VTEX

Hello, everyone, and welcome to the VTEX Earnings Conference Call for the quarter ended December 31st, 2025. I'm Julia Bater Fernandez, VP of Investor Relations for VTEX. Our senior executives presenting today are Geraldo Thomas Jr., founder and co-CEO, and Ricardo Camata-Sodré, Chief Financial Officer. Additionally, Mariana Gomira de 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 relating to such matters of continuous 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 under risk factors and forward-looking statement sections of VTEX Form 20F for the year end of December 31st, 2025, and other VTEX filings within the U.S. Securities and Exchange Commission, which are available on our investor relation website. Finally, I would like to remind you that during the course of this conference call, we might discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our fourth quarter 2025 Ernie's press release available on our investor relations website. With that, I hand the call over to Geraldo. Geraldo, the floor is yours.

Thank you, Julia, and good afternoon, everyone. Thank you for joining us today. Today's call is primarily about giving shareholder transparency into how we're positioning the tax to strengthen growth over time. Let me start by acknowledging that our recent growth has been below our long-term ambition. We believe that this is largely cyclical, not structural, driven primarily by three external factors, a more challenging macro environment in Brazil and Argentina, and a more promotional marketplace environment in Brazil. and longer decision cycles as enterprises reassess its priorities in a rapidly evolving AI landscape. More broadly, we recognize the market debate around AI and what it means for software. Although the combination of rapid AI innovation with limited tangible commerce applications so far may elongate sales cycle, the consistent view from our conversations with enterprise CIOs is that AI will change how software is built and operated, but it won't eliminate the need for deeply integrated enterprise-grade platforms that run mission-critical processes. And while AI lowers the cost of writing code, it raises the bar for security, complex integrations, and reliability. Precisely, the attributes enterprises rely on VTech to provide. And consistent with broadly stable dollar churn we delivered in 2025. As value shifts from seed-based to outcome-based, VTech is structurally aligned with this shift. We are not just building AI features, we're building the mission critical backbone for connected commerce that global brands can rely on to deploy AI safely and effectively. We couldn't dive deeper into each of three external factors mentioned, but as we cannot control the environment, let's focus on what we can control, our execution and product roadmap. Starting on that, we see a clear opportunity to improve growth with a plan anchored in four levers, global expansion, B2B, retail media, and AI. While we execute this growth plan, our enterprise focus remains front and center. In 2025, customers generating over $250,000 in ARR reached 158, with revenue from this cohort up 13% year over year. And to illustrate the relevance of our plan, in Q4, our four growth levels represented roughly 15% of subscription revenue. delivering approximately 20% FX-neutral growth and contributing to nearly half of subscription revenue growth. The addressable market for these levers is materially larger than our core Latin American opportunity, and we believe we are well positioned competitively, so our focus now is discipline execution. With that, let me bring our four growth levers to life. First, global expansion. We're winning and scaling in markets where complexity is highest. In 2025, global markets delivered 22% subscription revenue growth. For instance, in Europe, our partnership with Manchester City reached its First milestone with the stadium tour store, offering personalized fan experiences and a single high-performance flow. Second, B2B. We're modernizing large enterprises by delivering complex capabilities that are AI-ready and composable by design, such as contract pricing, curated catalogs, punch-outs, and omni-channel fulfillment. Mondelez launched B2B in Brazil on the text, extending a multi-region footprint. While we're still early in the mix, B2B demanding the U.S. and Europe signals a durable shift, one we are now driving to digitalize across Latin America as well. Third, retail media. 2025 was a turning point. We moved from pilots to a core growth engine with clear margin and creative outcomes. With VTEX ads, customers run on-site, off-site, and in-store campaigns and measure them end-to-end through closed-loop attribution anchored in first-party data. The retail media market evolution plays directly to our integrated model. Enterprise retailers monetize traffic they already own, brands gain performance media tied to transactions, and both parties see results in a single source of fruit. For example, Essity achieved a 39% increase in average conversion rate on average ROAS of about 17x. and consistent month-over-month acceleration in sales driven by retail media performance, demonstrating the power of data-driven campaigns to elevate brand performance in digital retail environments. Finally, AI. Our work here spans two dimensions. First, our product. We're redesigning VTechs with an AI-first approach. For example, Leading Brazilian retailers like Americanas and CNA are using WENI by Vitex to automate high volume support journeys with deep enterprise integrations, such as orders, invoice, and CRM, reducing manual ticketing, speeding resolution, and improving customer satisfaction. Beyond WENI by Vitex, We see AI reshaping how commerce is built, operated, and optimized. We're embedding intelligence across the platform while simultaneously rethinking how we build commerce and run the company. Our multi-talent architecture and role as a mission critical commerce data aggregator give us advantages that point solutions and legacy platforms can't easily replicate. Second, our own operations. AI is already showing up results. Automation in support has expanded gross margins by approximately three percentage points. And in December, we implemented a reorganization in sales and marketing that impacted almost 100 headcounts. This move simplified management layers and centralized our global team for greater agility and efficiency. As we embrace an AI-first operating model, we are aligning our organizations to operate with increased speed, consistency, and technical depth. In summary, we chose structural transformation over incremental steps. Despite the challenging environment, discipline execution and already identified productivity gains support continued improvement in profitability and enable increased R&D investments that drive our AI transformation and deepen our value with top-tier customers. We're evolving VTACs from a platform that powers commerce to a multi-product company. AI-first platform that increasingly automates and orchestrates. We will keep executing behind this plan, expanding with existing customers as they scale on VTech and adding more enterprises to the mix. So these four growth levers translate into sustained compounding growth. With that, And moving to the fourth quarter of 2025, we added new enterprise customers, including Atacado Villanova, Loft Style, Luz da Lua, and TCL in Brazil, Merca Centro in Colombia, Pharmacies and Cruz Azul in Ecuador, Lantas Avanti and T-Fall in Mexico. We also saw expansion activity within our existing customer base such as Estilor Luxottica, launched two new brands in Brazil, E-Ottica and E-Lens, adding to its existing portfolio of stores. Houston launched their B2B website in Colombia, adding to its B2C operation running on Vitex. Mondelez launched a B2B operation in Brazil, expanding its VTACS footprint, ranging from Latin America to Europe. OBI, who expanded to Italy, adding to its operation in Germany and Austria. And Whirlpool launched KitchenAid in Canada, building on its successful store launch in the U.S., while continuing a global relationship in over 20 countries. Even in a softer market environment, customers continue to choose Vitex to support strategic initiatives involving new channels, new geographies, and more complex operating models. Now, before I hand over the call to Ricardo, I would like to express my sincere gratitude to our 1,139 Vitex employees whose dedication and adaptability were critical. I also would like to thank you, customers, partners, and investors for their trust and support. Ricardo, over to you.

Thank you, Geraldo, and hello, everyone. I will now walk you through our financial performance for the fourth quarter and the full year of 2025. Before going to the details, I'd like to frame the year in context. As mentioned by Geraldo, while the external environment pressured our customers' GMV growth and lengthened enterprise decision cycles, 2025 demonstrated the resilience of our business model and the strength of our unit economics. As evidence, we continue to drive efficiency gains and deliver record profitability even in a slower growth environment. In the fourth quarter of 2025, our GMV reached $6.3 billion, representing a year-over-year growth of 17.2% in U.S. dollars and 10.0% in FX neutral. For the full year, GMV reached $20.5 billion. up 12.1% in U.S. dollars and 12.9% in effects neutral. Subscription revenue reached $66.7 million in the fourth quarter, representing a growth of 12.2% year-over-year in U.S. dollars and 5.4% in effects neutral. For the whole year, subscription revenue reached $234.9 million, growing 7.9% in U.S. dollars and 9.5% in effects neutral. Turning to revenue retention, in 2025, subscription revenue from existing stores reached $194 million, and our net revenue retention was 99.5% in FX neutral. Annual dollar turn remained broadly stable year over year. However, given that roughly 60% of our revenue come from a take rate on our customers' GMV, The decline in net revenue retention compared to 2024 was primarily driven by lower same-source sales growth of 6.8% in effect neutral in 2025. This lower same-source sales growth reflected continuous softness in Argentina and more muted consumer spending in Brazil, which weakened over the course of the year. A key highlight for the year was the continued improvement in the profitability of our existing stores. Existing stores gross margin increased from 80% in 2024 to 82% in 2025, while operating margin reached 44%, representing a one percentage point increase year-over-year. This marks the second consecutive year in which DSP&L exceeded the Rule of 40, reinforcing our confidence in sustaining a Rule of 40 performance as the business scales. Moving on to subscription revenue addition, in 2025, new stores added $25 million to our base, representing approximately 13% of our 2024 VTEX platform revenue. As discussed in prior quarters, elongated sales cycles throughout the year impacted revenue added from new stores and will carry over some impact in 2026. On the new source P&L, our focus remains on maintaining a healthy return on the capital allocated to sales and marketing. On that front, LTV over CAC reached approximately four times in 2025. The year-over-year decline in this metric was primarily driven by longer sales cycles and timing, rather than changes in win rates or the underlying attractiveness of the cohort. In fact, our continued enterprise focus drove our number of customers generating over $250,000 in AR to reach 158 customers in 2025. While this represents only 1.9% increase in customer count, it resulted in 14.5% FX neutral revenue increase from this cohort. Looking forward, as mentioned by Geraldo, we adjusted our sales and marketing investments, and we are reallocating capital toward R&D investments to enhance key product offerings such as B2B, retail media, and AI-powered after-sales support. From a geographic perspective, Brazil's subscription revenue grew 12.2% in FX Neutral, supported by the go-live and ramp-up of new stores despite softer sales. Latin America, excluding Brazil, grew 2.1% in effects neutral, and excluding Argentina, the region grew just slightly below Brazil's pace. Subscription revenue from global markets, formerly reported as rest of the world, grew 19.2% in effects neutral, demonstrating continued compounding even as the base expands. Additionally, global markets represented 11.1% of our total revenue. Its contribution margin, defined as gross profit minus directly allocated sales and marketing expenses, improved significantly and approached break-even. Moving down the P&L, we maintained strong cost and expense discipline, while continuing to prioritize investments aimed at supporting revenue re-acceleration. All figures I will now reference are non-GAAP unless otherwise stated. You can find all GAAP to non-GAAP reconciliations on our investor relations website. Subscription gross profit reached $54.6 million in the fourth quarter, resulting in 81.8% subscription gross margin, up from 78.8% in the same period of the prior year. Total gross margin increased to 79.6% compared to 75.0% in the fourth quarter of 2024, driven largely by AI-powered customer support automation and, for a smaller extent, a higher mix of subscription revenue. Operating expenses total $38 million in the fourth quarter, resulting in income from operations of $16.2 million and an operating margin of 23.8%, up from 19.9% in the same period of last year. During the quarter, we executed a reorganization in the sales and marketing to simplify layers, centralize global teams to better leverage AI, as well as align investments with the expected demands. These actions resulted in approximately $2 million severance expense above normalized level. Excluding that one-off impact, operating margin would have been just under 27%. Free cash flow reached $11.1 million in the quarter, representing a 16.3% margin. Adjusted for one-off severance payments above normalized levels, free cash flow margin would have been just over 19%. Considering these level of cash generation and our current cash position as percentage of our market cap, we are announcing a new $50 million 12-month share repurchase program for Class A shares. Looking ahead into 2026, as Geraldo highlighted at the beginning of the call, we remain focused on our four growth levers, global expansion, B2B, retail media, and AI. We are executing with discipline. The productivity we have unlocked across cost of revenue, sales and marketing, and G&A are expanding profitability while funding higher R&D to accelerate our AI transformation and deepen our value with top tier customers. While macro headwinds persist, we remain encouraged by the quality of new customers' additions, our competitive position among global enterprise customers, and the compelling market opportunity across our four key long-term growth initiatives. With that, and recognizing that Q1 seasonality is our lowest GMV quarter and faces the toughest year-over-year comparison, for Q1 2026, we expect subscription revenue to grow at mid-single-digit percentage rate on a FX-neutral year-over-year basis, gross profit to grow at a high single-digit percentage rate on an FX-neutral year-over-year basis. Non-GAAP income from operations should be in the mid-teens percentage margin, and free cash flow should be in the high-teens percentage margin. For the full year 2026, we are targeting subscription revenue to grow at mid- to high-single-digit percentage rate on an FX-neutral year-over-year basis. Gross profit to grow at a high single-digit to low-teens percentage rate on an FX-neutral year-over-year basis. Non-GAAP income from operations to be in the low-20s percentage margin, and free cash flow to be in the low-20s percentage margin. Assuming FX rates remain broadly consistent with January 2026 averages, The FX neutral growth guidance outlined above would translate into higher reported USD subscription revenue growth, adding approximately 8.4 percentage points in the first quarter and 4.5 percentage points in the full year 2026. Before we open to Q&A, I would like to reiterate, we are executing with discipline. investing behind our four growth levers to drive durable growth and shareholder value, and expanding profitability while maintaining a strong balance sheet. With that, let's open it up for questions now. Thank you.