Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Vtex (VTEX, Financial) reported a 19% year-over-year growth in GMV and a 22% increase in revenues, both in FX-neutral terms.
- The company achieved a significant 34% year-over-year growth in gross profit, driven by ongoing subscription and service cost optimization.
- Vtex (VTEX) has expanded its global footprint with successful go-lives of new customer projects in multiple countries, including Australia, Brazil, Chile, Colombia, Mexico, Portugal, and the US.
- The company has been recognized as a leader in the IDC MarketScape for headless digital commerce applications for mid-market growth in 2024.
- Vtex (VTEX) achieved ISO 27001 certification, enhancing its commitment to information security and providing peace of mind to its customers.
Negative Points
- The macroeconomic situation in Argentina remains challenging, posing a couple of percentage points headwind to Vtex (VTEX)'s consolidated growth.
- Despite strong performance, the company faces uncertain macroeconomic conditions, which could impact future growth.
- The company has seen a stabilization in sales cycle length, but corporate budgets remain tight due to high interest rates.
- Vtex (VTEX) has not yet fully reached its target model for subscription gross margin, currently at 78% versus the target of 80%.
- The company is navigating a volatile scenario in Argentina, with no clear trends indicating stabilization or recovery.
Q & A Highlights
Q: Could you discuss the main elements that led to the revision of the growth and profitability guidance?
A: As highlighted in our prepared remarks, we saw strong performance from our existing customers and a robust momentum in new contract signatures from new customers, which exceeded our expectations in Q2 and prompted us to increase our FX-neutral full year revenue guidance. Additionally, our profitable growth strategy has enabled us to also raise our non-GAAP operating income and free cash flow margin targets from high single digits last quarter to a range of high single digits to low 10s.
Q: You are getting pretty close to your target model, especially on the gross margin. What's next?
A: We have made relevant improvements in our overall gross margin, reaching 74% versus the target model of 75%. On the subscription gross margin, we reached 78% versus the 80% target. We issued a target model in our Investor Day last year, and we mentioned it was a mid-term target of three to five years. We have been positively surprised by our progress and will continue to work towards this target model. Once we are closer or have more visibility on potential next steps, we will inform the market.
Q: Could you give us an update about the macro environment in Argentina?
A: Predicting the situation in Argentina is always challenging. Consumption until April was more challenging than anticipated and was getting worse month over month. The second quarter posed an additional challenge given the hot sales event, which is similar to Black Friday for Argentina. The event was better than expected, and our customers overperformed the overall market. However, we are still navigating an uncertain and volatile scenario in the country. We expect some recovery in the second half versus Q2, but Argentina should continue to be a couple of percentage points headwind in our consolidated FX-neutral year-over-year revenue growth performance.
Q: How do you think about the impact of AI on the SaaS business, especially in developed markets like the US?
A: AI will change a lot of the foundations for commerce in the world. We believe that profitability should be the first target, and AI should be the instrument of this delivery. AI can significantly impact customer service and sales tools. VTEX plans to leverage models provided by infrastructure companies like OpenAI and Meta to deliver the best applications to our customers. We are not deploying a huge amount of capital in AI but are moving R&D to deliver AI products and add-ons.
Q: Given that you have a lower TCO versus competitors, do you see that as an opportunity in the current market environment?
A: Yes, when there is a disruption in the market, the value chain changes. This can be an opportunity for us in less mature markets to show value. The low TCO, especially if interest rates remain high, can make an extra difference for the choice of our future customers.
Q: Could you provide an update on sales cycle length and corporate budgets?
A: We have seen a stabilization of our sales cycle. In 2022, sales cycles lengthened due to high inflation and increasing interest rates. Throughout 2023, we saw stabilization and some improvement. In 2024, the sales cycle has been stable. Corporate budgets are more mindful due to high interest rates, but our value proposition of having a lower TCO solution has been positive for us.
Q: What are you expecting in terms of consumer spend baked into guidance?
A: We are assuming similar KPIs for Q3 and onwards as we saw in Q2. Our existing customers are growing their GMV in the 10s level, which is above the overall e-commerce market. We are not embedding a recovery or a recession in consumer spending in our guidance.
Q: Are you expecting a low point in consumer spend levels in Argentina specifically?
A: Consumption was getting worse month over month until April. Since then, we saw some recovery with the hot sales event, but the country is still volatile. We don't see a clear trend in Argentina at this moment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
