Good afternoon. Thank you for attending today's VTEX 2022 Financial Results Conference Call. My name is Megan, and I'll be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to Julia Fernanderz with VTEX.

Lipase, everyone, and welcome to the VTEX Earnings Conference Call for the quarter ended December 31, 2022; I'm Julia Fernandez, Investor Relations Director for Vtex. Our senior executives presenting today are Geraldo do Carmo Thomaz, Founder and Co-CEO; and Ricardo Sodre, Chief Financial Officer. Additionally, Mariano Gomide de Faria, Founder and Co-CEO; and Andres Polit, 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 of 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 in the risk factors and forward-looking statement sections of the Bite Form 20-F of the year ended December 31, 2022, and other Vtex filings within the U.S. Securities and Exchange Commission, which are available on our Investor Relations website. Finally, I would like to remind you that during the course of this conference call, we may discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our fourth quarter 2020 earnings press release available on our Investor Relations website. Now let me turn the call over to Geraldo. Geraldo, the floor is yours.

Thank you, Julia. Welcome, everyone, and thanks for joining our fourth quarter 2022 earnings conference call. 2022 was a near full with uncertainty and volatility for the industry. So despite the challenges our customers' performance and business model demonstrated resiliency and the ability to navigate the ever-changing environment smoothly. In 2022, e-commerce in Latin America grew single digits while our GMV growth reached 31%, exceeding the market performance by more than 20%. VTEX same-store sales increased to 17% on an FX-neutral basis indicating that in addition to new customer adds, existing customers performed above the curve and contributed significantly to our outperformance versus the overall market. As we move forward, our focus for 2023 is clear. We aim to consistently drive growth above market performance improve our gross margin and optimize expenses to gain operational efficiencies as we scale. Our goal is to provide a reliable solution to our customers so they can solely focus on expanding their business while at the same time, we continue to strengthen our comprehensive range of a site sales products to enable our customers to grow their GMV. Our global expansion journey is evolving with solid steps made in the U.S. and Europe. We also announced that customers going to other countries such as India and South Africa this year. We expect to continue to deliver consistent and tangible results aiming to become the global backbone for common. Reflecting on the performance of the last quarter of 2022, we're delighted to report that our business has seen resilient growth, although GMV and revenue were below our expectations, we have solidified our position as a regional leader and expanded our reach beyond Latin America. Specifically, in Q4, our GMV increased by 34 percentage year-over-year in U.S. dollars and 29% on an FX-neutral basis, reaching almost…

Thank you, Geraldo. Hi, everyone. It's a pleasure to be here to update you on our financial performance for the fourth quarter of 2022. As highlighted by Geraldo, our Q4 GMV performance reached 34% year-over-year in U.S. dollars and 29% in FX neutral. This quarter, our revenue increased to $45.5 million, a year-over-year increase of 23% in U.S. dollars and 20% in FX neutral. Subscription revenue reached $42.7 million in the fourth quarter of 2022 from $34.5 million in the same quarter last year, a year-over-year increase of 24% in U.S. dollars and 20% in FX neutral. This helped us achieve a revenue of $157.6 million for 2022. Showing a 25% growth in U.S. dollars and 22% on a tax-neutral basis. Although below our expectations, given weak market performance during Black Friday week and the cancellation of the tax free day in Colombia, our active performance versus the overall market give us confidence in our future growth projections. Our revenue from existing stores increased to $113.8 million in 2022, representing a net revenue retention of 105% on FX-neutral basis. When analyzing the number on an annual basis, we see a stable net revenue retention compared to last year. Although still volatile, given macro uncertainty, the exit net revenue retention pace for this year was higher than the annual average. This indicates that the net recitation is returning with historical rates of around 110%, driven by same-store sales approaching historical levels after many quarters of being impacted by tough COVID comps and physical stores reopening. On top of our existing store growth, we continue attracting new stores, adding $21.3 million in revenue to our base, representing 20% of our 2021 VTEX platform revenue. Our sales efficiency measured as new store revenues from the current year divided by the non-GAAP sales and…

[Operator Instructions] Our first question comes from the line of Marcelo Santos with JPMorgan.

My first question I wanted to explore a bit more the gap between GMV and revenue growth. I think in the previous quarter, there was already some gap that widened to, I think, more than 10 points in U.S. dollar. So just wanted to understand the moving parts here. And the second question is regarding the selling expense. I think that was maybe the most noteworthy line. It declined to, I think, around $11 million is its lowest level since the first quarter of 2020 -- 2021, sorry. Could you please describe a bit is just the results of the headcount cut to what else is there and is a sustainable level going forward?

Marcelo, thanks for the question. I'll take the first one. So as we mentioned in the Q&A from last quarter's earnings release, it is crucial to note that the company's revenue is derived from fixed fees and a take rate on our customers' GMV. 2/3 of the revenue comes from the take rate, while the remaining 1/3 comes from fixed fees. Considering that it is natural to have a lower implied take rates in Q4 because the seasonally strong GMV dilutes the fixed fee portion of our revenue. For instance, the implied take rate of the fourth quarter of 2022, although below the fourth quarter of 2021 was in line with the fourth quarter of 2020. These changes in implied take rate is simply a function of our revenue model and mostly driven by mix. It is important to mention that we are not seeing pricing pressure when comparing like-for-like figures. On this point, regarding mix, as mentioned in the prepared remarks, we are adding larger customers to the base who come with a lower variable take rate following our price table. Finally, it's worth noting as well that we are passing through inflation to the fixed fee component of our contracts in most countries. While this is more challenging to achieve in developed economies, we have managed to do so in Brazil and are beginning to implement in some countries in LatAm outside of Brazil as well. For the second question, I'll pass it over to Mariano.

So on the second question, we see a good momentum to do the adjustment from what we saw in the 2021 and 2022 so we keep seeing a strong pipeline in Brazil LatAm. And in rest of the world, we are -- you can expect good contracts and good kind of momentum coming from out of United States and Europe. The cuts that we did in the expenses do not expect to generate any write-off opportunity? In the opposite side. So we are seeing with a lean team, we can absorb more and more the opportunities of this uncertainty that we are seeing in the market. So we don't expect any decrease of our sales operations in terms of performance.

Our next question comes from the line of Fred Mendes with Bank of America Merrill Lynch.

I have two questions as well. I mean the first one, you just called your attention the second, let's say, reduction in head count. Obviously, the world is changing fast. But why -- just trying bit of the strategy and the impact on the team. And then the second one also on the strategy, it's very clear that Vtex is focusing more on becoming profitable. And obviously, the growth is not the same for a lot of reasons. Just wondering how is the discussion of the relationship with the ecosystem, especially the guys who do the implementation of the distribution when you're doing this shift towards increasing profitability

Fred. Thank you for the question. This is Geraldo getting the answer. How are you? So we are maintaining the disciplined operational model, and we are achieving -- to achieve our short-, medium- and long-term growth objectives and potential. We don't feel like we're missing opportunities given one adjustment made, like Mariano said, it's actually the opposite. We see that being lean and agile will enable us to quickly adapt and generate value in this uncertain times. The current growth rate is below naturally on our long-term growth potential considering the macroeconomic conditions. And although we adjusted the team to face the current demand, I would say that we see and we'll continue to be very strong in our investments for the long term. You see that our R&D team, they're very strong today, and we are continuing investing and eventually growing the team a little bit during the year. And as Mariano said, we're adjusting the sales team for the current demand. I think we're -- in the end, we are well positioned to continue winning market share and this will enable us to come out stronger once the market stabilize so we can deploy additional capture to capture the outstanding market opportunity that we have in front of us.

Perfect. Very clear Geraldo.

Our next question comes from the line of Clarke Jeffries with Piper Sandler.

First one is on guidance. Ricardo, is it safe to say that the most important factor contemplated in the revenue guidance, is this dynamic around deployment times, looking at the sort of trend lines of existing store contribution, new store contribution. Is that really the sort of meaning behind all of this? And then with reference to that exit rate being higher than the 105, do you expect 2023 to be a year where it's above 105?

Clark, thanks for your question. Yes, it's fair to say your assumption. As mentioned in the prepared remarks, we continue to see macro uncertainty. This is the environment of high interest rates and inflation may impact consumer consumption, which may impact our same-store sales and the revenue growth from our existing stores. But as also mentioned, the more relevant impact is that we continue to see a stable but longer than average implementation times and ramp-up times, which impacted our new store revenue growth during part of 2022 and we expect to impact the full year of 2023. These 2 factors contributed a combined result in a potentially lower growth in 2023, which we reflected in our guidance. Having said that, we believe we have made the necessary adjustments to come out stronger once this macro situation is resolved. We are capturing market share, as Geraldo mentioned, and we have a well-invested structure to support our long-term growth, which we believe is above the current growth rates that are impacted by the macro scenario.

Certainly. And then one follow-up. Great to see 20-plus percent margins on the existing store cohort, higher margins on the new cohort, especially considering that was a full year number, and I'm sure there's all said and done, the cost reduction initiatives in the second half mean that a higher rate if we were to annualize it. Do you expect those trends to continue in the next year? Would you expect existing stores to maintain that kind of 20% handle in terms of margins? And then any sense for dynamics in terms of margins on new store and all other revenue be that SMB and services?

Yes, Clark. No, that's a good question. So the disclosure that we are making on the P&L splitting between existing stores and new stores. It's an annual cut. So that's the 2022 full year margin. So this 22% margin, it reflects the full year. But as you mentioned, we are exiting as a higher margin because we made adjustments right in the middle of the year, right? We continue to see a good operational leverage in our model. So it would be expected in 2023 for the existing stores to have a higher margin than in 2022. So we'll continue to operate in a disciplined way, but given the operational leverage that should help us moving forward.

Our next question comes from the line of Josh Beck with KeyBanc.

This is Maddie on for Josh. My first question for you is how are you guys thinking about LTV to CAC compared to maybe the historical average? And do you have a goal for that metric going forward? And do you think that we hit the bottom in terms of the headcount, where it's at?

Maddie, thanks for the question. Happy to take the first one. So regarding LTV over CAC as we mentioned in the prepared remarks, it continues to stay above 6x, and we believe this level is a healthy level for a company like ourselves. We also look at the internal rate of returns and the payback time of our customers since we have a pretty low churn. So we don't want to rely on cash flows that are coming from the customers that are far off in advance later in the future. But we do believe that the 6x LTV over CAC is a healthy metric for us to pursue. Sorry, on the second question, could you repeat, please?

Yes. I was just wondering if we've hit the bottom in terms of the headcount number or if there might be more reductions implied?

I can take that. Like for -- I would say that for R&D, we're very comfortable with the headcount that we have. And when we might slide is very increase a little bit depending on the talent that we find on the Street that wants to join Vtex. For the sales and marketing, I would say that it seems to me that, yes, we wish to a bottom, but its -- this is very variable with the actual demand that we find. Eventually, we didn't hit the bottom of the demand, eventually, we might adjust in the future again. But that's not what we are projecting right now.

Very helpful. And then for my follow-up, I was just wondering if you guys can give an update on how the AWS partnership is going? And then secondarily, if you could say if B2B trends are seeing the same sort of headwinds as B2C or if there's any difference there?

Okay, Mariano here. So AWS is one of the foundations partner of Vtex. And in the go-to-market of United States and Europe, they are helping us a lot. So we are part of the marketplace solution of AWS and AWS reps are kind of matching resources with Vtex reps in the field and offering B2B and B2C solution. We already signed some deals together and modules will come. They are an incredible penetrated company in the United States and Europe, and we are serving this incredible partnership on the second question on B2B, yes, we are seeing in the United States, particularly a solid trend on B2B signatures on our contracts. So we already released some public names on the B2B, and we are consistently seeing signatures quarter-over-quarter on the B2B market.

Our next question comes from the line of Andre Salles with UBS.

I have One question regarding competition here. We have seen some movements in Brazil from other platforms, which are more focused on smaller business trying to target larger customers here. Are you seeing substantial changes here in the compensation environment in Brazil, especially in your lower base clients? Or this is more a specific movement?

So thank you for the question, Mariano here, we, of course, saw kind of every year, we do have a new player trying to penetrate Latin America, and they can come from the high end or the low end. And we saw a Shopify penetrating in the Latin American market. But on our low SMB solution, LogIntegrada, we didn't see any kind of huge growth changes in what we expect. So we are on track of what we expect from the company. Yes, there are some kind of flipping from the other vendors to Shopify. But we continue to see a consistent growth from our SMB business.

Thank you. There are no additional questions waiting at this time. So I'll pass the conference back over to the management team for any closing remarks.

In conclusion, while 2022 may have presented some challenges we are optimistic about our ability to drive growth and overcome obstacles in 2023 despite the uncertain macroeconomic environment. We're committed to delivering exceptional service and support our customers and expanding our operations in key regions. We look forward to the opportunities and progress that the new year will bring. Thank you, everyone, for joining us today. I'm looking forward to update you about our progress in our next earnings call. Thank you.

That concludes the VTEX Fourth Quarter 2022 Financial Results Conference Call. Thank you for your participation. I hope you have a wonderful day.