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.