VTEX

Faria, founder and co-CEO, and Andres Polidoro, Chief Strategy Officer, will be available during today's Q&A session. I would like to remind you that management may make forward-looking statements related to such matters as continued growth prospects for the company, industry trends, and product and technology initiatives. These statements are based on 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 undue reliance on these forward-looking statements. Certain risks and uncertainties are described in the risk factors and forward-looking statement sections of VTEX Form 20F for the year-end of December 31, 2024, and other VTEX filings within the U.S. Security and Exchange Commission, which are available on our industry-related websites. 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 GAAP measures can be found in our fourth quarter 2004 earnings press release available on our Investor Relations 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 fourth quarter 2024 earnings conference call we closed the year with our underlying business remaining stronger than ever looking at the medium to long term 2024 was a transformative year for the tax we delivered significant milestones in our evolution as a global leader in digital commerce first we continue to see a robust sales momentum in signing new enterprise customers onto the Vitex platform, demonstrated by the number of customers that pay us more than $250,000 per year, increasing from 126 to 155. Second, our annual revenue churn remains stable in the mid-single-digit percentage range, an evidence of our customer satisfaction and our strong position in the competitive landscape. Third, we introduced new products such as VTechAd, Data Pipeline, and Shield, designed to empower our customers with AI-supported add-ons that enhance business outcomes and revenue generation. delivering efficiency and tangible business results for our customers and potentially contributing to VTech's monetization capabilities. The three operational pillars highlighted above, adding new enterprise customers, maintaining low churn, and launching innovative products, are key to VTech's medium and long-term success. While our revenue model with two-thirds coming from a take rate on customer GMV, closely align our success with that of our customers and benefit us from the growth of digital commerce. It also introduces short-term volatility. This was evident this quarter and year, with revenue coming below expectations due to weaker sensor sales. particularly in Brazil, amidst softer consumer spending and significant effects of devaluation. Ricardo will elaborate further on this in the financial section. Now, going back to the three key operational growth drivers. On adding new enterprise customers, in 2024, we saw strong contract signature momentum, with Brazil standing out as a highlight throughout the year and with notable contributions from U.S. and Europe in the second half. As a result, our deferred revenue increased 29% year-over-year, which is a testament to the attractiveness of our value proposition for net new customers, an existing one that renewal after renewal keeps choosing VTEX. These achievements reaffirm VTEX's global ambitions of becoming the backbone for connected commerce. be more than just a software provider, but the preferred comprehensive commerce suite by the bold CIOs and CEOs worldwide. On keeping a low and stable churn, we further solidified our partnership with top tier brands and retailers, demonstrating our ongoing upmark trajectory with a 23% increase in number of customers generating over $250,000 in annual recurring revenue. In 2024, we celebrated the go-live of several key customers, including H Mart, MyEyeDoctor, Jeffers Pat, and Hearst's ongoing expansion in the U.S., OBI, and an enterprise multinational fashion retailer in Europe, Motorola in Sweden, and Whirlpool in Poland. Pashmina in India, Nike, Adidas, and Electra across Latin America, and Fast Shop, Hortifruit, and Bemol in Brazil, among many others. Although our total number of customers has slightly decreased year over year, that's driven by a lower intake of small customers that are not strategic nor financially relevant for VTech. Our annual revenue churn remains stable in the mid-single digits, as our base of customers paying us more than $250,000 in ARR grows and compounds over time. It further strengthens VTech's long-term growth and resilience. On launching product innovations. VTech is successfully transitioning from a single product platform into an integrated suite of solutions. Our offering now spans B2C, B2B, sales app, pick and pack, data pipeline, retail media, security shield, and many more, empowering business through a well-connected ecosystem. Our strategic investments, including a stake in Cinerise and the acquisition of Wenny, expanded our AI and conversational commerce capabilities, while enabling us to enter two new segments, retail media and post-sales markets. This diversification strengthens our position as the most comprehensive suite of commerce solutions, going beyond software to serve as a trusted ally in executing our customers' growth strategies. As we look ahead, we remain steadfast in building trust with our customers and delivering on our promises alongside our ecosystem partners. Trust is at the core of eTech's DNA and will continue to guide us as we solidify our leadership in digital commerce. With this segue, let me go to the newly added customers during the fourth quarter of 2024, including Dakota Criações, Dona Carioca, Hortifruti, Hortobon, and Hisu in Brazil. Torre in Chile, an enterprise multinational fashion retailer in Ireland. CoolBox, Hanes in Mexico. Sameca in Portugal. Heart Corporation and Lion Bakery in the U.S. We've also focused on strengthening our relationship with existing customers, actively supporting the GROW initiatives. During the fourth quarter, several premier brands and retailers chose Vitex to expand their operations with us, including Amo Beleza, has launched a new brand, Mascavo, and now operates two B2C stores in Brazil. Cartamundi has introduced the Green Mouth brand in France, extending its operation to Europe, in addition to its two B2C stores in the U.S. Kirne continues to expand its B2B presence across Europe, adding Germany to its Belgium, France, Netherlands, and U.K. operations. Mazda is further strengthening its European presence with the addition of France, which is now operating in four countries. Sola has expanded to B2B in Colombia with two new accounts, Sola B2B and Distraves B2B, adding their two existing B2C stores in the country. And Voit has expanded its B2C presence into the U.S. complementing its operation in Mexico. Additionally, in our continued pursuit of fostering our trusted ecosystem, we're thrilled to announce that we've launched a strategic partnership with Accenture to Logic, the retail technology systems integrator. This collaboration empowers U.S. enterprises to modernize this digital commerce infrastructure. addressing shifting buyer trends and rising market challenges. With record retail closures, right lighting the urgency for transformation, VTech and Accenture are united to help brands stay competitive by leveraging VTech's Agile platform and Accenture's expertise in business transformation. This partnership positions VTEX at the forefront of driving growth and resilience for US companies in today's dynamic retail landscape. Now, before leaving the stage to Ricardo, I would like to share some customer success cases demonstrating our platform's tangible impact and potential. An enterprise multinational fashion retailer in Ireland partnered with Vitex to overcome significant technical and operational challenges. Before Vitex, the company relied on a dedicated e-commerce textile platform that lacked scalability, functionality, and the flexibility needed to support its growing digital commerce ambitions. Their primary objectives were integrating inventory from over 100 stores centralizing digital sales and driving revenue and efficiency improvements. VTech implemented its core platform with a white label B2C operation to address this need and enhanced the user experience with out-of-the-box features like color and sizing options. The architecture was further strengthened by redesigned front-end and integrations facilitated by middleware from our partner, Logic. Early indications suggest improved sales efficiency and platform usability by integrating a smart checkout. Carajás, the leader retailer in home improvement segment in Brazil, transformed its customer experience and boosted sales with Wany by Vitex. With 11 physical stores, two distribution centers, and over 20,000 SKUs ranging from decoration to construction products, Carajás needed an efficient post-sales channel to enhance customer service and drive incremental revenue. By integrating conversational commerce with money by Vitex, Carajás automated key processes, including car recovery with optional human assistance, order updates and financial solutions like invoice retrieval and PIX payments. This automation led to remarkable results, such as a 15 times higher conversion rate on WhatsApp than email, an expansion on the return of an investment in abundant card recovery, which reached double digits, and a 68% message read rate. well above the 40 to 45 average for emails. We are proud to help Karajá embark in their conversational commerce journey, where WhatsApp has already become a comprehensive and efficient channel, delivering trust, convenience, and competitive differentiation throughout the customer journey. Heineken Brazil, home of some of the most beloved alcoholic beverage brands chose Vitex Ads to run their digital campaigns. It achieved exceptional results with above average return on ad spend in the fourth quarter of 2024. This success was powered by identifying Zona Su highly qualified audience through first-party data, including transactional insights and search behavior on the platform. By analyzing shopper intent, Heineken campaigns were strategically optimized, targeting consumers with high purchase intent and ensuring maximum impact across many SKUs. Through this data-driven approach, Vitex Ads provides Heineken Brazil with actionable insights into key performance indicators like sell-out, and market share, helping them define the strategy for even better results. Pashimina.com, the leading B2C e-commerce platform specialized in luxury handcrafted cashmere pashiminas, has partnered with Vitex to transform its digital operations and accelerate global growth. With 85% of its business coming from international export, Pashmina.com migrated from its legacy platform to VTech's platform to enhance scalability, flexibility, and operational efficiency. This transition empowered the brand to offer personalized shopping experiences, multilingual support, and local currency option for its customers across the US, Europe, Australia, and India. This partnership allows Pashumina.com to expand its global presence while celebrating the rich heritage of Kashmir craftsmanship, all without the burden of managing its web infrastructure. Together, we aim to redefine India's digital retail landscape and set new benchmarks in global e-commerce innovation. Sony. The Hinoen Global Electronic Company has selected SalesApp as the primary platform to manage sales operations across Latin stores. These partnerships represent the first multi-country implementation of the SalesApp, with seven stores across Ecuador and Chile already becoming their main in-store sales platform. To meet its specific operational needs, Sony has extended Sales App within the Vitex ecosystem using Jitterbit, integrating it with their existing systems. Sony plans to expand Sales App usage for four additional countries in Latin, Peru, Panama, Colombia, and Mexico, bringing the total number of stores to 18, with Sales App as its exclusive platform for all operations, this rollout underscores its potential to drive significant results across Sony's regional network. Walmart, the multinational discount store operator and one of the largest corporations in the global retail industry, is transforming the mobile shopping experience across Central America by launching new apps in Costa Rica and Guatemala. The apps offer a flexible, customized shopping solution for each country and store formats from Walmart super centers to supermarkets and discount stores. Leveraging VTech's IO infrastructure and our API-first approach, The app's advanced architecture enhances load time and performance, while intuitive navigation improves user experience, driving higher customer satisfaction. This is just the beginning with the additional brands across the region set to go live. Through its digital expansion, Walmart is setting new standards for retail innovation in Central America, a development we proudly support. The Smart Storage Solutions business unit of Black & Decker successfully launched its Smart Storage Digital Commerce Store, migrating from content-only Sitecore website to the Vitex Fast Store platform. This new platform delivers a seamless catalog browsing and purchasing experience for prominent brands like Vidmar, Lista, and Cridmaster. Built on the proven global architecture used for Stanley Engineering fastening website, also powered by Vitex, smart storage expands in Stanley assortment availability and commerce capabilities, positioning to meet the rising demand of digitally native B2B customers. The migration represents a pivotal step and enhancing operational efficiency and customer engagement in B2B digital commerce. To conclude this session, I want to express my gratitude to our 1,368 VTEX employees dedicated to making VTEX the backbone for connected commerce and to our customers, partners, and investors. With that, I will now hand over the call to Ricardo to discuss our financial performance for the quarter and the full year of 2024.

Thank you, Geraldo. Hi, everyone. It's a pleasure to update you on our financial performance. In the fourth quarter of 2024, our GMV reached $5.4 billion, representing a flat year-over-year growth in U.S. dollars and 11% increase in FX neutral. With this, we concluded the full year 2024, reaching $18.2 billion in GMV, representing 10% and 16% growth in U.S. dollars and FX neutral, respectively. Our revenue total, $61.5 million, growing year-over-year 1% in U.S. dollars and 12% in FX neutral in the fourth quarter of 2024, and reached $226.7 million for the full year 2024, representing a 13% and 18% growth in U.S. dollars and FX neutral, respectively. These results came below our guidance range of 14% to 17% FX neutral for the fourth quarter and 18.5% to 19.5% FX neutral for the full year. The primary driver for the gap versus our expectations came from a softer-than-expected GMV from existing customers in Brazil, where consumer spending softened. On top of this, the US dollar meaningful appreciation against most currencies, especially the Brazilian real, further pressure our US dollar reported results. Despite Brazil's challenging consumption scenario, as mentioned by Geraldo, we remain confident in our ability to sustain a profitable growth trajectory based on the robust momentum in adding new enterprise customers, our stable and low churn, and our recent product innovation launches. Double-clicking on our revenues Our subscription revenue reached $59.5 million in the fourth quarter of 2024, representing a year-over-year increase of 2% in U.S. dollars and 13% in FX neutral, on top of last year's 36% in U.S. dollars and 27% in FX neutral growth. For the full year, subscription revenue reached $217.7 million, up from $190.3 million in 2023. representing a 14% and 20% growth in US dollars and FX neutral. In 2024, our existing stores revenue increased to $169 million. Our net revenue retention reached 104% in FX neutral. A key driver to net revenue retention, our same-store sales growth reached 10% in FX neutral. Looking at same-store sales throughout 2024, For the first three quarters, same-store sales growth was in the teens level, while in Q4 it dropped to single-digit range, given tougher comps in Argentina and softer consumer spending in Brazil. It's important to mention that the upselling of new features, contract renewals at better terms, and inflation adjustments have partially offset the impact in our net revenue retention from the weaker same-store sales from our customers. On top of our existing stores' growth, We continue attracting new stores, adding $27.9 million in revenue to our base, representing approximately 16% of our 2023 Vitex platform revenue. The solid contract signature momentum is coupled with our LTV over CAC ratio that remains at strong fold, exceeding the six times cash on cash mark. This year, a significant highlight is the continued progress of our existing stores P&L. reinforcing the strength of our inherent attractive business model. Existing stores gross margin increased from 77% in 2023 to 81% in 2024, while operating margin reached 43%, marking 8 percentage points increase year over year. Additionally, given our net revenue retention of 104% in FX neutral, our existing stores P&L is significantly above the rule of 40. giving us confidence in the rule of what to go at maturity. Meanwhile, for new storage margins, we delivered a 10 percentage point improvement in gross margin, year over year, and a 5 percentage point operational leverage improvement in R&D and G&A, which were all basically reinvested into sales and marketing, strategically positioned to seize the significant growth opportunity ahead. Now, analyzing the geographical breakdown of our revenue, in 2024, Revenue generated outside of Brazil accounted for 43.4% of our total revenues. Looking at the year-over-year FX neutral growth by region, Brazil's subscription revenue grew 28% in FX neutral, a slight acceleration versus last year, mostly given the solid sales momentum mentioned throughout the year and despite the year-end softness in same-store sales. Latin America, excluding Brazil's subscription revenue, increased 6% in FX neutral. and removed the Argentina headwind, the region grew at a pace just slightly below Brazil's. And the rest of the world's subscription revenue grew 34% in FX neutral, demonstrating a relevant compounding rate even as we increase the baseline. Moving down our P&L, we have maintained strong discipline on cost and expenses. Important to note that all figures I will now present are non-GAAP. You can find the reconciliation of those measures to the nearest comparable GAAP measures in our fourth quarter 2024 earnings price release on our investor relations website. Our subscription gross profit reached $46.9 million, resulting in 78.9% subscription gross margin, up from 78.6% in the same period last year. Our total gross margin, which includes services, rose to 75.1% compared to 74.1% in Q4 2023. Our total gross margin improvement was mostly driven by the lower mix of services revenue in our total revenue, as we are relying more on our ecosystem to provide implementation services, and to a smaller extent by operational efficiencies in support cost, despite the currency headwind experienced in the fourth quarter. Operating expenses were $33.8 million, slightly below the $34.2 million reported in the prior quarter. resulting in an operating income of $12.4 million, representing a 20.1% margin, up from 19.1% in the same quarter of the prior year. Aligned with this, our free cash flow performance was equally strong, reaching the same $12.4 million and 20.1% margin, consistent with the target model we communicated to the market. The resiliency of our operating income and free cash flow margin clearly demonstrates our natural operational hedge against FX fluctuations, as even though the weighted average of our basket of currencies depreciated approximately 10% year-over-year against the US dollars, we still improved our operating income margin by 1 percentage point and our free cash flow margin by 4.5 percentage points. Looking at the full year, the improvements have being even more significant. Our subscription gross margin improved 196 basis points, reaching 78.2%, while our overall gross margin expanded by 402 basis points, reaching 74.1%. Operating margin improved 9 percentage points, reaching 13%, going from $7.7 million in 2023 to $29.5 million in 2024. Free cash flow also significantly increased from $3.8 million in 2023 to $25.2 million in 2024. We also did strategic capital allocations like WENI and a minority investment in Cinerise and launched a new share repurchase program. Approved by our board of directors on December 3rd, 2024, the program authorizes the repurchase of up to $30 million in Class A common shares and will remain in effect until December 2nd, 2025. In the fourth quarter of 2024, we repurchased 1.8 million Class A common shares at an average price of $6.08 per share, totaling $11.2 million. We will continue to allocate capital with diligence, aligned with our strategic vision, and aiming to maximize long-term returns and value generation for Vitex, our customers, partners, employees, and investors. As we move forward with our business outlook, we remain confident in our business resilience. Despite Brazil's FX volatility and existing customers' GMV softness in the short term, we see an attractive opportunity to help our customers outperform the market, attract new customers, cross-sell our suite of products to our base, and efficiently manage our costs and expenses to deliver operational leverage. Considering this, we are currently targeting FX-neutral year-over-year subscription revenue growth of 13% to 15% for the first quarter of 2025, implying a $51 million to $52 million range. For the full year 2025, as we continue executing our profitable growth strategy, we are targeting FX-neutral year-over-year subscription revenue growth of 14% to 17%. implying a range of $235 to $241 million, based on the quarter-to-date average FX rate. We are targeting non-GAAP operating income and free cash flow margins of meetings. Given the evolution of our partner's ecosystem, we plan to increasingly rely on VTAC's ecosystem of system integrators for new customers' implementations. We view our lower short-term growth rate as temporary, influenced by the abrupt FX devaluation and a softening of consumption in Brazil. Looking ahead, our operational and long-term indicators are showing strong performance. We have seen a significant 23% increase in number of customers generating over $250,000 in ARR, and our deferred revenue has also meaningfully increased by 29% year-over-year. Our annual revenue term remains in the mid-single digits, with larger customers experiencing low single-digit churn. Finally, and not less important, we are excited to be expanding with compelling new products that are enhancing our offerings. Overall, we remain optimistic about the future and look forward to the opportunities that Laya had in the coming years. With that, let's open it up for questions now. Thank you.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We'll take our first question from Marcelo Santos at JP Morgan.

Hi, good evening. Thanks for taking my question. The first question is regarding the guidance, the subscription revenue guidance growth and asset mutual terms for 2025. Could you discuss this a bit more into the regions that you operate? Maybe comparing how they grew last year, like what are you kind of forecasting the main moving parts that you have on that guidance? That's the first question. And the second question, I think on the opening remarks, you commented that you're transitioning from a single product company to more of, I forgot the exact words, but more of a platform of solutions. What would be the P&L impacts over the long term of such transition? What should we expect in the different lines? Thank you very much.

Hi, Marcelo. Thanks for the question. Happy to take the first one regarding the guidance for 2025. So our Q1 and full year 2025 guidance assumptions reflect a balanced view of consumption headwinds and the continuous strength of our operational execution. So on the same-store sales growth front, remember that this was in the teens level during the first three quarters of 2024, but it decelerated to single digits in Q4. And as mentioned in the prepared remarks, and for 2025, we are assuming a same-store sales growth rate in FX neutral roughly aligned with what we saw in Q4. factoring in ongoing consumption pressures, particularly in Brazil. We are going to your question on geographical right side. We are embedding a recovery in Argentina, where we are starting to see some signs of year over year consumption improvement. And then with that, we are assuming Argentina should return to positive growth in 2025. although we still expect it to grow less than the average of the company, given the uncertainty of the speed of recovery of the country. And as we like to talk as well, we separate existing customers and new customers. On the new customer front, we are assuming some increase in average implementation plus ramp-up time, given the mix of larger customers we currently have in the backlog across the world. And with that, and given the meaningful new customers already signed in 2024, you can note that there is an implied acceleration from the midpoint of our Q1 guidance to the midpoint of our full year guidance. And this acceleration is mostly driven by operational drivers, not by macro recovery assumption. And these operational drivers basically the expected goal lives of already signed new enterprise customers. And on the second question, Marcelo, if you could repeat it, please.

No, you mentioned in the beginning of the prepared remarks that VTech is transitioning from being a single product company to use the word that I forgot, but I think it was something like a platform of solutions, an ecosystem of solutions. I just wanted to understand better what would be the midterm P&L impact of such transition, like as you add more solutions and products to your shelf capacity How does this impact the different parts of your P&L?

Yeah, perfect, Marcelo. Happy to start, and then others feel free to chime in. So we are undergoing this transition already, right? I mean, when we're talking about this commerce suite, we are talking not just the all-you-can-eat B2C platform, but also the B2B retail media, the sales app, the VTech Shields, data pipeline and so on. So this is something that we have been executing for the past, let's say, few quarters. And we have been already investing behind it on the R&D side so we can actually launch these products. These are not ideas, right? I mean, these are products that have been launched and we have customers using them. So we wouldn't expect any relevant impacts on the investment side of the P&L. And then on the other parts of the P&L and thinking long term, the way that we think about it is that some of these products, they have a different buyer inside the organization. And then you potentially increase the stickiness of the VTech solution by having these different products being used. uh on you know not just on the commerce side but also on the marketing side the security side uh the data side and so on so it's a more about uh stickiness and uh lifetime value of customers than short-term impacts on the on the pno i can add something here so there are

I can add something. The financial distress that the retailers and brands are suffering creates the opportunity for companies like us to give them an out-of-the-box, fully integrated solution so they can write off providers and unify in a very simple way what we are calling the simplification of the operation. that gives them more margins and unlock some revenues. So when we call ourselves, that's what we disclaim in the VTEX 2028 charter in our VTEX 2024 annual report, quote, VTEX is the commerce street of choice for both CIOs and CEOs globally. That means that we will not provide only B2C anymore. So as we are testing those markets in the last two years, Now we became a commerce suite, so you can have the B2C with us, you can have the B2B with us, but also you can have the add-ons such as, for example, the pick and pack, the VTEX ads, the shield data pipeline. All of these, it is to simplify the operation of our customers and allowing them to serve these efficiency necessary ways they will be forced to serve. What we can expect in terms of P&L impact, as Sodre said, not really much. What we can see is that the capacity that we do have inside our clients to guide them to use a simple solution is pretty strong, and we are using it. So we already have clients that are using three or four products of ETECS, and this is creating more stickiness and preparing the clients for the future.

Perfect. Very clear. Thank you very much.

We'll move to our next question from Thiago Kapulski with Itao BBA.

Hi, everyone. Thanks for the opportunity to ask questions. I also have two questions. So, the first one, just to get a little bit more color on the softness that you saw in Brazil this quarter. Is there anything specific in terms of factors, verticals, regions that you would call out? And also, how are you thinking about that on your guidance looking into Q1 and also into the full year? How are you incorporating those effects? And my second question is, More related to the environment in the U.S., given the new administration coming in, I know that by the end of last year, you know, there was a lot of bullishness on everything. Just want to hear a little bit from you guys more on the pipeline of new deals and conversations. If the mood continues to be positive, if it changes any color there, it would be great. Thank you.

Great, thanks, Thiago. Ricardo here, happy to take the first one, and I believe Mariano can address the second one. So on the GMV softness and macro impact, before answering the question, let me take a step back and do a quick recap of our revenue model, as I think it helps on aligning the foundations. So as you know, Thiago, approximately one-third of our revenue comes from a fixed fee, while the remaining two-thirds are tied to our customers' GMV. We like these revenue model structures as it aligns our success with our customer success, provides us with long-term exposure to the continued penetration of e-commerce, and automatically protects us against inflation. Having said that, this revenue model may also introduce some short-term volatility. In the positive consumption cycles, it's a tailwind to our short-term performance. And in the negative cycles, it's a short-term headwind. From an operational and medium to long-term perspective, our focus remains on signing new enterprise customers, keeping a high gross retention, and helping our existing customers grow their GMV above the market. And from this perspective, we are seeing a strong performance, new customer contract signatures, continue at a solid pace, which is reflected in our deferred revenue growing 29%, and the number of customers paying us more than $250,000 per year growing 23%. And also, our annual revenue churn remains in line with historical levels in the mid-single-digit range, where our fastest-growing clusters of customers, the ones above $250,000, our revenue churn is even lower in the low single digits. So on the GMV softness, let me just try to share some context in Brazil. The same-source sales that we saw in Brazil, which is the GMV growth of our existing customer base, for instance, the year-over-year same-source sales growth in effect neutral in Brazil, unexpectedly decelerated by roughly six percentage points from Q3 to Q4. The abrupt effects devaluation and the rising interest rates weighted on consumer spending and the significant appreciation of the U.S. dollars against most currencies, particularly the Brazilian how also further pressure this type of consumption behavior. On specific segments, we saw more relevant deceleration in home appliance and electronics. But as you know, this is, you know, volatile. Every quarter changes a bit. But those were the key segments that we saw some of this deceleration. Hopefully that answers your question.

Well, great. That's great, Collin. Thank you very much.

Our next question comes from Leonardo Olmos at UBS.

Sorry, I think there was a second question.

There was a second question.

Oh, just one moment.

It's about the new administration in the U.S., is that correct?

Yes, if I'm still in. Yes, about the environment, the new administration, remember that by the end of last year, the environment was very positive overall in the U.S., and I guess that would be good for deals and everything. Just want to understand how you see all the new administrations came in and how's the mood from the perspective of eventually signing deals or negotiating deals and that kind of thing.

Okay. So I will answer in two aspects. The first one is in what matters for Vitex. So we keep seeing the same sales momentum increasing the pipeline in the US, in B2C, B2B, grocery. So we continue to see the same trend and a good momentum to be created in the United States. And what can the new administration affect this momentum? I am not sure if it will affect VTEX specifically, but let me say that if macro that we cannot predict, if the new administration creates volatility that will affect inflation, that will affect interest rates, of course, the retail and the brands will be affected. And on this scenario, you do have a more kind of momentum for the companies to change and to simplify their operations. So we always see a crisis on the retail as a good momentum for Vitex because the companies that used to have their own custom platform that's pretty expensive to maintain, uses the crisis to make the decisions to simplify their process. So we cannot anticipate that the volatility will be good or bad for VTEX in the U.S., and even that's a very small country for us. But we like a lot when crisis creates the momentum for companies to change, and we are seeing this in our pipeline.

All right, great. Thank you very much.

And now we'll go to Leonardo Olmos at UBS.

Hi, everyone. Good evening. Can you discuss a little bit the assumptions for the guidance? I'm sorry to go back to Marcelo and Tiago's question. But just to understand, so we saw Latin America and Brazil growing 6% in 2024. You said that Argentina may go to zero, so if you could discuss a little bit the other countries, like Amex Brazil and ex-Argentina. And Brazil has been doing great, so I assume you're putting some retraction in the guidance, which, of course, makes a lot of sense. However, the rest of the world, just mentioning the U.S., is not that relevant. So there was a 37% growth in 2023, going down to 34% almost. And then what you're assuming is teaching this relation to the rest of the world. So I know you don't give guidance, but just understand the assumptions. Marcelo's question is Argentina a little bit. I just was hoping you could discuss other conferences as well online. Thank you.

Yeah, sure. Thanks. Thanks, Lauricado here. So if we look at our growth, the subscription revenue growth in FX neutral in the fourth quarter, we grew roughly 13% year over year, right? So this is how we are exiting this year, right? And as we have been mentioning, there is a relevant headwind from the Argentina on this growth rate that was expected when we issued the guidance for for the fourth quarter. The unexpected part was the deceleration on the same-store sales growth of our existing customers, this roughly six percentage point deceleration that we saw in Brazil in Q4. So we started from this base of roughly 13% growth that we saw in Q4. And then for Q1, if you look at the guidance, the midpoint of the guidance is 14%. And that accelerates to a midpoint of 50.5 for the year. So part of this acceleration versus Q4, it's the decrease of the headwind of Argentina. As I said, we are assuming some recovery and starting to see some recovery in Argentina. They are going to positive territory, but the assumption is that they will still grow less than the overall of the company. So there is still some headwind there. although we do see, but then there is this now headwind of Brazil with these lower same-store sales and this consumption at a lower level. So this is the key moving pieces of the guidance. And as I mentioned to Marcelo on the first question, on the new customer side, we are assuming some increase in average implementation plus ramp-up time. given the mix of larger customers that we have in the backlog. So there is also some impact there, and that's kind of across the world, including, you know, U.S. and Europe, as we have, you know, customers under implementation that are more on this larger side.

Understood. Thank you very much, and have a good night, everyone.

Thank you, Leo.

Next we'll move to Luca Brendam at Bank of America.

Good afternoon, everyone. Thank you for taking my question. I have two here. The first one is on Brazil. Regarding the payroll tax exemption, if you guys will be passing that through to clients in some way, and what can we expect in terms of the impact for that? And also, second, you guys showed the breakdown for the margins for existing stores and also the margins for new stores for 2024. And the margin for new stores actually went down and the one for existing stores went up. So I just want to check if this has to do with the profile with larger clients and how can we think about that going forward if most of the expansion should continue to come from the existing stores or if we should see an expansion for new stores as well. Thank you.

Great. Thanks, Luca. Happy to take the questions here. So on the payroll tax change in Brazil, as you know, after some back and forth for potential payroll tax regulation in Brazil, the situation seems to have accommodated with the progressive re-inclusion of taxes over the next few years. Given that we have also progressively improved our margins, the potential impact of the current proposed change in payroll taxes should not have any material impact to VTEX. At the most, under the current legislation approved, VTEX could face, you know, an annual impact of approximately, you know, low single-digit million dollars on our operating income and roughly half of that on our net income. as you have noted on these additional expenses. Over time, we expect that these impacts to diminish and potentially disappear altogether as we continue to, you know, enhance our operating margin. And it's important to reinforce that, you know, regardless of the potential impact, our target for the operating margin for the year, the meetings, remains intact. And the first question Luca was about, sorry, could you please repeat?

Yeah, the other question is for the breakdown for the existing stores and new store margins, that the margin for the new stores actually went down and for existing stores went up. And how can we think about that going forward and why the new stores went down if it was because of the larger clients coming in?

Yeah, perfect, Lucas. So on the new stores... we achieved a 10 percentage point improvement in gross margin year over year, right? So that's important to note. And this improvement is largely attributed to our increased reliance on the ecosystem for implementations, which, you know, reduces the pressure on the service side. And we also realized five percentage point operational leverage improvement in R&D and G&A, And then the drag on the margin on your question is that we chose to strategically reinvest these 10 percentage points from gross margin and the five percentage points operating leverage in R&D and G&A in sales and marketing to capitalize on the growth opportunity. So with that, if you look at the operating level, it didn't change that much. It slightly reduced versus the prior year. And this is as we invest in sales and marketing to go after larger customers and expand geographically the company as well. And I would say that it's also important to highlight that our LTV over CAC, which when we think about the new stores P&L, we lose money in the short term, but you get customers for us for the long term. So it's about the return on invested capital. And the way that we think about return on invested capital is the OTV or CAC. And that remains above six times cash on cash with a payback period around, you know, two and a half years. So this is a strong performance, you know, that underscores the attractiveness of our investment in acquiring new customers and making it, you know, a compelling proposition for the long-term growth of the company as well.

Perfect. Very clear. Thank you for the answer.

And that concludes our Q&A session. I will now turn the conference back over to Geraldo for closing remarks.

2024 was a transformative year for Vitex, defined by innovation, operational excellency, and robust momentum in both new and renewed contracts. The fourth quarter growth fell short of expectations due to short-term FX volatility and existing customers' GMV softness in Brazil. We have laid an exceptionally strong foundation to propel Vitex into this next phase for the company. We expanded our platform into a connected ecosystem with AI-powered solutions like Vitex DAD and Shield. enhancing customer outcomes, and positioning VTech as the most comprehensive commerce suite. Our strategic investments and evolving product portfolio have strengthened our leadership and opened new revenue streams, reinforcing confidence in our long-term growth potential. We've made significant progress towards sustainable, profitable growth, As we step into 2025, we're committed to building on this solid foundation, delivering value and driving innovation for our customers and shareholders. Thank you for your trust and partnerships. We look forward to updating you at our next earnings call.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.