Hello, everyone, and welcome to the VTEX Earnings Conference Call for the Quarter Ended September 30, 2023. I am Julia Vater Fernandez, Investor Relations Director for VTEX. Our senior executives presenting today are Geraldo Thomaz Jr., Founder and Co-CEO; and Ricardo Sodre, Chief Financial Officer. Additionally, Mariano Gomide de Faria, Founder and Co-CEO; and Andre Spolidoro, Chief Statutory 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 of 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 assumed expectations and projections are reasonable in view of the corporate 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 Statements sections of VTEX Form 20-F for the year ended December 31, 2022, and other VTEX's filings within the U.S. Securities and Exchange Commission, which are available on our Investor Relations website. Finally, I would like to remind you that during the course of this conference call, we may discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our third quarter 2023 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 third quarter 2023 earnings conference call. I am pleased to announce that VTEX delivered another quarter of strong results. e achieved a 35% year-over-year growth in GMV, driven by the resilience of the same-store sales from our existing customers and the successful go-lives of new stores. On the latter, despite the ongoing uncertainty in the macroeconomic environment, we are pleased to continue to see a stabilization in the ramp-up periods and implementation times, which, as mentioned before, also contribute to our robust performance. Turning briefly to our financial results, as Ricardo will delve into it later, I'd like to highlight two points. First, we've surpassed our revenue projections, reaching $50.6 million this quarter and a 31% growth year-over-year. Second, we've achieved our breakeven target, from a non-GAAP operating income and free cash flow basis, one quarter before our expectation. This is a clear testament to our focus on growth and the power and scalability of our team. Efficiency is ingrained in our DNA, amplifying our results and bringing us closer to becoming the backbone of commerce. Additionally, we delivered a 36% year-over-year gross profit growth and held expenses steady while accelerating our growth under an uncertain macro, demonstrating our business model's resiliency and operational leverage. Now, let’s go into some operational updates. In Q3, we added several new customers that migrated from other platforms, including Naldo in Argentina; Aiwa, Preçolandia and PicPay B2B in Brazil; Ren-Wil in Canada; ICB Food in Chile; CoopiDrogas, Gabrica, Eurosuper and Mattelsa in Colombia; Vianney and Farma Piel in Mexico; and Beautycounter and Pierce Manufacturing B2B in the U.S. In addition to attracting new customers, we also focused on strengthening our relationships with existing customers, actively supporting their growth initiatives. During the third quarter, several…

Thank you, Geraldo. Hi everyone, I am pleased to share VTEX's Q3 2023 financial results with you. In the nine months of 2023, our performance was consistently strong, surpassing expectations and resulting in positive free cash flow one quarter ahead of schedule. Our Q3 GMV grew by 35% in U.S. Dollars and 28% on an FX-neutral basis, with Q3 revenue reaching $50.6 million, a 31% year-over-year growth in U.S. Dollars and 25% on an FX-neutral basis. Our existing customers remained resilient, and new customers exceeded our expectations with faster-than-expected go-lives. In Q3 2023, our subscription revenue hit $47.5 million, marking a solid 30% year-over-year growth in U.S. Dollars, while services revenue climbed from $2.2 million to $3.1 million, largely due to new project implementations. n Q3 2023, our subscription gross margin continued to increase. Non-GAAP subscription gross profit rose to $36.2 million from $26.9 million in Q3 2022, a 35% increase year-over-year, with the margin at 76.2% compared to 75.3% last quarter and 73.8% in Q3 2022. The 247 bps year-over-year margin increase reflects our commitment towards efficiency and customer success. The margin increase resulted mainly from optimizing our hosting costs and architecture. We're excited about this progress and remain dedicated to delivering further margin improvements in the future. Now, our overall non-GAAP gross profit rose to $35.8 million from $26.3 million in Q3 2022, a 36% increase year-over-year, with the margin at 70.7% compared to 68.0% in Q3 2022. This achievement was driven by hosting improvements, that I just mentioned, and an improvement in our service gross margin in the quarter, as we start dialing back on the hyper-care mode for key new customers in the U.S. and Europe. In Q3 2023, our non-GAAP total operating expenses stood at $34.1 million, remaining steady compared to our previous quarter. Therefore,…

Thank you. [Operator Instructions] Our first question will come from the line of Marcelo Santos with JP Morgan. Please go ahead

Good evening. Thanks for the opportunity to make questions. I have two. The first is if you could comment, what were the main countries that posted the positive surprise and led VTEX to beat the original guidance? So I just wanted to see where the surprise came more from? And the second question is more about the service margin. It was negative, but it was one of the, let's say, lowest negative margin that you ever print, at least that we have history as a reported company, as a listed company. What's the dynamics in there? Why is it so low now? And is there some change in the way you do the services? So if you could comment on that, I would be glad?

Thank you. Hi, Marcelo. Thanks for the question. Great questions. So I'll take this one, Ricardo here. So on the overperformance versus the guidance in Q3, 2023, our robust performance can be attributed to multiple factors with new customers additions playing a significant role, both coming from new ACV signings and the Go-Live of ACVs that were signed in previous quarters. On the latter, we continue to observe a promising trend in regards to the stabilization of our sale and implementation cycle, which had a positive impact in our results. Also on existing customer base, same-store sales, we continue to see growth in the team's level, outperforming the market and slightly above our internal expectations for Q3. And on the country specific, as you ask, we continue to see robust performance across the board. Brazil performed pretty well in Q3. And we also saw the global U.S. and Europe outperforming the overall company. As you know, we provide more detailed numbers on the geographic breakdown on an annual basis. So when we publish Q4 in next quarter, we can give more details on the geographic breakdown. And looking forward, we acknowledge the potential impact of an uncertain macro scenario on the same source sales of existing customers and the sale cycle for new customers. Nevertheless, our competitive position remains strong and we are focused on delivering value and enabling growth for our customers. And with a pipeline of promising projects, implementation and favorable trends in sales cycle stabilization, we are pretty confident in the sustainable growth trajectory that we have. On the second question on the services cross margin, as mentioned in the prepared remarks, we are gradually evolving the hypercare mode for project implementation for Q [ph] new customers, the U.S. and Europe for more ongoing regular modes. So…

Perfect. Great to hear. Thank you very much.

Our next question will come from the line of Maddie Schrage with KeyBank Capital Markets. Please go ahead.

Hey, guys, and thanks for taking my question today. I was wondering if you guys could talk a bit about if you're seeing any price sensitivity when it comes to merchants or even the customer base. And if you comment on what you're seeing top of funnel? And secondly, I'm wondering if you guys could comment on what you're seeing in terms of seasonal spend that we've seen so far in 4Q between October and November? Thanks.

Thanks. Hi, Mariano here. On the price, I can tell you that the high interest rate is bringing a tough environment for all the retailers all over the world. And of course, the retailers are now looking for a more efficient solutions. So we see this as an opportunity. VTEX positioning as a complete and composable platform, allowing customers to be very lean and fast when they need it, but also compose and be custom when they want it. So in terms of price, we see a mood bringing the discussion of the TCO of a commerce platform as something that was not in the table, and now it is. But we see this as a huge opportunity for us as well. On the second, I will invite Sodre to answer.

Yes. Happy to, Mariano. So, Maddie, regarding the holiday season, and how we are seeing it. So we continue to see uncertainty in the micro environment, which makes it challenging to have clear visibility into the holiday season. Last year, we observed a shift in the seasonality a bit, with sales spreading out all over November, instead of concentrating around the typical Black Friday event or week. And there is currently conflicting information regarding holiday season expectations. So we are approaching predictions for sales cautiously. Consumer appear to be eager to make holiday purchases, but they seem to be seeking significant discounts before committing to buying. And on the retailer side, it remains uncertain to which extent they can afford to sacrifice margins to offer substantial discounts and boost sales. So as a result, we are closely monitoring both the end consumer and our customers' activity to assist the latter in performing well during the holiday season. And most importantly, we're taking steps to ensure our customers can entirely rely on our platform during this critical time of the year.

Super helpful. Thanks, guys, and congrats on the quarter.

[Operator Instructions] And your next question will come from the line of Leonardo Olmos with UBS. Please go ahead.

Hello. Sorry about that. Can you hear me?

Yes, we can hear you.

Yes, we can hear you. Go ahead.

Yes, we can hear you.

So, I was on the webcast, so I was a bit late. So can you discuss a little bit the product approach? So if you can talk a little bit about B2B in Brazil, how has that been evolving in all the product launches that you have in the Q3? How is that being accepted by the market in Brazil? Thank you.

Well, thank you, Leonardo. So first of all, B2B seems, it's appearing as a very appealing offer at VTEX. It's not restrained, constrained to Brazil. You just saw the announcement that we announced a PicPay B2B as a go-live. But Brazil is accelerating the sales of B2B a lot. But not only Brazil, Latin America, U.S, we are selling B2B scenarios everywhere. And the beauty of a platform, if you saw -- the Gartner reports, the critical capability reports, we are the number two platform in B2C and B2B in the same platform. This creates a big advantage for our customers because they can deal with one single control panel for both channels. And this also creates a big advantage for us as a product, because we don't redo a lot of the core things that we need to have in both scenarios. So B2B for us is some specialization that we develop in some modules at VTEX so that it works nicely with B2B. B2B also is very customizable. So we have like a customer called Pierce Manufacturing in the U.S. launching a B2B operation with us. And this case is, you will know, you can see that we have the inventory of all the sales that Pierce Manufacturing did in the past for the parts of each truck that they sold and all it's customized in our platform. So B2B is actually a specialization of our e-commerce platform and we are investing a significant amount of energy, specializing even more on modules with features just like buying organizations, capacity to customize through master data. There's several things that we are doing to be more competitive, but we're very competitive already.

Thank you. And another question. Can you discuss a little bit the marketing in Argentina? We've been talking so much about Politico, but can you talk about the retail market and how are seeing things for year end? Thank you

Thank you. Hello, Ricardo here. Happy to take on Argentina. So, on the overall retail market, I think there was some news in the local newspapers in Brazil talking about how consumers are purchasing, accelerating their purchases in Argentina. So we see some of that happening. But more broadly regarding the country, we are closely monitoring the situation in Argentina and the uncertainties surrounding this year's election. Argentina represents roughly 10% of all revenue. And while we have successfully navigated changing Politico and economic conditions in Argentina over the years, we are aware of the challenges and complexities that come with operating in this market. And as mentioned in the earnings release for our Q4 guidance, we are assuming that the Argentine peso will devalue in line with the FX market futures losing roughly half of its value in December. So considering that we have part of our revenue in Argentina, U.S. dollars, this level of FX devaluation would result in a revenue impact of high single digit, roughly million dollars in 2024. And only half of that would flow through to operating income. Therefore, it's a one-off and pretty small impact on our overall business. And having said that, we are confident that despite this potential headwind, VTEX should continue to improve its operating margin and maintain an attractive FX neutral growth rate. As we are very well-positioned in the country, we have a strong competitive position in Argentina. And the underlying growth of the country over the years could be attractive for us.

Yes, sounds great. Thank you very much. And sorry for my background noise. Have a good evening, everyone. Bye-bye.

Thanks a lot.

Your next question will come from the line of Franco Granda with DA Davidson. Please go ahead.

Hi. Good afternoon. Thank you for taking the questions. And congrats on the solid quarter here. Now, I was hoping you could share some statistics with us to highlight or maybe to better characterize the performance of some of the recent product introductions, namely the ones that you talked about back in June at VTEX's day? Thanks.

Happy to do that. Mariano can compliment me if necessary. So we are very excited with developing capabilities to empower the workforce of our customers. Live Shopping is one of them. The personal shopper is another one, the sales app. All these capabilities, the functionality of delivering from store also gives more roles to the sales person inside the physical stores. These are things that we're very excited with and it's very aligned with the broad range of customers that we serve. There's a lot of our customers that can benefit from delivering from store, from integrating the stores, the sales people, the sales person into the digital experience. This is also very powerful for B2B scenarios as well, when you have sales people serving and helping the sales of the manufacturer that is doing the B2B business. So this is something that we're very excited. We, on this topic, there's also the pick and pack capability that it's a tool that enables streamlining of the process of delivering from store. There's no similar tool in the market for to streamline such a process. We are developing some capabilities on top of AI. There's the natural path for this, which is search, our recommendations. These are all AI aid features that we're developing even more, but we're not doing only that. All these new tools that I just mentioned to you, they have also AI capabilities embedded on that, because we're very excited with these capabilities. VTEX is also very committed in delivering security capabilities to our customers. Privacy, compliance, these are also something that we're very excited to deliver to our customers so that they can rely on a robust platform that is elastic and secure, so we can process the data and keep the data as safely as possible.

Great. Now, thanks for the detailed answer there. I was hoping to also get an update in regard to some of the new customers that you talked about during your analyst day. You did give us a few on those, but any updates on Casino and what they're doing there, how their expansion is going, and whether they're planning to expand across entire company in France? Thanks.

Yes, happy to get this as well. In our Investor Day, we disclaim Hearst and Casino. The implementation with Hearst is advancing well and as scheduled, so we expect to provide a further update soon. As you know, we disclaim our clients when they go live. That's the line that we chose to communicate our company. Casino is undergoing a big change. It's a change in control, a huge reorg, so it's a situation that adds meaningful challenges, and we keep you updated if there is any relevant developments on that. Now, it's worth mentioning that implementation timelines can be lengthy, which is why we decided to review new customer names only up on their successful go live. I know that sometimes you become anxious, but we believe that's how we're going to generate more value for the long term of the company. So we want to reinforce that the go live spaces will be our standard practice in un-communicating new clients, just to manage expectations.

Thank you so much for the questions. Yes, of course. Thank you, and a very brief follow-up on that. Maybe if you could speak to the sales cycles, the timing of those quarter-over-quarter, and then year-over-year, if possible. Thanks again.

Hi Franco, Ricardo here. Yes, happy to. So as we mentioned this quarter, we also mentioned last quarter, we are seeing an encouraging stabilization of the sales cycles. They are not back to their historical average, but we are not seeing them worsening, and they have shown a slightly improvement quarter over quarter. Now, on a year-over-year basis, I would say it's more stable as we saw sales cycle deteriorating along last year. So we're starting like in April until towards the end of the year, it was when we saw most of the movement. So it's encouraging to see this stabilization, to slight improvement in the sales cycle. And when we say sales cycle, we are thinking about not only the time it takes to negotiate the contract and sign the contract with the customer, but also the time it takes to implement the software and the customer to go live, and then the initial ramp up of a new customer. So we're thinking about this whole cycle.

Appreciate the call. Thanks.

And there are no further questions at this time. With that, I'll turn the call back over to Geraldo for any closing remarks.

VTEX is entering an exciting phase, reaping the initial rewards of our global expansion investments. We've shown consistent execution and financial results, reaching great keeping and generating cash a quarter ahead of schedule. Our solid quarter, marked by sustainable gross margin improvements and expense discipline, demonstrates the success of our business model, even in uncertain macro conditions. We serve a multitude of models and customer's touch points from B2C, B2B, B2C to physical stores and marketplaces, including live shopping and conversational commerce, among others. VTEX is becoming the platform of choice for forward thinking leaders. And this is just the beginning. Thanks to our customers, partners, investors, and our dedicated team who make it all possible. We look forward to keep you updated at our next turning call. Have a wonderful week.

That will conclude today's meeting. You may now disconnect.