VTEX
Q4 2021 Earnings Call Transcript

Published: 25 Feb 2022

[Julia Vater Fernández:]

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.

[Geraldo Thomaz Júnior:]

Thank you, Julia. Welcome everyone and thanks for joining us today for our 2021 fourth quarter earnings results. 2021 was a very special year for VTEX. We went public. We added more large enterprise customers than ever before. We launched a conversational commerce support, social and live commerce. We partnered with outstanding companies such as AWS, Facebook, Stripe, Mercado Libre and many new system integrators, and continued consistently executing our geographical expansion plans among many other things. I'm proud to announce that in 2021 we made significant progress across the globe, which increases our confidence today more than ever on the potential of our global expansion. Now let me move to the progress we've made during the last quarter of 2021. We continued seeing strong momentum in the new contract signatures, resulting in a quarter-over-quarter increase in our backlog of new online stores under implementation in addition to the strong performance of the stores coming out of implementation and going live. More importantly, we increased the amount of large enterprise customer contracts signed that are now under implementation. This demonstrates the brand power VTEX gained over this year, giving us confidence in the future growth of the company and visibility of future performance. In the fourth quarter of 2021, we had more than 40% additional go-lives than last year in the same quarter, with customers now operating with us in LatAm, U.S. and Europe. We continued seeing a huge opportunity ahead of us. We still see half of our new customers joining VTEX, as greenfield e-commerce operations. E-commerce penetration still has a long road ahead, especially in Latin America. Some new customers that went live this quarter that didn't have online presence in the region before were Elefant in Eastern Europe, H&M and Mango in five countries in Latin America. We also added customers that migrated from in-house solutions or other competitive platforms, including Cencosud in three countries in Latin America, Whirlpool in Western Europe and CAE in the U.S. Speed to market continues to be a key differentiator and one of our competitive advantages against born-on-premises software. This is crucial as it enables our customers to initiate the digital commerce transformation faster remaining relevant for the customers and improving their time to revenue. For example, this quarter H&M in Chile went live in less than four months. We are proud of our customers' journeys. In 2021, we were trusted by more than 2,400 customers with more than 3,200 stores across 38 countries. In our history as a company, we have built successful long-term relationships with our customers, expressed by an increased number of stores per customers and of countries where they operate with us. In 2021, when analyzing our top 100 customers, we reached 4.8 stores per customers with operations across 34 countries, up from 2020's 3.7 stores per customer in 26 countries. In Q4, some of our existing customers that expanded their operations with us by opening new online stores in new countries were AB InBev in the U.S., Motorola in Guatemala, Pandora in Colombia, Asics in Mexico, Victoria's Secret in Uruguay, and Tommy Hilfiger in Guatemala and Peru. Our existing customers continued growing at a healthy pace on top of the impressive growth they experienced in 2020. In 2021, our same-store sales were up 12% on an FX neutral basis, after 2020's same-store sales growth of 90%. Both same-store sales growth were impacted by COVID. 2020 numbers was positively impacted, as our customers could only sell their products online during a significant portion of the year, while 2021 numbers were impacted by the reopening of physical channels, which enable omni-channel strategy in many cases supported by VTEX that partly offloaded some of the online sales of the prior year. With that said, it is important to note that in 2019 our same-store sales has exceeded 25% in an FX neutral basis. Before moving to our product development and enhancement, I want to do a quick comment over a relevant special day we had this quarter, Black Friday. VTEX enabled 1.4 million consumers' orders globally, which represents a 25% year-over-year increase in the number of orders compared to November 2020, demonstrating the long-term trend of consumers shopping online more frequently and the increasing penetration of digital commerce. And the two things we were most proud of this holiday season were the reliability of our network, which allowed us to reach 100% availability during the Black Friday week; and the increase in volumes in countries such as Mexico and Italy each joining the top five countries with the most GMV dollar increases of all VTEX countries, demonstrating how our efforts to grow those regions are tangible in volume and top line acceleration. Now moving to our product. I'm excited to update you with many inroads we made this quarter. I would like to introduce a new principle that will guide our development

[Ricardo Camatta Sodré:]

Thank you, Geraldo. Hi, everyone. It's a pleasure to be here updating you on our financial performance for the fourth quarter of 2021. This quarter our revenue increased to $37.1 million, a year-over-year increase of 30% on an FX neutral basis, surpassing the implied 27% year-over-year FX neutral growth rate we guided last quarter and demonstrating that we are indeed entering into the growth rate normalization trend we were expecting towards 2022. This allow us to reach a revenue of $125.8 million for the full year 2021, representing also a 30% growth on an FX neutral basis on top of our record revenue growth of 95% on an FX neutral basis last year. Our robust performance in such a tough comps environment give us confidence in our future growth projections going forward. In the fourth quarter, we've seen some verticals gaining relevance, such as beauty and health, grocery and apparel and accessories, which grew 42.3%, 36.6% and 33.8% respectively on a year-over-year and FX neutral basis. Some verticals, such as electronics and home appliances on the other hand were impacted by supply chain challenges and macroeconomic trends and presented more modest performance. That shows that VTEX has a resilient business model. Our software works well for many different industries, allowing us to perform well even while some verticals are impacted by macro events. Our revenue from existing stores increased to $87.3 million in 2021, representing a net revenue retention of 105.1% on an FX neutral basis. Our 2020 net revenue retention of 171.9% was positively impacted by physical stores temporarily closing. In contrast, our 2021 NRR was impacted by physical stores reopening. On a two-year compounded average, our 2020-2021 net revenue retention was 134.4% still above our historical average NRR rates between 110% and 115%. On top of our existing stores growth, we continue attracting new stores, adding $19.4 million in revenue to our base which represented 23% of our 2020 VTEX platform revenue demonstrating the strong momentum we are having in new contract signatures. The number of customers with revenue above $250,000 per year reached 76 from 58 in 2020, representing a year-over-year increase of 31%. Our geographical expansion continues to broaden with revenues outside of Brazil already representing 47% of our total revenues. In a two-year CAGR, Latin America excluding Brazil grew 84%, while the Rest of the World grew at almost triple digits at 96%. When analyzing our FX -neutral year-over-year growth in 2021, Brazil grew 24%; Latin America excluding Brazil, our region most impacted by physical stores reopening given our customer base there, increased by 28%; and Rest of the World grew 98% positively impacted by the Workarea acquisition, but also driven by solid organic growth. Now moving down our P&L. Non-GAAP subscription gross profit was $24.1 million in the fourth quarter of 2021, compared to $17.9 million in the fourth quarter of 2020, representing a year-over-year increase of 35% in U.S. dollars and 38.2% on an FX neutral basis. Non-GAAP subscription gross margin was 69.9% in the fourth quarter of 2021, compared to 64.6% in the same quarter of 2020. Non-GAAP subscription gross margin year-over-year 530 basis point improvement reflects operational hosting cost efficiencies. We believe we will continue improving subscription gross margin in 2022 and onwards even if specific quarters could potentially show some volatility, while we introduce new product features and migrate non-core software providers potentially incurring additional short-term costs in order to enjoy long-term higher efficiency. We decided to significantly increase our investments 18 months ago to capture the strong e-commerce acceleration market opportunity. As a result, our non-GAAP loss from operations was $10.9 million during the fourth quarter of 2021, compared to non-GAAP income from operations of $0.1 million in the fourth quarter of 2020, primarily due to incremental personnel-related investments. The non-GAAP loss from operations margin this quarter already improved versus Q3, a result of Q4 seasonality as well as operational leverage after a more moderate quarter-over-quarter expense increase. Also, along this line, we are encouraged to announce that we continue having attractive unit economics during Q4, despite the higher investments we conducted in new geographies. Our LTV to CAC is still above six times cash on cash. During 2021, we planted the seeds across new geographies and product features. Now it's time to see which ones will be most accretive to VTEX and focus our efforts on those to leverage our future growth. As of the three months ended December 31, 2021, VTEX had a negative $21.3 million free cash flow, primarily driven by our non-GAAP loss from operations and one-off working capital impacts. Here, it's important to note that until the end of 2020, VTEX grew without relevant capital injection, self-funded by its powerful business model. Although in the last three years, we had relevant private investment rounds, most of those rounds were secondary. Out of them, we only received $66.3 million of primary funding. We consider it's important to note that by the end of 2020, we had $75.5 million in cash and marketable securities on the balance sheet. We ended the year with almost $300 million in cash, so we are more than well positioned to deliver strong results with no additional foreseeable funding needs for our organic growth plans. Before moving to our 2022 outlook, I would like to remind the audience that from a business perspective, we think about our P&L as a combination of two P&Ls

[Operator:]

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

[Clarke Jeffries:]

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.

[Geraldo Thomaz Júnior:]

I can get this. Thank you for the question. So, we -- for the last, I would say, since the beginning of the pandemic in 2020, we accelerated the hiring a lot in all sorts of areas in the company

[Clarke Jeffries:]

Great. That's very helpful. Go ahead.

[Ricardo Camatta Sodré:]

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.

[Clarke Jeffries:]

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?

[Geraldo Thomaz Júnior:]

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.

[Clarke Jeffries:]

Great. I appreciate the color. Thank you.

[Operator:]

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

[Josh Beck:]

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.

[Mariano Gomide de Faria:]

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.

[Josh Beck:]

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

[Ricardo Camatta Sodré:]

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.

[Josh Beck:]

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.

[Ricardo Camatta Sodré:]

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.

[Josh Beck:]

Super helpful. Thank you team.

[Operator:]

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

[Fred Mendes:]

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.

[Ricardo Camatta Sodré:]

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.

[Mariano Gomide de Faria:]

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, . 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.

[Fred Mendes:]

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.

[Mariano Gomide de Faria:]

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.

[Fred Mendes:]

Okay. Perfect. Thank you.

[Operator:]

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

[Vitor Tomita:]

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.

[Ricardo Camatta Sodré:]

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.

[Vitor Tomita:]

Very clear. Thank you very much.

[Operator:]

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

[Geraldo Thomaz Júnior:]

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.

[Operator:]

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