VTEX

Ladies and gentlemen, thank you for your patience. This call is due to start in a couple minutes time. © transcript Emily Beynon Thank you. Thank you. Hello and welcome to the VTEX reports third quarter 2022 financial results. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during the presentation, you may do so by pressing star one on your telephone keypad. I would now like to hand over to our host, Julia Fernandez, The floor is yours. Please go ahead.

Hello, everyone, and welcome to the BTEX Earnings Conference Call for the quarter ended September 30, 2022. I'm Julia Barra Fernandez, Investor Relations Director for BTEX. Our senior executives presenting today are Geraldo Tomas, Jr., Founder and Co-CEO, and Ricardo Camatas, Finance Executive Officer. Additionally, Mariano Gómez de Faria, Founder and Co-CEO, and Andrés 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 related to such matters as continued growth prospects for the company, industry trends, and products and technology initiatives. These statements are based on currently available information and our current assumptions, expectations, and projections about future events. While we believe that our assumptions, expectations, and projections are reasonable in view of the current available information, you are cautioned not to place any reliance on these forward-looking statements. Certain risk and uncertainties are described on the risk factors and forward-looking statement sections of BTEX Form 20F for the year end of December 31st, 2021, and other BTEX filings within the U.S. Securities and Exchange Commission, which are available on our investor relations website. Finally, I would like to remind you that during the course of this conference call, we may discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our third quarter 2022 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 our third quarter 2022 earnings conference call. Last quarter, we shared three key focuses for the company. Continue helping our customers outperform the market, keep improving our gross margins, and optimize our expenses to gain operational efficiency. And most importantly, all of that while we continue to deliver our high growth plans. With that in our north, let's deep dive on our operational performance this quarter. We're excited to announce that our business continues to deliver robust growth, solidifying our position as a regional leader while also building momentum outside of Latin America. A clear demonstration of our robust growth is that in Q3, our GMV growth accelerated to 29% year-over-year, both in USD and FX neutral. Given our Blue Ship Enterprise customer base, VTEX customers continue to outperform the market consistently. A long-term historical trend that we have been highlighting with more emphasis for the last three quarters. Not only did the GMV and top line come stronger than expected, but also both our costs and expenses came below as a result of a leaner and more agile organizational structure. Our non-GAAP subscription gross margin increased by 560 pips year over year. The margin expansion trend that started in the second half of last year is a reflection of gradual code optimization, migration to more efficient servers, operating systems, and processors, optimizations of non-core cloud providers, as well as operational leverage on our personnel support costs. Although there could be some gross margin volatility as we migrate non-core cloud providers, there's still a long hold ahead of us on gross margin improvements, and we are excited about what should come in the medium and long term. We plan to continue optimizing our cost base while at the same time pushing our service levels up to provide the best solution for our customers. I'm extremely proud of what our team has accomplished on the expenses side. As anticipated in our previous earnings call, we delivered significant operational leverage. Our team's efforts enable us to continue growing our top line at a robust pace, which is our main objective as a high-growth company. While still finding incremental opportunities to operate our businesses with a leaner and more agile structure. Now, moving to our commercial updates. In the third quarter, we continue attracting premier brands and retailers. Some new customers that went live this quarter that didn't have online store presence in the respective countries before were Piazzi B2B in Brazil and ASICS in Peru. New customers that migrated from other platforms and went live this quarter were Levi's in Argentina, Vivara and Pharma Delivery in Brazil, Belcourt in Colombia and Chile, Chedral in Mexico, Claro in Peru, the Foschini Group in South Africa, and W8 Candy in the US. On top of that, we continue building and transitioning sticky relationship with our existing customers. Some premier brands and retailers that expanded their operation with us by opening new stores in new countries during the third quarter war. H&M adding a store in Uruguay, currently operating in five countries in Latin America. Motorola adding a store in Saudi nation, currently operating in 19 countries across the world with more than 20 stores. And Whirlpool, adding a store in Germany, currently operating in 16 countries across the world with more than 30 stores. In the third quarter, Vitex was named a visionary in the 2022 Garten Magic Quadrant for Digital Commerce report. This industry recognition follows the result we shared in the first quarter of this year with customer recognition in the 2022 Gartner Peers Insight Voice of the Customer Digital Commerce Report, where VTACS was named a strong performer. Additionally, in July of this year, Paradigm B2B released its early combined report in which it evaluates e-commerce providers across key areas of interest in the B2B technology buyer. In 2022, GTEX was awarded medals in each one of the 12 categories that Paradigm assesses in the mid-market edition with gold medal for exceptional performance or capability in marketplace, promotion management, and customer service and support. Vitex was the only vendor awarded a gold medal for marketplace capabilities and scored silver medals awarded to vendors with superior capability in site search, ability to execute, total cost of ownership, and vision and strategy. We're grateful and humble about the recognition from our multinational customers expanding their relationship with us, opening new stores, as well as from market experts such as Gartners and Paradise. This gives us the confidence and strength to continue pushing further with our strategic plans. We stay committed to continue executing with excellence and precision our vision. But as we always say, we know we cannot do all this alone. We are certain that the multiplying forces of collaboration from the ecosystem we built around the text will continue to enable and to unlock even greater outcomes. So we will continue to consistently nurture and expand those relationships. Aligned with our payment partnership strategy and the further monetization of our ecosystem, we're excited to announce that we launched a partnership with Checkout.com, a global payment service provider and leading fintech in EMEA, able to deal with the most relevant international and local payment methods, as well as digital wallet. They are a resourceful solution, especially in new markets for details like North America, Europe, Middle East, and Asia. Checkout.com's partnerships agreement will enable international and local payment methods, nurturing a vast and solid ecosystem of partners and solutions, and promoting better conversion for our enterprise customers. Additionally, A couple of quarters ago, we launched the news of our partnership with AWS. We are now happy to share that more than supporting VTechs, AWS is actively enabling our global expansion. As we become one of their preferred global partners, we're excited to announce that Bell Corp is one of the customers, among others, that went live with us in the third quarter thanks to this partnership. We are extremely excited about this positive momentum and VTech is really looking forward to continue unlocking the potential of this partnership as AWS is also committing themselves to invest along with us in our global expansion, especially in Europe. Great things yet to be done. Before wrapping up, I'd like to share with you some customer success stories as the success speaks volumes more than any other data points. We don't innovate in a vacuum. And for us, seeing how our four guiding pillars are helping our customers achieve their goals is more than fulfilling. So let me go straight to it. The Foskini Group, one of the biggest fashion retailers in South Africa, With more than 4,000 stores, 29 brands, and operations in 26 countries, it's now operating with Vitex gradually rolling out their brands, which are expected to increase over time. With our solution, they will be able to centralize their 29 brands into a main marketplace, customizing the login process, for their end users, providing a frictionless consumer experience while at the same time helping them to have a single source of truth for the multi-brand sales process. We're more than pleased to welcome them to Vitek's family with confidence that we're going to do amazing things together. Eric's Bike Shop, one of the largest bike shops in the U.S., with more than 30 physical stores across the country, chose Vitex to deliver a superior shopping experience to their online consumers. Vitex worked hand-in-hand with Eric's Bike Shop to do a complete revamp of their homepage, and as a result, our customers benefited not only from higher stickiness on the website, which was reflected in lower bouncing rates, and higher number of page views per visitors, but also with a double digit improvement in their conversational rates, session durations, and number of page views per user. Finally, the average order value almost doubled. Adding the leading textile and retail clothing company in Latin America with more than 800 stores, chose VTech's headless approach to provide their end users with the best purchasing experience across all channels, proprietary stores, franchisees, multi-brand third-party stores, e-commerce, as well as additional sales channels such as Facebook and Google Shopping. With us, adding benefited from consistent improvements in all their websites, performance metrics, such as page speed times, conversion rate, average tick times, bounce rates, and kind of enrollment rates, among others. Motorola US, a pioneer in the mobile phone industry, optimized with the product detail page experience, keeping the look and feel while in gaming efficiencies for the page loading time. We're happy to share that together we've been able to achieve an overall paging loads time improvement of 45% and 54% for desktop and mobile respectively, reaching an average time of one to two seconds. Motorola now has active online stores in 19 countries operating with the text and continue expanding to new geographies. This year, they expanded to EMEA and Asia Pacific leveraging our marketplace architecture. Blurring the lines between physical and digital commerce, we continue to see customers implementing our endless IOS solution. This quarter, we had companies such as Samsung and ZDock adopting this new wave that enables their physical stores to sell products from other stores, franchisees, and their commerce operations to enhance conversion in their physical stores. Social commerce continues to show a strong fit for enterprises to meet and sell to consumers, both on their preferred social media channels or at the discovery stage of the product in live shopping events. Belcorp, a multi-level marketing built-in personal care company, present in 13 countries and with three commercial brands, is already a heavy user of this feature. which was one of the many reasons they decided to come to Vitex. We believe that offering this product can become an interesting engine of growth and Vitex adoption, as we position ourselves as innovation frontrunners across the globe. This quarter, we also had an important milestone. We hosted our first event in Mexico, Vitex Connect Lacta, The event took place in Mexico City on September 7th, gathering more than 3,000 in-person attendees and with the participation of 65 speakers from 11 countries. We're proud to have hosted the largest e-commerce event in the country, which we believe marks a watershed moment for VTAC's positioning in the country and in the region. Wrapping up the operational update section, I would like to thank our 1,405 detectors that are working to fulfill our mission, as well as our customers, partners, and investors. Now, I'll turn the call to Ricardo so he can cover our financial progress report for the quarter.

Thank you, Geraldo. Hi, everyone. It's a pleasure to be here updating on our financial performance for the third quarter of 2022. As highlighted by Geraldo, our Q3 GMV performance accelerated to 29% growth year-over-year, both in US dollars and FX neutral. This is a clear demonstration of the resiliency of our blue-chip customer base and that we continue to help our customers to outperform the market. Breaking our GMV performance down in more details, in Q3, our existing customers' same-store sales went up to the high teens. demonstrating a robust performance in a market that is currently delivering flattish to single-digit growth rate. Also, it's important to note that some countries such as Mexico, the U.S., and Europe grew at a stronger pace than the company's average, while more mature regions such as Brazil are still growing at a robust pace, just slightly below the overall company average. We expect these new regions to continue to compound and contribute to VTEC's high growth performance. This quarter, our revenue increased to $38.8 million, a year-over-year increase of 22%, both in U.S. dollars and FX-neutral. Subscription revenue reached $36.5 million in the third quarter of 2022, from $29.6 million in the same quarter last year, a year-over-year increase of 23%, both in U.S. dollars and FX-neutral. This quarter, subscription revenue accounted for 94% of total revenue versus 93% in the same quarter last year. Non-GAAP subscription gross profit was $26.9 million compared to $20.2 million in the third quarter of 2021. Non-GAAP subscription gross margin was 73.8% in the third quarter of 2022 compared to 72.5% last quarter and 68.2% in the same quarter of 2021. The 560 basis points year-over-year margin expansion shows the commitment of our team to keep improving our margins. This margin improvement was mostly driven by the migration of non-core services to more efficient hosting providers, and the optimization and operational leverage of our support cost. We are more than proud about what we achieved in this front, and we are excited about what's to come. We've also continued improving our non-GAAP services gross margin, resulting in an even higher non-GAAP gross margin expansion, 670 basis points, year over year to be precise. Our non-GAAP total operating expenses decreased to $32.4 million in the third quarter of 2022, from $43.3 million in the prior quarter, and $32.8 million in the same period last year. This is a reflection of the organizational restructuring we made last quarter, plus additional areas of leverage our teams were able to find. As a result of the better than expected margin improvement With the top line coming at a strong and robust pace, our non-GAAP operating income improved from a negative 41.6% margin in the same quarter last year to a negative 15.5% margin in the third quarter of 2022. This represents a 26.1 percentage point improvement year over year. As of the three months ended September 30, 2022, VTEX had a negative $3.3 million free cash flow compared to negative $12.7 million in the prior quarter and negative $10.7 million free cash flow in the third quarter of 2021. Now, before I move to the outlook for the fourth quarter in the fiscal year 2022, I would like to update you on our share repurchase program we approved in August of this year. As of September 30, 2022, The remaining balance available for share repurchases under this authorization is almost $25 million. We've repurchased slightly less than 1.3 million shares at an average price of $4 per share. We expect to continue executing our plan based on the evaluation of market conditions and applicable legal requirements. Moving on to our business outlook, macroeconomic conditions remain uncertain. We continue to see the elongation of our sales cycle in the average time our new customers are taking to implement the Vitex platform. More recently, we are also seeing a slower GMV ramp-up for new customers. Finally, during Q4, we will have, for the first time, the combination of the FIFA's World Cup with the holiday shopping season, bringing additional uncertainty to the current macro scenario. against this challenging backdrop we are currently targeting revenue in the 46.0 to 48.0 million dollar range for the fourth quarter of 2022 implying a year-over-year growth of 27 percent in us dollars and 24 percent on a fx neutral basis in the middle of the range for the full year 2022 considering the incremental macroeconomic volatility We reduce our FX-neutral year-over-year revenue growth target to 23% to 24%, implying a range of $158 million to $160 million based on October average FX rates. We are excited to continue contributing to our Blue Chip customers' digital transformation journey, helping them to accelerate their sales with the right set of tools and products. Our customer base continues to demonstrate their resiliency, even through the uncertain times we are currently navigating. We are also honored by our customers' continued trust in the VTEX platform, demonstrated by our stable annual revenue churn. This results in a resilient business model for VTEX that will continue to compound growth in a sustainable and ambitious way. With that, let's open it up for questions now. Thank you.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Marcelo Santos from JP Morgan. Your line is open.

Hi, good evening. Thanks for the opportunity to make the question. I have two questions. The first question would be, given your margin performance, would there be room to anticipate the target of breaking even in the end of next year? Is there room to deliver this earlier? The second question would be, your guidance implies an acceleration in FX-neutral terms for the fourth quarter. I think you grew 22%, right, on this quarter, and the next you're guiding for 24%. What are the drivers behind this acceleration? Thank you.

Marcelo, thanks for your question. Happy to take this one. So we continue to be committed to reaching our positive non-GAAP operating income by the fourth quarter 2023, as we mentioned in previous earnings call. We are a high-growth company operating in an undepenetrated market with attractive unit economics and high switching costs. So we will continue to prioritize growth. At the same time, we will operate in a lean and agile way, which, especially during uncertain times, can create a lot of value. Having said that, if there is any way for us to reach our break-even sooner without jeopardizing growth, we would be delighted to deliver on that. So on the second question on the acceleration, Yes, as you mentioned, we have been accelerating our growth. If we look at the second quarter, we posted FX neutral revenue growth of about 20%, and then 22% now in Q3. If you look at our Q4 guidance, it's in the middle of the range, implied 24% FX neutral growth. So as you probably remember, in the second quarter of 2021, there was a second wave of COVID. So it was a tough comp, the second quarter of this year. And that started to clean up a bit more in the third quarter. So you see some of that acceleration. For this last quarter, we are seeing on the existing customer side, the same store sales going to the high teams level, as I mentioned in the prepared remarks. And also, we are having new customers joining the platform and helping us with this additional acceleration. So hopefully that helps you on the question.

Thank you. Thank you very much. Thank you.

We now turn to Andre Salas from UPS. Your line is open. Thank you.

Hi, good evening, everyone, and thanks for taking my question. We noticed there was a decrease in headcount quarter over quarter. Could you give more clarity on that and potential implications on your business model? And should headcount decrease be expected going forward? And I have an additional question. The figures that you presented were slightly above our expectations, but I believe it is worth asking here. We see a different growth dynamics between GMV and net revenue, which with net revenue slightly lower growth pace than GMV. For the medium and long term, should we expect these two variables to move closer? That would be it.

I'll be very happy to answer about the first one, about the layoff. Thank you for the question. Yes, we are adjusting the company to the reality that we see in the market. We passed the pandemic. And as we mentioned last quarter, the layoff was an adjustment to achieve our optimal structure to deliver the growth plan the best way possible. We decided to do this in the most responsible and respectful manner possible. And we did the necessary adjustment on the second quarter of 2022. We decided to do all at once to turn the patient at merit. Over the last three months, we found some additional opportunities to fine-tune and optimize even more the org structure, more around the edges. We also had natural employee turnover. Some positions were not seen we're not seeing the need to refill. Some we will refill over time. So we will keep our high bar on hiring. So refilling some positions might take some time, but we will. Finally, it is important to mention that we are a high-growth company. We will continue to invest to deliver our high-growth plan. And currently, we feel like we are a well-invested structure that can support our growth plan for some time with just some marginal additional investment. So the headcount that we have right now won't increase that much. Ricardo, could you help me on the second question, please?

Yes, Geraldo, happy to. So regarding the dynamics of GMV versus revenue growth, before going into the details, it's important to recap that roughly one-third of our revenue is a fixed fee, And two-thirds is a take rate on our customer's GMV. Therefore, only two-thirds of our customer's GMV growth automatically flows through as revenue growth for us. In other words, as our share success model, there is an automatic implied take rate decrease for our customers while we get more dollars out of them. It's a win-win setup. We do share some of our success with our customers in exchange for automatically serving the increase in e-commerce penetration. If you divide our subscription revenue by our GMB, you see a slight increase in take rates quarter over quarter, but a slight reduction year over year. This implied year over year take rate decrease is driven by mix in our share success model that I just explained. In other words, we are not seeing any like-for-like pricing pressure. Finally, I would also highlight that we are passing through inflation to our fixed fee portion of our contracts in most countries. This is more challenging to do in developed economies, but we have been doing it in Brazil, and we are starting to do it in some countries in LATAM-X Brazil as well.

Got it. Thank you.

Our next question comes from Diego Aragal from Goldman Sachs. Your line is open.

Yes, good evening, everybody. Thanks for taking my question. Actually, it's a follow-up on maybe Marcelo's question. Looking to the subscription gross margin, it is great to see that this metric is expanding consistently during the year. So I guess my question is, how should we think about further operating efficiency and maybe what is really the cause here, what are the key drivers for it that could continue to change the subscription gross margin level going forward. I was just wondering if this is just because you are scaling up the Vitex platforming markets where you are either at the discovery or validation phase and moving those markets to the acceleration and scale phases, or is there any other reason behind it? And my second question is somewhat correlated to the first, as it seems that most of the incremental net operating margin gain in this quarter came from lower marketing and sales. So is this where most of the headcount reduction is reflected on? And also, if you can give us some color on how to think about, you know, marketing and sales going forward, given that I would say that part of the future growth of the company should come from investments in this line item. Thank you.

Hello. Thank you. I'm very happy to answer that. First of all, the gross margin is very weakly linked to the expansion in other countries. We have a single infrastructure, a single system that we share across all the countries that we serve. It may impact the efficiency of sales. It may impact the sales efficiency, but it In fact, very little the gross margin performance. The most relevant improvement on gross margin performance is related to hosting cost efficiency, followed by support optimization. I will explain to you a little bit more. Just to recap, our hosting represents roughly two-thirds of our costs. So being efficient in this role has been a major focus for the company with great results so far. When we talk about efficiency, I'm talking about migration to other processes from Intel to ARM, Graviton. I'm also talking about transitioning some of our observability and logging software for logs from a solution that is third-party to a solution that is more active. almost created, not created, but assembled by us using more open source. So it's important to mention that as we perform the migration of our models and continue to work toward this hosting optimization, we might face some volatility in our margin structure, especially in the beginning of each migration when we are running two providers at the same time and adjusting the codes and processes. So most of this improved in hosting is from hosting costs. But there's also on the support side, which represents roughly one-third of our costs, and this is mostly personnel. And so as we are increasing our revenue, we are not seeing the need to increase the teams as much. And this might be in some ways linked to the... us getting a little bit bigger in this new country that we're exploring. The second question you had was the trade-off between growth and profitability, right? So I really don't see that all this... Yes, so the decrease in headcount is mostly linked to the sales and marketing area. But the answer that I'll give you is a no. I don't think this will jeopardize the potential future growth of Vitex for the next year, two or three years. The company is now optimizing all of our structure. to continue to be high growth, but there is a change in the landscape that we're adapting to. I'll give you some historical context to illustrate my point. In 2019, we grew over 40% in FX neutral with a slightly positive free cash flow. In 2020, there was a surge, a huge demand in commerce, We grew 95% in FX neutral with positive free cash flow of equivalent to 10% of our revenue on that year. And then we accelerated our investments from the end of 2020 to the middle of 2022, this year. Now we have adjusted our structure to match the commerce market growth, which is still very attractive and long-term in nature, but given the low penetration and the digitalization of the industry in general, but the growth that we saw in 2020 is not there, and companies like ours and like a lot of other companies, we didn't want to miss the growth momentum, so eventually we increased the size of our team more than the current and demand that we're seeing right now. So I don't see us losing momentum in the growth given the current demand for the market.

That's very clear and very helpful, Geraldo. Thank you very much for this. And if I may, just one more question. On your opening remarks, you mentioned a couple of new customers in the U.S. mentioning like Eric's Bike, which is a quite interesting shop, by the way. But given how relevant this market could be for VTechs, can you just comment a bit more about the demand you are seeing in that market? Maybe commenting on your pipeline and provide some colors on the customer profile, for instance. If you think about like enterprise clients versus SMB clients, I think that would be great. Thank you.

So for this, I would hand over the question to Mariano. Mariano is very on top of what is happening in the U.S. He might give a nice answer.

So in the U.S., we are seeing momentum in B2B. So Vitex has a great offer of a B2B marketplace, and we are seeing good opportunities coming organically on a B2B. And we are seeing also B2C demands. So we can quote, as we mentioned, the WH Candy. That's a group of just candy ornament shop. It is the same group. And we are migrating all of them. So we are seeing B2C and B2B. B2B mid-size. Let's be more narrow and nail down on that. And B2C, we are seeing a good momentum. Omnichannel B2C as well. 50-50, let's say.

Very clear, Mariano. Thank you. Thank you.

We now turn to Clark Jeffries from Piper Sandler. Your line is open.

Hi. Thank you for taking the question. First question is, could you maybe review for us how the AWS partnership is structured, how they're going to market with your solution, and what really invest alongside you? Does that mean generally trying to get a sense of how a partner fits into even their own Amazon.com strategy?

Thank you for the question. So let me recap on the AWS partnership. Last year we announced a multi-year collaboration agreement with them to deliver directly to consumer e-commerce solutions to global enterprises. AWS then included VTechs into their marketplace, communicate this partnership internally to their reps in Europe and US, in Latin America. So their customers' interest in digital commerce platform for B2C and B2B capabilities, they could choose VTechs. The sales team of AWS is matching effort with a VTech solution engineering in the three continents. And at the beginning, we were conservative in how the contribution to our operations would occur. But the good news is that we are gaining momentum and traction on this partnership. So we are grateful for all the opportunities AWS is collaborating with us in the field. For instance, as mentioned by Geraldo in the prepared markets, this quarter we had the go live of Bell Corp, a customer that AWS and Vitex have worked together. Also B2B on Bridge Stratton is another case that we already announced that Vitex and AWS partners as well. So it's coming along. We are optimistic for the future of the partnership. And I believe that for Europe and U.S., it will be relevant.

All right. Thank you very much. And then, you know, Ricardo, maybe I'm wondering if I could ask really for more color around how the new merchant, new region, or new store pipeline has evolved has trended compared to your expectations. I mean, thinking through the growth algorithm, it sounds like high-teens, same-store sales growth in larger customers is an improvement year over year. Just wondering how we should think about the other part of the equation as we get to what seems to be an implied roughly 30% GMV growth for 2022.

Yeah, hi, Clark. Happy to elaborate on that. As we have been talking over time and previous earnings calls, we'd like to look at our P&L separate by existing customers and new customers. So we see these healthy dynamics with our existing customers and accelerating same-store sales, which is very good to see, with very stable annual revenue churn. So this is good news on the existing customers' P&L. On new customers, P&L, we continue to see a strong demand for new customers. This demand has been more stable recently than accelerating. We continue to see strong demand for these new customers, contributing to our overall growth. I would say, you know, on maybe 60, 40 new customers, existing customers, something in that neighborhood, if that's helpful.

Yep. Perfect. Thank you very much.

As a reminder, to ask any further questions, please press star 1 on your telephone keypad now. We now turn to Tiago Kapulski from ITAU. Your line is open.

Hello, everyone. Thanks for the opportunity to make questions. So I just have two follow-ups on the previous question. So the first one, just to understand a little bit what's embedded in the guidance for Q4, And I'm just asking this because you pretty much you posted a beat right on your Q3 guidance, but on the nominal numbers in U.S. dollars for the full year, the guidance is lower versus the guidance you provided the last quarter, right? So I just want to understand. What exactly? It's just like a fax. Is there any specifics to the World Cup or elections in Brazil? Anything like in terms of deals? Just want to get a little bit of a sense of what's in here or you just want to be conservative because of the macro. So any additional color on this would be interesting. And the other question I have is on the gross margins, right? Because you're you're making a very good attraction here. And I know the environment for the cloud providers hasn't been that good, right? We saw this in AWS and Microsoft results, right? And just wanna get a sense of this improvement is related 100% to the operating leverage they're getting from more volumes or is there any sort of renegotiation or even room actually to get lower prices due to the tougher environment that the cloud providers are having elsewhere? Thanks.

Happy to take the first question regarding the guidance and the dynamics there. And then I'll pass it over to Geraldo to talk about the gross margin and the drivers. So on the guidance for Q4, as I mentioned, we continue to see an acceleration from Q2 to Q3 and then the middle of the guidance for Q4. However, having said that, as I mentioned, there was a beat for Q3 and it's not fully passing along to Q4. So there is a slightly lower acceleration than we were expecting three months ago. So let me share some context on what we are seeing here. Over the last two quarters, As we have been talking about, there is an elongation of our sales cycle expressed by an increase in the average time our customers are taking to implement the Vitex platform. The dynamic has remained stable over the past couple of quarters. It hasn't improved, but it also has not deteriorated. And we've been also talking about the strong performance of our existing stores throughout the year compared to the overall e-commerce market. So none of these factors impacted the Q4 guidance. But in addition to a challenging macro, and you mentioned some of the factors, and the uncertainty of the TIFO's workup during the holiday season, I would say that there is the new piece of information that we are starting to see a slightly longer ramp up time for some of our new customers. This means that some of our new customers are taking longer than expected to reach their estimated level of sales, impacting the take rate portion of our revenue. We will continue to monitor these dynamics. At the end of the day, it's on our customer side to decide how many dollars to allocate to moving traffic to their e-commerce site once it goes live. So that's the key factor driving this Q4 guidance and this uncertainty of the TIFAS workup. So we'll keep you updated on this trend.

And about the gross margin, I can give some color here. I would say that there is some natural scale effect given we process more orders, we process more traffic, and eventually the gross margin gets a little bit better. But this is not meaningful. This is not the reason why it got better. The other... The other hypothesis that you brought is related to commercial conditions with the hosting providers. This is not the case for this year. We have long-term contracts with AWS, our hosting providers. We don't renegotiate all the time. This is something we do once in a while and we didn't, not this year, not specifically. Most of the increase of efficiency of our gross margin comes from R&D efforts. It's R&D that we spend to make one single service give the same amount of throughput of responses with a little bit less money spending on AWS, a little bit less than resources spent on AWS or our hosting providers. As we know during the pandemic, if you look to our history, our financial statement, you will see that in 2019, we had some gross margin. Then you see that during the pandemic, in the beginning of the pandemic, our gross margin was better because of the volume. Then there was a lot of features that we needed to develop for our customers and capabilities linked to the physical stores, routing the order to the physical store, including the physical store in the commerce experience. And you see that our gross margin gets a little bit worse because our R&D efforts was for the extra traffic that we were getting, extra requisites that we were getting. And then For this year, as we return to a normal path of growth, we had bandwidth to put some resources on our R&D to increase the efficiency, and we see the results. It's very slow that we can do that. There's no silver bullet to solve the the gross margin, but we can get a much better gross margin if we invest in R&D.

Great. No, thanks a lot for the caller. Very helpful, guys. Thanks. Thank you.

This concludes our Q&A. I'll now hand over to Geraldo Thomas for final remarks.

The third quarter results have been achieved in a context of volatility and mixed macroeconomic performance globally. Under these circumstances and considering the consistent strong delivery of results from all the taxes, it's clear to us the strong resiliency of our business model and customer base. This gives us the conviction to continue to reliably execute our business plan. Also, It highlights the immense opportunity we have in front of us as e-commerce continues to penetrate the economies of Latin American countries and globally. The text is demonstrating a clear path to become a relevant global player. We are still in the early stages of our long journey, and we are more convinced than ever in the value we are creating in this omnichannel era. The text has great potential in the years to come. We are excited to continue executing to deliver on our vision. Thank you, everyone, for joining us today. I'm looking forward to update you about our progress in our next call.

Today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.