Vtex (VTEX) Q4 2023 Earnings Report, Transcript and Summary

Good afternoon. My name is Audra and I will be your conference operator today. At this time, I would like to welcome everyone to the VTEX Fourth Quarter 2023 Financial Results Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] At this time, I'd like to turn the conference over to Julia Vater Fernandez, Investor Relations Director. Please go ahead.

Hello, everyone, and welcome to the VTEX Earnings conference call for the quarter ended December 31st, 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 Camatta Sodré, 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 31st, 2023, 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 fourth 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 fourth quarter 2023 earnings conference call. In reflecting on our performance throughout the year, it's evident that despite navigating a persistently uncertain macroeconomic landscape, we have consistently surpassed expectations quarter after quarter. The fourth quarter of 2023 was no exception with GMV and revenues growing 28% and 34% year-over-year in U.S. dollars, respectively. Our performance is a testament to the resilience of a sticky enterprise customer base, which affects net same-store sales and net revenue retention reached 15% and 107%, respectively, in 2023 and the successful onboarding of new customers onto our platform. Beyond our robust top line performance, our business model also came to the forefront as demonstrated by our operational leverage that Ricardo will cover later on. In our history, we've built a strong long-lasting enterprise customer relationships. As evidence, we increased the number of customers with annual recurring revenue above $250,000 to $126,000 up from $94,000 last year, and these customers increased their online store count to 692 from 557. Additionally, we increased our global presence to 43 countries from 38 countries last year. Our continuous progress in the top-tier customer base not only highlights our commitment to enterprise customers, but also our product market seats around the globe. This year, we have achieved significant commercial milestones. Some of the net new customers that went live on our platform were BeautyCounter, CornerUp, Hearst, Kayser-Roth and piece manufactured in the US. Rainblue [ph] in Canada and offshore 100 [indiscernible] Beauty in Europe. We also have expanded with existing customers such as Colgate, Motorola, Unilever and Whirpool to many countries around the globe. With this segue let me go to the newly added customers during Q4 of 2023, including Biscoite, John, Obabox, Osklen, and Tiffany in Brazil. Mega [indiscernible] and BSoul in Colombia, Macondo in Italy, 7-eleven, Chapur and Voit in Mexico, Hunter Douglas in Nederlands, Yape Market in Peru, and Hearst and ShopHero in the US. In addition to attracting new customers, we have also focused on strengthening our relationship with existing customers, actively supporting their growth initiatives. During the fourth quarter, several premier brands and retailers chose to expand their operation with us, opening new stores and further integrating with us. This includes Carrefour, who added a new store in Brazil, Atacadão, now operating seven stores in Latin America; Colgate, who added a new store in the US, PCA Skin, now operating in Brazil and the US, both with B2C and B2B models; Motorola, who added a new store in Ecuador, now operating in 20 countries across North America, Latin America, and EMEA; Oshkosh Corporation, who added a new store in the US, Oshkosh Airport Products, together with Pierce Manufacturing they are now operating with two B2B stores in the US; and Probeauty, who added a new store in Romania, Eternal, now operating both B2C and B2B stores in Romania. In 2023, we achieved remarkable milestones in the digital commerce realm. We started the year being recognized as established in Gartner Peer Insight Voice of the Customer, digital commerce. In the second quarter, IDC’s analogies as a major player, and we achieved medals in all 24 categories after 2023 paradigm B2B combined being the exclusive vendor to secure a gold medal for marketplace product capabilities. The third quarter, we were named a Visionary in Gartner Magic Quadrant for digital commerce and became the only vendor ranked in the top 5 for all use cases into 2023 Gartner critical capabilities for digital commerce reports. In the fourth quarter, we were recognized as a leader in IDC's market scale, worldwide mid-market growth B2B digital commerce applications 2023-2024 vendor assessment. VTEX was also recognized by the ecosystem. We were honored as the Global Industry Partner of the Year in Retail and Consumer Packaged Goods at the 2023 AWS Partner Awards and is the best interface developer portal at the Devs Portal Awards 2023. This underscores our commitment to reshape e-commerce through innovation and collaboration. We are happy to share that 2024 started strong. In January, the text was exclusive vendor recognized as the customer choice in 2024 Gartner Voice of the Customers for Digital Commerce. According to the report, 98% of the tax customers expressed the willingness to recommend e-commerce data functional gears. This month, we were recognized as the top leader in IDC MarketScape: Worldwide B2C Digital Commerce Platforms for Midmarket Growth Vendor Assessment Study, rated the highest out of 25 vendors, we stood out for our comprehensive solutions and strategic focus on B2C excellence. We are proud about all the recognitions we got through 2023, and it fuels our dedication to pioneering solutions that empower business for lasting success. Continue our commitment to foresting, our ecosystem and offering our customers the most comprehensive solutions. We're thrilled to announce that in the fourth quarter, we've launched a strategic partnership with Dynamic Yield, a master card company and a leading pioneer in personalizing customer experiences. We're jointly developing a VTEX native innovative app that seems to be integrated with Dynamic Yield plus the cutting edge customer experience optimization platform. In an ever-evolving landscape, we seek to empower our customers to leverage Dynamic Yield’s AI-driven too in order to optimize engagement, lifetime value and revenue generation. Together, we aim to empower brands to easily build tailor experience that resonate with each individual consumer, ultimately with volatilizing the standards of customer engagement and commerce success. Before leaving this stage to Ricardo, I would like to share some customer success cases, demonstrating our platform tangible impact and potential. Our customers are in the spotlight at the core of our organization and the success will always remain our focus. And later on, the leading brand in innovative room appliances, addresses the challenge of absence of physical stores by developing a normal stores with a digital experience at the 2023 Home Fair, a crucial event in the Colombian consumer calendar. These adaptable stores set up at a specific event like the Home Fair, featured kiosks and a sales team equipped with the VTEX subaccount, offering customized catalog and inventory for each occasion. Using the sales app, represented to seamlessly presented products, facilitated advance sales during the walk through the fair, while I think these also have the option to purchase through the self-service kiosk streams. The innovative approach resulted in a 73% sales increase compared to 2022 with the pickup point contributing 30% of total sales and a remarkable 84% growth in units. This success demonstrates Electrolux's ability to sell without physical stores, emphasizing the effectiveness of the digital strategy and the integration of sales apps for an enhanced customer experience. Motorola, the global telecommunication leader, faces a significant challenge with its multiple commerce platform, leading to high maintenance costs and impediments to launching new stores. By migrating to VTEX, Motorola benefited from the platform's adaptability, which was instrumental in streamlining operations and accelerating the establishment of new stores globally. Motorola was able to test third-party applications, optimizing architectures by country and reducing total cost of ownership. As a consequence, Motorola experienced a remarkable 20% annual growth in the company e-commerce businesses. Jeffers Pet, the leading US animal health and supply company, expanded its operation through VTEX, now managing one physical store and two websites. They launched their second website, Lambert Vet Supply, boasting over 4,000 SKUs. Leveraging VTEX's adaptability, they tailored their site for detailed pet registration, seamlessly integrated with master data for streamlined checkout processes. Moreover, VTEX allowed customizations to support Lambert's subscription strategy, offering varying time spans from two weeks to six months, alongside a tailored vaccine delivery approach, enhancing the consumer experience. The unified web platform across multiple sites proved beneficial, reflected in Lambert Vet's exceptional results, a staggering 208% sales surge within three weeks of its launch. Flamingo, a retailer with over 40 stores across Colombia, partnered with VTEX to expand their online payment options. By integrating their widely used private label credit card, MeFia [ph], Flamingo was able to reach a wider audience. Through the VTEX platform, MeFia was seamlessly integrated as a native payment option, ensuring scalability and adaptability for Flamingo, and all willing VTEX customers who want to use this payment method. For Flamingo, with these native payment methods, now represents more than 60% of digital sales, significantly improving its user experience, accelerating its sales, and solidifying its position in the digital market. The largest tool company in the world recognized the immense potential of implementing a self-service platform on its B2B operation through VTEX. The implementation allowed them to expedite its user ordering experience across three major business units by eliminating cumbersome offline processes. The project generated time and effort saving in the ordering process, while at the same time, reducing costs and increasing efficiency. By migrating to VTEX, they merged their traditional e-commerce site with the B2B site, creating a unified and connected commerce experience, and providing a user-friendly B2C or D2C buying journey across both operations. To conclude this section, I would like to express my gratitude to our 1,277 VTEX employees dedicated to making VTEX the backbone for connected commerce and to our customers, partners and investors. I will now hand the call over to Ricardo to discuss our financial performance for the quarter. Ricardo Camatta Sodré: Thank you, Geraldo. Hi, everyone. It's a pleasure to be here to update you on our financial performance for the fourth quarter of 2023. In the last quarter of the year, our GMV reached $5.4 billion, representing a year-over-year increase of 38% in US dollars and 30% in FX neutral. With this, we concluded the full year 2023, reaching $16.5 billion in GMV, representing a growth of 30% and 25% in US dollars in FX neutral, respectively. Our same-store sales in 2023 reached 15% in FX neutral on top of 17% from 2022. Despite the same-store sales slight decrease versus 2022, the up-sell of new features to existing stores and contract inflation adjustment contributed to a net revenue rotation increase to 107% in FX neutral in 2023 compared to 105% last year. Also, the contribution to GMV from new stores added throughout the year, especially for customers paying us more than $250,000 per year and helped us achieve a solid GMV performance in the year. Our revenue reached at $60.7 million in the fourth quarter 2023, a year-over-year increase of 34% in US dollars and 25% in FX neutral. This helped us achieve $201.5 million revenue for the full year 2023, showing a 28% growth in US dollars and 24% on a FX-neutral basis. Most of global performance versus guidance was driven by better than expected FX fuel performance during October and November as well as the appreciation of the basket of Latin American currencies versus the US dollar. Subscription revenue reached $58.3 million in the fourth quarter of 2023 from $42.7 million in the same quarter last year, a year-over-year increase of 36% in US dollars and 27% in FX-neutral. For the full year, subscription revenue reached $190.3 million, up from $148.5 million in 2022. Double clicking on our 2023 subscription revenue, existing stores revenue increased to $146.0 million. Our net revenue retention reached 107% in FX-neutral. As mentioned, despite a challenging retail market in slightly lower same-store sales versus 2022, our upsell efforts of sales app, taken back extensions hub and the inflation adjustment of customer contracts resulted in an increase in our net revenue imitation. On top of our existing stores growth, we continue attracting new stores, adding $27.7 million in revenue to our base, representing approximately 20% of our 2022 VTEX platform revenue. This year's outcome indicates a stabilization to modest improvement in our sales cycle compared to the innovation observed in 2022. As anticipated, we saw a slight improvement in our sales efficiency compared to the previous year, a testament to the strategic high efficiency measures implemented in mid-2022 and follow through 2023. Consequently, our LTV over CAC ratio continues to stand strong, exceeding the 6x mark. As mentioned by Geraldo, we continue expanding our geographical reach with revenues outside of Brazil accounting for 46% of our total revenues. In 2023, in Brazil, Latin America, excluding Brazil and the rest of the world grew 23%, 21% and 37% on a year-over-year FX non-trough basis, respectively. Now moving down our P&L. It's important to notice that all the figures are present are on a non-GAAP basis. You can find the reconciliation of those measures to the nearest comparable GAAP measures in our fourth quarter 2023 earnings press release available on our Investor Relations website. In the fourth quarter of 2023, our subscription gross margins saw a significant increase, reaching $45.8 million, representing a margin of 78.6% compared to 73.5% in the same quarter of last year. The 510 basis point margin expansion underscores our team's dedication to consistently find efficiencies in our cold, providers and other hosting aspects. Looking forward, we expect to deliver less significant year-over-year subscription gross margin improvements. As a result, we have achieved a 74% gross margin, representing a year-over-year expansion of 562 basis points. This expansion on top of our subscription gross margin is further amplified by additional improvements in our services gross margin. In the fourth quarter of 2023, our total operating expenses decreased quarter-over-quarter to $33.4 million from $34.1 million, demonstrating the expense discipline we have maintained over the past two quarters. About a year ago, we committed to achieving our sustainable breakeven point on an operating income and free cash flow basis by the fourth quarter 2023. Surpassing our initial projections, we accomplished these milestones a quarter earlier than anticipated. In the third quarter of 2020, we reached a positive 3.4% operating margin and a positive free cash flow of $2.7 million. Now in fourth quarter 2023, we achieved a multiple 19% positive operating margin and a positive free cash flow of $9.5 million. Looking at the full year, we reached a positive 3.8% operating margin and a free cash flow of $3.8 million. This demonstrates our dedication to sustainable growth, positioning us ahead of our target financial milestones. Our fourth quarter 2023 performance showcases the operational leverage inherent in our business model, faring a solid foundation for future and supporting the target model we shared at the Investor Day. For instance, our subscription gross margin reached 79%, slightly below the 80% target model, and our overall gross margin stood at a solid 74%, closely in line with the 75% ARR model. Expenses in S&M, R&D and G&A were 23%, 20% and 11%, respectively, closely in line with the 20% to 25% for both S&M and R&D and 10% for G&A from our target model. As a consequence, our EBITDA margin reached 19%, also quite close to the 20% from the target model. Moreover, given our 25% FX-neutral revenue growth, this translated into a rule of 44%, which is over the 40% plus indication from the target model. Now it's important to mention that our Q4 results are strongly supported by seasonality. Although this performance demonstrates our operational leverage and a clear path to sustainable growth, we are still a few years away from reaching our target model on a yearly basis. Before moving to our Q1 and full year 2024 outlook, I would like to remind the audience that from a business perspective, when you think about our P&L as a combination of two P&Ls, our existing stores, P&L and our new store P&L. You will find this reference in Slide 28 of our fourth quarter earnings presentation. VTEX existing stores revenue, excluding our SMB platform represented approximately 80% of our revenue, while our new stores revenue, also excluding our SMB platform represented approximately 20%. Our existing customers' gross margin reached 77% this year, approximately 400 basis points higher than last year. The gross margin profile of our new stores remained stable at 45% despite the pressure on services margins generated by the Hypercare mode for specific global expansion customers. The operating margin from existing stores increased from low 20s in 2022 to mid-30s in 2023, while the operating margin losses from new stores improved by 74 percentage points. 2023 notably served as the initial clean year following our organization restructuring and efficient growth plan initiated in May 2022. We believe it's fair to assume that while we anticipate ongoing margin expansion given our operational leverage, we have already attained a normalized operational level for the demand that we are receiving from the market. On the share repurchase program, we approved in August of 2023. As of December 31, 2023, no remaining balance is available for share repurchase under this authorization. We purchased 1.9 million shares at an average price of $5.41 per share. Considering repurchase since August of 2022, total shares repurchased reached $10.7 million, with an average price of $4.48 per share and a total cost of $48 million. As we move forward with our business outlook, it's important to note that the macroeconomic conditions remain uncertain, even though we have witnessed a stabilization and slight improvement in our sales cycle, they haven't yet returned back to its normal duration. Despite these challenges, which mostly impact our new stores time to revenue, we remain confident in our ability to help our customers outperform the market and control our cost and expenses to deliver operational leverage. Considering the macro conditions, we are currently targeting revenue in the $52.5 million to $53.5 million range for the first quarter of 2024, implying a year-over-year growth of 22% on an FX-neutral basis in the middle of the range. Also, given the persistent macroeconomic uncertainty for the full year 2024, we are targeting an FX-neutral year-over-year revenue growth of 18% to 22% implying a range of $234 million to $243 million based on January's average FX rate with free cash flow and non-GAAP operating income margins reaching mid- to high single digits. With that, let's open it up for questions now. Thank you.

Thank you. [Operator Instructions] We'll go first to Leonardo Olmos at UBS.

Hi, good evening, everyone. Congrats on the results once again. So my question is around the employee requirements, the company may have versus growth. So in the end, I wanted to know was that if the guidance of mid to high single digits of operating margin, does it -- is it all correlated to your lower growth expectations or deceleration expectation on an FX-neutral base for 2024, right? But then my question, what happens if you accelerate, if you deliver additional growth as you grow in 2023, do you think your operating margin would be lower? Thank you. Ricardo Camatta Sodré: Hi, Leonardo. Ricardo here. Thanks for the question. Great question, important for us to be aligned. So talking about the overall expenses, and then we can think about the guidance and what is our mental model on this topic. So as you can see from our Q4 results, we continue to be disciplined on our expenses, you can see that the expenses were roughly flattish quarter-over-quarter, a slight decrease. Now looking forward, this quarter, we are also providing guidance on our free cash flow and non-GAAP operating income margins for 2024. And our guidance suggests achieving mid to high single-digit operating income margin, as you mentioned. So considering our growth outlook and anticipating more limited gross margin improvements, we will remain disciplined on our expenses profile for 2024. You should expect some incremental expenses given inflation, promotions and a potential small headcount increase, and we are confident in our level of investments in sales and marketing to meet the market demand and our robust G&A team, and we plan to make some hires in research and development, targeting the opportunities outlined in the founder's letter in our annual report. Now any expenses increase should be significantly below our revenue growth. Having said that, it's important for us to maintain flexibility in adapting the company as needed in response to demand. So this goes to your question, like, how we will adapt the company given different growth rates. If we look further out, it's important to emphasize that VTEX mindset is aligned with the rule of vary. This means that in a hypothetical case, we see a higher revenue growth opportunity, we may adjust our investments accordingly to capture this opportunity. Or if we see a lower revenue growth scenario, we will adjust our expenses to improve profitability. So hopefully, that answered the question Leonardo.

Yeah. Crystal clear. So not guiding, but just an interpretation of what is said. If you have growth slightly above what you have, we're probably going to see operating leverage. But if you have a super growth, we may see some additional investments. That would be a proper interpretation. Ricardo Camatta Sodré: Yeah, Leonardo, I think as I said in my answer, this is maybe looking further out for other years. I think for the 2024, we have our budget and our guidance. So I think it's a little bit less what we will adjust within the year because you start the year already contracted in some things. But as the mental model and as you think about the mindset, this is how we would think about it going further out.

Okay. This is helpful. A quick follow-up another question and my last one sorry about that, with the share repurchase program that you did, how do you see -- what opportunities do you see capital allocation this year more share of repurchases or are there other things? Thank you. Ricardo Camatta Sodré: Yeah. Hi Leo happy to take this one as well. So as we mentioned in the prepared remarks, we already consumed 100% of the 2023 buyback program. So we no longer have an active plan in place right now. And as a high-growth company, we always seek opportunities to invest our resources and drive growth. With our robust cash position and a clear understanding of this year's capital allocation, we will always seek to balance our organic growth plans, M&A opportunities and buybacks in the best interest of the long-term oriented shareholders. So I would say probably in this order, but that's the mindset.

Understood. Thank you very much. Have a good evening.

We'll go next to Luca Brandon at Bank of America. Mr. Brandon, your line is open. You may be muted.

Hello, can you hear me?

Yes, we can.

Okay. Perfect. Thank you. Thanks. Actually, this is Fred here. Thanks for the call. I have two questions here. The first is, if you can just give us an idea about what type of environment is included in the guidance. Given the strong 4Q results, the guide looks at first a little conservative. So just kind of the environment that you are seeing for that, this would be my first question. And then my second question, for the year 2023, assuming that was basically no growth in the e-commerce segment. And if you grow a lot it looks like you gained a lot of market share, especially in Brazil. So just trying to understand if you can comment a little bit on that on the environment is actually you saw yourself, you are gaining a lot of market share, where you gaining any way? Any color you could give on that would be great. Thank you very much.

Yeah. Hi, Fred thanks for the question to give us the opportunity to explain a little bit how we're thinking about the guidance for 2024. So we are starting this year in a more favorable position than we started in 2023. So just to rewind the tape a little bit, we started 2023 with our guidance of 15% to 19% FX neutral revenue growth. We are now starting this year with 18% to 22%. And as the range shows, there is still a relevant level of uncertainty in the market. Top down, we see that uncertainty expressed by the 30% to 40% recession probability currently priced by the market. And bottom up we see that expressed by our customers' GMV volatility. And going into the assumptions, that's based in our guidance from the perspective of existing customers we are assuming that our same-store sales and net revenue retention will remain around the current levels. And looking at new customers, we are assuming that the sales cycle, including implementation and ramp-up times will also remain relatively stable versus what we saw over the second half of 2023. And then on margins, we will continue to control our costs and expenses, and therefore, our operating leverage should lead our non-GAAP operating income and free cash flow margins to reach mid-to-high single digits. Finally, we always talk about our guidance in FX neutral. And we mentioned the implied US dollar revenue based on certain FX assumptions. So on this part, for 2024 we are assuming the January average FX for the full year, which is also aligned with the year-end FX consensus. In the case of Argentina, as already mentioned in our Q3 earnings Q&A session, the 50%-plus devaluation of last December should result in a mid-single-digit percentage point headwind in our 2024 US dollar growth and a more moderate impact in FX neutral as economic activity and retail may get impacted by the macroeconomic adjustment of the country. It's also important to mention that the devaluation in Argentina should have a low to mid-single-digit operating margin impact for VTEX in 2024, which was already accounted for in our 2024 margin guidance. Having said that, although with some GMV volatility, we are happy with how we are starting the year and we consider our guidance well balanced given the macro uncertainty that we see in the market. And then I think question one was our overall performance on the GMV side versus the market. So I'll pass this over to Geraldo.

Thank you to Ricardo. The -- thank you for this question. In fact, you're right, like the global e-commerce grew according to market here around 9% globally and 14% in Latin America last year. And this is one statistic. There are other statistics, especially for Brazil. They see that eventually e-commerce was flattish or even negative in Brazil for some statistics. And we consistently outpaced the market. Our GMV growth for the whole company was 25% FX-neutral, 30% US dollars and even bigger growth in Q4 of last year, 38% in GMV growth for US dollars and 30% in FX-neutral. This growth is caused by new customers. We added in revenue, $28 million with new customers last year, which is notable like we grew the customer logo. But our current customer, they seem to be -- we always notice that and last year was not different. Our customers are resilient customer trough prices. Our same-store sales reached 19% in USD and 15% growth in FX-neutral. And I think our healthy same-store sales performance can be attributed to the time integration of physical stores into the digital commerce experience. I think we did the lot of this last year that was relevant customers that started to deliver from store and use the store for the digital commerce experience. And this is resulting in higher conversion rate expanded inventories turn inventories breakages, faster deleverages among other advantages. So I think in summary, our value proposition resonate here. We're empowering customers to achieve sustainable, profitable growth by reducing their total cost of ownership and simplifying their e-commerce architecture. And this aligns seamlessly with the evolving demand of the market, enabling them to design strategy that outperform the market. I think you saw right. And again, we were able -- our customers were able to outperform the market.

Perfect. Super clear. Thank you, Geraldo. Thank you, Ricardo.

We'll move to our next question from Marcelo Santos at JPMorgan.

Hi, good evening. Thanks for taking my questions. I have two. The first, I just wanted to go again to the guidance. Sorry about that. I wanted to understand a bit better if the existing customers will have same-store sales and net revenue retention kind of around current levels and the sales cycle remains stable. Should you kind of have similar growth than you had in 2023? Just wanted to do in losing what I'm missing here, but it seems you're keeping stable the same assumption. So, why isn't the growth the same? The second question is more conceptual. The new stores increased 100, right, versus last year. And in the past, you used to increase much more. Is it because you are adding larger and larger stores? I mean how are you keeping growth, but adding fewer stores? What's the change in profile and how should this move forward? Thank you. Ricardo Camatta Sodré: Hi Marcelo, thanks for both questions. I'll start here and then others could chime in. So, on the guidance, right? As I mentioned, the same-store sales, we are assuming to be in a relatively same level. And the new stores, we are assuming also that will continue in a similar sales cycle. Now, you have to rewind the tape to think about the effects on the growth, because we saw innovation of the sales cycle in 2022 that pushed some revenue further out. And then in 2023, we saw the sales cycle stabilize and getting slightly better that pull some revenue forward, right? So we don't have that pull-forward effect in 2024 that we saw in 2023. And maybe explaining a bit more on the overall what we are seeing here is that, as we mentioned, we see a good level of uncertainty in the market, which is expressed to us by our customers' GMV volatility. And looking at Q4, we saw stronger months and last strong months. And we continue to see that volatility going into 2024. And despite starting the year in a better position than the previous one, our ability to predict short-term outcomes is more reliable than making predictions for the entire year. Nevertheless, we maintain optimism about our capability to surpass market growth and achieve our profitability targets, and we reinforce our commitment to excellence in execution, regardless of the external circumstances. We are gaining market share, managing costs and expenses and expanding internationally. By staying focused on delivering outstanding results, we can emerge from this macro uncertainty as a stronger and more resilient company. So hopefully, this answers the first question. On the second question, on number of customers. Although the number of customers stayed relatively flat this year versus last year on 2,600 customers, our number of stores increased by 4% to 3,500 stores. And most importantly, the number of customers that pay us more than $250,000 per year increased by 34% to 126 customers. These larger customers with more than $250,000 in revenue to us per year are the ones that moved the needle. They are the customers that are receiving most of our commercial efforts. And in 2023, they represented roughly half of our subscription revenue, and this customer group was responsible for roughly two-thirds of our subscription revenue growth. It's also important to note that more than one-third of the increase in this customer group count came from net new customers. And it's also nice to see a meaningful number of customers growing and up tiering to now join this group. And finally, although with some volatility from year-to-year, we continue to see our annual revenue churn in the mid-single-digit percentages, an attractive rate for e-commerce, enterprise software-as-a-service solution.

Very comprehensive. Thank you.

We'll go to our next question from Clarke Jeffries of Piper Sandler.

Hello. Thank you for taking the question. Two for Riccardo, great to see that the operating margin from the existing store front, I think that's a pretty impressive number in terms of expansion year-over-year. I think we've talked before about a longer-term ambition of being a Rule of 40 company. I would expect that, that existing store margin would continue to trend higher. But any way to think about the shape of the curve for further improvement from here? I mean, would it may not be right to assume that it will be as pronounced in 2024 in terms of the margin improvement, but we'll be steadily moving to an accretive margin to the corporate number from existing stores? And then one follow-up. Ricardo Camatta Sodré: Yes. Hi, Clarke. Great question. On the existing store margin, we update this every year, right? So you can see that in 2023, we reached roughly 35% operating income margin for the existing stores coming from low 20s in 2022. So a meaningful improvement there. And then if you think about that P&L and the rule of 40 of that P&L, right, the net limitation is the growth of that P&L, right? And it was 107, so 7% growth. So on a rule of 40 basis, the existing stores, it was like 42%, right, for the year. So it's nice to see that. Now as I said in the prepared remarks, we adjusted the company for the level of the demand that we are seeing and also for the project that we are working on and the G&A expenses. So we see this company as well adjusted on the existing store side. So improvements from here, it's more on the operational level, operational leverage type of movement than any significant movement that we saw year-over-year from 2022 to 2023. So nothing as meaningful that we are indicating for now on this. But it's nice to see this at a good level as it shows the potential for the company down the road, right? Hopefully, that answers the question.

Yes. That makes a lot of sense. And then just in terms of the composition of growth this year, it seems like you were able to have above 20% FX-neutral growth in all of Latam accretive to that and rest of world. In the coming year, would you say it's fair to say that you would have expected 20% plus FX neutral growth in the coming year in Latam, if it wasn't for the devaluation currency effects? Or any way to think about the sort of sustainable growth threshold for LatAm as a 90% mix of the business? Thank you. Ricardo Camatta Sodré: So Latin America continues to be a region with incredible potential for VTEX. While we are -- we hold a leadership position in the region, it is still different from the stronghold we have in Brazil. So furthermore, we still see an opportunity to advance the ecosystem maturity towards the level we currently see in Brazil to the entire region of Latam. We remain committed to executing our nurturing strategy and reinforcing our regional ecosystem in the whole region. So countries as Mexico are in a less advanced stage comparing to Brazil, comparing to Colombia, as it was one of the last markets we entered in Latin America. So we see great opportunity to enhance our network in Mexico. However, it is experiencing healthy growth as we are excited about the opportunity. It represents for VTEX. There are many volatility in Latam as well. So we are cautious, optimistic with the Latam expansion. We see great opportunities in B2B, great opportunities in the penetration of e-commerce, but we need to be cautiously optimistic about it. We already have notable success histories in Mexico, for example, Elektra, Chedraui, Nadro, and we persist to acquiring more half reference cases as we speak. As you can see, our results in 2023, Brazil and Latam grew in a similar basis. So Brazil is supported by strong ecosystem and high win rates and attention supported by large opportunity with big market shares still to be developed. So the foundations, if I can summary my answer, the foundations for growth in LatAm will come from the e-commerce penetration and our positioning as the leader in the region and also the B2B demand that is increasing consistently in the region, creating a growth opportunity as well. It is also increasing in US and Europe. So B2B is summing up on the foundations for the future growth.

Perfect. Thank you very much.

And we'll move next to Matt Schrage at KeyBank Capital Markets.

Hey, guys, and thanks for taking my question. My first one is, we saw a healthy step-up in NRR this year. Just wondering if you have kind of like a long-term sustainable NRR rate that may be targeted? And then my second question is on the pricing environment. Wondering if you've seen any changes in pricing in LatAm, but also as you're entering the US market, we saw Shopify take up pricing. I'm just wondering if that might create some opportunity for you guys as well? Thanks. Ricardo Camatta Sodré: Yeah. Hi. Hi Maddie thanks for the question. I can start with the first one on the net revenue retention, and then I'll pass it over to Mariano on pricing. So the mental model for our net revenue retention is basically going back to our revenue model, roughly one-third of our revenue comes from a Fixed Fee and should turn from a Take Rate. So roughly two-thirds of our same-store sales growth turns into revenue growth for us. And then if you take out the churn, you kind of get to the net revenue retention. Now if you do this math with the 2023 numbers, you get to slightly below to the net revenue retention that we had for the year. And that's because, as I mentioned in the prepared remarks, we had the inflation adjustment on our fixed fee portion of the revenue. And two, and most importantly, we have sold some of our existing customers with sales Pick and Pack expansions hub, integrating the physical stores into the VTEX platform and so on, so they can do the fulfillment from the store and that helped slightly on our net revenue retention performance. Now, thinking further out, it depends on the overall e-commerce growth and our potential overperformance versus the overall market growth as historically we have overperformed, as Geraldo mentioned, but it's hard for us to pinpoint a specific number here, given that it depends on how this will evolve going forward. Now, if we look historically, we have been at 105 for the past two years, and then last year, 107. Pre-pandemic, this was more in the 110 type of range as e-commerce was still in the initial phases of penetration. Now, we still see a good potential of growth in the penetration of e-commerce. Latin America is roughly in the 10%, 11%, 12% penetration, depending on the source and then the U.S. is 18% to 20%, depending on the source. So, we still see a good level of potential incremental penetration to happen and e-commerce growth once the macro uncertainty stabilizes, So I think that's it on the net revenue retention and then on pricing, I'll pass it over to you, Mariano.

I can take it. This is Geraldo speaking. Thank you for the question. Let me -- I will do a quick recap about our pricing strategy. And we are here to have long-term relationships with our customers. We want predictable pricing with our customers to do a business model on top of our price and we tend to be healthy using us with no total cost of ownership. And this is the org of us having a price that is a take rate. I think this is very fair. And we note this pricing so that the customer pays less take rate as they grow. This is a pricing strategy that we use since 2012, very stable price. Ecosystem knows about the price already and people trust us because of this price structure and the stability of our pricing. So our price in general -- and our price in general like every other eCommerce platform, are kind of the same across the globe because other platforms also charged almost the same, we charge mostly the same as well. You mentioned that Shopify is charging more for the US customers. I would say we saw that. We saw this happening. Shopify deals with the different kind of customers than we did -- than we do. We deal with more enterprise customers to Shopify change in pricing, and doesn't affect our positioning and competitiveness that much. Naturally, if they increase their pricing, it gives us some room to eventually in the low-term future increase hours as well. But we do believe that the stability in the price is important for us. But we also do some upselling. Most of the upselling that we do naturally is on the take rate. We have big incentives to make our customers grow their GMV, and if they grow, we will upsell them. But recently, we also -- because of our R&D effort, we are developing other kind of add-ons to the platform, so that add-on a new product so that we can upsell our customers. The biggest one of them is B2B. We can upsell our customers for the B2B scenario. And this is a very good upsell with them that affects -- it doesn't affect the NRR because it's a different store usually, but we do also have the live shopping. We charge a little bit of fixed rate when they are delivering from store. We charge when they're using the pick-and-pack app. We usually charge an extra fee when our customer use a feature that is not broadly available among other e-commerce platforms. So, this is -- and this is how we will also contribute to a better NRR in the medium and long-term, selling other products that we develop using our R&D investments. But most of our NRR will continue to come from us helping growing the GMV of our customers.

Thank you for the thorough response, guys. Appreciate it.

And there are no further questions at this time. I would like to turn the conference over to Geraldo for closing remarks.

Look ahead to 2024, our dedication to drive innovation remains stronger than ever. The tax remains steadfast in supporting our customer strategic commerce investments, fostering growth and boosting profitability. We're thrilled to serve as the backbone for connected commerce dedicated to empowering our customers in achieving their growth ambition. Latin America's Internet penetration continues to offer a promising growth opportunity. We will be focused on strengthening our regional leadership and expanding our presence in the US and Europe and unlocking further growth for detect. We're thrilled by the progress we've made in our global expansion this year, but this journey is far follower. We're truly optimistic about the promising opportunities ahead. This year, March just the beginning of what we envision as a transformative journey for VTEX. Thank you very much for being part of this ongoing journey with us. We look forward to keep you updated at our next earnings call. Have a wonderful week.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.