VTEX

Hello, everyone, and welcome to the BTECH Earnings Conference Call for the quarter end of September 30, 2021. I'm Julia Batra-Fernandez, Investor Relations Director for BTECH. Our senior executives presenting today are Gerardo Thomas Jr., co-CEO and co-founder, and Ricardo Camata-Sodré, Finance Executive Officer. Additionally, Andres Polidoro, 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 relating to such matters as continuing prospects for the company, industry trends, and present 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, your question must be placed on your reliance on these forward-looking statements. Certain risk and uncertainties are described under risk factors and cautionary statements regarding forward-looking statement sections of P-TEX registration statements on Form F-1A and other P-TEX filings within the U.S. Securities and Exchange Commission, which are available on our investor relation website. Finally, I would like to remind you that during the course of this conference call, we might discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable gap measures can be found in the third quarter 2021 earnings press release available on our Investor Relation website. Now, let me turn the call over to Geraldo. Geraldo, the floor is yours.

Thank you, Julia. Welcome, everyone, and thanks for joining us today in our 2021 quarter 3 earnings results. I'm excited to announce our progress in making DTEX the platform designed to be the operating system for the e-commerce ecosystem. Strong execution enabled us to move closer towards our desired future. This quarter, we had outstanding new contract signatures, we increased our backlog of new online stores under implementation, and we expanded our relationship with existing customers. We also continued launching products development and signing important partnerships that position ourselves towards creating the future-proof platform of choice for enterprise brands and retailers. Finally, we also over-delivered the guidance we provided to the market. We will cover all these points and more throughout today's call. So I invite you to stay with us for the next hours to hear more about our progress and the principles guiding our strategy action. Exciting times are here to come. Last year, we witnessed the surge in e-commerce as the consumer behavior shifts towards preferred and convenient online shopping, and that trend is here to stay. As a consequence, our business is showing strong momentum, both in the top-line growth as well with new contract signatures. And this is just the tip of the iceberg. E-commerce in Latin America is still an untapped opportunity. According to eMarketeers 2021 report, Latin America is the fastest growing region in the world, with almost 20% points higher growth than the worldwide average. We are living in a new era, a revolution, and we are here to accelerate it. We continued attracting premier brands to our platform across the globe. Some new customers that went live this quarter that didn't have online presence in the region before were Ronald McDonald Institute in Brazil, Whirlpool in Guatemala and Mexico, and Elo in Brazil. We also added customers that migrated from other competitive platforms, including Reserva in Brazil, Dior in Argentina, and MiniConf in Italy. Given our focus on zero-friction onboarding and our customers' need for digital commerce transformation to remain ahead of the curve, it's important to point out that speed to market continues to be a key differentiator and priority for the tax. For example, Reserva Implementation, the leading fashion retailer in Brazil, with more than 110 stores and presence in more than a thousand and a half retailers across Brazil, went live in only four months. We continue to see strong sales momentum in new stores' contract signatures. As a result, year over year, we have double our backlog of new online stores in implementation. which gives us confidence in the future growth of the company. One highlight win this quarter was Mazda Motors. They chose VTEC to power its commercial digital transformation across 22 countries in Europe. Winning Mazda Europe's vote of confidence is a tremendous honor for all of us at VTEC and another proof that our commerce and marketplace capabilities are a match for the greatest enterprise in the market. As we strive to increase our presence across markets, this global brand enables us to further validate our platform strategy to facilitate and strengthen our position in new countries. This strong momentum with new customers is also validated by external market experts. This quarter, DTEX was recognized as a visionary in the Gartner Magic Quadrant for Digital Commerce 2021 report and in the B2C Digital Commerce use case, as well as for B2C and B2B Digital Commerce on same-platform and composable commerce use cases in the 2021 Gartner Critical Capabilities for Digital Commerce. Additionally, Vitex was awarded seven medals overall with gold medals for ability to execute and sales and channel enablement by Andy Hoare, a former Forrester analyst and B2B commerce luminaire. Not only do we see this strong momentum in new customers and external validation, but we are also obsessed in getting entrenched in sticky relationships with these premier brands and retailers. Some current customers that extended their operations with us by opening new online stores in new countries during the third quarter's work. Tommy Hilfiger in Peru, Levi's in Argentina, BMW in Chile, Xiaomi in Mexico, and Distorted Secrets in Costa Rica. Additionally, our marketplace solution continues to gain traction. In Q3, it has been adopted by ABM Bank, Cobalt, Elephant, Decathlon, and many others. We know that we cannot do all this alone. We believe in the multiplying force of collaboration. One of our key competitive advantages is our ecosystem, and that's why we will continue to nurture and expand our partners. Since our last earnings release, we have launched strategic partnerships with AWS, Facebook, Stripe, MercadoLibre, and MacFarland. We expect that the AWS partnership will enable us in the long term to expand our global digital commerce strategy. Our customers, especially the CPG ones, will now be able to leverage machine learning services and other management capabilities with logistics and distribution operators to create their end-to-end digital solution. The new global integration with Facebook aims to ensure better conversion rates in e-commerce by leveraging online campaigns with data intelligence and improving sales conversion natively of the platform. Furthermore, we hope this is the beginning of a long-term partnership with Facebook. We launched a partnership with Stripe to help our customers to offer all their consumer-preferred payment methods. The integration will work in all countries where both companies operate, in North America, Europe, Latin America, and Asia, supporting payment processing in more than 135 different currencies. The certified integration with MercadoLibre in Brazil is a significant milestone in our journey to become the center of a vast network that natively connects every part of the global digital commerce ecosystem. We aim to roll out the certification across the rest of Latin America soon. Our strategic partnership with Maxada, a leading marketplace strategy and implementation agency in Brazil and in the US, excites us not only by the technical and architectural expertise that Maxada Digital brings to our customers, but also by the depth and the breadth of business planning, the strategy practice they can offer. Before wrapping up, I'd like now to revisit for our four products with strategic priorities. Zero friction onboarding, zero friction collaboration, single control panel for every order, and the development platform of choice for digital commerce. We don't innovate in a vacuum. Those are the principles that guide our development. On zero-friction onboarding, we launch a self-serving onboarding. Our goal is to reduce our customers' time to revenue by giving them the tools to connect to the seller portal faster and with a user-friendly experience. On zero-friction collaboration, we build a new seller portal that enables partners of our customers franchisers, or SMBs to more easily sell into their marketplaces, making collaborations between the online store, the franchisor, or physical store seamless. We want to become the one-stop-shop solution. This approach will feed the physical store as an independent seller, with the seller panel to create and manage inventory and capacity of deliveries. We're building tools for the physical stores to streamline the fulfillment process. We are very excited with these initiatives as we have success stories that showcases the benefit, as it's the case of CNA, which tripled the sales because of this, adding incremental inventory and lower afterlays, which resulted in a major boost in their conversion rates. We also enhanced our OMS order progress flow system, reducing refresh time to seconds without external event dependencies, such as manual authorizations, cancellation windows, and antifraud. This feeds groceries, food and beverage, and pet shop companies' needs, among others. as it enables them to have faster communications between channels, avoiding out-of-stock scenarios, and deliver faster to the consumer's doorstep. And of course, we will keep integrating with more channels and enhancing the existing connections we have, as the one I already highlighted, with the Mercado Libre certification integration. On this single console panel for every order front, we enhanced our in-store solution with an endless IO approach that enables physical stores to sell products from other stores as well as from the e-commerce store. With improved messaging between different channels, turned search filters and added social selling, We've also launched a new dashboard that tracks additional key performance indicators for our customers, such as the cost to checkout and payment conversion rate. On the development platform of Choice for Digital Commerce, I already covered all the strategic partnerships, which are fundamental enablers for attracting more developers to our platform as the preferred distribution channel. So to complement that, let me just share a couple internal KPIs we follow on this topic. The monthly active developers accessing the VTech development portal increased from more than 9.5 thousand in Q2 to more than 14 thousand in Q3. Additionally, we are excited to announce that this quarter, U.S. developers were the second largest country assessing our platform, having grown more than four times versus the last quarter. We are also focusing on building security, privacy, and compliance frameworks as features of our platform for our customers and developers to leverage on. Our ambition is to convert security, privacy, and compliance into differentiating factors for detail. This topic is a major requirement, especially in the European markets, but it will soon be a worldwide requirement, and we plan to be in the forefront of it. Last but not least, I would like to thank all the 1,000 624 VTACs that had worked and continue working insatiably to fulfill our mission as well as our customers, partners, and investors. Now, I'll turn the call to Ricardo, who can cover our financial progress report for the quarter. Ricardo, please.

Thank you, Geraldo. Hi, everyone. It's a pleasure to be here updating you on our financial performance for the third quarter of 2021. This quarter, our revenue increased to $31.9 million, a year-over-year increase of 15.2% in U.S. dollars and 12.3% on an FX neutral basis, and above our guidance of $31 to $31.5 million. This increase was on top of our record same quarter last year revenue growth of 140% on an FX neutral basis. as COVID impact led to a further acceleration of e-commerce and reinforced the importance of having a holistic omnichannel strategy. Although some verticals were impacted by supply chain challenges or lower consumer confidence, which tend to be short-term impacts, revenues associated with new stores, which tend to bring long-term results, more than compensated that impact and allow us to over-deliver our guidance. Total revenue two-year CAGR for the third quarter of 2021 was 64.0% on a FX neutral basis, a 330 basis point sequential acceleration compared to the prior quarter. This demonstrates the sustainability and robustness of our revenue growth. It also demonstrates how diversified across verticals we are, given that VTech software works well for many different industries, allowing us to perform well even while some verticals are impacted by macroeconomic events. July was our toughest comp, and as anticipated, the comps gradually eased throughout the quarter. We exited the quarter with September year-over-year FX neutral growth in the 20% range, demonstrating that the gradual normalization trend we were expecting entering towards the end of the year already started. Subscription revenues represented 93.0% of total revenues. We continue to see a strong sales momentum by our sales and marketing team and go live of new online stores, which drove an increase in our services revenue. As Geraldo mentioned, year over year, we doubled our backlog in dollar amount of new online stores implementation. Subscription revenue increased to $29.6 million in the third quarter of 2021. from $26.3 million in the third quarter of 2020. A year-over-year increase of 12.6% in U.S. dollars and 9.7% on FX neutral basis. Now, moving down our P&L, non-GAAP subscription gross profit was $20.2 million compared to $20.4 million in the second quarter of 2021. Subscription gross margin was 68.2% in the third quarter of 2021, compared to 68.8% in the second quarter of 2021. The quarter-over-quarter compression reflects incremental investments in cybersecurity, privacy, and compliance, mostly related to our global expansion and becoming a public company. We believe we can improve our subscription gross margin over the coming quarters and in the long term. We are encouraged by the digital commerce opportunity, especially in Latin America. We see an attractive opportunity for further penetration, even after the strong acceleration we all witnessed last year. Therefore, we have decided to accelerate our investments to capture this market opportunity and leverage our leadership position in the region. As a result, our non-GAAP loss from operation was $13.3 million during the third quarter of 2021. compared to a non-GAAP loss from operations of $10.4 million in the second quarter of 2021. We continue to see attractive unit economics from our investments to bring new online stores to our platform. Our LTV to CAG is still above six times cash on cash, even after we tripled our sales and marketing investments compared to the same quarter last year. We plan to remain focused on new online stores additions And we believe it is the right long-term decision for Vitax, even if that has some short-term impacts to our margins. As of the three months ended September 30, 2021, Vitax had a negative $10.4 million free cash flow, primarily driven by our known gap loss from operations, which is mostly attributed to sales and marketing and research and development efforts related to our growth stage. In this regard, it is important to highlight that this company has grown historically mostly self-funded with limited primary capital injection. As I already mentioned, we have a powerful business model. We are currently focused on increasing our leadership in Latin America and discovering other regions. And given our attractive unit economics, we are more than happy to reinvest back in our business every incremental dollar. and even burn cash in a disciplined fashion. Now, moving to our outlook, we expect to continue seeing strong new stores growth as our encouraging backlog undergrows implementation. In Q4, our existing stores will face easier comps than Q3 comps. During Q4, we expect our revenue growth to continue accelerating. While supply chain challenges may impact farmers during Q4, We are excited to support our customers on a successful Black Friday, Cyber Monday, and the holiday shopping season. We are working closely with our customers to understand how they are preparing stock inventory and so on. With that said, we are targeting revenue in the $35.3 to $37.3 million range for the fourth quarter of 2021, implying a 27% year-over-year FX-neutral growth rate in the middle of the range. For 2021, although lockdown currencies devalued 6.7% during Q3, we are confirming our guidance of $124 to $126 billion range. This outlook assumes the current FX rates remain constant for the remainder of the year. Wrapping up today's call, we want to reinforce that it is clear to us that e-commerce momentum is here to stay and that the current state is just the beginning of a promising long road ahead for the region. We are seeing good indicators from the investments we are doing in the region and across other geographies, which is reflected in the strong momentum we are seeing in the new contract signatures, as well as in the increase in our new store backlog on the implementations. We have a strong leadership position in Brazil. We continue to quickly strengthen our position in Latin America, and we are starting our global expansion. We feel encouraged by the opportunities we have in front of us. Thanks, everyone, for joining this conference call. We look forward to keeping you updated on our progress next quarter. Let's open it up for questions now.

If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, it is star followed by two. Our first question comes from Sterling Alty of JP Morgan. Your line is open. Please go ahead.

yeah thanks hi guys so one question one follow-up uh just curious in terms of the gmv would you expect that the third quarter would be the bottom in terms of gmv growth you mentioned the revenue acceleration expected in december would you expect the gmv growth to accelerate as well yeah hi hi sir uh great to speak with you thanks for the question

Yeah, certainly. GMV growth also should be the bottom in Q3. We are already seeing an acceleration of GMV as well, as we mentioned, for revenue. as you probably remember to set the foundation roughly two-thirds of our revenue comes from a take rate uh on our customers gmd so these two are tightly connected right and we are seeing a pickup in gmb uh and that's driving uh recovery on the revenue growth uh as well and as we mentioned there are no supply chain uh impacts that uh that that can have some some of the impact on this GMV growth, but we are seeing strong pickup in October and we feel confident for November and going forward.

All right. That's a perfect segue. My follow-up question was actually about that take rate. You know, if I look at the, you know, subscription revenue in the quarter, um you know coming in where where it did despite gmv maybe being a little bit below what we would have expected was there a difference in mix in terms of take rate versus kind of the the straight subscription fee that you saw in the quarter or what else kind of drove that strength and subscription revenue yeah great great question uh so as

As you probably remember, our revenue is driven by the existing customers and the new customers. And as new customers are coming online, they have a slightly higher take rate because they are paying already the fixed fee. but they are not yet bringing a lot of GMV to the platform. So the implied take rate of new customers is higher than for existing customers. And as they ramp up their GMV, which takes roughly six months, sometimes a year, they trend towards the average take rate of the company or the long-term take rate that they will have. So this slightly higher implied take rate that you're mentioning is mostly driven by more new customers joining the platform, which we see as an encouraging trend. And I think we mentioned during the prepared remarks that we are seeing strong sales momentum and that our backlog doubled on a dollar amount on a year-over-year basis. So this is an encouraging trend that we are seeing.

Understood. Thank you.

Our next question comes from Josh Beck of KeyBank. Your line is open. Please go ahead.

Many thanks for taking the question. I wanted to follow up on your last point there, which I think you both had mentioned, around the backlog doubling. So maybe just help us double-click there. um if you were to look at maybe the verticals where you're seeing the momentum or the geographies any other really standouts underneath that that backlog strength yeah i'm happy to to take this one and then uh others on the call if they want to chime in please feel free uh so so josh it is uh

It's across the board. It's not specific to one segment. So the BTEX platform works well across different industries. And we are expanding globally. We are seeing strong momentum and continue to see very strong momentum in Brazil, where we have a strong market share. So the backlog in Brazil has increased, and we see further opportunity to continue growing in Brazil. As you know, we are investing a lot in Latin America outside of Brazil. We pretty much triple our sales and marketing investments in Latin America outside of Brazil. If you look at over the past 12 months. So as expected, these additional sales and marketing team is bringing pipeline and bringing new opportunities. And these are getting signed and this goes into the backlog. And just to take a step back on the sales cycle, right? It takes on average six months. between the RFP launch and the contract signature, and then that customer stays in the backlog for an average of six months, because the contract is signed and takes about six months for the store to go live, right? And because we increased a lot our investments in Latin America outside of Brazil, a lot of the backlog increase was driven by Latin America outside of Brazil. But we are also seeing increasing backlog in Brazil and outside of the region, outside of Latin America as well. So on segments and industries, not specific to one industry, it's across the board. On geographies, we see a good trend in the geographies. But we see, you know, a bigger increase in Latin America outside of Brazil, given that's the region that we made most of our sales and marketing investments.

Fantastic. Very good to hear about that momentum. I wanted to follow up on the supply chain impact. As we've gone through this earnings season, it has been – Really varied, I feel like. Some of the really large enterprise companies, even Walmart and Target this week, have said their inventory levels are well positioned for the holiday season. So I think in the true enterprise, those are the dynamics. I think once you get into SMB, right, there's probably less. preparation so i'm just curious as you look into next year do you feel like for maybe the customers that had supply chain issues that there could be some type of overhang and and the the metric that i'm really trying to think through is net revenue retention if we should maybe factor in some type of of impact to some of those non-enterprise customers as we start to think about next year

Yeah, Josh. Thanks for the question. It's very hard to answer this precisely. I can share what we saw during Q3 and how we are starting to see the performance of Q4. The supply chain issues impacted mostly the electronics and home appliances. And although these are enterprise customers and they can prepare, they have better processes around supply chain planning, and they can foresee some of these trends before some of the SMBs, if chips are out of stock or if they can just get the raw materials to make their products, that does impact a little bit these companies, right? So as As we are seeing these two key segments being impacted, we are also seeing now in Q4 a stronger growth in their GMV than we were expecting. So it's hard to say if they are recovering. I think it's early for that, but maybe they were stocking for this holiday season to be ready for this important moment for the industry, right? Now, looking forward to 2022 and the net revenue retention, I would love to have more insight on that, but I think it's very early to know how these trends will evolve. But we do like the perspective that the enterprise customers bring because of their processes and their preparation and being able to be more prepared and control their inventory so they have less ruptures than some other smaller players may feel, right? So we like our customer base, and we like how they try to position themselves. And we try to stay very close to them on how they are preparing and stocking for the holiday season, understanding also their planning for the season, right? I mean, there is some uncertainty on that. There is always uncertainty on that. on these topics, but we try to stay close with them so we can help them get the best GMV possible during this season.

Very helpful context. Thank you, team.

Our next question comes from Diego Argaro of Goldman Sachs. Your line is open. Please go ahead.

Yes, good morning, everybody. Thanks for taking my question. Actually, the first question is regarding the current market economic environment in Brazil. We are now seeing inflation picking up in the country, partially driven by the BRL devaluation. So I was just wondering if you can comment on how these factors could end up impacting the business in the short term. Thank you.

Yeah, thanks, Diego. So first on the FX devaluation, right? I think as we mentioned on the earnings release, there was a meaningful devaluation of the lifetime currencies during Q3, right? Roughly 6.7% devaluation already as a weighted average by the V-tax revenue by currency. right? And for example, if you take Brazil, as you mentioned, FX in Brazil was five reais to the dollar in June 30. And then I think like almost 550, 544 by September 30. So it's almost like 9% devaluation during the quarter. And even though there was the 6.7% devaluation, which would impact our q4 revenue in dollar amounts so if we reduce our expected revenue uh for q4 just because of currency a variable that we don't control uh we are keeping the guidance right for for the year right so yes in the short term there are currency uh impacts uh on on our business. But if you think about long-term and DTEX being a high-growth company and the inflation differential being a couple percentage points that it has been historically, FX is not an important driver for us. There is volatility, and in a quarter, in the short term, you may see some impact. But in the long-term high-growth company, with APEX being a couple percentage points impact per year, we don't see as a meaningful long-term impact. But again, in the short term, it could impact us. Quickly on inflation, I mean, we are seeing inflation. It's not just in Brazil, right? I mean, it's a global phenomenon. You can also see inflation in the U.S. picking up. In Brazil, it's maybe slightly higher on 10% LTM, but the U.S. is at 6% or so, right? And it's important to mention that the way our business model is designed We are very well protected against inflation because two-thirds of our revenue comes from take rate on our customers' GMB. And as inflation impacts the economy, the GMB of our customers increases naturally because they're selling the goods that are driving this inflation. And we capture these automatically because of our business model. It's not a renegotiation of a contract of trying to increase prices or anything like that. It just flows through because of the take rate. So although we are seeing this inflation impacting the global economy, we feel well positioned because of the business model that we have. But let me pause here. I don't know, Gerardo, if you want to add a few more thoughts on the topic.

Yeah, Hikad. Your point is exactly what I was going to talk about. There's several reasons why we like to take rate component in our subscription revenue. One of them, the biggest one, is alignment of interest. The other one is that we truly believe that in the long term, GMV of e-commerce will grow much more than any other metric. but also when we started building a business model based on GMB, uh you know like marianne and i we are here for 20 years we saw the hyperinflation in brazil the inflation and and usually uh inflation uh in in countries like ours it's inflation with stabilization uh so it's very difficult to really negotiate content in this period where you have inflation and recession at the same time and so at this this business model that we have also protects us from charging less in real terms in the long term, because we naturally adjust the contractual, the agreement with our customers because of this company. So I do believe that in this sense, especially in the long term, this company is kind of protected against bad effect on pressuring the suppliers. In our case, us, because of the inflation.

That's very, very helpful. Thank you, Gerardo and Ricardo. And maybe just a follow-up question regarding the GMP. I think since, you know, I think this was partially driven by the FAPS movements and the VI devaluation as well. But maybe if you can just help us to understand the trends in there and comment on the performance by client vertical and different industries, I think that would be great. Thank you.

Yeah, perfect. Thanks for the question. I mean, as you can imagine, it's very hard to precisely calculate the impact of some of these supply chain challenges or lower consumer confidence that we are seeing in some countries. And as we are, you know, intertwined with other variables and doing these sectors variables analysis is almost impossible. But having said that, right, historically, seasonality is that Q3 GMV is usually slightly higher than Q2 GMV. And this year it was actually roughly $150 million lower. And doing some round number calculations, if you divide our revenue by our GMV, you get to an average take rate of roughly 1.3%. And you have to remember that only two-thirds of all revenue is based on GMV. uh thus you know if you if you do this 1.3 percent on these 150 million dollars lower gmv that we don't control it's you know uh it's driven by the the macro in some way uh and you multiply by these two-thirds that i mentioned it's almost you know 1.5 million dollars as a directional impact uh of of these events uh in in the quarter uh and even and this was mostly as we said you know home appliances and electronics a little bit on furniture uh and and i mean there is these short potential short-term impacts uh being exposed to gnb but we love that for the long term because as latin america is very under penetrated And as this penetration increase over time and the GMV increases, we naturally capture that growth in our revenue growth. So we like having this GMV exposure, but it's a variable that we don't control. And during these macro events, it could have some impact. But even considering these, you know, uh directional impact that i mentioned uh we we over deliver uh the guidance uh with 31.9 million dollars in a range that was from 31 to 31 and a half and and hikaru's point is very good uh we don't control in the short term and naturally we don't control in the long term but we have a good bet

that in the long term, tagging our revenue to GMV is a big deal. Eventually, you know, we have this big disruption because of the supply changes after COVID, and we had this very small impact in our revenue. This is just the short term. Still, we're beating the guidance and everything. It's not that it's the end of the world, but in the long term, we're very optimistic to be attached to the GMV of our customers.

That's very helpful. Thank you both for the answer. Thank you.

as a reminder if you would like to ask a question please press start followed by one on your telephone keypad now we have a question from fred mendez of bank of america your line is open please go ahead hello good morning everyone and thanks for the call i have two questions as well the first one on sales and marketing extension increase

almost 20% followers per quarter. I'm just wondering, are you guys expanding this marketing campaign, or let's say the price of the digital channels that are, let's say, more expensive? And let's say you are doing kind of the same, but expanding a little bit more. This will be my first question. And then on the second question, I think it's a more strategic one. You look at the headcounts of 146,000 employees. You almost doubled over the last 12 months. So just wondering, do you believe we are close to an optimal level or should we continue to see these headcounts to increase over the next quarters? This is my second question. Thank you.

Hi. Mariano here. I am a co-founder in Cossio Geraldo, just introducing myself. The S&M, the most part of the S&M investment, it is in people. So we are seeing an increase on the opportunities arriving on VTech, and we need to prepare the people for this. So the most part of the investment is directly to people.

It's important to highlight, Fred, that this company is not sensitive to digital market. Most of our investment in S&M is people. We don't buy AdWords. We don't buy digital channels to sell. This is almost irrelevant to our expenses in sales and marketing. Because we are mostly a few-stage company and an ecosystem-safe company.

To be more precise, it is a contraceptive solution engineering, CSMs, people that are engaging on the opportunities that's arriving.

Perfect. Thank you, Mariana, for being very clear. And then on the second one, in terms of the headcount, do you already believe you are at an optimal level, or as you continue to develop products? I mean, obviously, as you grow, you'll be hiring more people, but the volume that you have seen recently, should it continue or believe you're already at the optimal level for the site that you are? Thank you.

Yeah, happy to take the question, Fred, and thanks for the question. So as we explained during the IPO process in the last quarter, we are seeing a very strong opportunity for us to capture in the market, right? The pandemic completely shifted the mindset of the C-level and board members of these enterprises, and they are accelerating their digital transformation. And we are in a market where the nutrition is very low, our unit economics is very attractive, and the customer is very sticky, right? Our churn continues to be mid-single-digit, right? With these all said, it makes a lot of sense for us to invest now and capture these opportunities and bring the customers to VTEX. And as we mentioned, roughly half of our new customers agreed to. So we want to capture them first, then trying to steal these customers from another platform. And the switching cost plays both ways, right? Once the customer joins our platform, they tend to stay with us. But it's also hard to take customers from other platforms. I mean, we have been successful in doing it, but you have to be at the right time, at the right place. And the customer needs to be feeling some type of pain, like trying to do omnichannel solutions or scaling a Black Friday and not being able to switch to us. So anyway, it makes a lot of sense for us to invest now to capture this customer. And that's what we have been doing over the past year now as we start to accelerate expenses into three last year. So we see that we did a lot of the heavy lifting already. As you said, we almost doubled the headcounts year over year. Going forward, we don't see the same pace of increase in headcounts. But we feel there is an opportunity to continue investing. And as we're seeing a strong sales momentum and we've seen our backlog increasing, we feel it's important to invest, to continue capturing these opportunities and driving the growth of the company going forward.

Perfect. Thank you, Ricardo. Thank you.

There are no further questions on the lines at this time, so I'll turn the call back over to Geraldo.

Thank you very much. So I think I want to make sure that all this opportunity that I have to finalize the call, to thank you all again to join our earnings call conference. These are our first steps as a public company. We're very happy and humbled to share these steps with you. VTAC's ambitions were always sizable, and you are enabling us to dream even bigger. Thank you for that and for accompanying us in such an important moment. We will continue executing the highest standards, to continue to be the best partner for enterprises to do business in this new digital era. Thank you very much. See you next quarter.

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