . So we want to keep in the high level of support , recognition with a very efficient layer of operation .
Speaker #8: So this is the goal is now that we reach the efficiency now is to really focus on the quality .
Speaker #4: Perfect . On on that . And I should add that . Yes , as I said before , like we're working very hard on not only on what to build , what software should look like after the AI revolution , but on how we should build software after the AI revolution .
Speaker #4: And we like everybody else , think that this should be much more efficient at building software informed by the AI revolution . But our choice at least right now , is to leverage this efficiency gain of efficiency to have more to put not less expenses .
Speaker #4: So that's that's where we're going with our R&D . We our customers , they they need them . They claim for very comprehensive platform .
Speaker #4: There's always a lot of they ask us and we cannot do because of the lack of throughput . And now we hope that we expecting that this revolution will help us a lot to serve them even better .
Speaker #6: All right . Thank you very much , Matti . And our final question today comes from the line of Gustavo Farias at UBS .
Speaker #6: Gustavo , please go ahead .
Speaker #16: Hi , everyone . Thank you for taking my questions . I'll stick to two . So the first one on B2B . And of course , if you can disclose that , how does the Latin B2B momentum compare to us and Europe , if those new B2B contracts are usually from existing or new clients ?
Speaker #16: And the second 1st May be a follow up on Mariano's answer to an AI question that was that was a previous question . I was wondering the role of Vtex in this new agent Commerce and specifically talking about the new OpenAI commerce protocol .
Speaker #16: So if you could provide any color on the challenges as well as the opportunities you see coming from these new way of of commerce , of doing commerce , it would be very helpful .
Speaker #16: Thank you .
Speaker #8: Okay . Let's see , the B2B progress . So our B2B solution is based in the same commerce platform product that we do have .
Speaker #8: And that's a big strength of our operation . We allow customers to operate multiple channels in a very , very lean way . So our product is the B2B solution is the most exciting and strategic growth drivers for Vtex today .
Speaker #8: It enabled brands already using Vtex for their B2C channels to increase their operations to the B2B or B2B , B2C operators to distributors , service networks and all with the same platform .
Speaker #8: This is a natural extension of our value proposition and opens a market opportunity roughly the same size as B2C market . We are starting to crack the B2B market in Latin .
Speaker #8: That's a little bit behind of what we are seeing in the US and EMEA . In the and EMEA , we are disclaiming that roughly 50% of our pipeline is coming from B2B solution's globally , B2B is becoming a major differentiator differentiator for Vtex .
Speaker #8: Complex migrations like multi-billion dollar US enterprises are moving away from legacy systems to vtex the value proposition is clear . Many , many enterprises are still on the 20 year old system .
Speaker #8: Costly , rigid , not built for AI era and Vtex helps them to cut 3 to 5% of GMV in operating costs while gaining speed and innovation capacity .
Speaker #8: So our B2B solution is AI native with agents that simplify catalog management , automating onboarding , accelerating implementing scale , orchestrating orders through multiple channels .
Speaker #8: It is still early , but the momentum is notable . We see B2B as a transformational opportunity that can significantly accelerate growth , strength , our global footprint and effectively double our addressable market over time .
Speaker #8: Geraldo , we want to .
Speaker #4: Yes , yes , yes . So so about the the agent Commerce and the the rise of the potential new aggregator . Right .
Speaker #4: OpenAI at ChatGPT . So we see the rise of a commerce and open AI in general as a major opportunity to our customers and hence to us , because in our view , it represents the next evolution of digital commerce .
Speaker #4: And it actually seems to strengthen the the model , which was built for open AI approach , looks more like Google and Meta acting as an aggregator .
Speaker #4: Aggregation layers that direct leads and traffic back to brands and retailers rather than like Amazon , Mercado Libre , which owns the full transaction and the opening of the customer of the consumer .
Speaker #4: That's critical because it reinforces the importance of proprietary , brand owned channels where VTEX is structurally advantaged . Our goal is clear with the backbone for connected commerce , the one that powers those channels .
Speaker #4: So we provide everything that happens after that AI agent sent the customers to the brand from pricing and catalog management , checkout fulfillment services , loyalty .
Speaker #4: You mentioned so even if if AI becomes the new front door , the new aggregator , that will expand in the next phase of e-commerce , the text will remain the operating system that runs everything behind it .
Speaker #4: So we are already preparing for this future . We're building AI agents and integrations that connect directly to new protocols like that one that you mentioned .
Speaker #4: Just as we did in the past with marketplaces , social commerce and other sales channels . And because our platform is multi-tenant and data rich , we have these unique advantage in training , commerce specific models that can predict personalized and optimize at scale .
Speaker #4: So we see a generic commerce as a catalyst , one that makes Vtex even more relevant . It plays out to our strength , aligned perfectly with our vision of being the AI native backbone for connected commerce and expands the ecosystem where our customers can win and where we can win with them .
Speaker #4: So it's it's we're very excited with this new channel .
Speaker #16: All right . Very clear . Thank you guys .
Speaker #6: Thanks , Gustavo . And that does conclude our Q&A session today . So I will now turn the call back over to Geraldo Thomaz for closing remarks .
Speaker #6: Geraldo .
Speaker #4: Thank you for the great questions . As we look ahead . Our conviction remains strong . Vitex is operating from a position of strength , a differentiated , scalable product architecture , a focused and experienced team , and a strong balance sheet .
Speaker #4: We're confident in our ability to navigate short term uncertainty while delivering long term value through innovation , execution and disciplined growth . We remain focused on what we can control , united by a clear vision .
Speaker #4: Vitex has proven its resilience not only by delivering consistent margin expansion and strong cash generation , but also by staying deeply committed to the long term levers that will shape the next era of enterprise commerce .
Speaker #4: We're making tangible progress on those levels from our expanding international footprint , where the US and Europe represent an enormous opportunity to the ramp up of new revenue streams like like retail media and B2B and ongoing transformative shifts as our transition to an AI driven company , we believe that AI and a commerce are rewriting the rules of enterprise software .
Speaker #4: And at Vtex , we're not watching it happen . We're actively designing our platform , our organization , and our future in the light of this paradigm , with a multi-tenant architecture outcome based model and a massive aggregated data set , we are uniquely positioned to lead in this next chapter .
Speaker #4: We're building a platform that not only powers commerce , but increasingly executes it . And we're doing it in a way that drives measurable outcomes for our customers .
Speaker #4: And in doing value for our shareholders , we have the strategy . We have the technology , and we have the team , the opportunity ahead of us is exciting , and we are here to seize it .
Speaker #4: Thank you for your continued trust and partnership . We look forward to sharing the next milestones of our journey in the quarter to come .