VTEX (VTEX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you all for joining us today. My name is Julia Vater Fernández, Investor Relations Director for VTEX. It is a great pleasure to welcome you to our first ever Investor Day. Today, marks a special occasion as we celebrate VTEX's second IPO anniversary. We are thrilled to have you here as we share our vision for the future and update on our initiatives. As management may make forward-looking statements about company growth, industry trends and technology initiatives, I would like to remind you that these statements are based on quarterly information and assumptions. Exercise caution and refer to our Form 20-F and other SEC filings for risks and uncertainties. We'll also discuss non-GAAP measures, which can be reconciled in our earnings press release on our Investor Relations website. Before we dive into our presentation, I would like to share our agenda for the day, I present our management. Geraldo Thomaz, our Founder and Co-CEO, will kick off the event by introducing VTEX and presenting our vision for the future. Following Geraldo's presentation, we'll have Fernanda Weiden, our Chief Technology Officer; and Renata Lorenz, our VP of Product. They will delve into our R&D efforts and as well, they'll provide updates on our latest product launches. After Fernanda and Renata's presentation, we'll have a 15-minute Q&A session focused on the VTEX intro, R&D and product presentations. If you have any questions, please type them in the Q&A tab at the bottom right side of the screen, I'll be reading and posing the question to our presenting team. After finalizing the first segment, we'll have a quick 5-minute break. After the break, we'll continue with Mariano Gomide de Faria, our Founder and Co-CEO; and Santiago Naranjo, our Chief Revenue Officer. They'll discuss our market positioning and go-to-market strategy. Mariano will afterwards delve into our expansion plans in the U.S. and Europe. We'll -- Santiago will present our status expansion efforts in Latin America, including Brazil. Following this segment of presentations, we'll have another 15 minutes Q&A session focused on our go-to-market and sales presentation. Remember, please, to submit your questions in the Q&A tab at the bottom right side of the screen. Then we'll have time for another quick break. Finally, when we return, we'll have the last segment, where we'll welcome Andre Spolidoro, our Chief Strategy Officer; and Ricardo Sodre, our CFO. Andre will discuss VTEX capital efficiency history and future trajectory and Ricardo will comment on the latest financial updates, followed by the last 15 minutes Q&A session focused on capital efficiency and financial presentations. Ramping up the call, Geraldo will share some final words. So are you ready? Let's get started with our first segment on VTEX strategy, R&D and product. We welcome Geraldo to the stage. Geraldo, are you there?

Yes, I am. Yes, I am, Julia. Thank you all for joining us today. It's a real pleasure to be here with you presenting VTEX. I'm going to do a quick recap of our story and then share with you a little bit about vision. In this brief summary, I will recap several key points already presented during our IPO in the last 2 years. I gave a lot of thought and we all gave a lot of thought on the strategy we communicated to investors, and we're happy to stay we continue to meticulously execute it. Following that, I will go deeper into our vision for the future of our company, providing additional insights. VTEX provides a Software as a Service digital content platform to large blue chip enterprises. Our customers are primarily brand manufacturers, who wants to go direct to consumers and we tailored exploring new digital sales channel. We have been a leader in accelerating commerce transformation in Latin America, and we are expanding globally. At VTEX, we believe in a world where brands can be closer to the consumers, where VTEX can be the backbone for connected commerce. When we founded VTEX, we didn't create it based on what our customers wanted. We created it based on what we believe they wanted -- they needed, sorry. And what they needed was to start a digital transformation quickly without excessive overhead and the ability to evolve learning what works and what doesn't work in an agile manner. They also needed flexibility and customization to work in a scalable and efficient way for their enterprise complexities. My co-founder, Mariano and I, had this vision over a decade ago, inspired by our experience building walmart.com.br e-commerce website in Brazil. We realized that instead of focusing on servers, development processes and other technical aspect, the project should have focus on increasing assortment and delivering faster to consumers. Since then, we have built the technology infrastructure to solve this problem. Our goal is to empower brands to stay relevant for the convenience-driven consumer in an efficient way. Today's consumer expect fast product delivery and the ability to find everything they need in one place and seamless interactions across digital and physical chain. This sets a high bar for brands and retailers to stay relevant and now a team of experts at VTEX with over 20 years of experience in digital commerce are ready to stand side by side with our customers to provide expert guidance on their transformative journey. Let me give you an example to make it more tangible. In the past, companies were divided in styles, e-commerce and brick-and-mortar operations. We believe this is no longer an option. Brand needs to think holistically about their operations to be closer to the consumers and we can help them in connecting all the dots. We have many trusted customers, including Adidas, Whirlpool, Electrolux, Samsung, Unilever and Avon among others. For us, being able to partner with such high-quality and prestigious brand represents the ultimate validation of our technology. Our focus is on enterprises and as a result, more than 85% of our revenue comes from online stores with at least $25,000 in ARR. These online stores pay us an average of $138,000 per year, a substantial average ticket that reflects our enterprise focus. Let's look at some numbers. In the last 12 months, in the first quarter of 2023, we processed $13.3 billion in GMV and generated $165.2 million in revenue, with a subscription gross margin of 73.4%. We currently have more than 2,600 customers with 3,400 stores across 38 countries. These figures demonstrate our solid financial performance and global presence. Going back to our time line. Despite our impressive growth, we have achieved all this with relatively little capital. We have had private investment rounds, but they were mostly secondary to clean up our cap table. The primary investment component into VTEX has been approximately $75 million and about $10 million were paid back in dividends while we were private. So only a net of $65 million were really raised. By the end of 2020, we had $75 million in cash in our balance sheet. In 2021, we raised approximately $300 million in our IPO. And as of March 2023, we still had over $230 million in our balance sheet even after executing an almost $20 million share buyback. All that leaves us in a very strong financial position, especially as we continue our journey towards profitability and cash generation. Now let's talk about the market landscape. VTEX operates in the massive and rapidly growing e-commerce market with Latin America being the fastest-growing region currently at only 12% penetration. VTEX is the leading e-commerce in Latin America with 90% of our revenue coming from the region in 2022. We're the leader and we have figured out how to navigate the complexity of the LatAm market, giving us a competitive advantage. On top of that, we're expanding globally. The United States and Europe already represents 10% of our revenue. The global market is a massive opportunity with more than $6 trillion and double-digit growth projection. With our $13.3 billion in GMV, we're just scratching the surface of our potential. Mariano later will deep dive on this today. Stay tuned for that. In today's ever-changing market landscape, it's crucial to differentiate ourselves from the competition. Traditional legacy platforms, once dominant players, are now considered outdated providers that enterprise and retailers are actively sticking to migrate away from. On the other hand, emerging headless players offer flexibility, but come with the complexity and high operating costs. Our differentiation lies in the efficient balance between customization and speed to market. We understand that enterprise and retailers require a platform that offers both flexibility and ease of use. We have, for example, a seamless integrations of sales and procurement channels through omnichannel capabilities. Unlike traditional software providers that lack flexibility, a headless solution -- or headless solution that can be cognizant and expensive, VTEX stand out by offering a composable and complete platform that combines the best of both words. Our composable technology allow our customers to adapt our solutions to their needs while benefiting from our [indiscernible] multi-tenant platform. With our API first and multi-tenant architecture, new developments and integrations automatically become available to our customers. We also have our development platform, VTEX IO that ensures security privacy in scalability for business to grow. Developers worldwide choose us as the preferred platform for commerce relying on our true environment to deploy experiment and involve their digital commerce applications. VTEX's strong ecosystem of integrated solutions, generate network effect which is a powerful moat and hard to explain and hard to replicate. So now how are we thinking about VTEX? At VTEX, our vision is clear. To become the backbone of connected commerce, the platform that powers unified commerce experiences for businesses around the globe. Unified commerce means breaking down the barriers between online and offline channels, seamlessly integrating them into the unified customer experience. Today, I want to share with you our strategic focus and the key pillars that will drive our success in this ever-evolving landscape. Firstly, we're proud to be at the forefront of the omnichannel revolution. Our Sales App and Pick and Pack solutions have positioned us one step ahead of our competitors. We are redefining the boundaries between digital and physical commerce, empowering personal shoppers and increasing conversion and efficiency even in their physical stores. By expanding into the assisted sales and fulfillment add-on, we enhance our competitiveness in the omnichannel market and open up new avenues for growth. Composability is another differentiator that sets us apart. Through modularization, we connect with other technology to expand our platform efficiently. We firmly believe that modular architectures enable long-term innovation. [indiscernible] VTEX IO are clear example, providing our customers with peace of mind, simplicity and scalability. Our platform [indiscernible] and collaboration capabilities allow customers and partners to firmly join the VTEX ecosystem. Our extraordinary speed to market empowers them to find, buy sell products and services, creating a thriving connected ecosystem. Another standout feature is the single control panel for every order, enabling our customers to manage 100% of their orders from all sales channels through our VTEX platform. These enable our customers to have more control and insights over their operation, which translates into better operational results. On top of that, our platform also act as an autonomous co-pilot using AI-driven solution to optimize various aspects of e-commerce, providing recommendations and empowering our customers to navigate the complexities of digital commerce with ease and confidence. At VTEX, customer satisfaction shaped our journey towards building a remarkable future. Reliability is our commitment. VTEX's focus is to provide secure, scalable and dependable services for the interconnected commerce ecosystem. VTEX's growth strategy revolves around the 5 main avenues that you see on the screen. In this intro, I just quickly touched on why we successfully add new customers to our platform, how we will help our customers grow their GMV above market growth and some of our innovative products. We also covered a glimpse of our global expansion and the powerful ecosystem we have around VTEX. But this is just an introduction. Throughout this event, we will go deeper into each of these growth avenues, highlighting the significant opportunity they present to our company expansion and success. We're shaping the future of commerce, gaining commerce transformation, shaping remarkable customer experiences and solidifying our position as the leader in digital commerce industry. Our journey is unstoppable, and we invite all of you to join us on this extraordinary adventure. Thank you so much and see you back in the Q&A session. Now I'll leave the floor to [ Nanda ].

Thank you, Geraldo. Hello, everyone. It's a pleasure to be here with you today to share our research and development updates. We have framed our research and development updates and priorities across 3 areas of value generation for VTEX. The first area is peace of mind. This means building trust with our customers by enhancing reliability and performance of our commerce platform. We aim to provide the stability, enhanced platform security and also address core retail omni functional needs. In this line, it's worth mentioning something that might sound obvious, uptime really matters. At first glance, having a headless installation with 20 or 30 integration, each provider -- each 1 of them providing [indiscernible] seems impressive. However, let's dive into those numbers. When you multiply the 99.9% uptime by 20 to 30 providers, the combined platform uptime can drop significantly to 97% to 98%. And suddenly, the picture doesn't look as rosy. On an operational side, this translates to almost 1 day of downtime per month for the customer, which is highly inconvenient, especially during crucial events such as Black Friday. It's no wonder that many customers, including Carrefour, have migrated to VTEX. They recognized the importance of uninterrupted service and reliability, especially during sales peak periods. Moving on to the second area. We want to unlock the United States and Europe regions by meeting localization requirements regarding privacy and administration. Additionally, we aim to tap into the vast potential of the B2B market in the United States. Expanding our presence and capability into these regions will contribute significantly to our growth. For example, besides fancy store and the extension hub that Renata will cover in a moment, we have introduced the marketplace offers quality filters, which streamline cataloging process and enhanced transparency for submitted orders. The visual editor for merchandising rules in VTEX intelligence search empowers our users to customize their search results, while the integration, for instance, with Google Pay as a payment method ensures faster and more secure checkouts. These product launches help VTEX's expansion into the United States and Europe, meeting localization requirements and also producing an enhanced user experience. The third value generation area is expanding into assisted sales and fulfillment add-ons. We want to empower personal shoppers, increased monetization from the physical stores and enhance our competitiveness in this omnichannel retail market. By broadening our reach across different channels, we can increase our platform stickiness, unlock higher lifetime values, new opportunities and obviously, new revenue streams. Renata will go into a lot of detail in this specific initiative. Now before I hand over to Renata to cover the product side, I want to share how we have been driving our business towards greater efficiency. Our focus on improving cloud efficiency throughout 2022 has yielded significant and long-lasting results. Several key drivers contributed to it, for example, the continued migration to systems from Windows Server to Linux, the diversification of CPU usage to include ARM 64 and AMD alongside with Intel and also the rationalization of our investments in observability as an example. In addition, we reduced waste of either reserves, improve the cashing and outscaling and implemented intersourcing and instant rightsizing across multiple services in the platform. These measures allowed us to optimize our costs while maintaining high performance. We are now graduating from our efficiency program, which means efficiency will be embedded in every single thing we do moving forward. We are committed to providing better tooling for our teams to assess their cloud investments and, of course, keep them the costs under control. Just to share some additional context by optimizing our tax stack, we are now less dependent on a specific software provider, especially on our observability stack and we can more easily switch providers if we need while still providing world-class tooling to our engineering teams. This allows us to continue improving the efficiency of our platform. And additionally, making sure our platform -- making our platform more flexible, allowing us to upscale and downscale more quickly when we need it, which also help efficiency going forward. And now to finalize, I would like to share the impact of these initiatives in our P&L so far. In the next 6 quarters, we have consistently improved our year-over-year subscription gross margin. In 2022, our subscription gross margin improved by more than 350 basis points each quarter. And in Q1 2023, we have already delivered an improvement of more than 400 basis points. We continue -- we expect it to continue delivering consistent improvements year-over-year going forward. The future is bright for VTEX and we are committed to pursuing those opportunities with determination. Together, we will be the more efficient, resilient and customer-focused commerce platform. And with that, I have -- we have covered all the research and development updates. Thank you for your attention. I will see you in the Q&A in a moment. And now I will pass on to Renata.

Thank you, [ Nanda ]. So hi, everyone. What a pleasure to be here today to cover our product update session. So at the heart of our company lies our product, which is a greater source of value. It is through our product that we express our vision in our connected commerce where every player is connected to unleash their full potential. As Geraldo mentioned, our execution focused on 2 main fronts: Unification and modularization. Today, I want to introduce our new releases and the success stories that reaffirm the power of our vision. Our customers are already experiencing the advantage over the composable architecture, brands like Briggs & Stratton in the United States, [ Nike ] in South America, Mazda in England, Auchan in Europe, [indiscernible] together with The Foschini Group in Africa and [indiscernible] in the Middle East. Those are examples of customers experiencing the power of VTEX. To understand what products and solutions our customers need, our team of e-commerce specialists assess the market environment and found 4 brutal facts that affect modern date operations. Our products solve those issues. Let's dive into each 1 of them. So the first brutal fact is that significant amount of time is spent by engineering teams on maintaining the spaghetti code or the legacy code. As a platform, we have the responsibility to guarantee the scalability and efficiency of our customers. For that, we've created the VTEX IO, the development platform that enables technical teams to extend and connect VTEX platform in a simple, more scalable way. Customers can use VTEX IO to develop custom storefronts, integrations and extend the VTEX Admin with new functionalities. We have recently expanded VTEX IO capabilities into the new VTEX IO FastStore. FastStore is VTEX's new front-end technology that provides all the tools business and technical users need to develop, manage and evolve at the [indiscernible] storefront. The product was developed with speed in mind. It delivers a fast loading time for buyers and is also simple and fast for developers and marketers to use. Also recently, we've introduced the extension hub, the new version of VTEX App Store, where retailers can expand their offering by adding solutions from partners developed with VTEX IO. Now retailers can find and configure partner solutions without leaving the VTEX Admin. With this, integrations are now in the hands of the retailer in a scalable and secure way representing another step in VTEX vision of building a live connected ecosystem. One of the best examples of VTEX IO is Motorola, with the challenge of maintaining multiple country-specific front-end applications. With VTEX IO, they were able to streamline their architecture and reduce costs significantly. They developed a single front-end app that catered all their markets allowing their teams to focus on creating a unified customer experience across the different regions. VTEX IO has been a game changer for Motorola, simplifying it's development process as saving valuable resources. The next brutal fact that we want to go over is that 83% of B2B buyers prefer to shop through digital channels according to Gardtner. Therefore, we present our B2B features and marketplace to create direct channels and avoid conflict with partners. To level set the ground in the manufacturing world, we have B2B and B2C as key models. B2B involves manufacturer serving other companies while B2C enables direct sales to end consumers. However, those models come with challenges, channel conflict and limited reach. Better VTEX steps in with our game-changing approach, B2B2B and B2B2C. We empower manufacturers to establish direct channels and integrate partners inventories. This unlocks extended fulfillment networks, expanding their reach and scaling operations efficiently. What sets VTEX apart is our native marketplace architecture. This drives combination of B2B capabilities and marketplace empowers manufacturers to operate in both B2B and B2C domains. By embracing our solutions, manufacturer overcome channel conflicts, expand their market reach and drive operational efficiency. Our value proposition is very clear. By partnering with VTEX, manufacturers enhance their bottom line and strengthen customer relationships. One of the best examples of adoption of B2B capabilities is Stanley Black & Decker. With VTEX, Black & Decker sales representatives can provide a simple experience to their customers, simplifying order management and reducing manual effort. They have been operating their B2B business with VTEX since 2019. Currently running our platform in South Korea, India, Brazil and expanding it to the U.S. and the U.K. A good example of the B2B2C is Mazda. It has created a vehicle stock locator to allow customers across the U.K. to find, compare and reserve inventory at dealer locations. With VTEX, they were able to integrate inventory from dealerships enabling customers to purchase online both parts and cars from the nearest authorized dealer. This optimization has increased efficiency and provide a more friendly experience for Mazda customers. With VTEX marketplace and order management solutions, they -- together, they played the crucial role in Mazda's success. Now let's go to the third brutal fact. It's that one that since the pandemic, inventory levels have increased by 22% without sales striking this increase. We will showcase the new solutions that help customers to optimize their inventory and streamline their fulfillment operations. Our order management system enables integration of physical store inventory into the digital journey. Not so long ago, we lived an a world where inventory was kept in separate seals. E-commerce inventory was separate from the physical store inventory and vice versa. However, with the pandemic, this separation was no longer viable. Those who had integrated had to catch up where those who had were able to thrive. One of our customers, Track & Field, after quickly adapting our solution during the pandemic, achieved a remarkable milestone, 81% of online orders being fulfilled by the physical store. We've also recently launched Pick and Pack, a solution for optimizing omnichannel operations that transform physical stores into distribution centers, enabling quick and efficient picking, packing and less mile delivery of orders. Natively integrated with our OMS, it has a leading time to market compared to other solutions and enables merchants to track and measure the performance of their entire fulfillment network with real-time data. We've also simplified the integration with Brazil leading carrier, [indiscernible], for their VTEX shipping network providing updated tracking information and competitive pricing. These innovative products reduce manual labor and hay scalability and easily integrate with our existing systems. They generate better economics for our customers as it reduces shipping costs, while at the same time, increased conversion rates and user satisfaction. Now let's go to the fourth brutal fact, that is increasing customer acquisition costs. We've introduced the VTEX Sales App, the omnichannel product that bridges the gap between sales and brick-and-mortar stores. This powerful tool empowers sales associates to unlock the full potential of the retail physical stores and e-commerce operations. By granting access to inventory across all channels, including physical stores, distribution centers, partner sellers and suppliers as well as customer purchase data and behavior insights, this app enhances customer support, boost sales and increased basket size. A standout feature of VTEX Sales App is its endless IO capability that enables access to inventory from any channel preventing missed sales opportunities, whether it's e-commerce inventory, physical stores or even partner sellers in the supplier marketplace model, this single product integrates the entire retailer operations regardless of the channel. And while we see the sales at demo, let me tell you the case of the [indiscernible]. A global leader in sporting goods retail that showcases the transformative impact of VTEX Sales App. By transforming -- by adopting a sales in our omnichannel approach, their physical stores now influenced over 1/3 of the digital sales with a positive experience of their customers. If a product is out of stock in one location, it will now be located and shipped from another store, ensuring customer satisfaction every time. Now from the combination of live shopping and conversation of commerce, we present VTEX personal shopper, which enables company to offer exclusive one-to-one customer service through live stream videos. When the customer requests assistance, the dedicated salesperson connect via video through VTEX Admin. And from there, the sales app can select and send products to the customer who can add them to cart, what increases sales and average ticket size for the online orders. And the following customer testimonial showcases VTEX sales empowerment tools and the impact on increasing conversion rates and customer engagement. Electrolux, one of our customers, wanted to empower their sales team and enhance the overall customer experience. We have VTEX implemented personalized shopper capability and the VTEX Sales App that enabled their team to deliver exceptional service and drive conversion. Electrolux has witnessed a significant increase in sales effectiveness and customer loyalty. And for this, let's watch the testimonial of Gabriel from Electrolux. [Presentation]

Great testimonial. So now let's move to AI. At VTEX, we believe that connected commerce serves as a gateway to harness the potential of artificial intelligence. Our co-pilot solution helps customers make smarter business decisions with AI assistance. We've now introduced the planner feature, an innovative product that enables quick and data-driven decision-making with the VTEX ecosystem. But that's not all. AI is transforming our platform in various ways. AI help supports the optimization of product offering by dynamically adjusting pricing based on conversion rates. This makes pricing strategies agile and responsive. Our logistics is also leveraging AI, optimizing deliveries and improving customer satisfaction. Also frictionless checkouts across multiple channels are now a reality with AI. Our new message-to-order feature converts messages, shopping lists and PDF quotations into orders. Additionally, our payment gateway automatically selects the best conversion-driven payment option. So in summary, we have identified major brands and retailers pain points and we just presented 4 new solutions to solve those problems. As a platform, we understand that is our role to ensure scalability and operational efficiency for our customers. Technical debt is a reality for most retailers. Our [indiscernible] dedication remains to support our customers throughout their journey by creating products and solutions that enhance simplicity and scalability while at the same time, maintaining favorable unit economics to ensure business sustainability. Thank you for your attention.

Thank you to all our first segment presenters for the valuable insights and updates. Now let's wrap up the session with a 15-minute Q&A session. If you have any questions for Geraldo, Fernanda, Renata, please type them in the Q&A tab at the bottom right side of the screen. The first question is from Marcelo Santos from ANSES. Good morning. Thanks for the presentation. How much more space is there to gain non-GAAP gross description margins?

Thank you. So, I'll answer the question. I'll take the question. So Marcelo, thank you very much for the question. The several initiatives we're doing to improve the gross margin of the company and one of them, but not limited, it's like optimizing our infrastructure, our tech infrastructure [indiscernible]. And naturally, there's optimizations in the way we provide support, centralize some areas, decentralize some others. But our focus about the tech infrastructure and tech infrastructure, as we've seen, we're evolving a lot since a year ago but I don't believe it's in the end. I feel that you cannot expect the pace to be as strong as it were during the last year until today, but I guess you will see more improvements. And Andre will talk a little bit about that and how this is affecting our long-term vision of the company. So thank you.

Perfect. Thank you very much, Geraldo. Our next question is from Eduardo Ruis. There were 6 launches at VTEX Day. How has the customer reception been? Which ones have had more advance so far?

I can take this.

Okay. Go ahead, Renata, please.

You can complement me at the end if you want. So yes, so we have been launching -- we launched -- big launches on VTEX Day and we see Pick and Pack and Sales App being very well accepted with customers as they add up on the channel on our value chain and they offer better customer experience for the overall order experience. So those have been great. That had been great acceptance with the market. And also like the FastStore is as we unlock this product, we have been seeing great conversion rates and user experiences on those stores.

Amazing. Thank you so much. So now we have another question. This is from Nicolas [indiscernible]. So he says, thanks for the Investor Day. Could you explain a bit more about the AI revenue opportunity as presented? Is it chargeable or included in the current fee?

So I can get that and [indiscernible] can help me. But I won't limit myself to AI. I'll talk also about the power of data that is -- that our platform produces, that gives valuable information to our customers. This data can be used in another AI training models that our customers can do in the future that are proprietary as well. So the idea is that we will have a lot of [indiscernible] included in the price, AI capabilities. And just as it is today, we have an API-first approach. You can extract data from most of our services, all data from our services you can extract through our API. But if you are an enterprise customer and you want to extract the dump of the data, you want to extract comprehensive log, you want to extract comprehensive payment log, you want to extract a security information so that you do your own assessment on security risks, eventually this can be charged because this is a premium service. Same applies to AI. We -- so I gave a real tangible example for data. I cannot, for now, give real tangible examples for AI because we still need to find out what are the true differentiation that we will bring to the market with AI. And when it's true differentiation, it's not like any other e-commerce platform, the tendency is that we would charge an extra fee for that. The idea is that VTEX is level set with other platforms in all this technology and where we differentiate, we charge a premium price for that.

Perfect. Thank you very much. Our next question is from Tiago, Tiago [indiscernible] who says, hi, 2 quick questions on my side here. You showed [ Nike ] as a client of VTEX in one of the slides. Are you doing business with the company in Brazil/Latin or worldwide? Could you explore a bit more use cases with them given that they are a premium company? The second question is on observability improvement initiative. Are you taking or thinking about cloud observability? You've seen vendors like Datadog to rationalize usage?

So about [ Nike ], maybe this question should be asked to [indiscernible] and Mariano, they are in the forefront of where -- of how we are hoping with each customer. So [ Nike ] is an important customer for us in LatAm. They started in 4 countries already. And I won't limit myself to an example of [ Nike ], but this is a natural path of our customer that VTEX start with a single country or single brand in one -- and then as they feel that they are more agile, they expand to other brands and other countries. This is not a fast path but -- a fast process, but it is a consistent process that happened throughout the years. And that's why we had such good net revenue retention at KPIs. So that's the case specific of [ Nike ], like they're starting the journey, their customers [indiscernible] since how long time ago? Just 1.5 years. Where we have customers like Whirlpool that are customers of ours since 2012 or '13, I don't recall right now, and they are much bigger in other -- in other countries. And other brands, we have 5 brands with us and more than -- I don't know how many countries, more than 10, I'm sure. So that's a good journey for customers like [ Nike ] and we have several others, from Samsung and several customers like [ Nike ]. For the second question, Tiago, I will lend the floor to [ Nanda ]. [ Nanda ], could you help me on that?

Perfect. Yes, of course. So observability, yes, we use it to use a single platform for -- to hold most of our capability on the observability side. We are talking about call observability. We are not using Datadog, one of our -- we use OpenSearch and we use some open search tools. We are also using Honeycomb as our provider for that. And it's not only about cloud and platform observability, but also about observability of our own platform because this allow us to map optimization opportunities in our own cloud base that will then be seen in our results as Geraldo mentioned earlier, a continued improved subscription gross margin.

And if I can add, we're truly a technology company, right, [ Nanda ]. We -- our volumes are sizable. Like we have services right now that are serving almost 70 million requests per minute at this moment as we are speaking, so there's several technologies that we need to customize from some open source technology to the way that we need them to work. And we need to be very careful when we decide if we're going to buy or [indiscernible] an infrastructure software for -- to help us because the volumes are already sizable, right?

Yes. It is never an easy answer. [indiscernible] than if we buy.

Exactly.

Perfect. Thank you very much. Our next question is from [ Rodrigo Caciolato ]. He's asking, VTEX have developed products in OMS and other fronts, which are usually charged separately by other software e-commerce platform providers. Do you see potential for eventually having relevant monetization from such products?

I can talk about that, Rodrigo. That's the same -- like remember our vision and our goal to be the backbone for connected commerce to blend the barriers between physical and e-commerce, physical commerce and e-commerce, like everything should be digital commerce. For this, it's very important that we -- all of the orders of our customers convert to our system, and us having the OMS embedded in our offering is so powerful to get into this goal that the question about could we overcharge OMS or not, is a minor question now. It's not a big question. It should be done. But -- but the answer for the long term is, yes, as we -- as all these products and product definition and product articulating [indiscernible] you were seeing and customers are seeing that we are decomposing our product, the e-commerce platform, the OMS, the content cloud, we are separating some parts so that the customers can understand our product offering better. And yes, and we can do a pricing that is very tailored for the customer, depending on what are their needs. So we're not doing now. We love the way we charge our customers on their success. This is -- this brought the company until here. We are a company -- a group of people that are aligned with the interest of growing the revenue of our customers. We do whatever it took to get there. We needed to build an OMS, an OMS that talks to physical stores and OMS that talks to franchises of the brands that we serve to get -- we did everything we could as a software company, as the technology team, to do -- to increase the revenue of our customer because we [indiscernible] if they increase revenue. So we're very happy with the business model that we currently have, but it doesn't mean that this will last forever.

Perfect. Thank you very much. The next question and most likely last question is from Clarke Jefferies. So it's this, where does omnichannel and on-premise functionality rank as an R&D priority? Online channel -- or omnichannel now being 35% of our GMV, do you expect omnichannel to continue to grow? How important will sales up be in your omnichannel on-premise investments?

I can get that as well. Thank you, Clarke. My understanding of on-premise that Clarke said, it's like orders coming from physical stores. So that's my assumption here. And I do believe, Clarke, that we gave a very important step, that we made a very important step, getting orders from the online world and driving these orders to the physical store so that the physical store deliver the order. And so this is the cause of the GMV that you see here. And this is growing, there's several avenues, several customers that need to do that. Several new stores we need to implement this. And franchises of the brands of our customers, several customers that have franchisees and this is -- we're just scratching the service on that direction. When you -- and now there is another direction that we are pending to explore. Like e-commerce is in Latin America, 12% penetration, right? So roughly every brand has 90% of their sales through physical stores and 10% of their sales more than less through e-commerce. Just to pose that I'm a fashion brand, and I have -- I want to optimize my inventory, I don't need to have -- I don't -- I cannot because of a crisis or something like that. I don't want to have all the colors of a shirt. I don't want to have all -- even all the sizes of a shirt. And then I will -- I will implement Sales App to my salespeople so that we enable them to not lose the sale if there's lack of inventory in the local physical store. So now we're exploring another direction. The physical store will do the sale, the e-commerce network will do the delivery. So this is a completely new avenue. And although it is like you can claim that a few percentage of customers will buy that way because going to physical store is a very important movement, but if you estimate that 5% to 10% of the customers would buy that way, it's almost double the volume of the e-commerce volume, right, because e-commerce volume is 10%. So if you -- I don't know if 9% of the volume comes from customers that are buying products that are not available at the physical stores, eventually the volume can double. I mean, my bottom line here is that omnichannel integration, connecting digitalizing the physical store is a very big opportunity for fulfillment and for selling and we're just creating the surface for that.

And just to add, Geraldo, the Sales App is the materialization of this order that starts in the physical store and goes into our online world. So it is a top priority for us to make sure that we work directly with customers that are starting to implement as early adopters and making sure that the experience is good and is helping us to drive this new channel or new revenue stream opportunities.

Perfect. Thank you, [ Nanda ]. Yes.

Okay. So our Q&A time is over. Thank you very much, everyone, for participating and big claps for our presenters. Now let's take a quick 10-minute break to recharge, grab a cup of coffee or stretch your legs. Let's be back shortly. [Break]

Welcome back, everyone. Now let's go straight to our second segment on market positioning, go-to-market strategy, international expansion in LatAm, including Brazil growth. Let's now welcome Mariano to the stage. Mariano, the floor is yours.

Thank you, Julia. We are doing this Investor Day live from New York Stock Exchange. So as you can see in this background, we put the sugarloaf here because that was where the company was founded. But actually, we are inside New York Stock Exchange with clients celebrating the 2 years of the IPO of VTEX. So 2 years ago was the IPO. And we brought our clients here to celebrate with us. As probably you can follow -- could follow from the CNBC opening bell ceremony. So today is a special day. It's emblematic day. It's something that you look backwards and I'm really proud. I'm really proud how we are consistent delivering our path and we are consistently building the foundations for our future. Let's talk about VTEX's marketing positioning. By declaration, we chose to express VTEX brand through the cases of our clients. So nothing better than start by listening to our customers and allow them to talk in our behalf. Please let's see the video. [Presentation]

So those customers are just a sample of our customer base. And now in first hand, the announcement of some of new logo additions we have conquered across the world. Those are enterprise brands that have chosen VTEX for our ability of delivery, through our product and our commerce knowledge. We are happy to announce that Groupe Casino, one of the largest grocery groups in the world has decided to migrate their headquarters digital commerce operation in France to VTEX. Let me repeat that, a global company with more than 10,000 stores across the globe has chosen a non-European platform to run their digital commerce business. In the country, they started in the first place, France. Secondly, I'm happy to announce that here in the U.S., we went live with Beautycounter, a global leader in beauty and personal care, part of Carlyle Group portfolio. Not only the -- not only they were looking to digitalize its physical sales operation, but expanded direct-to-consumer strategy to the U.S. and Canada. Last but not least, as a proof of our platform capabilities, we have added our customer base, Hearst Corporation, which really needs no introduction, right? If you have been ever in a convenience store, you've probably been face-to-face with Hearst magazines such as ELLE, Cosmopolitan, Bazaar, Men's Health. They chose us because of the composable commerce capabilities. And this is interesting. I've always been questioned in the street to say, why companies choose VTEX, why to migrate from SAP salesforce to VTEX. This is an interesting thing, why companies choose VTEX? So let me try to explain why and how we've been positioning our platform for the market. COVID has rewritten the rules of commerce and we have entered into new era, no longer focused on growth at any cost. Now it's about profitability, sustainable growth. As a recent stat by Publicis Aapient's found, 37% of the retailers are not meeting their profitability targets in e-commerce. Something is wrong. Many customers need help. They didn't find the best opportunity to invest their capital to generate profits. VTEX has great responses to that demand. The diagram that you are seeing now represents a real commerce architecture of a customer before migrating to VTEX. It's a nightmare. The system has many dependencies, [ medeiros ], over customization, making it fragile and hard to scale even more, almost impossible to maintain. More than anything, it's pretty expensive to maintain, that some can reach incredible 80% of the online GMV just to maintain the stack of your digital commerce operation. That's not sustainable. Maintaining the legacy commerce, it is not sustainable in that sense, from a business IT and financial state point, something will happen. The question we often ask our prospects is how much of your online GMV is allocated to tech, amortizations plus maintenance. Normally, this is in a different line in the P&L, put them together, they're going to surprise you. Labor hosting, this is not different like cost centers. This is the maintenance of your tech stack for commerce. Modern CIOs and CEOs are pursuing sustainable commerce architecture, moving away from legacy systems. VTEX's composable commerce approach aims to reduce the total cost of ownership of the entire commerce stack to a healthier 2% to 3% range of the GMV, enabling customers to allocate more capital, to marketing retention and actually innovation. As customers migrate off their legacy platforms, with VTEX, they can discover the best of the two worlds, a fast go-to-market with an end-to-end solution that combines freedom to compose their unique modules with 100s live connected solutions provided by our ecosystem and the end-to-end solution that allows them to go to market pretty, pretty fast. Speed to market plus freedom of customization. That's why companies are choosing VTEX. With VTEX platform, you can choose what module to compose with third-party solutions and you can choose to write off any module of your architecture as you want. This is what we see as a new trend in wave, the pragmatic composable commerce. Freedom, it is the ability to test, the ability to compose and just the ability to compose when you need not because you are mandated to compose. So real freedom can only be accessed when you have a composable but complete platform. That's why we pitch VTEX as composable and complete platform. This is the core of our value prop. Our customers can enter in the new testing economy and leaving behind the old building economy. This is the disruption VTEX is delivering to the world of commerce. At the end, we believe innovation is ability to test, the ability to test fast, the ability to write off components. Freedom to innovate is not represented by unlimited ability to build it. It is indeed by the unlimited ability to test. Now let's do a little tech diving into our composable and complete platform. As seen in the pink boxes, we provide a set of commerce services for digital commerce experience management or the management -- marketplace management. This complete set of functionalities helps customers migrate their existing operations quickly. Our customers can also extend or swap the native capabilities by custom built once under the same infrastructure. Look at the light pink boxes now in your left. We also provide add-ons, channels and experience applications out of the box. You can create new channels with VTEX, not with CapEx, but with a very fast to market. Finally, look at the gray boxes. With VTEX live connected ecosystem, our clients can configure third-party applications without having to build any cloggo or code, any [ medeiro ]. Better than myself, I would like to bring the voice of a customer to show how they are using our technology. Let's see Olivier Gilbert, Global Chief Technology Officer of Carrefour at VTEX Day. [Presentation]

So now 11:18, live broadcasting from New York Stock Exchange. We're going to switch gears. I'm going to invite Santiago Naranjo, Chief Revenue Officer of VTEX, to explain how we are taking this position into the market. Please, Santi.

Thank you, Mariano. Messaging and positioning are nothing without a focus and disciplined execution. So I want to give you an overview of VTEX's go-to-market strategy, starting with demand generation. We believe our platform and e-commerce knowledge are our greatest advantages and the best way to prove it is through the success cases of our customers. This is our demand generation broad look. When we enter a new country, we use our knowledge as an e-commerce specialist company to conquer our first reputational case. When our new customers go live, the next step is to expand our footprint in that given industry by promoting those cases. The more we do it, the more we can expand to new industries and diversify our customer base. The combination of diverse success cases and the e-commerce knowledge turns VTEX in a reference within the country, organically attracting new customers and enable us to be more efficient. In addition to our marketing investment, our partners play a vital role in our go-to-market strategy. We have established global partnership program with leading system integrators and independent software vendors who serve a valuable source of opportunities. Let's hear from Ravi Bagal, General Manager at AWS about their experience. [Presentation]

Our partnership with AWS is very important. We were honored as one of AWS ISV partners of the year. We have also expanded our global partnership program to drive demand generation. VTEX and AWS sales team are doing go-to-market together in North America and Europe to generate and accelerate opportunities. As the opportunities generated move to the pipe, they enter our sales cycle. We are doubling down on solution engineers and solution architect roles. From the beginning we are mapping the prospects, the goals and the existing systems. While the opportunity is qualified, the team's focus is to maximize value as fast as possible and establish an architecture and implementation time line. Here is an example of an architecture diagram shared with Auchan, one of our customers. We have been executing a new sales cycle since the end of the last year. It is part of our growth playbook. This playbook use a set of business indicators to identify which stage of maturity a country is at. And from that, we find the next action and investment to reach its next stage of development. The playbook is divided into 4 stages. First, discovery, when we are testing a market by getting a first reference customer; second, validation, when we build reputational cases that can give us a positive demand generation loop and start recruiting talent. Third, acceleration, when we create momentum by increasing sales and brand awareness through the success of our customers and across multiple industries. And finally, scale, when we drive towards market leadership and operational efficiency. Now let's dig into how we execute our go-to-market strategy by region.

Thanks, Santi. U.S. and Europe are significant market opportunities for VTEX, right? So let's talk about 2 opportunities we believe VTEX can capture in these markets. The first, it is around B2B. I'm talking about manufacturers, wholesales, distributors looking to migrate or to implement a B2B digital commerce operation, a new and modern front end for their legacy ERPs, a front-end, a modern front-end for SAP, a modern front-end for Oracle. Here is a quote Orlando Ros, Global VP Customer Experience at Stanley Black & Decker, that has been with VTEX since 2019 and now operates its B2B business with our platform in South Korea, India, Brazil... [Presentation]

That's live event, guys. So you saw that the video came 5 seconds before. Just complementing, Stanley Black & Decker is expanding their operation with VTEX to the U.S. and U.K. And according to the e-marketer, B2B economy and B2B e-commerce is reaching $2.47 trillion in 2023. Many drivers are influencing the accelerated growth of B2B commerce globally. First driver, it is the need for a faster time to market. B2B companies have tried to transform the legacy process for years. B2B customers demand a new front-end modern digital experience. VTEX is well positioned to capture the greenfield B2B opportunities of customers looking for it. Second, the trend of becoming -- B2B is becoming marketplaces. This model enables manufacturers to integrate inventory from distributors and third-party sellers. VTEX has a unique position to capture this trend as we are one of the unique providers in the market to offer B2B commerce and marketplace under the same platform. The last driver is the need of a digital commerce solution for the sales rep, the missing link in between the online and offline world. In the B2B world, even the most tech-savvy buyers, will look for human support before placing an order. The buyer needs -- it's the same experience, the best of the online and the best of the sales consultant. The world needs to bring it together, and VTEX is ready to capture this trend to our highly flexible front-end technology and the native life shopping and personal shopper capabilities that connects B2B buyers with sales reps to assist the online digital journey. It's pretty amazing. In the past, we have seen significant increase in B2B logos in the U.S. and Europe for VTEX. Companies like Bisco, Briggs & Stratton, CNE --CNA --CAE, sorry, Colgate-Palmolive, MACROMAX, Mazda, Motorola, Cartamundi, Kayser-Roth Corporation have chosen VTEX to run their B2B operation. Now Santi will explore the second opportunity, the migration from legacy systems.

Yes, our second go-to-market place focused on legacy migration. A recent Forrester study shows that 44% of sovereign decision-maker within retail plan to replace their commerce platform. And an example of how we are executing this strategy, we have a testimony from Magali Vaissiere, e-commerce Director at Groupe Casino, the leading French multinational retail company operates more than 10,000 stores worldwide. And now it is VTEX's entry point for the grocery industry in Europe. Let's see why they have decided to migrate from legacy to VTEX. [Presentation]

Imagine, it is a dream come true. Our first customer in France, one of the biggest groceries in the world. You cannot imagine how well the process to convince a French company to migrate to a non-European platform. We have exercised every muscle of our technology and e-commerce knowledge, not through slides or PowerPoint but showing our APIs, building up POCs, reducing the fear of change to our attention to details. Actions speak louder than words and this is how we will disrupt the market. Many drivers are helping us to accelerate our expansion in North America and Europe. The first one is data privacy and compliance. And you know this topic is more relevant than ever, mainly in Europe. Complete architectures are harder touted and the more services you integrate, the more liabilities you potentially have. As companies centralize their operations and data on VTEX, our tools like VTEX IO development platform guarantees transparency. The second trend is around operational efficiency. A Forrester study says that in 2023, at least a quarter of digital businesses will double down on technologies that consolidate shipments and fulfillment. Because of our native order management system and marketplace capability, we can simplify the implementation of new models like marketplace, drop shipping and cross-border. Last, but not least, we are seeing an increased adoption on composability. A Gartner study shows that by 2024, 20% of global CEOs will report an increase appetite to risk and resilience. To do that, mature enterprise are starting to look at new architectural strategy. With our pragmatic approach, we believe this trend will be an important source of growth for our future. Now let's switch gears from international expansion to our LatAm and Brazilian growth. Even though LatAm was the fastest-growing region in e-commerce in 2022, with the change of pace in the market, you might be asking yourself how we plan to maintain the same levels of growth we have seen in the past years. Well, here, we have 2 place to deliver sustainable growth. The first one is the next country to conquer, Mexico. According to Statista, Mexico has the largest percentage of total B2C e-commerce in Latin America, surpassing Brazil as the #1 country in 2021. Mexico was the country that saw the highest growth in retail e-commerce revenue in the whole region. Mexico is the natural next big opportunity to be conquered. And we are seeing increased momentum there. Customers like Elektra, 1 of the biggest Mexico retailing and finance corporation use VTEX for its omnichannel B2C operation, connected their 1,340 point of sales through Mexico and Central America. After migrating to our platform, they saw a 378 percentage of increase in online stores. Our client Chedraui, a grocery retailer that operates in Mexico and United States, has improved its operational efficiency in 421 brick-and-mortar stores across Mexico. And the most recently, H-E-B, a supermarket chain that operate in Texas and northeast of Mexico implemented its VTEX side on VTEX IO with the goal of rethinking their commerce digital experience. There was a 65 percentage of increase in weekly sales after H-E-B went live with VTEX. Speaking of H-E-B, we have a testimonial from the customers explaining why they have decided to migrate to VTEX. [Presentation]

Well, it is an amazing case. In a market crowded with open source providers like Adobe, we have to fight against the headquarters. Our omnichannel promotion and time to market were the key factors for them to choose us. And even if VTEX was not the first in their list, through our product capabilities, we were able to unlock this deal and to show that we could migrate under 6 months. Our second play is around portfolio expansion. In 2022, 90% of retailer transaction in Latin America were conducted offline. This represents a significant opportunity of new GMV for us. This portfolio expansion strategy primarily focused on upselling and cross selling within our customer base. And for that, we see 3 big opportunities. First one, enabling our customer fulfillment efficiencies as our customer base is marginally presented by retailers with large network of stores. The first opportunity is to enable our customers to transform their brick-and-mortar into distribution centers. That is why we have developed Pick and Pack. Now their brands use VTEX to integrate their inventory and will also have the tools for their in-store team to fulfill and deliver these orders. The second opportunity is new sales channels. As an API-first platform, we are well positioned to become the e-commerce engine for any front end, not only for online but also mobile apps, messaging platform and live stream. The third one is the expansion of business models. Our current customer base has many retailers, manufacturers and consumer goods only running B2C strategies with us. We are actively expanding our product adoption within the customer base with customers like Electrolux and Motorola, now using B2B also inside VTEX. Now let me invite Mariano for our final chapter.

Thank you, Santi. Now I'd like to invite Hisham Faour, Carlyle Group Principal of Transformation and Portfolio Operations to join me. We are all here in New York Exchange, Santi, Geraldo, all the clients. But as it is a online first event, we are prioritizing us to be in front of the camera to you. But Hisham is going to join us now. So Hisham, please -- let's check if we can listen to you.

Mariano, nice to see you. Nice to be here. Happy to be here.

Great. So first question, Hisham, is tell me, you manage like many companies. What was the impression on the field to work with VTEX in one of your portfolio company? You are a very hands-on leader. You were in many, many meetings with our team. So better than anyone, how could you translate to the team here? What's your impression of VTEX in the field?

My impression, Mariano, has been very positive. VTEX project team has -- they've come across as partners in the project, which is critical. They're very hard-working, very committed. They come across as commerce specialists, not just a service provider. They're committed to the success of the program, and they really look holistically at the end-to-end process to make sure that what we're designing is going to make sense for our portfolio company.

Sorry. And Hisham, if you want to summarize for the ones asking about what's the trends on digital and how the e-commerce platforms would fulfill and transform the companies that you do have. The message that VTEX is passing in this Investor Day resonates with the future that you foresee for the portfolio, give us more a sense of future proof vision in digital commerce.

So we support many of our portfolio companies with their e-commerce implementations. And I think the implementation that we have going on with 1 of our portfolio companies is critical to their business and to their transformation from a digital perspective. We're in the midst right now of actually implementing the VTEX solution, and we're very excited for the launch. I would say -- what I really admire is the thoroughness of the VTEX solution. I also admire the rapid time to market. VTEX was really able to kind of present a proof of concept just within 15 days with a lot of the out-of-the-box capabilities within production. I would also say they come to the table with a relatively deep partner ecosystem that they're able to introduce ourselves and our portfolio companies, too.

Hisham, have you heard about VTEX before? Or it was the first time you heard about us?

First time.

First time.

And actually, Mariano, I appreciate it's kind of meeting you in New York. And actually, I do also appreciate your involvement as a CEO, which I think is rare in the project and it shows kind of that you're invested as well in the success of the program and the broader transformation that our portfolio companies are going through.