VTEX (NYSE:VTEX) Q3 2023 Earnings Call Transcript

VTEX (NYSE:VTEX) Q3 2023 Earnings Call Transcript November 7, 2023

VTEX beats earnings expectations. Reported EPS is $-0.01, expectations were $-0.03.

Julia Vater Fernandez: Hello, everyone, and welcome to the VTEX Earnings Conference Call for the Quarter Ended September 30, 2023. I am Julia Vater Fernandez, Investor Relations Director for VTEX. Our senior executives presenting today are Geraldo Thomaz Jr., Founder and Co-CEO; and Ricardo Sodre, Chief Financial Officer. Additionally, Mariano Gomide de Faria, Founder and Co-CEO; and Andre Spolidoro, Chief Statutory 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 of 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 assumed expectations and projections are reasonable in view of the corporate information, you are cautioned not to place undue reliance on these forward-looking statements. Certain risks and uncertainties are described in the Risk Factors and Forward-Looking Statements sections of VTEX Form 20-F for the year ended December 31, 2022, and other VTEX’s filings within 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 may discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our third quarter 2023 earnings press release available on our Investor Relations website.

Now let me turn the call over to Geraldo. Geraldo, the floor is yours.

Geraldo Thomaz: Thank you Julia. Welcome everyone, and thanks for joining our third quarter 2023 earnings conference call. I am pleased to announce that VTEX delivered another quarter of strong results. e achieved a 35% year-over-year growth in GMV, driven by the resilience of the same-store sales from our existing customers and the successful go-lives of new stores. On the latter, despite the ongoing uncertainty in the macroeconomic environment, we are pleased to continue to see a stabilization in the ramp-up periods and implementation times, which, as mentioned before, also contribute to our robust performance. Turning briefly to our financial results, as Ricardo will delve into it later, I’d like to highlight two points. First, we’ve surpassed our revenue projections, reaching $50.6 million this quarter and a 31% growth year-over-year.

Second, we’ve achieved our breakeven target, from a non-GAAP operating income and free cash flow basis, one quarter before our expectation. This is a clear testament to our focus on growth and the power and scalability of our team. Efficiency is ingrained in our DNA, amplifying our results and bringing us closer to becoming the backbone of commerce. Additionally, we delivered a 36% year-over-year gross profit growth and held expenses steady while accelerating our growth under an uncertain macro, demonstrating our business model’s resiliency and operational leverage. Now, let’s go into some operational updates. In Q3, we added several new customers that migrated from other platforms, including Naldo in Argentina; Aiwa, Preçolandia and PicPay B2B in Brazil; Ren-Wil in Canada; ICB Food in Chile; CoopiDrogas, Gabrica, Eurosuper and Mattelsa in Colombia; Vianney and Farma Piel in Mexico; and Beautycounter and Pierce Manufacturing B2B in the U.S. In addition to attracting new customers, we also focused on strengthening our relationships with existing customers, actively supporting their growth initiatives.

During the third quarter, several premier brands and retailers chose to expand their operations with us by opening new online stores and further integrating with us. These include, Calvin Klein who added a new store in Ecuador, now operating in nine countries in Latin America, Farmacity who added its Simplicity brand in Argentina, now operating with three stores in Argentina and one in Uruguay. Reebok who added a store in Panama, now operating in six countries in Latin America, and Whirlpool who added its Kitchenaid brand in Austria, Denmark, Finland, France, the UK, and Italy, now operating in Latin America, EMEA, and APAC. We are excited to provide an update on one of the new customer wins we shared during our Investor Day. Beautycounter, a Carlyle portfolio company, successfully migrated from its legacy platform to VTEX.

This migration enabled the consolidation of all their channels into a unified commerce experience. VTEX, globally recognized as the number one unified commerce platform provider by Gartner, has demonstrated its ability to launch large and complex projects in the U.S. This accomplishment represents a significant milestone in our global expansion journey and we are committed to our partnership with Beauty Counter. Furthermore, in addition to the new customer acquisitions and existing customers expanding their operations with us, two significant events this quarter underscore our progress in solidifying our positioning as the global enterprise digital commerce platform where forward-thinking CEOs and CIOs smarten up their investments, the success of VTEX Connect Latam in Mexico and our inclusion in the 2023 Gartner Magic Quadrant for Digital Commerce.

We saw remarkable growth at our second VTEX Connect Latam in Mexico, expanding from over 3,000 to over 7,000 participants. The impressive success of VTEX Connect in Mexico demonstrates our opportunity to continue expanding in Latam, especially in Mexico. The event featured 60 plus global ecommerce experts and success stories from VTEX customers like Arcor, Dior, Levi’s, Reebok, and Samsung. We also introduced AI-driven improvements focused on customer experience and operational efficiency, such as AI in Live Shopping, which automates product recognition during live streams, eliminating the need for a production team. AI for the Intelligent Search to personalize customer experiences and boost conversion rates, and AI in Pick and Pack, which enhances fulfillment efficiency, adapting to demand fluctuations for precise resource allocation.

On the industry experts recognition front, VTEX was named a Visionary in the 2023 Gartner Magic Quadrant for Digital Commerce for its Ability to Execute and Completeness of Vision. VTEX has also ranked second for the following Use Cases, B2C Digital Commerce, B2C and B2B Digital Commerce on the Same Platform and Complex Business Models. Additionally, VTEX was one of the top-rated digital commerce platforms by Gartner Peer Insights over the last twelve months. We are both humbled and excited about the recognition, underscoring our commitment to helping enterprises achieve agility and cost-effectiveness by choosing the best components for their business. Continuing our commitment to fostering our ecosystem and offering our customers the most comprehensive solutions, we’re thrilled to announce two partnerships that have materialized this quarter.

First, we’re partnering with Cielo, a leading name in payment solutions in Brazil. Their expertise in accrediting establishments for card payments and PIX will expand our payment offerings, ensuring our customers access robust solutions in the Brazilian market. Additionally, we’ve joined forces with PayU, extending our reach across Latin America. This partnership covers Brazil and all LATAM countries, offering a comprehensive payment ecosystem with diverse options, including credit cards and alternative methods like PSE in Colombia. Our mission is to create a seamless payment experience for our customers in the region. These partnerships showcase our dedication to delivering top-tier solutions and enhancing the customer experience. Now, before leaving the stage to Ricardo, I would like to share a couple of success cases from our customers that demonstrate the tangible impact and potential of our platform.

At the core of our organization, our customers are in the spotlight, and their success will always remain our focus. The Foschini Group, a leading South African retailer with a diverse portfolio of 26 brands, successfully transformed its ecommerce landscape by partnering with VTEX. They launched the innovative ‘Bash’ marketplace, consolidating 18 brands into one while retaining the flexibility for each brand to customize its marketplace. Since the platform’s launch, there has been a remarkable 73% increase in multi-brand orders, showcasing the effectiveness of the marketplace and a surge in app sales, accounting for over 35% of total online sales within just two months. Its conversion rate surpassed both mobile web and desktop by over 200% and 80%, respectively.

Furthermore, TFG achieved a remarkable 33% improvement in page load speed, contributing to an enhanced user experience. Sorte Online, a leading Brazilian lottery intermediation platform, chose the VTEX headless solution to meet their unique business needs. This decision aimed to enhance their go-to-market strategy, focusing on flexibility, experimentation, and improved availability. After migrating to VTEX, Sorte Online saw significant conversion rate improvements across multiple channels, thanks to reduced latency and VTEX’s scalability, enabling seamless management of high traffic without downtime. Our U.S. aftermarket vendor partnered with VTEX to enhance their B2B online experience, improve customer interactions, and optimize product tracking.

By seamlessly integrating VTEX with their ERP system, they achieved efficient data exchanges and utilized a unified B2B commerce platform, enhancing both sales operations and buying experiences. VTEX’s data redundancy and an extensive product catalog allow customized dealer experiences without extensive development. This adaptability, combined with VTEX’s platform flexibility, underscores the transformative power of modern digital commerce in delivering seamless and enhanced customer experiences. Naldo, an Argentine retail brand specialized in appliances, electronics, and beauty products with a presence in 14 states and over 70 physical stores, chose the VTEX platform to manage its extensive range of SKUs in its marketplace efficiently. Naldo has implemented payment and promotion features and logistics integrations with third parties, enhancing their ability to seize sales opportunities and improve their customer experience.

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Farma Conde, a major Brazilian pharmacy chain with numerous physical stores, partnered with VTEX to implement omnichannel capabilities. They’ve integrated over 160 of their stores with VTEX, harnessing regionalization, intelligent search, and third-party solutions from the VTEX ecosystem, like Mercado Pago and Google Analytics for enhanced consumer experiences and business performance monitoring. Sergio K., a premium men’s fashion brand in Brazil with 11 physical stores and 200 points of sale, chose VTEX’s composable architecture for their digital commerce platform. They implemented features like the wishlist using VTEX IO to enhance the customer experience. Sergio K. also leverages VTEX Shipping Network for efficient deliveries and integrates with Google Analytics for user-friendly sales data visualization.

These integrated solutions significantly improved performance, resulting in a 7x increase in order conversion rates, a 25% boost in Average Order Value, and a 60% reduction in shipping costs. Our global clothing and accessories retailer operating in 39 countries through 11 online stores and 10 marketplaces, recently adopted an innovative approach. They integrated VTEX’s headless CMS with an app that directly retrieves content and seamlessly integrates into the store framework using native components. This implementation empowers them to customize and oversee webpage content effortlessly. As they can easily define structures and reposition sections, they’ve improved theirperformance by reducing errors and safeguarding against content loss.

Pague Menos, a leading player in pharmaceutical retail, swiftly integrated Extrafarma into their digital ecosystem using VTEX IO Store Framework. In just 29 days, this strategic integration led to remarkable results, a substantial increase in sales, a 200% boost in conversion rates, significant audience growth, and reduced operational costs, enhancing the financial efficiency of the Pague Menos Group while uniting both stores seamlessly. This quarter, we achieved significant success with our Live Shopping solution. Notably, PatBo, in collaboration with VTEX, hosted a Live Shopping event during New York Fashion Week, becoming the sole Brazilian brand to do so. The results were outstanding, with PatBo experiencing a remarkable 300% sales increase, a 125% boost in orders, and a remarkable 79% rise in average order value.

This event underscores the growing prominence and effectiveness of Live Shopping as a dynamic sales channel. Additionally, at VTEX Connect Latam, Live Shopping took center stage hosting seven 40-minute events, from customers such as KitchenAid, which experienced a remarkable 152% sales spike in their event. In Argentina, Style Store did an event at the most relevant night TV show, attracting over 75,000 viewers and achieving a 700% sales boost compared to the previous month. To conclude this section, I would like to express my gratitude to our 1,276 VTEX employees dedicated to making our declared future a reality and to our customers, partners, and investors. I will now hand the call over to Ricardo to discuss our financial performance for the quarter.

Ricardo Camatta Sodre: Thank you, Geraldo. Hi everyone, I am pleased to share VTEX’s Q3 2023 financial results with you. In the nine months of 2023, our performance was consistently strong, surpassing expectations and resulting in positive free cash flow one quarter ahead of schedule. Our Q3 GMV grew by 35% in U.S. Dollars and 28% on an FX-neutral basis, with Q3 revenue reaching $50.6 million, a 31% year-over-year growth in U.S. Dollars and 25% on an FX-neutral basis. Our existing customers remained resilient, and new customers exceeded our expectations with faster-than-expected go-lives. In Q3 2023, our subscription revenue hit $47.5 million, marking a solid 30% year-over-year growth in U.S. Dollars, while services revenue climbed from $2.2 million to $3.1 million, largely due to new project implementations.

n Q3 2023, our subscription gross margin continued to increase. Non-GAAP subscription gross profit rose to $36.2 million from $26.9 million in Q3 2022, a 35% increase year-over-year, with the margin at 76.2% compared to 75.3% last quarter and 73.8% in Q3 2022. The 247 bps year-over-year margin increase reflects our commitment towards efficiency and customer success. The margin increase resulted mainly from optimizing our hosting costs and architecture. We’re excited about this progress and remain dedicated to delivering further margin improvements in the future. Now, our overall non-GAAP gross profit rose to $35.8 million from $26.3 million in Q3 2022, a 36% increase year-over-year, with the margin at 70.7% compared to 68.0% in Q3 2022. This achievement was driven by hosting improvements, that I just mentioned, and an improvement in our service gross margin in the quarter, as we start dialing back on the hyper-care mode for key new customers in the U.S. and Europe.

In Q3 2023, our non-GAAP total operating expenses stood at $34.1 million, remaining steady compared to our previous quarter. Therefore, our expenses as a percentage of our revenues significantly improved from 83% in Q3 2022 and 71% last quarter to 67% in Q3 2023, demonstrating our commitment towards efficient expense management while also accelerating our business under uncertain macro conditions. In Q3 2023, we achieved positive non-GAAP operating income a quarter earlier than expected. Our Q3 2023 non-GAAP operating margin reached a positive 3.4%, compared to a negative 15.5% margin on the same quarter last year. The significant 19 percentage points year-over-year increase was exclusively driven by revenue growth and gross margin improvements, as non-GAAP total operating expenses actually slightly increased year-over-year.

Furthermore, we saw a solid 6.1 percentage points improvement in our non-GAAP operating income margin on a quarter-over-quarter basis. These trends underscore our commitment to profitable growth, subscription cost efficiencies, and stable expenses aligned with market demand and sales efficiency, demonstrating our dedication to strengthening financial performance while sustaining high revenue growth. We are delighted to announce that for the three months ending on September 30, 2023, VTEX achieved a positive free cash flow of $2.7 million. This is a significant improvement from the negative free cash flow of $3.3 million reported in the previous quarter and the corresponding quarter of the previous year. Our positive non-GAAP operating income and improvements in our payables and collections efforts primarily drove this free cash flow result.

Before I move to the outlook for Q3 and fiscal year 2023, I would like to update you on our share repurchase program. As of September 30, 2023, the remaining balance under our current authorization was nearly $10.1 million. We’ve purchased 1.9 million shares at an average price of $5.53 per share. Considering the previous plan that concluded on August 8, 2023, the total repurchased shares amounted to 9.0 million shares, with an average price of $4.16 per share and a total cost of $37.9 million. As we look to the future, we’re thrilled about VTEX’s remarkable adaptability and resilience. Regardless of market conditions and their inherent volatility, VTEX has consistently surpassed market expectations while delivering strong long-term performance metrics.

For the fourth quarter of 2023, we are currently targeting revenue in the $55.0 million to $57.0 million range, implying a year-over-year growth of 22% on an FX-neutral basis in the middle of the range. For the full year 2023, considering the current performance of the company, we are increasing the bottom and the top of the range, now targeting the full year to end between 22% to 23% on an FX-neutral year-over-year basis, implying a range of $196 million to $198 million based on October average FX rate and assuming a devaluation of Argentina’s currency aligned with market futures rates. As we continue executing our profitable growth plans, we anticipate year-over-year improvements in the non-GAAP operating income margin for the 2023. We hold strong confidence in VTEX’s distinctive value proposition, centered on empowering our customers to achieve profitability and sustainable growth by reducing their total cost of ownership and simplifying their commerce infrastructure.

Our commitment to incorporating physical stores as the centerpiece of the omnichannel experience positions us to provide the rapid growth and profitability our customers aspire to. We’ll continue to work towards building outstanding success cases with our customers, offering innovative solutions, and seizing opportunities to ensure long-lasting success for our dedicated employees, valued customers, innovative partners, and long-term investors. The future is filled with exciting prospects that we are eager to pursue. With that, let’s open it up for questions now. Thank you.

Operator: Thank you. [Operator Instructions] Our first question will come from the line of Marcelo Santos with JP Morgan. Please go ahead

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Q&A Session

Marcelo Santos: Good evening. Thanks for the opportunity to make questions. I have two. The first is if you could comment, what were the main countries that posted the positive surprise and led VTEX to beat the original guidance? So I just wanted to see where the surprise came more from? And the second question is more about the service margin. It was negative, but it was one of the, let’s say, lowest negative margin that you ever print, at least that we have history as a reported company, as a listed company. What’s the dynamics in there? Why is it so low now? And is there some change in the way you do the services? So if you could comment on that, I would be glad?

Ricardo Camatta Sodre: Thank you. Hi, Marcelo. Thanks for the question. Great questions. So I’ll take this one, Ricardo here. So on the overperformance versus the guidance in Q3, 2023, our robust performance can be attributed to multiple factors with new customers additions playing a significant role, both coming from new ACV signings and the Go-Live of ACVs that were signed in previous quarters. On the latter, we continue to observe a promising trend in regards to the stabilization of our sale and implementation cycle, which had a positive impact in our results. Also on existing customer base, same-store sales, we continue to see growth in the team’s level, outperforming the market and slightly above our internal expectations for Q3.

And on the country specific, as you ask, we continue to see robust performance across the board. Brazil performed pretty well in Q3. And we also saw the global U.S. and Europe outperforming the overall company. As you know, we provide more detailed numbers on the geographic breakdown on an annual basis. So when we publish Q4 in next quarter, we can give more details on the geographic breakdown. And looking forward, we acknowledge the potential impact of an uncertain macro scenario on the same source sales of existing customers and the sale cycle for new customers. Nevertheless, our competitive position remains strong and we are focused on delivering value and enabling growth for our customers. And with a pipeline of promising projects, implementation and favorable trends in sales cycle stabilization, we are pretty confident in the sustainable growth trajectory that we have.

On the second question on the services cross margin, as mentioned in the prepared remarks, we are gradually evolving the hypercare mode for project implementation for Q [ph] new customers, the U.S. and Europe for more ongoing regular modes. So just to recap, the hypercare mode is how we call our deliberate commercial decision to closely support the implementation of relevant new customers in U.S. and Europe to ensure their successful Go-Lives. And as a result of this strategic move, we were able to create strong relationships with flagship signed customers, ensuring a high quality integration and onboarding experience and advancing our expansion into these new geos with reputational cases. And also with the hypercare, we can more actively guide our customers into the vision of commerce that we believe in.

At that time, we commented that this decision was going to impact our services cross margin in the short-term, but that this was going to position us better in these new regions in the medium to long term. And in Q3, as a demonstration of that, we had the Go-Live of the B2C of Beauty Counter, as you can see in beautycounter.com, and also the B2B of Pierce Manufacturing and Oshkosh Company. And we have a relevant pipeline of Go-Lives to come over the next two quarters as well. And we encourage you to see the improvement in services cross margin after the go-live of these new customers. Now, we still have all the relevant global customers under implementation, and some services cross margin volatility is natural in our business. But looking further out, we expect cross margin to continue improving.

Marcelo Santos: Perfect. Great to hear. Thank you very much.

Operator: Our next question will come from the line of Maddie Schrage with KeyBank Capital Markets. Please go ahead.

Maddie Schrage: Hey, guys, and thanks for taking my question today. I was wondering if you guys could talk a bit about if you’re seeing any price sensitivity when it comes to merchants or even the customer base. And if you comment on what you’re seeing top of funnel? And secondly, I’m wondering if you guys could comment on what you’re seeing in terms of seasonal spend that we’ve seen so far in 4Q between October and November? Thanks.

Mariano Gomide de Faria: Thanks. Hi, Mariano here. On the price, I can tell you that the high interest rate is bringing a tough environment for all the retailers all over the world. And of course, the retailers are now looking for a more efficient solutions. So we see this as an opportunity. VTEX positioning as a complete and composable platform, allowing customers to be very lean and fast when they need it, but also compose and be custom when they want it. So in terms of price, we see a mood bringing the discussion of the TCO of a commerce platform as something that was not in the table, and now it is. But we see this as a huge opportunity for us as well. On the second, I will invite Sodre to answer.

Ricardo Camatta Sodre: Yes. Happy to, Mariano. So, Maddie, regarding the holiday season, and how we are seeing it. So we continue to see uncertainty in the micro environment, which makes it challenging to have clear visibility into the holiday season. Last year, we observed a shift in the seasonality a bit, with sales spreading out all over November, instead of concentrating around the typical Black Friday event or week. And there is currently conflicting information regarding holiday season expectations. So we are approaching predictions for sales cautiously. Consumer appear to be eager to make holiday purchases, but they seem to be seeking significant discounts before committing to buying. And on the retailer side, it remains uncertain to which extent they can afford to sacrifice margins to offer substantial discounts and boost sales.

So as a result, we are closely monitoring both the end consumer and our customers’ activity to assist the latter in performing well during the holiday season. And most importantly, we’re taking steps to ensure our customers can entirely rely on our platform during this critical time of the year.

Maddie Schrage: Super helpful. Thanks, guys, and congrats on the quarter.

Operator: [Operator Instructions] And your next question will come from the line of Leonardo Olmos with UBS. Please go ahead.

Leonardo Olmos: Hello. Sorry about that. Can you hear me?

Ricardo Camatta Sodre: Yes, we can hear you.

Operator: Yes, we can hear you. Go ahead.

Geraldo Thomaz: Yes, we can hear you.

Ricardo Camatta Sodre: So, I was on the webcast, so I was a bit late. So can you discuss a little bit the product approach? So if you can talk a little bit about B2B in Brazil, how has that been evolving in all the product launches that you have in the Q3? How is that being accepted by the market in Brazil? Thank you.

Geraldo Thomaz: Well, thank you, Leonardo. So first of all, B2B seems, it’s appearing as a very appealing offer at VTEX. It’s not restrained, constrained to Brazil. You just saw the announcement that we announced a PicPay B2B as a go-live. But Brazil is accelerating the sales of B2B a lot. But not only Brazil, Latin America, U.S, we are selling B2B scenarios everywhere. And the beauty of a platform, if you saw — the Gartner reports, the critical capability reports, we are the number two platform in B2C and B2B in the same platform. This creates a big advantage for our customers because they can deal with one single control panel for both channels. And this also creates a big advantage for us as a product, because we don’t redo a lot of the core things that we need to have in both scenarios.

So B2B for us is some specialization that we develop in some modules at VTEX so that it works nicely with B2B. B2B also is very customizable. So we have like a customer called Pierce Manufacturing in the U.S. launching a B2B operation with us. And this case is, you will know, you can see that we have the inventory of all the sales that Pierce Manufacturing did in the past for the parts of each truck that they sold and all it’s customized in our platform. So B2B is actually a specialization of our e-commerce platform and we are investing a significant amount of energy, specializing even more on modules with features just like buying organizations, capacity to customize through master data. There’s several things that we are doing to be more competitive, but we’re very competitive already.

Leonardo Olmos: Thank you. And another question. Can you discuss a little bit the marketing in Argentina? We’ve been talking so much about Politico, but can you talk about the retail market and how are seeing things for year end? Thank you

Ricardo Camatta Sodre: Thank you. Hello, Ricardo here. Happy to take on Argentina. So, on the overall retail market, I think there was some news in the local newspapers in Brazil talking about how consumers are purchasing, accelerating their purchases in Argentina. So we see some of that happening. But more broadly regarding the country, we are closely monitoring the situation in Argentina and the uncertainties surrounding this year’s election. Argentina represents roughly 10% of all revenue. And while we have successfully navigated changing Politico and economic conditions in Argentina over the years, we are aware of the challenges and complexities that come with operating in this market. And as mentioned in the earnings release for our Q4 guidance, we are assuming that the Argentine peso will devalue in line with the FX market futures losing roughly half of its value in December.

So considering that we have part of our revenue in Argentina, U.S. dollars, this level of FX devaluation would result in a revenue impact of high single digit, roughly million dollars in 2024. And only half of that would flow through to operating income. Therefore, it’s a one-off and pretty small impact on our overall business. And having said that, we are confident that despite this potential headwind, VTEX should continue to improve its operating margin and maintain an attractive FX neutral growth rate. As we are very well-positioned in the country, we have a strong competitive position in Argentina. And the underlying growth of the country over the years could be attractive for us.

Leonardo Olmos: Yes, sounds great. Thank you very much. And sorry for my background noise. Have a good evening, everyone. Bye-bye.

Geraldo Thomaz: Thanks a lot.

Operator: Your next question will come from the line of Franco Granda with DA Davidson. Please go ahead.

Franco Granda: Hi. Good afternoon. Thank you for taking the questions. And congrats on the solid quarter here. Now, I was hoping you could share some statistics with us to highlight or maybe to better characterize the performance of some of the recent product introductions, namely the ones that you talked about back in June at VTEX’s day? Thanks.

Geraldo Thomaz: Happy to do that. Mariano can compliment me if necessary. So we are very excited with developing capabilities to empower the workforce of our customers. Live Shopping is one of them. The personal shopper is another one, the sales app. All these capabilities, the functionality of delivering from store also gives more roles to the sales person inside the physical stores. These are things that we’re very excited with and it’s very aligned with the broad range of customers that we serve. There’s a lot of our customers that can benefit from delivering from store, from integrating the stores, the sales people, the sales person into the digital experience. This is also very powerful for B2B scenarios as well, when you have sales people serving and helping the sales of the manufacturer that is doing the B2B business.

So this is something that we’re very excited. We, on this topic, there’s also the pick and pack capability that it’s a tool that enables streamlining of the process of delivering from store. There’s no similar tool in the market for to streamline such a process. We are developing some capabilities on top of AI. There’s the natural path for this, which is search, our recommendations. These are all AI aid features that we’re developing even more, but we’re not doing only that. All these new tools that I just mentioned to you, they have also AI capabilities embedded on that, because we’re very excited with these capabilities. VTEX is also very committed in delivering security capabilities to our customers. Privacy, compliance, these are also something that we’re very excited to deliver to our customers so that they can rely on a robust platform that is elastic and secure, so we can process the data and keep the data as safely as possible.

Franco Granda: Great. Now, thanks for the detailed answer there. I was hoping to also get an update in regard to some of the new customers that you talked about during your analyst day. You did give us a few on those, but any updates on Casino and what they’re doing there, how their expansion is going, and whether they’re planning to expand across entire company in France? Thanks.

Ricardo Camatta Sodre: Yes, happy to get this as well. In our Investor Day, we disclaim Hearst and Casino. The implementation with Hearst is advancing well and as scheduled, so we expect to provide a further update soon. As you know, we disclaim our clients when they go live. That’s the line that we chose to communicate our company. Casino is undergoing a big change. It’s a change in control, a huge reorg, so it’s a situation that adds meaningful challenges, and we keep you updated if there is any relevant developments on that. Now, it’s worth mentioning that implementation timelines can be lengthy, which is why we decided to review new customer names only up on their successful go live. I know that sometimes you become anxious, but we believe that’s how we’re going to generate more value for the long term of the company. So we want to reinforce that the go live spaces will be our standard practice in un-communicating new clients, just to manage expectations.

Franco Granda: Thank you so much for the questions. Yes, of course. Thank you, and a very brief follow-up on that. Maybe if you could speak to the sales cycles, the timing of those quarter-over-quarter, and then year-over-year, if possible. Thanks again.

Ricardo Camatta Sodre: Hi Franco, Ricardo here. Yes, happy to. So as we mentioned this quarter, we also mentioned last quarter, we are seeing an encouraging stabilization of the sales cycles. They are not back to their historical average, but we are not seeing them worsening, and they have shown a slightly improvement quarter over quarter. Now, on a year-over-year basis, I would say it’s more stable as we saw sales cycle deteriorating along last year. So we’re starting like in April until towards the end of the year, it was when we saw most of the movement. So it’s encouraging to see this stabilization, to slight improvement in the sales cycle. And when we say sales cycle, we are thinking about not only the time it takes to negotiate the contract and sign the contract with the customer, but also the time it takes to implement the software and the customer to go live, and then the initial ramp up of a new customer. So we’re thinking about this whole cycle.

Franco Granda: Appreciate the call. Thanks.

Operator: And there are no further questions at this time. With that, I’ll turn the call back over to Geraldo for any closing remarks.

Geraldo Thomaz: VTEX is entering an exciting phase, reaping the initial rewards of our global expansion investments. We’ve shown consistent execution and financial results, reaching great keeping and generating cash a quarter ahead of schedule. Our solid quarter, marked by sustainable gross margin improvements and expense discipline, demonstrates the success of our business model, even in uncertain macro conditions. We serve a multitude of models and customer’s touch points from B2C, B2B, B2C to physical stores and marketplaces, including live shopping and conversational commerce, among others. VTEX is becoming the platform of choice for forward thinking leaders. And this is just the beginning. Thanks to our customers, partners, investors, and our dedicated team who make it all possible. We look forward to keep you updated at our next turning call. Have a wonderful week.

Operator: That will conclude today’s meeting. You may now disconnect.