VTEX (VTEX) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the VTEX Earnings Conference Call for the quarter ended June 30, 2026. I'm Julia Vater Fernandez, VP of Investor Relations for VTEX. Our senior executives presenting today are Geraldo do Thomaz Jr., Founder and Co-CEO; and Ricardo Camatta Sodre, Chief Financial Officer. Additionally, Mariano Gomide de Faria, Founder and Co-CEO; and Andre Spolidoro, Chief Strategy Officer, will be available during today's Q&A session. I would like to remind you that management may make forward-looking statements related to such matters as continued growth prospects for the company, industry trends and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations and projections about future events. While we believe that our assumptions, expectations and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on those forward-looking statements. Certain risks and uncertainties are described under Risk Factors and -- forward-looking Statements sections of VTEX's Form 20-F and other VTEX filings with the U.S. Securities and Exchange Commission, which are available on our Investor Relations website. Finally, I would like to remind you that during the course of this conference call, we might discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our second quarter 2026 earnings press release available on our Investor Relations website. With that, let's start the call. Geraldo, the floor is yours.

Thank you, Julia. Good afternoon, everyone, and thanks for joining us on today's call. I want to open different today. We're far enough into our AI native transformation to see with real clarity how large the opportunity ahead of us. The results are not yet translating into revenue growth trajectory we're building towards. We know that. But the direction is right. Product delivery is advancing well. Early customer signals are encouraging, and our financial strength give us the runway to execute. We look forward to demonstrating our progress quarter-by-quarter. The macro environment remained challenging in the second quarter, high interest rates and a promotional marketplace environment in Brazil, softer consumer demand in Argentina and longer enterprise decision cycles, all weighted on near-term growth. Ricardo will cover this in detail. With that in context, I want to focus on what matters most for the medium- and long-term trajectory of VTEX, the execution of our 4 growth drivers. global expansion, B2B, Ads and AI. Collective, these initiatives grew 20% on an FX-neutral basis in Q2, meaningfully faster than the company overall. While this still represents a relatively small portion of our business today, they are becoming an increasingly important part of our growth profile. The other side of this number is worth stating directly. The remainder of our subscription revenue concentrated in our established B2C commerce business is in Brazil and in the rest of Latin America declined modestly in FX neutral this quarter. We want to be precise about what is happening and what is not happening there. Churn remained stable and in line with historical levels and win rates in competitive processes held steady. This is primarily a volume and customer mix story, not a competitiveness story. We're not seeing deterioration in retention. Our installed base is transacting less in a weak consumer environment. That distinction matters because volume pressure can ease as the volume cycle improves. Going back to our growth drivers, let me take each in turn in order of the revenue contribution today. Starting with global expansion. This remains one of the most encouraging parts of our business. In the U.S., we're seeing a clear improvement in the quality of the pipeline. Activity has expanded across a broader set of industry, while large B2B opportunities represent an increasing share of expected contract value. We have also evolved our go-to-market strategy to make it more scalable. Rather than relying primarily on direct prospecting, we are increasingly working alongside leading global system integrators such as EY and Accenture. During the quarter, we hosted our first North America SI boot camp, bringing together implementation partners to deepen their expertise in our B2B platform, which has already generated new qualified opportunities, reinforcing our confidence that this channel can become an increasingly important source of enterprise demand. Another important shift is how AI is influencing enterprise buying decisions. Today, AI is no longer viewed as an incremental feature. It has become a prerequisite in virtually every RFP as customers increasingly evaluate platforms based on their ability to support future AI-driven commerce. This is also shaping how we position the broader VTEX product suite. While customers typically prioritize modernizing their core commerce foundation first, the response to our CX platform during enterprise evaluations has been positive. We are increasingly bundling into strategic enterprise proposals, creating a natural path to expand customer adoption over time while further differentiating VTEX from traditional commerce vendors. Europe is following a similar trajectory. We have become increasingly disciplined in how we deploy commercial resources rather than pursuing smaller opportunities across every market, we are concentrating our investments where we see stronger enterprise demand and greater long-term expansion opportunities. The early results are encouraging. We're increasingly winning large recognizable enterprise brands that choose to begin with a single country or region before expanding their operations across additional markets. We believe this land and expand motion plays directly to the strength of our platform and creates long-term value. We are also pleased to announce the renewal of our long-term partnership with OBI, our first customers in Germany. Beyond expanding into additional countries over the years, OBI has become an important reference customer in the region, helping establish our credibility with other large enterprises and opening new commercial opportunities. It is a strong example on how our relationship continue to deepen over time as customers expand their business on the VTEX Commerce platform. Taken together, our international strategy is advancing. We continue to improve the quality of our pipeline, compete successfully against global incumbents and build a growing base of enterprise customers that can expand with us for many years to come. B2B remains one of our most durable sources of growth. The foundation of our B2B strategy is a philosophy we have come to describe as channel-agnostic digitalization. B2B buyers are not a homogeneous group. A carpenter ordering building materials wants to send a WhatsApp audio message, a procurement manager at a large distributor wants a self-service portal. A field sales rep wants to generate a quote on a mobile device while standing in front of a client. Our platform processes all of the input natively without forcing buyers or sellers into a workflow that does not fit how they actually operate. This is the core reason we win in complex B2B environments, and it is increasingly the first thing prospect mention when they choose VTEX over alternatives. Looking ahead, we want to be direct with investors about where we are investing and why. We have built what we believe is the strongest B2B self-service commerce platform in our markets. The gap we are actively closing is on the tools that gives field sales reps, managers and account teams the real-time visibility and AI assistant intelligence they need to work more effectively. Our objective is to offer the best solution in the market for those agents, one where a rep can see which clients are active, which have lapsed, which logged into the portal without converting and which accounts represent the highest probability opportunity on any given day. Combined with our CX platform and our self-service capabilities, this will give VTEX a unified AI native stack that covers the full B2B commercial workflow from the first buy interaction to the closed order. On top of a strong demand for B2B digitalization across global markets, recent customer activity in Brazil and Latin America reflects the breadth of this opportunity. Whirlpool's B2B expansion in Brazil and Electrolux launch in Chile demonstrate how our existing enterprise relationships convert into B2B growth across geographies. Moving to the VTEX ad platform. We continue building strong momentum during the second quarter. On the product side, we continue expanding our ad platforms with AI-driven campaign creation, automated budget management, improved attribution and AI-generated creative assets, bringing VTEX's ad platform closer to the capability expected from the world's leading retail media platforms. Commercially, we expanded our international sales presence, established active relationships with leading global agency groups such as WPP, Publicis and Omnicom and our ecosystem through partnerships, including Magnite, among others. Together, these initiatives expand both advertiser demand and available inventory as we continue building a differentiated omnichannel retail media network. We're also seeing encouraging demand for new verticals. Prescription portals and health platforms, in particular, are generating strong interest from pharmaceutical advertisers. This vertical creates a differentiated inventory opportunity that does not exist on generalist retail media networks. Our fourth growth driver is AI, which today runs on 2 fronts: the VTEX CX platform already a revenue contributor and the AI Workspace, which points to where the entire platform is going. Starting with our CX platform. The second quarter demonstrated not only strong product momentum, but also a business model that is scaling efficiently. Since VTEX Day, the VTEX CX platform has recorded more than 200 trials activations through our trial-led go-to-market strategy. The results have been compelling. Average sales cycle from the solution have declined by more than 50% from approximately 90 days to roughly 40, while implementation times has been reduced from 30 days to 1 week. These are structural improvements that directly reflect the advantage of native integration with the core commerce platform. On top of this, the VTEX CX platform operational performance continues to improve. Our AI agents are sustaining conversations containment rate above 90% and problem resolution rates above 80%, while directly influencing GMV through payment recovery, abandoned cart rescue and cross-selling. While still early, these results provide encouraging evidence of the platform value generation for our customers. The VTEX CX platform also continues to expand beyond its initial use cases in our installed base. During the quarter, we introduced our first integrated B2B agents, increased adoption through the web channel, expanded across Mexico and the broader region, signed our first European customers and continue winning stand-alone deployments. Turning to the second front, the AI Workspace. Since introduction, AI Workspace and our first Pioneer Agents at VTEX Day, we have expanded the platform with new capabilities across merchandising, content, fulfillment and commercial analytics. These include -- my Assistant, our orchestration layer that coordinates multiple AI agents through a single interface, allowing teams to execute business objectives through natural language instead of manual configuration. Our vision remains clear. We're not building isolated AI features. We are building the AI native commerce suite. We now have more than 100 enterprise customers in the AI Workspace wait list, but we intentionally began with a small group for our Pioneer Program. Our product and engineering teams are working alongside these customers to maximize operational value and help shape the next generation of the platform. We are not yet reporting operational or financial contribution from AI Workspace, but the foundation we're building today give us confidence that adoption will be durable and scalable over time. Our ecosystem is also embracing the AI journey. We've seen adoption of our AI developer key toolkit, which enables AI coding assistant like Claude, OpenAI Codex and Cursor to build natively on VTEX. The early response has been encouraging, and we believe it can help reduce implementation times, accelerate time to value and increase partner productivity. Across the business, as listed in our earnings release, we continued adding new enterprise customers while deepening relationships with existing ones across each of our 4 growth drivers. Importantly, we're seeing encouraging suite adoption momentum. Angeloni and FastShop expanded their relationship with VTEX to include our CX platform, while Whirlpool and Olímpica expanded theirs to include our Ads Platform. Before I hand the call to Ricardo, I want to thank every VTEXer. Building the next generation of enterprise commerce while maintaining financial discipline requires extraordinary focus, commitment and execution across the entire company. I also want to thank our customers, partners and investors for their continued trust. We're building something genuinely new in enterprise customer. The architecture is sound, the product execution is on track, and we remain confident that the compounding effect of this work will become increasingly visible as we move forward. Ricardo, over to you.

Thank you, Geraldo. Hello, everyone. It's a pleasure to be back here with you for another quarterly update. I will now walk you through our financial performance for the second quarter of 2026. Subscription revenue came in just above the bottom of our guidance range and below our internal expectations, driven by a challenging consumption environment in Brazil and Argentina and a customer mix that continue to skew towards larger accounts. Against that, our profitability and cash flow performance were strong with margins continuing to expand meaningfully year-over-year. That separation, softer revenue, stronger margins reflects structural progress in cost discipline that we believe is durable even as we work to reaccelerate growth. In Q2 2026, GMV reached $5.7 billion, representing a year-over-year growth of 18% in U.S. dollars and 7% on an FX-neutral basis, broadly stable versus the 6.8% FX-neutral growth we reported in Q1 despite the softer consumer backdrop. Subscription revenue reached $63.8 million, growing 11% in U.S. dollars and 1.3% on an FX-neutral basis. The gap between GMV and subscription revenue growth was driven by mix. GMV growth was increasingly concentrated among our largest customers, while smaller and midsized customers were more affected by the weaker consumption environment in Brazil. And the same shift towards larger accounts, which carry lower take rates at similar gross margins and lower churn rates translated into a more limited contribution to subscription revenue growth. In other words, volume held up better than its conversion into revenue, a mix effect, not an erosion of unit economics. Our non-GAAP subscription gross margin reached 81.8%, an improvement of approximately 2 percentage points year-over-year, continue to benefit from structural gains in AI-powered customer support automation and disciplined cost management. Total non-GAAP gross margin, including services, reached 80.4% compared to 77.4% in Q2 2025, representing an improvement of 3 percentage points year-over-year. The continued deemphasis of lower-margin services as our global partner ecosystem assumes a greater share of complex implementations continue to be a tailwind to our overall gross margin. Total non-GAAP operating expenses in the second quarter were $38.0 million, broadly flat sequentially and growing well below revenue year-over-year, with headcount declining nearly 4% sequentially. As in prior quarters, we maintained discipline across sales and marketing and G&A while continuing to direct incremental investment into R&D, where our focus remains on accelerating the AI native transformation, expanding our agent ecosystem and deepening the capabilities of our B2B, Ads and CX platforms. Non-GAAP income from operations reached $13.8 million, growing 62% year-over-year and with a margin of 21.4%, representing approximately 7 percentage points of expansion versus the same quarter of last year. Free cash flow for the quarter was $12.7 million, growing 79% year-over-year and representing a free cash flow margin of 19.8%. We continue to execute against our share repurchase program. During the second quarter, we repurchased 6.2 million Class A common shares at an average price of $3.76 per share for a total cost of $23.2 million. At the average price, the shares were repurchased at an implied double-digit free cash flow yield on enterprise value compared with the mid-single-digit after-tax interest yield earned on our cash flow. Following the shares cancellation, the repurchases are immediately accretive to free cash flow per share. Consistent with Geraldo's discussion, our 4 growth drivers, global expansion, B2B, Ads and AI represented approximately 18% of subscription revenue and grew 20% on an FX-neutral basis in the second quarter. The remainder of the portfolio declined modestly in FX neutral with churn and competitive win rates remaining stable, reinforcing that this is a volume and monetization pressure, not a competitive pressure. Looking forward, our updated outlook reflects weaker consumption trends in Brazil in June and July and the continued customer shift toward larger enterprise accounts. It assumes a modest improvement in FX-neutral subscription revenue growth in the fourth quarter, supported by less demanding year-over-year comparisons and an increasing contribution from our growth drivers. For the third quarter of 2026, we are targeting approximately flat FX-neutral subscription revenue growth, low single-digit FX-neutral gross profit growth, a non-GAAP operating margin in the low 20s and a free cash flow margin also in the low 20s. For the full year 2026, we are now targeting low single-digit FX-neutral subscription revenue growth, mid-single-digit FX-neutral gross profit growth, a non-GAAP operating margin in the low 20s and a free cash flow margin also in the low 20s. Assuming FX rates remain broadly consistent with July's average rates, the FX-neutral growth guidance outlined above will translate into higher reported U.S. dollar subscription revenue growth, adding approximately 7.0 percentage points in the third quarter and 8.1 percentage points for the full year 2026. In summary, revenue came in just above the bottom of our guidance range, driven by a challenging consumption environment and the near-term revenue impact of our deliberate shift towards larger enterprise customers. What the quarter also tells us is that our profitability engine is working. Non-GAAP operating income grew 62% year-over-year. Total gross margin expanded 300 basis points and free cash flow grew 79%. Our cost structure is disciplined. Our balance sheet is strong, and our growth drivers continue to outperform the consolidated business. We will remain focused on translating that foundation into revenue acceleration. With that, let's open it up for questions now. Thank you.

[Operator Instructions] Your first question comes from the line of Marcelo Santos with JPMorgan.

My question is about -- you mentioned the durability of a high margin in a reacceleration environment, I think, in your comments, Ricardo. I just wanted to go a bit deeper on that. I mean if reacceleration comes, what kind of cost do you think would be a pressure? And what kind of cost do you think would scale? Just want to -- I know it's not the scenario now, but I just want to go a bit deeper on that potential scenario for one day?

Perfect, Marcelo, thanks for the question. Happy to start here. So we see the improvement that we are having as durable given that on the gross margin side, it's historically, over the past 3 years, right, the first 2 years was driven by hosting optimizations. And for the last year or maybe 5 quarters, it's been driven by AI power automation and support costs. So the roughly 3 percentage points in gross margin that we gained, it's durable, and we see this as a strong indication of the scalability of the business. On the cost and expenses side, when we think about G&A, G&A has been stable for the past maybe 5 years since we IPO-ed the company. So that has decreased maybe for 20% of revenue back in 2020, 2021. It's now roughly 10% of the revenue. So that shows the scalability on that line as well. Research and development, R&D, we are increasing the level of investment right now in that line as we see it's the moment to invest on AI and the transformation and accelerating the product side. So that's a line that we are investing more. It's increasing as a percentage of revenue, but just marginally. So we see that that's very strong indication of how much we're investing for the future. From the sales and marketing perspective, we invest on that based on what we are seeing on the demand side from signing new customers and the pipeline. So that we adjust over time. And we are also getting efficiencies on leveraging AI on how much we are investing on events. So -- if there is a reacceleration of revenue, we could invest a bit more if we are seeing a good return on investment. But given the way that we look at our existing customers and the margins that we are making, the consolidated P&L is still far away from that margin. So we see the potential for the margin to continue moving in a positive way as we have signaled from the guidance, right? When we look at the Q2 guidance, the non-GAAP operating income margin was a guidance of high teens to low 20s. We have changed the guidance for Q3 in the low 20s range. So that's an indication of the progress that we are making there. So hopefully, that gives some color on how we are thinking about the efficiencies and the durability of the margins that we are gaining.

The next question comes from the line of Nadia [ Instantogi ] with Itaú.

So to what extent are the current revenue challenges related to a more difficult competitive environment? If you could please share your feedback about how you see the evolution of competition with marketplaces, both in Brazil and other regions, it would be great. And looking into 2027, are AI-related discussions also delaying client decisions, possibly extending sales cycles for new customers? Could you please share feedback on that as well?

Yes, I have to take this one. This is Mariano here. So about the competition, let's break down in terms of evolution of customer behavior and the competitive landscape among commerce platforms. On the consumer side, we are seeing 2 structural dynamics. First, commerce is becoming increasingly more fragmented. Traffic fragment across social channels, WhatsApp, emerging AI interfaces. The traditional front end may become more commoditized. However, every transaction still requires a centralized system of records for inventory, pricing, promotions and order management, order orchestration. That orchestration layer is where VTEX is structurally advantaged. We are the backbone for connected commerce and our long story on this sub functionality prepare us to serve this wave. Second, the current high interest rate environment continues to pressure consumers' demands, and that is a global kind of characteristics. Retailers are prioritizing profitability and efficiency over aggressive growth, while large marketplaces remain highly promotional using credits, coupons and free shipping to defend and expand market share. So it's interest dynamic in the market. We don't see this changing in the next months. This macro kind of headwind for our customers will remain. We believe these dynamics reinforce the need of an AI-native unified commerce platform that really helps enterprise operate more efficiently and engage customers consistently across an increasing fragmented commerce landscape. We believe in retailers and brand manufacturers that are agnostic to channels. On the platform side, on the competition, we haven't seen a meaningful change. While competitors are increasingly announcing AI capabilities, more -- most appear to be incremental features layered out of legacy architectures. We've taken a different approach, rebuilding VTEX as an AI-native commerce suite where AI orchestrate workflows across the entire platform rather than solving isolated tasks. More importantly, we haven't seen those competitive announcements translated into changes in our commercial performance. Win rates, churn, customer engagement all remained stable this quarter. So today, we don't see competitiveness issue. We see customers taking longer to make long-term decisions, long sales cycle. That's a fact. We believe our AI native architecture, our comprehensive product suite and the discipline on execution continue to strengthen our competitive positioning, and we will continue to monitor the market closely as it evolves. Does this answer your question or any angle of the question was not answered?

The next question comes from the line of Lucca Brendim with Bank of America.