VTEX

Hello, everyone, and welcome to VTech's earnings conference call for the first quarter of 2025. I'm Julia Bader-Fernandez, VP of Investor Relations. Joining me today are Geraldo Calas, Jr., our co-founder and co-CEO, and Ricardo Camata-Sodré, our Chief Financial Officer. Also joining us for the Q&A session are Mariana Gaviria de Faria, co-founder and co-CEO, and Andres Polidoro, Chief Strategy Officer. Before we begin, please note that today's remarks may include forward-looking statements. These statements are based on our current assumptions and projections, and actual results might differ. Additional information regarding risks and uncertainties is detailed in our Form 20-F for the year end of December 31, 2024, and other filings with the SEC, all of which are available on our investor relations website. During this call, we may also reference certain non-GAAP financial measures. Reconciliation to the most comparable GAAP figures can be found in our Q1 2025 earnings press release, also available on our investor relations website. With that, let me turn the call over to Geraldo. Geraldo, the floor is yours.

Thank you, Julia. Welcome, everyone, and thanks for joining our first quarter 2025 earnings conference call. We delivered a solid start to the year despite the ongoing market economic volatility. Subscription revenue grew 15% in FX neutral in the first quarter. As we look ahead, the recent growth lives of key enterprise customers combined with the continued progress in the product innovation and platform expansion initiatives reinforced our confidence in the sustainability of our profitable growth strategy. In a seasonally softer quarter, we also delivered profitable growth and significant margin expansion. Our gross profit reached $41 million, a 22% growth in FX neutral, and 3.7% percentage points margin increase year over year. Additionally, our non-GAAP operating income increased to $5.3 million, an 85% growth, and 4.2 percentage points margin increase year over year. The strong operating income was supported by even stronger free cash flow generation of $6.6 million. Finally, our non-GAAP net income reached $5.3 million in the first quarter and $34.5 million over the last 12 months. I'll let Ricardo further expand on this financial shortly. Vitex continues to solidify its position as the platform of choice for global CIOs and CEOs, seeking operational efficiency and commercial agility. Enterprises choose Vitex for more than software, but for outcomes. Accelerated time to market, increased revenue, improved margins, and reduced complexity. Looking ahead, We're building a future for VTech that goes even beyond that, a future where VTech intelligent agents evolve into digital workers, autonomously managing core workflows and core across service, demand generation, and merchandising for our customers. We're not just adapting to the future of Congress. We're building it. Now, let me highlight a few commercial achievements of the quarter. In the first quarter, we successfully brought several new customers' lives, including Magazino and LG in Argentina, Americanas, Apoio e Entrega, Moda Colmeia, Oscar Calçados, and Urban Performance in Brazil, LF10 in Colombia, Oro Cash in Ecuador, La Cirela in Spain, Perel in Procarga in Mexico, and GS1 US, and JW Beppler in the US. We also strengthened relationships with existing customers. Bermol launched a new vertical, Bermol Farman, now operating two stores in Brazil. Colgate launched a new store in Germany, expanding its Vitex presence across the Americas and Europe. Crocs launched a new store in Chile, now present in five Latin American markets with Vitex. Hearst launched Ultra Daily Shop in the US, expanding its Vitex presence to six stores. Levi's added Columbia, now present in six Latin American markets. And Mondelez launched a new B2B store in Spain and in Ecuador. expanding its V-TEX footprint into Europe. Another note worth developing this quarter, though not yet live, is that Manchester City Football Club has joined the V-TEX platform. The club is currently implementing V-TEX as the foundation of its official digital commerce strategy. We're supporting Manchester City in reimagining and streamlining its digital commerce experiences to deliver a seamless and intuitive journey for fans this initiative will enable supporters to access purchase ct related experiences through a unified and efficient checkout process whether online or via mobile To build our own momentum in contract signatures and reinforce brand trust, we launched the Give You All campaign, featuring cricket icon Ravindra Kadehra as the VTEC ambassador. The campaign resonated strongly with CEOs and CTOs in the U.S. We approximately have half affinity for Cust Crickets. helping us connect with an influential and professionally relevant audience. We also hosted the second edition of Vitex Connect in New York City, our flagship event for senior commerce executives, held immediately following NIS. This year, we expanded the event's scope and quality, welcoming CEOs, CIOs, and senior executives from leading retailers. Simone Biles delivered the keynote fireside chat, joined by Brazilian gymnastics champion Rebecca Andrade. The event showcased our leadership in digital commerce and strengthened our relationship with partners and decision makers. In addition to its increased impact, the event was executed with greater cost efficiency. Supported by over 14 sponsors, Vitex Connect New York served as a strategic platform to deepen relationship with our partners and has Vitex visibility among top industry stakeholders and engage directly with key decision makers within the NRF office. By gathering the industry's most influential voices and integrating global recognizing figures, We continue to elevate Leetech's position at the forefront of digital commerce transformation. We are also proud to share that Leetech was once again recognized as a customer choice in the 2025 Gartner Voice of Customers for Digital Commerce report for the second year in a row. This recognition is especially meaningful because it is based entirely on our customer's review underscoring our platform's impact and reliability. Visual cognition based solely on real customer reviews highlight our ability to deliver exceptional product capability, ease of use, reliable support, and measurable business impact. In the landscape, we're choosing the right commerce partners is mission critical Being named Customer's Choice for the second year in a row reinforces VTech's position as the trusted, scalable, and innovation-driven platform of choice for global enterprises. Before moving on to our customer success stories, I'd like to revisit a concept introduced earlier. VTech is evolving from a single platform into a comprehensive suite of commerce products. Designed with seamless interoperability at its core, this transformation underpins our positioning as the commerce suite of choice for both CIOs and CEOs globally. We're doubling down on our two high-impact product paths, B2B commerce and retail media. In the first quarter of 2025, we accelerated our retail media strategy with the acquisition of NewTail, a leading Brazil retail advertising space. This added over 400 advertisers and brands to our network, including Casas Bahia, Bonvel, Kaboom, and Leroy Berlin, and positioned Vitex as a leading end-to-end retail media platform. With Vitex ads, we now offer a unified, high-performance solution that combines our composable commerce infrastructure with new tales in media innovation. Advertisers gain access to hyper-target inventory, detailed performance insights, and intelligent placements, enabling smarter targeting and stronger returns across the full commerce journey. We're building the next generation of scalable, data-driven retail media, and we're here to lead and consolidate the space. With that said, let's go into a couple of customer stories to put in a tangible way how we are working side-by-side with our customers to get meaningful business impact. Americalis, one of Brazil's most iconic and influential retail giants, chose VTACS to simplify operations and drive efficiency with innovative solutions, replacing some of the in-house development systems. Through VTACS, out-of-the-box features and collaborations with specialized partners, we delivered a comprehensive customer solution tailored to American needs. This included robust omnichannel capabilities, marketplace integrations, and advertising tools. The solution streamlined processes, accelerated time to market, and significantly lowered the total cost of ownership. In addition to VTech's native capabilities, Americanas is also leveraging the strength of the VTech ecosystem by integrating partner solutions, replacing certain legacy systems with more scalable alternatives. Following a detailed system analysis and close collaboration, we co-designed and streamlined future RAD architecture that enhances operational efficiency, supports rapid scalability, and aligns seamlessly with Americana's long-term strategic objectives. The Americana's win underscores the continued depth of opportunity within Brazil. a market where VTEX already had a strong presence, yet still holds significant renovation growth. It demonstrates that even in more developed geographies, there are remaining sizable high-impact digital transformation opportunities for us to capture over the coming years. A leading frozen food retailer in Spain partner with ZTEX to modernize its digital commerce and bridge the gap between its physical stores and online presence. Seeking greater flexibility, and the brand chose ZTEX for its ability to manage complex catalogs and store-level logistics with ease. ZTEX also enabled smooth integration with the customer's new loyalty program. creating a more intuitive and personalized customer journey. With marketplace capabilities and omnichannel features now fully implemented, they are delivering a seamless, connected shopping experience across every touchpoint. Senkosud, one of Latin America's largest retail groups, transformed its post-purchase experience in Brazil by implementing WENI by Vitex to automate out-of-stock product substitutions via WhatsApp. Initially launched with Prezunique and quickly scaled to Bretas, G. Barbosa, and Mercantil, the solution enables real-time customer approval and delivers a 9% increase in the average order value of impacted orders. By streamlining communication and driving operational efficiency, TencoSuite is delivering a smarter, more scalable digital experience across its friends. I'm also pleased to highlight the significant customer success that demonstrates the versatility and power of our platform. TW Pepper, one of the leading sheet music retailers in the U.S., has successfully transformed its digital commerce operation with Vitex. Facing industry-specific challenges such as complex product discovery and event-driven shopping, the company leveraged Vitex's composable architecture and native headless CMS to build tailored experiences for educators and worship leaders. This empowered their business teams to accelerate content updates and reduce reliance on developing resources. Rather than a full rebuild, we adopted a strategic approach, retaining critical legacy workflows while modernizing the core commerce journey through target integrations and specialized tools for digital licensing, personalization, and complex checkout flows. Today, JW Pepper operates on a flexible, scalable platform that supports a diverse customer base and adapts easily to seasonal demand patterns. This case underscores our ability to deliver impactful digital transformation in specialized high-complexity industries while preserving business continuity and maximizing ROI. Nestlé, one of the world's largest Food and beverages company drove strong results with Vitex ads to power retail media campaigns across key partners' channels. Confronted with limited visibility into retail sales performance, Nestlé turned to Vitex ads for real-time insights directly from retailer participants. This data-driven approach enabled rapid campaign optimization and stronger performance across categories. In its latest major campaign, Nestlé achieved a 16.2% return on ad spend in the chocolate category. Beyond immediate impact, the initiative unlocked valuable strategic insights for future activations. With GTAC's ads, Nestlé streamlined collaboration with retail partners and showcased how real-time data can drive smarter decisions and stronger outcomes in a highly competitive market. Procarga, a leading distributor and manufacturer of lifting solutions in Mexico, selected GTAC to accelerate its digital transformation. Aiming to enhance the buying experience for B2B distributors and expand into B2C, the company is adopting a dual-channel strategy powered by Vitex. The new solution, built on Vitex's composable architecture, delivers a modern self-service callless experience focused on efficiency and scalability. It features custom UX UI ERP integrations, and mobile ready access, ensuring a seamless journey across all channels. These initiatives marked a strategic move for Procarga, strengthening customer engagement and driving growth across Mexico industrial retail markets. Now, I'd like to take a moment to express my gratitude to our 1,320 Vitex team members. whose extraordinary contributions propel us forward as the backbone for connected commerce. I'd also like to thank our valid customers, partners, and investors. I will now hand the call to Ricardo.

Thank you, Geraldo. Hi, everyone. I'm pleased to share VTEC Q1 2025 financial results. Before diving into the numbers, as a reminder, this is our first quarter reporting under U.S. cap. We published a reconciliation presentation in a form 6K on April 15, and a comparison of 2023 and 2024 financials under U.S. GAAP is available on our investor relations website. With that said, let's go to our quarterly numbers. GMV for the quarter reached $4.3 billion, growing 8% year-over-year in U.S. dollars and 17% on an FX neutral basis. This led to subscription revenue reaching $52.6 million, compared to $50.4 million in Q1 of last year, a 4% increase in US dollars and 15% on an FX neutral basis. Now, moving down the P&L, we are pleased to announce the positive operational leverage achieved, even with the inherently softer seasonality observed in all first quarters. Our non-GAAP subscription gross margin reached 79% this quarter, up 191 basis points year-over-year from 77% in Q1 2024. This expansion reflects our continued focus on operational efficiency, with the most notable gains coming from customer support optimization efforts. Leveraging AI power automation, we were able to improve service quality while significantly reducing support-related costs. Our total gross margin, which includes services, rose to 76%, up 371 basis points year over year compared to 72% in Q1 2024. 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 by the subscription gross margin gains I just mentioned. On the expense side, we maintain strong discipline Non-GAAP operating expenses came in at $35.9 million, slightly up from $35.2 million in the same quarter last year, an increase of less than 2% year-over-year. This reflects stable sales and marketing and G&A expenses, while the increase in R&D was strategic, supporting our continuing investment in product development and innovation. This disciplined approach led to a significant improvement in profitability. with non-GAAP operating income reaching $5.3 million in Q1 2025, up from $2.9 million in Q1 2024, an increase of over 80% year-over-year in U.S. dollars. This translates into a four percentage point margin expansion, bringing our non-GAAP operating income margin to 10% for the quarter. These results highlight the strength of our operating model and the consistent evolution of our financial profile. As we evolve on our profitability growth strategy, non-GAAP net income has become an increasingly relevant metric. In Q1 2025, non-GAAP net income reached $5.3 million and 10% margin, up from $2.4 million in the same period last year, more than doubling E over year and a 5.2 percentage points improvement in margin. As mentioned by Geraldo, on a trading 12-month basis, non-GAAP net income total $34.5 million, reflecting the ongoing strengthening of our profitability profile as we continue executing with discipline and scaling efficiently. Aligned with our non-GAAP operating income, as of the three months ended March 31, 2025, we had a positive $6.6 million free cash flow, compared to $1.6 million free cash flow in the same quarter of the prior year, reaching a free cash flow margin of 12%, and a 9 percentage point margin improvement year-over-year. In the first quarter of 2025, regarding the one-year share repurchase program authorized by our Board of Directors on December 3, 2024, DTEX repurchased a total of 2.7 million Class A common shares at an average price of $5.56 per share, representing an aggregate amount of $15 million. Considering the current and the previous year's share repurchase programs, the total executed amounted 15.2 million shares with an average price of $4.86 per share and a total cost of $74.3 million. As we move forward with our business outlook, we continue to navigate a macroeconomic environment marked by volatility in the same-source sales and GMV growth, increasing the uncertainty of projections. That said, we remain confident in DTECH's profitable growth trajectory. DTECH is well positioned to capture an attractive market opportunity, and we remain encouraged by our leading market positioning, platform expansion, and operational leverage. Considering this, we are currently targeting FX-neutral year-over-year subscription revenue growth of 12.5% to 15.5% for the second quarter of 2025. implying a $57.0 to $58.5 million range. For the full year 2025, as we continue executing our profitable growth strategy, we continue to target FX-neutral year-over-year subscription revenue growth of 14.0 to 17.0%, implying a range of $238 to $244 million based on the average of April FX rate. We are targeting non-GAAP operating income and pre-cash flow margins of meeting. To wrap up, in Q1, we deliver solid subscription revenue growth. As indicated by our guidance, we remain confident in the strength and sustainability of our profitable growth strategy in Q2 and for the full year 2025, supported by key new enterprise customers' goal eyes and our ongoing platform expansion. We will stay focused on discipline execution, leveraging our strong fundamentals and resilient business model as we continue to gain global traction as the backbone for connected commerce. We remain committed to delivering lasting value for our customers, partners, and shareholders. With that, let's open it up for questions now. Thank you.