Hello everyone, and welcome to the VTEX Earnings Conference Call for the Quarter Ended December 31, 2021. I'm Julia Vater Fernández, Investor Relations Director for VTEX. Our senior executives presenting today are Geraldo Thomaz Júnior, Founder and Co-CEO; and Ricardo Camatta Sodré, Finance Executive Officer.

Additionally, André Spolidoro, Chief Financial Officer will be available during today's Q&A session. I would like to remind you that management may make forward-looking statements related to such matters as continued growth prospects for the company, industry trends and product and technology initiatives.

These statements are based on current available information and our current assumptions, expectations and projections about future events. While we believe that our assumptions, expectations and projections are reasonable in view of the current available information, you are cautioned not to place undue reliance on these forward-looking statements.

Certain risks and uncertainties are described under Risk Factors and Cautionary Statements Regarding Forward-Looking Statements section of VTEX's registration statement on Form F-1/A and other VTEX's filings with 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 2021 earnings press release available on our Investor Relations website. Now let me turn the call over to Geraldo.

Geraldo, the floor is yours. .

G&A, R&D and S&M. And now, it's time to let this team mature reach efficiencies and show the world what we are capable of. In 2022, we expect to grow our team at a more measured pace. By reaping the benefits of the investments made in 2021, we will grow at a strong pace in 2022, while at the same time delivering significant operating margin expansion.

Now before I'll turn the call to Ricardo, I would like to announce that we will be hosting the VTEX Day, the biggest e-commerce event in Latin America and the third globally on April 12 and 13 in Sao Paulo. I would like to invite you to come experience VTEX's culture and see the power of our ecosystem in this magnificent event.

In 2019, the last year we could do this in person, we had more than 20,000 attendees and more than 160 amazing speakers. We are confident we will have another amazing event this year. Being mindful of social distancing and health safety, the event will be limited in terms of attendees. So book your place quickly and stay tuned.

We will be more than happy to have you all with us. Ricardo, I will leave you to cover our financial progress report for the quarter..

our existing stores' P&L and our new stores' P&L. You'll find this reference in Slide 28 of our fourth quarter earnings presentation. VTEX existing stores' revenue excluding our SMB platform, represented approximately 80% of total revenues. This P&L has an attractive operating margin and grows at our net revenue retention rate.

We don't have any significant sales and marketing expenses to serve our existing stores. We only have support costs, which we already included in our subscription cost.

These existing stores' P&L grows with our net revenue retention, which is mainly driven by the same-store sales growth of our existing stores, our variable revenue as a percentage of our total revenue and our annual revenue churn. Our new stores' revenue, also excluding our SMB platform, represented approximately 20% of total revenues.

This P&L has a negative operating margin, but brings new stores to our base with attractive unit economics. Targeting new stores is a key focus of our sales and marketing team, so this P&L includes almost all those expenses. Now comparing our P&L breakdown for 2020 and 2021. There are a couple of comments I'd like to make.

We are exiting the year at a subscription gross margin of 70%, so even higher than the overall gross margin for 2020. On the other hand, in the new stores' P&L, the 35% gross margin in 2021 is simply a result of a higher mix of new stores in the overall base and the additional services these new stores require to go live.

When analyzing the expenses, it is important to note that we estimate that in 2021, 25% of our expenses were related to our global expansion outside of Latin America. More precisely 35% of our S&M, 15% of our R&D, and 10% of our G&A expenses. Therefore, the increase in sales and marketing in new stores' P&L is mostly explained by our global expansion.

The increase in R&D is explained by our global expansion and our investments in new products and capabilities that may drive additional future growth. And the increase in G&A is mostly explained by our investments to become a public company, which is already reducing as a percentage of revenue over the last four quarters. Now moving to our outlook.

We expect to continue seeing strong new stores growth as our encouraging backlog undergoes implementation. In Q1, our existing stores will face tougher comps than the ones in Q4, as many countries in LatAm were experiencing a second wave of COVID during the first quarter of 2021. Nevertheless, we expect our revenue growth to continue at a strong pace.

With that said, we are targeting revenue in the $33.0 million to $33.5 million range for the first quarter of 2022, implying a 30% year-over-year FX neutral growth rates in the middle of the range.

For the full year 2022, we expect FX neutral revenue growth of 29% to 31% implying a range of $158 million to $162 million as of fourth quarter end-of-period FX rates.

Wrapping up today's call, we want to reinforce that VTEX as the leading digital commerce platform in Latin America, the fastest-growing region for e-commerce in the world and yet overwhelmingly underpenetrated is better positioned than ever to continue delivering strong results.

On top of that, we are also only scratching the surface of our global opportunity. We have an exciting road ahead of us, and we are encouraged to conquer this journey with our employees, customers, partners and investors by our side. Thanks everyone for joining this conference call. We look forward to keeping you updated on our progress next quarter.

With that, let's open it up for questions now..

Thank you. [Operator Instructions] Our first question today comes from Clarke Jeffries from Piper Sandler. Please go ahead. Your line is now open..

Hello. Thank you for taking the question. First question is how we should view your hiring plans for 2022. Obviously, a large investment here. Headcount has grown from roughly 850 five quarters ago to now more than 1,700.

How is the hiring shaping up for 2022? And maybe I think specifically, how we think -- we should think about the margin profile based off of those Rest of the World investments? And then I have one follow-up. .

R&D, sales and marketing, G&A. And this was a very important moment. We're now attracting very good people, and we're growing the team a lot. After the IPO, we continued hiring a lot more people.

And these are the brands that -- the employer brand that the IPO brought to us was very important for us to find key people that we were missing in the organization and -- before the IPO and we hired them. I would say that now after maybe, I think, Sodré or André correct me if I'm wrong. But I guess as I said, we tripled our workforce since 2019.

For this year, I said that we're not hiring anybody, but we expect that our revenue will grow more than the expenses of the company and you will start to see positive margins less next year. That's our path right now. So like we expanded the team a lot have a very powerful team.

Now it's the right time to nurture this team, to find only the key element that is missing from the team and use the investment in our favor for increasing revenue in the next years. .

Great. That's very helpful. Go ahead..

Yes. On your second question, I think you had a question about the margins and globally. So, as you probably heard in the prepared remarks, we are estimating that 25% of our expenses comes from our global expansion.

And we have roughly 9% of our revenue coming from the Rest of the World, right? So from that you can have a sense of how much we are investing. And we tend to think more about our P&L by breaking between the existing customers and the new customers as highlighted in the prepared remarks than by geography at this point. Hopefully that's helpful. .

Yes. Yes. That certainly makes sense. I think a follow-up question is encouraging to hear about the number of go-lives, the backlog of contracts that are moving to implementation.

I wanted to get an update on how you've seen the conversations change, especially as some of these brands start to weigh incremental investments maybe in the context of physical channels coming back and how they're weighing your e-commerce strategy versus physical channels.

Has omni-channel or hybrid kind of elevated into the top of those conversations? And where are you seeing the appetite to invest as we enter 2022?.

We are very excited in digitalizing the physical store experience. We're bringing the physical store to the digital work of the retail. And we are doing this with several initiatives for that. There's -- we are developing an inStore solution that is a software that is for the salesperson at the physical store.

There are plenty of customers at VTEX that already deliver from store orders that were made in the e-commerce website. This inStore solution allowed infinite aisle purchases. The customers can buy products that are not available at the physical store and not available at the brand as well.

So their physical store salesperson can also sell third-party products at the marketplace. We have this -- we are developing -- slowly developing a picking solution to enable the physical salesperson to make a picking of the orders that were generated somewhere else and deliver to the customer that is close to them.

This allows very fast good estimates for the consumers. And with this, conversational commerce initiatives that we're supporting, conversational commerce interactions, we will make a huge step towards this direction to enable the physical store sales to be much more than a salesperson that serves the person that is at the physical store.

This person at the physical sales store will serve the customers everywhere and all the time..

Great. I appreciate the color. Thank you..

Thank you. Our next question today comes from Josh Beck from KeyBanc. Please go ahead. The line is yours..

Thank you, team, for the call and the question. I wanted to ask about this Live Shopping feature. It certainly seems like it's improved engagement. It's improved conversion. Obviously, those are really important metrics for your customers. Just curious about where the uptake could maybe go over time.

Is this something that you plan to monetize specifically, or is it just part of the platform? Would love to hear more on that topic. .

Yes. We are seeing a big trend of the traffic moving from the browser to the conversational kind of suite. So social commerce with a personal shopper, live shopping all these suites of social engagement, we foresee as a big trend for all our clients. But these trends started in Asia.

It's ramping up in Latin America strong as it was in Asia and we reached Europe and the United States. Live shopping is one of the elements of the social commerce. We already have the VTEX Live Commerce in production. It is already in place in more than 50 clients. And yes, we will monetize the channel, as we do in other channels.

So, where these live commerce will stand in Latin America Europe or U.S., we are believing that we can reach the same level that is in Asia right now. That social commerce entirely represents 50 or more percent of the entire GMV in Asia. So it is a big bet for VTEX.

We are seeing good momentum on those clients and brands from luxury brands from discount brands, who are using this as a new channel. And the beauty of the new channel, it is that most organic channel live commerce. So it is a trend and a trend that kind of helped the margin of our retailers our clients. .

Very helpful. And maybe a -- yes, go ahead..

Yes. And just to complement on the monetization side, we do charge a fee for using the Live Commerce app. However, as you know we are very aligned with our customers, as we have this transaction fee this take rate on their GMV. So if they increase the session time, if they increase their conversion they will increase their GMV.

And that will translate into additional revenue for VTEX as well. So, it's a very aligned business model with our customers. .

Makes total sense. And then maybe another follow-up for you Ricardo. Just curious on -- I don't know how specific you need to be, but just with respect to GMV and net revenue retention just if you expect this year to be within more typical ranges, if there's other factors that we need to be thinking about as we build out the model for this year..

Yes. No, thanks Josh for the question. So, GMV growth and revenue growth, right? I think if you look at the past couple of quarters, we saw revenue growth higher than GMV growth. And there are two mix impacts that explain what happened over the past quarters. And I can now link that to the expectation for the future. I think that's more of your question.

But the first mix impact is the increase of new stores as a percentage of our total revenue, right? New stores come with a higher take rate as customers' GMV ramp up over time and our fixed fee remains the same and also new stores drive an increase in services needed for implementation and go-live of the store.

The second mix impact is the increase in revenue coming from customers that have lower average ticket consumer purchases. We tend to have a slightly higher take rate for customers of VTEX with lower average ticket.

And given the acceleration in the last two quarters of beauty and health, grocery and apparel and accessories, categories with lower average tickets we experienced a positive contribution to our take rate. Now having said that for the full year 2022, we would expect that GMV and revenue growth to be more aligned on a quarter-for-quarter basis.

There could be some mix fluctuations. For example, we currently have a strong backlog undergoing implementation. So for the next couple of quarters, GMV growth could lag revenue growth. But for the full year GMV and revenue growth should be more aligned. Hopefully that answers the question. .

Super helpful. Thank you team..

Thank you. [Operator Instructions] Our next question today comes from Fred Mendes from Bank of America. Please go ahead, Fred. The line is yours..

Hello. Good afternoon everyone. I have two questions as well. The first one about the developers. Very interesting information disclosed in here and the growth is quite relevant 20,000 this quarter from 14,000 last quarter.

So the first question, how do you detect you have a new developer working in the platform? And accordingly, how do you get this information? And number two, if you did any kind of marketing campaign or non-recurring event that led to this very strong growth over the last two quarters pretty much. This would be the first one.

And then the second one also on the same topic. Most of these developers this growth are they coming from your clients who have developers working on your platform, or we are seeing a strong number of freelancers pretty much trying to develop a product and monetize them? Those will be the two questions. Thank you very much..

No. Great. It's Ricardo here. Happy to take this one. So, on detecting the developers on our development portal, right, I mean, we have a portal. They have to log in to that portal.

So, we can see how many developers are logging in, and if they are deploying code to our platform, right? And that code could be a new application, could be an update to an app.

It could be some type of customization that a customer is making on top of the VTEX platform, right? So all those interactions we see it because they have to log into to our portal, right? And we have the control. And we see if they are in Brazil, or if they are in the U.S. and so on and so forth in different geographies.

So we can very quickly immediately track that type of information. And the other interesting information that we track that we have in the earnings presentation we did not mention in the earnings call is the number of deploy that they are doing because it's not just a matter of them logging into the portal.

You have to see if they are actually doing something in the portal, right? So we also track that and that has also been increasing over the quarters. We released this over the past couple of quarters as well. So you can all see that trend. So that's how we track it. And your second question if you could repeat please. .

I would like to complement -- Mariano here, just to complement. As we are expanding in the U.S. and Europe and now obviously we need to adapt our product to the local necessities, in the last two years, we've been investing a lot in this network effect how to integrate VTEX to the local players.

And today we have more than 100 ISVs natively integrated like Cybersource, Affirm, PayPal, a lot of segments ShipStation, Klarna, Listrak, [indiscernible]. Like all the suites that we need to be competitive in the U.S. and Europe is already in place.

And obviously, this needs a lot of development manpower from our clients, from our partners, and from VTEX itself. So this ecosystem is growing as we expand our footprint. Another demand for developers to increase is our integrations with ERPs.

So we are integrated with ERPs like -- ERPs and POS, SAP, NetSuite, Microsoft Dynamics, Retail Pro, Lightspeed. Also those need developers to create the apps to our platform. So the third dimension also it is our SIs in the United States like Publicis Sapient Wunderman Thompson, Gorilla Group, Valtech, BORN Group, Pivotree and Ogilvy.

They have now undergoing projects with VTEX that also needs their IT resources to be VTEX-ready on these. So those are the three dimensions that demand more and more developers to be delivering code in VTEX IO. .

Perfect. Super clear, Mariano.

And then I guess going for the second question would be if these new developers that are attracted to your platform if you can track if they are basically developers from your clients, right, who are working on their own projects or developing their products or they are basically freelancers that through the community, they see your platform as a way to develop an app or something and monetize on it.

Thank you..

Yes. Majority of the developers are from SIs or ISVs. So we see very few freelancers starting new companies through VTEX. And what we are seeing it is a massive adoption of ISVs and SIs where we have our expansion. So, those added developers comes from those new expansion markets. .

Okay. Perfect. Thank you..

Thank you. Our next question today comes from Vitor Tomita from Goldman Sachs. Please go ahead. The line is yours..

Hello. Good evening all, and thanks for taking our question. So, two questions as well from our side. The first one is thinking so far in 2022, we've seen some wider macro issues that have likely affected the business in different ways.

So there's the Omicron spike recently further economic reopening, some macroeconomic volatility, still some supply chain issues. Thinking about the 2022 guidance, what kind of scenario are you assuming for the impact of this type of variables? That would be our first question.

And our second question, if we may would be, following up on your discussion of expanding features, R&D omni-channel. Could you give us an update on your M&A strategy and on whether you are seeing any potential opportunities to complement your platform via acquisitions to further accelerate that rollout of new features? Thank you..

Hi. Hi, Vitor, thanks for the question. I mean, on the macroeconomic scenario, right, I mean, it's very -- we don't control the macro and it's very hard to predict what's going to happen. As you mentioned, there is supply chain issues. There is the Omicron. There will be election in a few countries in Latin America this year.

All these things we don't control, right? What we do control is how we help our customers to sell more, to perform well, to improve their GMV, to do more omni-channel type of solutions, to integrate their physical stores with e-commerce through our OMS, to launch marketplaces, and to help them on their digital transformation journey, right? And so from our side here what we are looking at is, if you look at 2021 a year that we had very tough comps compared to 2020 given the lockdown of 2020, and we managed to grow 30% on a year-over-year basis in 2021, we feel confident about growing again 30% in 2022.

And we know macro is not going to be a slam dunk or normal year as we are seeing by the events today, for example. But we feel confident in delivering a 30% growth in 2022. That's the middle of the guidance for the year, right? We guided FX neutral growth between 29% and 31% for 2022. So we feel confident on that. And second question was on M&A.

I can also take this one. So, yes, so we have $300 million in the balance sheet. We feel very comfortable with this level of cash to deploy and develop our organic growth plans. And we could also explore some M&A historically. VTEX has done M&A, I think, 15 transactions in its history seven or so transactions in the past three years.

These are mostly bolt-on type of acquisitions. They're not transformational acquisitions. We are looking at M&A. We have M&A team at VTEX. We have a pipeline that we are evaluating. We look at M&A through three key verticals and one horizontal. The first vertical is buying a customer base and migrating those customers to VTEX.

So we've done that last year with the Workarea acquisition in the U.S. That can help us expand geographically. The second vertical is to buy features, right, that will help our customers to sell more or will reduce the churn or will increase the NPS of our customers.

So we bought for example a company called Biggy, which is a search engine that helps our customers to sell more. The third vertical is going into ambitious end markets, right, that we are well placed and we have a right to win. That's also something that we are exploring.

And then the horizontal is actually hire, right? Developers R&D talent is scarce in this moment. So looking at companies that we find have a very good team could also be an interesting acquisition target for us. So we have a pipeline. We are looking at this opportunity.

And I think there is nothing to announce at the moment, but we have the cash on balance sheet and we have a team and we have done M&A in the past. So I think this is something that could be -- something to do in the next -- in the future. Now I would expect more around tuck-in type of acquisitions than transformational acquisitions. .

Very clear. Thank you very much..

Thank you. So now Geraldo would like to say some final remarks. Please go ahead. .

I want to take this opportunity to thank you for being here with us. We closed 2021 showing solid steps toward our desirable future, and we are excited for what's to come. We will continue to focus on executing with excellence and making VTEX the platform of choice for enterprise brands and retailers not only in Latin America but worldwide.

We invite you to join us in our journey of disrupting commerce. Looking forward to keeping you updated on our progress next quarter. Stay safe. Thank you very much. .

This concludes today's call. Thank you for joining. You may now disconnect your lines..