Vtex - Ordinary Shares - Class A Aktie

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.

I have 2 from my side here. The first one, if you could give us some more color on the revenue deceleration. If you could break it down, how much of that is due to the clients you already have, they are selling less? And how much is due to churn or lower level of new customers, how you would break that down and how you think that would expand in the future? And also, when we look at the other revenues that you mentioned were up 20% year-over-year. How much for the growth drivers, right? How much of that -- how much does that represent of overall revenues? And when you look at the core business, excluding those growth drivers, do you think that this segment can reaccelerate in the short to midterm? Do you have any outlook on that?

Happy to start here. So starting from the second question, the growth drivers. So as we mentioned in the prepared remarks, the growth drivers represent roughly 18% of the subscription revenue and grew 20%. So if we look at the nongrowth drivers part of the business, knowing that the overall business grew 1.3% have all the numbers to do the math for that portion of the business. We mentioned was a modest decline, which is roughly 2% decline.

On the revenue deceleration, I think it may be helpful for us to go over how we think about the guidance because that goes into these dynamics. So if we look at the -- for the third quarter, we are guiding subscription revenue growth to approximately flat on an FX-neutral basis. And based on July's average FX rates, that will translate into higher reported U.S. dollar subscription revenue growth, adding approximately 7 percentage points to Q3 FX-neutral growth.

So looking into the revenue, 2 underlying dynamics impacting the existing customer base. The first dynamic is the customer mix. So FX-neutral GMV growth was broadly stable sequentially, but the mix shifted. The smaller and midsized customers were more affected by the weaker consumption environment in Brazil, while larger customers held up better. So larger accounts, they carry a lower take rate, but similar gross margin, lower churn and higher lifetime value. So moving upmarket is deliberate and aligned with our long-term strategy.

Now the pace of this shift in Q2 was faster than expected, and we are carrying that mix into the second half. The second dynamic is the consumption environment. Although Q2 same-store sales were broadly in line with our expectations, performance in Brazil weakened in June and July.

So same-store sales are our closest operating indicator of macro consumption, and that led us to lower our GMV assumptions for the existing customers in Q3 and Q4. So together, these 2 factors led us to guide Q3 revenue growth to approximately flat and revised our full year FX-neutral subscription revenue guidance to low single-digit growth. So those were the moving pieces impacting the guidance.

And Lucca, to your question, they come from the existing customer base. On the new customer base, obviously, there are changes up and down every quarter, but nothing substantial that would make us review the way that we are seeing the business. Now having said that, 2 points that are important to separate from these headwinds. The first one is on the competitive side, as Mariano mentioned, our competitive position remains healthy. The win rates are stable. Churn remains within the historical range and the enterprise pipeline remains active.

So the headwinds remain primarily macroeconomic and mix related rather than competitive. The second one is the growth drivers that we just talked about. They continue to outperform the consolidated business. They grew 20% on an FX-neutral basis, and now they represent 18% of the subscription revenue. If we move down the P&L, Q2 profitability was strong and supported by structural efficiency gains that we achieved, particularly through the AI-powered automation and continued operating discipline that I mentioned through to Marcelo.

And the non-GAAP operating income grew 62%. Free cash flow grew 79% in Q2. So these are strong indicators that for the third quarter made us target non-GAAP operating income and free cash flow margins in the low 20s, up from the high teens to low 20s level that we had before. So let me pause here and see if there's any follow-ups or if this covers the question, Lucca.

So, maybe you should also double-click on the qualitative matters of the -- of our acceleration drivers. And we are talking about the global expansion, and it continues to gain traction as we focus on our ideal customer profile, and we prioritize geographies with the largest enterprise opportunities. We continue to make progress in markets such as U.S., Germany and Balkans. This quarter, we announced that Acron Aviation in the U.S. and Gigatron in Serbia as new customers and the expansion of our relationship with OBI from Germany. B2B is also a very good growth driver for us, remain one of our strongest differentiator. Demand continues to be healthy, particularly for our omnichannel approach, especially in North America and Europe.

For instance, like this quarter, we announced that Panasonic in Brazil and Grupo Nazan in Mexico. They -- both of them started B2B operations with us. Ads continues to scale well, and we expand both the product and the network. We've seen strong adoption from existing customers and remain excited about the long-term opportunity in retail media.

For example, this quarter, we announced that Olímpica and Ripple, they are expanding their relationship with the VTEX joining our Ads Platform. This is a very good case of upselling and cross-selling and that pollinize each product, selling more. And finally, not less important is CX platform. This has been one of the most encouraging developments this year. Customer adoption has been encouraging and sales and implementation times have come down significantly. This quarter, we announced Angeloni and FastShop are expanding their relationship with VTEX by implementing our CX platform.

We -- I mentioned this as well in our remarks, but we are -- this is also a very good case for us of inside sales or product-led sales. We're having a lot of tryouts. We have a lot of conversion from that with very low cost of acquisition for these customers.

The next question comes from the line of Gustavo Farias with UBS.

So my questions are the first one on B2B. If you could give us more color on the new go-to-market strategy and your expectations for B2B in LatAm? And my second question, double-click on the softness you're seeing in small and medium clients. Just wondering, given the challenging interest rate environment, in Brazil, do you see any higher-than-usual level of clients going bankrupt or going to any kind of financial distress?

Okay. Let's start by your second question. We are not seeing yet the Chapter 11 or RJ, right, kind of desperate new movements. But for sure, it is a very tough moment for retailers and brand manufacturers in Brazil. It can happen. We are helping our customers to decrease their level of expenses to be really efficient to tight their belts because the bumpy times will remain in Brazil in macro. So there is a possibility that this scenario can get worse, okay? So on a B2B, answering your first question, we are encouraged by the momentum we are seeing globally. We built a comprehensive B2B commerce platform, particularly for complex and omnichannel workflows. Buyers can transact seamlessly through a self-service portal, WhatsApp, sales rep, applications, on charge and any other channel, all of these in the same commerce platform. That brings efficiency for brand manufacturers.

B2B continues to represent a meaningful share of our enterprise pipeline, particularly in the United States and Europe. And we are beginning to see growing interest in broader Latin America, including Brazil. For instance, this quarter, we have announced Panasonic in Brazil and Grupo Nazan in Mexico started B2B operations with us.

From a product perspective, we are now focused on the next evolution, AI-powered sales capabilities. The objective is to give field sales reps and managers real-time visibility and AI-assisted intelligence, knowing which customers are active, which has laps, which logging without converting and where the highest probability opportunity are each day. it's agents managing humans. Combined with our CX platform and our existing self-service capabilities, the goal is a unified AI native stack covering the entire B2B commercial workflow from the first buy interaction in any channel through a complete order and post-purchase CX experience.

We are not putting a specific launch date, but it is a near-term product priority, not a multiyear road map. We believe this combination of commerce, CX and AI-powered sales force on a single data layer on a unified commerce suite can become a meaningful competitive differentiator over time, and we are focusing our execution in that direction.

[Operator Instructions] There are no further questions at this time. I will now turn the call back to Geraldo for closing remarks.

Before we conclude, I want to leave you with one thought. The AI Workspace, the CX platform, the Ads Platform, B2B and global expansion are not independent that's -- they are expressions of a single thesis that the enterprise commerce platform of the future will be AI native, outcome-based and capable of operating across every channel, geography and business model our customers need.

We remain clear-eyed about the near term. The macro environment in Brazil has not resolved, and we're not projecting a quick snapback, but our growth drivers continue to outperform and our financial disciplines allow us to continue investing. We have demonstrated the discipline. Our next task is to translate this product and commercial progress into sustained growth. To our employees, customers, partners and investors, thank you for your continued trust. We believe the best of what we're building is still ahead, and we look forward to updating you next quarter.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone, and welcome to the VTEX Earnings Conference Call for the quarter ended March 31, 2026. I'm Julia Vater Fernandez, VP of Investor Relations for VTEX. Our senior executives presenting today are Geraldo Thomaz Jr., Founder and co-CEO; and Ricardo Camatas-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 prospects for the company, industry trends, and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations, and projections about future events. While we believe that our assumptions, expectations, and projections are reasonable in view of the current available information, you're cautioned not to place undue reliance on these forward-looking statements. Certain risks and uncertainties are described on the Risk Factors and Forward-Looking Statement sections of VTEX Form 20-F and other VTEX filings within the U.S. Securities and Exchange Commission, which are available on our Investor Relation website.

Finally, I would like to remind you that during the course of this conference call, we might discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our first quarter 2026 earnings press release available on our Investor Relation website.

With that, Geraldo, the floor is all yours.

Thank you, Julia, and good afternoon, everyone. Thank you for joining us. Last quarter, we outlined a clear strategic framework centered on 4 key growth factors: global expansion, B2B, retail media and AI. In the first quarter, we continue to execute against this strategy. Today, we'll update you on several recent product launches that directly reinforce our positioning across these opportunities.

From a financial perspective, our top line results were in line with our guidance, while our profitability and cash generation both doubled year-over-year and exceeded our guidance. This reinforces the resilience of our model and our disciplined execution in a dynamic macro environment. While we acknowledge that recent growth has been below our long-term ambitions, we remain committed to executing with discipline and driving long-term value creation.

Starting with our vision and product launches. We're seeing our industry entering a new phase where artificial intelligence transitions from a conceptual layer into a structural driver of growth, efficiency and competitive advantage. We see this as an attractive opportunity for VTEX. In the last technological revolution, the cloud, we have architected our platform to fully embrace it from inception with a multi-tenant approach, avoiding the technical debt that constrained many legacy systems. Now our highly scalable foundation position us to capitalize on the AI technological shift, enabling us to rapidly deploy innovation and operate at scale as we navigate this new era.

At the heart of this transformation is our reinvented VTEX commerce platform. We are moving beyond the traditional Software-as-a-Service model to deliver the first AI-native common suite, one that delivers simplicity; ease of use; and most importantly, tangible and measurable business outcomes for our customers. This is AI with real impact. The command center for this new paradigm is the VTEX AI workspace. This is where our agents for catalog, promotions and search and collaborate. They are engineered to do more than just flag problems. They autonomously diagnose root causes, architect strategic action plans and execute them with minimal human oversight.

For example, our catalog agent doesn't just manage data. It hunts for revenue opportunities. It systematically analyzes an entire product assortment by leveraging real-time shopper navigation data to understand precisely where and how the catalog should change to increase conversion. It sees where customers drop off, what search terms lead to dead end and how they interact with product attributes.

Armored with these insights, the agent autonomously optimizes the catalog. It goes beyond simple data entry, performing tailored content improvements across millions of SKUs by enriching descriptions, standardizing attributes and ensuring every item perfectly aligned with our brand merchandise guidelines. This allows our customers to maintain a high-quality, high-converting catalog at a scale and speed previously unimaginable, turning a traditionally labor-intensive process into a strategic advantage. This is just one of many intelligent experiences that are now possible.

By laying this foundational groundwork, we're paving the way not only to expand our own suite of agents, but to eventually enable a marketplace where customers and partners can deploy third-party agents, creating a truly open and extensible commerce agentic ecosystem. And this intelligence extends far beyond the back office. It transforms the entire customer journey.

For shoppers, our new storefront with AI personal shopper combined conversational interactions, semantic search and hyper-personalization to guide discovery and dramatically increase conversion rates.

For our B2B customers, we're streamlining complex sales cycle with B2B commerce and AI order quotes, enabling sales teams to generate complete accurate quotes instantly from a simple file upload or even a voice command. More broadly, our B2B and global expansion strategy are being significantly enhanced as the inherent complexity of managing multi-country, multicurrency operations is precisely the challenge our AI Workspace is designed to address at scale.

To capture demand wherever it emerge, our integrations with Google Universal Commerce Protocol enables shoppers to discover products and check out directly within Gemini and Google AI mode with a native card sync back to our platform. And to empower our entire ecosystem, we introduced the VTEX AI Developer Toolkit, embedding AI assistance directly into developer workflow across tools like Cursor, Copilot and others, while connecting them to VTEX knowledge base to accelerate development and drive innovation.

We're delivering a platform where AI enhances efficiency for operators, drives conversion for shoppers, accelerate sales for B2B teams and empowers developers to build faster. This is a complete end-to-end vision for AI-native commerce. But today, VTEX is much more than its commerce platform. We have evolved into a multiproduct company. Beyond our core commerce platform, we now offer 2 additional strategic solutions, our CX platform and our ads platform, both enhanced with AI, where we have also introduced significant recent advancements.

In our CX platform, we are expanding beyond the traditional storefront to capture demand whenever it originates. The VTEX CX platform redefines customer experience through coordinated AI agents that operate seamlessly across the entire journey, making commerce more fluid and conversational. This includes a truly multichannel approach where AI guides discovery and transactions across websites, WhatsApp and other messaging interfaces.

We have introduced a fully integrated WhatsApp store, enabling consumers to complete their entire purchase journey without leaving the conversation as well as voice commerce for real-time interactions. Importantly, this capability extends into the post-purchase phase where autonomous post-sales agents manage order status, exchanges and returns with over 91% automation, allowing human teams to focus on more complex, high-value engagements.

In our ads platform, we're significantly enhancing the power of our platform by embedding AI across audience orchestration and campaign execution. This enables our customers to transform their digital environment into high-margin media assets and unlock new revenue streams. With our AI campaign management capabilities, retailers and their brands and partners can move beyond manual workflows, simply defining an objective such as improving return on ad spend, while AI agents autonomously build and optimize multichannel campaigns to deliver results. This is further strengthened by AI-driven insights, offering real-time visibility into performance, attribution and market share, all within a privacy-first framework supported by our secure Data Clean Room.

Ultimately, we are helping customers convert the traffic into a scalable and strategic growth lever. While we have just launched these updates, we are already seeing some early but encouraging results. For instance, Whirlpool have leveraged our AI capability to identify underperforming products, diagnose content gaps and automatically generate optimized assets, compressing what once took days of manual work into minutes while improved conversion. At Decathlon, our promotions agents enable real-time competitive responses through automated campaign recommendations.

Across these use cases, the partner is clear AI is poised to redefine how customers drive sales, accelerate execution and capture new levels of operational efficiency. These outcomes are particularly relevant in the context of enterprise commerce, where operations are complex, mission-critical and increasingly global. Customers are not simply selecting a software vendor, they're selecting a strategic backbone that can scale, adapt and evolve with the next generation of commerce.

We acknowledge that it's early days and our excitement around these innovations is not yet reflected in our current growth rates. To be fully transparent, we're still evaluating the long-term transformational impact of these tools at scale. However, our commitment is to remain data-driven and grounded in reality, and we look forward to updating you on broader adoptions in the coming quarters.

We have embedded AI at the core of VTEX, transforming the company into the first AI-native commerce suite. We believe VTEX is uniquely positioned to serve this goal. Our multi-tenant Software-as-a-Service architecture, outcome-aligned business model and deep transactional data foundation allow us to deploy innovation at scale and align directly with our customer success.

With that, let me welcome some new customers who went live this first quarter of 2026, including Cetrogar in Argentina, Armazem Paraiba and Lunelli in Brazil, VPCL in Canada, Home Sentry in Colombia and HOMYCASA in Portugal. We also expanded our relationship with our existing customers such as Whirlpool that launched Compra Direta Parceiros in Brazil, its official B2B channel for distributors, resellers and authorized service centers.

Electrolux that launched a B2B channel in Chile, Grupo Ikesaki that launched EBC Atacado de Beleza in Brazil, its official B2B channel for beauty professionals and resellers. Multilaserthat launched the official OPPO store in Brazil, expanding the smartphone brand presence in the country and Lindt that expanded to Chile, adding to its operation in Brazil.

Now before I hand the call over to Ricardo, I would like to express my sincere gratitude to our 1,147 VTEX employees, our customers, partners and investors for their continued trust and support. Together, we're building the future of commerce. Ricardo, over to you.

Thank you, Geraldo. Hi, everyone. I'm pleased to share with you VTEX's financial results. In Q1 2026, GMV reached $5.1 billion, up 17% in U.S. dollars and 7% FX-neutral. Subscription revenue was $60.0 million versus $52.6 million in Q1 2025, an increase of 14% in U.S. dollars and 4% FX-neutral. The moderation in GMV growth relative to last quarter was primarily driven by Brazil, where the high interest rate environment and persistent promotional marketplace behavior continue to pressure consumer demand in proprietary channels.

In Q1, our non-GAAP subscription gross margin reached 81.5%, representing an expansion of 240 basis points year-over-year. This improvement is mainly driven by structural gains in AI-powered automation in customer support and to a smaller extent, a positive FX tailwind.

Our total gross margin, including services, reached 80.0%, an expansion of 400 basis points year-over-year. This continued improvement reflects not only steady gains in subscription gross margin, but also our deliberate deemphasis of services as our global partner ecosystem increasingly leads complex implementations with reduced reliance on VTEX live services. Our expense management continues to reflect our discipline and alignment with long-term growth priorities.

Total non-GAAP operating expenses in the first quarter were $38 million, up 6% year-over-year. While sales and marketing and G&A remained relatively stable, we deliberately increased investment in R&D, focusing on innovation, product development and AI capabilities that reinforce our competitive positioning. In other words, even as we expand margins, we are simultaneously strengthening the foundation for sustainable, profitable growth.

As a result, our non-GAAP income from operations reached $10.6 million, doubling from $5.3 million in Q1 2025. This also represented a non-GAAP operating margin of 17.4%, a 7.7 percentage year-over-year. In short, our operational discipline continues to translate into stronger margins and a more profitable growth trajectory while we focus on revenue reacceleration.

Non-GAAP net income was $8.1 million in Q1 2026, up 51% year-over-year. This earnings step-up reflects strong underlying operational performance driven by operating leverage and efficiency gains, reinforcing the sustainability of our model. This was partially offset by unrealized mark-to-market losses on our U.S. dollar-denominated investment-grade cash position held in Cayman, following a significant repricing of the yield curve toward the end of the quarter, which has already recovered in April. This continued profitability gains keep showing up in our cash generation, which remained strong once again this quarter. Free cash flow for the quarter was $13.3 million, doubling year-over-year and reaching a free cash flow margin of 21.9%.

We also maintained a disciplined approach to share repurchases. During the first quarter, under the $50 million 12-month share repurchase program for Class A shares approved in February of 2026, we repurchased 2.5 million Class A common shares at an average price of $3.86 per share for a total cost of $9.7 million. As we look ahead, our focus remains on disciplined execution as we work towards growth reacceleration, focused on our 4 growth levers: global expansion, B2B, ads and AI.

While macro headwinds persist, particularly in Brazil, where high interest rates and promotional marketplace behavior continue to weigh on GMV growth, we remain encouraged by the quality of new customer additions, our competitive positioning among global enterprise customers and the compelling market opportunity across our 4 key long-term growth initiatives. Importantly, while this affects our near-term growth outlook, it does not change our conviction in the structural opportunity across our 4 growth levers nor our ability to continue improving profitability.

With that, for Q2 2026, we expect subscription revenue to grow at a low- to mid-single-digit percentage rate on an FX-neutral year-over-year basis, gross profit to grow at a mid-single-digit percentage rate on an FX-neutral year-over-year basis. Non-GAAP income from operations to be in the high-teens to low-20s percentage margin and free cash flow to be in the high-teens to low-20s percentage margin.

For the full year 2026, we now expect subscription revenue to grow at a mid-single-digit percentage rate on an FX-neutral year-over-year basis and gross profit to grow at a high single-digit FX-neutral rate, while maintaining our outlook for non-GAAP income from operations in the low 20s percentage margin and free cash flow also in the low 20s percentage margin.

Assuming FX rates remain broadly consistent with April's average rates, the FX-neutral growth guidance outlined above would translate into higher reported U.S. dollar subscription revenue growth, adding approximately 10.3 percentage points in the second quarter and 8.6 percentage points to the full year 2026. We continue executing with discipline, investing behind our 4 growth levers to drive durable growth and shareholder value while improving profitability and maintaining a strong balance sheet.

With that, let's open up for questions now. Thank you.

[Operator Instructions] Our first question comes from the line of Lucca Brendim with Bank of America.

So I have 2 from my side here. The first one, if you could comment a little bit on what were the main drivers for the reduction in the guidance for top line growth and gross profit growth for the year, if that was mainly driven by macro and competition or if there was something else? Also, if you could comment if this guidance is already incorporating something from the new AI products that you guys have been rolling out or if those are still not incorporated into the guidance?

And then a second one, if you could give us an update on how you're seeing the expansion in the United States and Europe and also the clients that were still in the process to go live if everything is proceeding according to expectations or if there was any changes to that?

Lucca, Ricardo here. Let me start with the guidance. So when we look at our guidance for the second quarter and for the full year, we are aligning our short-term outlook with what we are seeing in the business today, while remaining confident in the long-term opportunity.

So for Q2, we are guiding subscription revenue growth in the low- to mid-single-digit range on an FX-neutral basis. And this essentially reflects a continuation of the trends we've seen recently, particularly in Brazil, where macro conditions remain challenging and continued marketplace promotional intensity is temporarily pressuring proprietary channels.

For the full year 2026, we now expect mid-single-digit subscription revenue growth on an FX-neutral basis. The vast majority of this guidance adjustment reflects lower growth outlook for Brazil GMV as FX-neutral GMV growth in Brazil decelerated from mid-teens level in Q4 to mid-single-digit range in Q1, driven by a meaningful moderation in same-store sales. Looking beyond Q2, growth is expected to come primarily from the ramp-up of customers we signed in 2025, combined with continued execution across our 4 strategic growth levers: global expansion, B2B, ads and AI.

On the profitability side, we continue to feel confident. We are targeting non-GAAP operating margin and free cash flow margin in the low-20s for the full year, supported by structural efficiency gains across the organization. And more importantly, while the current market conditions affect our near-term growth outlook, it does not change our conviction in the structural opportunity across the 4 growth levers and our ability to continue improving profitability. So the message here is realism in the near term, combined with continued discipline on the long term and conviction in the long term.

On the AI revenue predictions, I would say that most of our AI, as we say a lot, our AI strategy is about transforming the way we serve our customers, the way we see the product, the way we give value to the customer. through the new technology. The VTEX AI Workspace specifically is like the first product that we are offering to our customers. The idea is to transform VTEX from the ground up informed by the AI revolution.

We're seeing like people interested, a small group of early adopters like Whirlpool, Amo Beleza, Decathlon and Casa & Video, they are actively using the product. And this is one interface, one subproduct that we're offering the customers. And the focus is very deliberate, like we need to find and show value creation and satisfaction for a small number of early adopters, then we will expand.

And I'll tell you, there might be opportunities to monetize these products, there is different opportunities to monetize, new opportunities to monetize, but our expectations is that the biggest value that we'll see after the transformation of the company informed by AI is the acceleration of the sales pipeline because people will see that this a new way of operating in e-commerce with VTEX.

Mariano here. And regarding the question on the U.S., we are seeing a good momentum in the U.S. and Europe. We continue to close relevant enterprise brands. And just as importantly, we are building a strong and healthy pipeline in both regions. So the demand environment from a strategic standpoint remains encouraging, although with a longer sales cycle compared to the past. The demand is solid for AI-native commerce suite that delivers efficiency. So we are seeing a solid demand.

Global Markets, which is basically U.S. and Europe grew in 20-handle in Q, so although representing a smaller portion of our revenue base, our global markets expansion is contributing disproportionately to our overall growth, and we expect that contribution to increase over time as it scales. As always, we'll share more details as customer names as they go live. But overall, we're encouraged by what we are seeing.

Our next question will come from the line of Livea Mizobata with JPMorgan.

I would like to make 2 questions. So the first one, I would like to explore a little bit the B2B segment. So could you share a little bit more details about how your B2B strategy is advancing? And the reason why I am asking is because we heard strong feedback from industry players regarding this market during your VTEX Day in Brazil. So it would be interesting to hear how your commercial pipeline is evolving, when we should see some traction in revenues coming from this segment? And also, if you could explore if the new logo of Whirlpool in Brazil in the B2B and Electrolux in Chile should help unlock value in this segment.

Okay. So on B2B, we continue to see solid traction, particularly in the U.S. and Europe. where roughly half of our pipeline is already coming from B2B solutions opportunities. In Brazil and broader LatAm, as expected, adoption has been slower. A big part of our effort there has been educating the market of the value of digitalizing B2B channels and changing very old legacy interfaces for the B2B channels. Encouragingly, we are now starting to see increase in demand in Brazil and growing interesting across LatAm region.

On the product side, we've been focused on strengthening the offering of our B2B solutions and making it more robust and supporting multiple B2B sales channels as self-service portal, call centers, sales teams automation, among others. Our goal is to be the transactional backbone for our customers in all B2B and B2C channels.

As a data point, B2B grew roughly in the 20-handle in Q1. So although representing a smaller portion of our revenue base, our B2B solution is contributing disproportionately again to our overall growth, and we expect that contribution to increase over time as it scales. So overall, we're still early, but we are seeing the right signals, both in terms of pipeline and market awareness. And as we remain very focused on the execution and encouraged by the trajectory so far.

May I make just one follow-up. Another feedback that we heard from the industry is that the sales cycle of B2B should take longer than the B2C ones. Can you share more details on this front? The differences between the sales cycle and the closing process with the clients and your outlook for the segment, when we should see this appearing more prominently in your revenue growth?

Overall, the sales cycle is getting longer in the last years. We can -- we -- enterprise customers are still taking more time to make decisions. It's not particularly to B2B, but also to B2C, largely driven by the macro conditions. And as what we've described as the AI, wait-and-see, it is really happening. So when companies make long-term infrastructure decisions, they want clarity on how AI will reshape their stack. So naturally, the decision-making process are taking longer.

What we can also say is that AI is affecting the implementation cycle. So getting shorter the process of implementing the software. So although the sales cycle is getting longer, and we expect that it's not getting better soon because AI is still in a big hype. So we will need a little bit more time to understand where the wait-and-see ends, the implementation dimension, it is really generating good signals for us. But importantly, we are not seeing the deterioration in our win rates or churn, and that fundamentals remains intact.

Our next question will come from the line of Maria Clara Infantozzi with Itau.

I would like first to ask you guys to please explain a little bit more of how you intend to monetize your new AI launches going forward? Does it make sense for us to think about increasing take rates with AI products gaining penetration within your total sales?

And the second question, can you please give us an update about how you feel about the competitive environment, both in Brazil and in Argentina?

So about the AI monetization part, I guess it's too early to give, like, a very detailed information about that because there's so much discovery happening in the market. Everybody says that the path is to charge by outcome and this is what AI informs actually. On the case of VTEX, we charge by outcome since always -- like, since 2012. And we bought the -- Weni, company that is now called VTEX CX platform. And they also charge very -- like, per outcome per like deferred service that we don't require humans to in the loop.

So I guess this is the way to go, like the use of AI will increase the output of our software. And because of that, we will charge more. Also, I expect that as we transform the product into AI-informed product, AI-based software, people will not wait-and-see anymore. They will go back to like modernizing their infrastructure, modernizing the software for e-commerce, and we will be there to serve them, and I expect sales to grow to a normal level again.

And about the -- so about the competition, we look at competition across 2 dimensions. One is the consumer behavior dimension. So what we are seeing is increasing fragmentation on traffic beyond traditional channels like Google and Instagram and marketplaces.

We now have messaging platforms like WhatsApp, LLMs and emerging AI interfaces playing a more relevant role. And I can tell that, that's going to be a slow, slow and suddenly move and those new channels might take a significant portion of the traffic. Although it's a tough macro high interest rate environment, our brands and retailers are being challenged to find efficiency and become more conservative in growth, not financing consumers the way they used to do before.

On the commerce platform, technology provider dimension -- so our direct competitors, we haven't seen a meaningful change in competitive intensity. We've taken a different approach with AI, very, very [Technical Difficulty]

Sorry, Mariano's line got disconnected. He's reconnecting. So I'll continue here. On the commerce technology provider dimension, as Mariano mentioned, we haven't -- we have not seen meaningful change in the competitive intensity. We've taken a different approach on AI. We are focusing on rebuilding the platform to be AI-native rather than layering incremental features on top of legacy systems as we are seeing some players doing in the market that allow us to deliver better usability and more importantly, real outcomes to our customers. And we feel our strategic positioning has strengthened with this. And we are geographic-agnostic comprehensive commerce suite.

We are efficiency, based on our Brazilian engineers, as we mentioned a lot on the VTEX Day, and it's a founder-led culture that are giving us the reputation to be this AI commerce race. I believe Mariano may have reconnected. I'm not sure Mariano, if you want to add anything to the answer.

No, sorry by dropping the call. So VTEX, we took a different approach. I was mentioning. We rebuilt the infrastructure as an AI-native. So we didn't build AI on top of what we have just for a sales momentum. So that's like the overall vision. We don't see a significant move in competition layer.

[Operator Instructions] Our next question will come from the line of Gustavo Farias with UBS.

I have one question actually about the road map of your AI investments. If you could give us an update. We've seen some margin expansion. And of course, intentionally raised R&D as a percentage of revenues. And of course, R&D is an ongoing investment, never-ending investment. But my question is, should we expect this increase to be transitory or to persist in the medium term? Any detail would be very helpful.

Thank you for the question. So we recently introduced our VTEX Vision in 2026, where we lay out how we're approaching AI and turning to real measurable commerce impact. At the core of that vision is the unified suite of AI-powered platform orchestrating key commerce workflows across commerce, customer experience and ads, as you might have seen in VTEX Day. This AI-native commerce suite is now available for selected customers. And I'll walk through what the platform includes.

So first, we have the VTEX Commerce Platform, which is powered by the AI Workspace which is the new front-end back office for our system and is evolving to an AI-native operating system. It allows our customers to move from manually executing tasks to orchestrating outcomes with AI agents, handling workflows like search optimization, catalog management, pricing and data insights.

Second, we have the VTEX CX platform with this Agentic CX. This extends into the customer journey. We're using AI agents to drive discovery, improve conversion through conversational commerce, and we automate after sale as well. Essentially, we are deploying agents that are actively hunting for revenue on behalf of our customers. In some cases, we are already seeing some 91% automation level in customer interactions, for example, which naturally translate directly in both higher efficiency and better conversion for our customers.

And third, we have the VTEX ads platform, which brings AI into retail media, enabling retailers to monetize their traffic and giving brands more effective data-driven campaign execution. From a road map perspective, we continue to expand this ecosystem with new agents and capabilities across all 3 platforms from search and content optimization to B2B assisted sales to more advanced campaign management in ads.

So I would like to say that the key focus right now is twofold, like keep innovating at high speed and at the same time, drive adoption of what we've already launched so that it translates into tangible results for our customers. So overall, we have an AI-native suite already launched in the market. It's already delivering early results, and we believe it positions us very well for the next phase of growth.

You also asked about the R&D investment. As you can see, like there's a lot of things that we are changing in our product, and you're not seeing a meaningful increase in our R&D expenditures. This is also related to AI adoption of our team and our R&D team and the entire VTEX team, we are transforming internally as well on how to leverage AI to be 10x more efficient than -- we're working very hard on that. And I believe that you're going to see a lot of more throughput in our product results and efficiency in the company.

You saw this already in the way we support our customers. There's a lot of transformation in the way we sell to our customers, the way we develop our product. And this is like the manifestation of the revolution internally for us will be increase of throughput, or bundling, better products, delivering higher-level jobs and also providing what was before a service and now will be served by software like the retail media network and agents that can build a campaign for you on behalf of the customer. So there's a lot that we're working on. There's a lot to do. Early days for AI.

This concludes our question-and-answer session. And I will now turn the call back over to Geraldo for any closing comments.

As we step back, what we're building at VTEX is increasingly clear. We are redefining how commerce operates. The convergency of our cloud-native foundations with AI is enabling us to move from systems that support decisions to systems that execute them.

We're still in the early stages of this transformation, but the direction is clear. AI is already delivering measurable impact across our customers, driving higher conversion, faster execution and greater efficiency. And as adoption expands, we believe that this can become a fundamental driver of long-term value creation for both our customers and our shareholders.

At the same time, our evolution into a multiproduct platform, commerce, CX and ads positioned us to capture a broader share of the commerce value chain while reinforcing our role as strategic partner to global enterprise customers. Looking ahead, our priorities remain consistent, disciplined execution, continued innovation and scaling this capability across our base. We are confident in our ability to translate this strategy into sustainable growth, margin expansion and durable competitive advantage. Thank you all for your time and continued support. You might now disconnect.

Hello, everyone, and welcome to the VTEX Earnings Conference Call for the quarter ended December 31, 2025.

I'm Julia Vater Fernandez, VP of Investor Relations for VTEX. Our senior executives presenting today are Geraldo 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 relating 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 current available information, you are cautioned not to place undue reliance on these forward-looking statements.

Certain risks and uncertainties are described under Risk Factors and Forward-Looking Statements sections of VTEX's Form 20-F for the year ended December 31, 2025, and other VTEX 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 might discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our fourth quarter 2025 earnings press release available on our Investor Relations website.

With that, I hand the call over to Geraldo. Geraldo, the floor is yours.

Thank you, Julia, and good afternoon, everyone. Thank you for joining us today. Today's call is primarily about giving shareholder transparency into how we're positioning VTEX to strengthen growth over time.

Let me start by acknowledging that our recent growth has been below our long-term ambition. We believe that this is largely cyclical, not structural, driven primarily by 3 external factors: a more challenging macro environment in Brazil and Argentina; and a more promotional marketplace environment in Brazil; and longer decision cycles as enterprises reassess its priorities in a rapidly evolving AI landscape.

More broadly, we recognize the market debate around AI and what it means for software. Although the combination of rapid AI innovation with limited tangible commerce applications so far may elongate sales cycle, the consistent view from our conversations with enterprise CIOs is that AI will change how software is built and operated, but it won't eliminate the need for deeply integrated enterprise-grade platforms that run mission-critical processes.

And while AI lowers the cost of writing code, it raises the bar for security, complex integrations and reliability, precisely the attributes enterprises rely on VTEX to provide and consistent with broadly stable dollar churn we delivered in 2025.

As value shifts from seat-based to outcome-based, VTEX is certainly aligned with this shift. We are not just building AI features. We're building the mission-critical backbone for connected commerce that global brands can rely on to deploy AI safely and effectively.

We could dive deeper into each of 3 external factors mentioned. But as we cannot control the environment, let's focus on what we can control, our execution and product road map. Starting on that, we see a clear opportunity to improve growth with a plan anchored in 4 levers: global expansion, B2B, retail media, and AI. While we execute this growth plan, our enterprise focus remains front and center.

In 2025, customers generating over $250,000 in ARR reached 158 with revenue from this cohort up 13% year-over-year. And to illustrate the relevance of our plan, in Q4, our 4 growth levers represented roughly 15% of subscription revenue, delivering approximately 20% FX-neutral growth and contributing to nearly half of subscription revenue growth.

The addressable market for these levers is materially larger than our core Latin American opportunity, and we believe we are well-positioned competitively. So our focus now is disciplined execution. With that, let me bring our 4 growth levers to life.

First, global expansion. We're winning and scaling in markets where complexity is highest. In 2025, global markets delivered 22% subscription revenue growth. For instance, in Europe, our partnership with Manchester City reached its first milestone with the stadium tour store, offering personalized fan experiences and a single high-performance flow.

Second, B2B. We're modernizing large enterprises by delivering complex capability that are AI-ready and composable by design, such as contract pricing, curated catalogs, punch out and omnichannel fulfillment. Mondelez launched B2B in Brazil on VTEX, extending a multi-region footprint. While we're still early in the mix, B2B demand in the U.S. and Europe signals a durable shift, one we are now driving to digitalize across Latin America as well.

Third, retail media. 2025 was a turning point. We moved from pilots to a core growth engine with clear margin-accretive outcomes. With VTEX ads, customers run on-site, off-site and in-store campaigns and measure them end-to-end through closed-loop attribution anchored in first-party data.

The retail media market evolution plays directly to our integrated model. Enterprise retailers monetize traffic they already own, brands gain performance media tied to transactions and both parties see results in a single source of truth.

For example, Essity achieved a 39% increase in average conversion rate on average enrollers of above 17x and consistent month-over-month acceleration in sales driven by retail media performance, demonstrating the power of data-driven campaigns to elevate brand performance in digital retail environments.

Finally, AI. Our work here spans 2 dimensions. First, our product. We're redesigning VTEX with an AI-first approach. For example, leading Brazilian retailers like Americanas and C&A are using Weni by VTEX to automate high-volume support journeys with deep enterprise integrations such as orders, invoice and CRM, reducing manual ticketing, speeding resolution and improving customer satisfaction.

Beyond Weni by VTEX, we see AI reshaping how commerce is built, operated and optimized. We're embedding intelligence across the platform while simultaneously rethinking how we build commerce and run the company. Our multi-tenant architecture and role as a mission-critical commerce data aggregator give us advantages that point solutions, and legacy platforms can't easily replicate.

Second, our own operations. AI is already showing up results. Automation and support has expanded gross margins by approximately 3 percentage points. And in December, we implemented a reorganization in sales and marketing that impacted almost 100 headcounts.

This move simplified management layers and centralized our global team for greater agility and efficiency. As we embrace an AI-first operating model, we are aligning our organizations to operate with increased speed, consistency and technical depth.

In summary, we chose structural transformation over incremental steps. Despite a challenging environment, disciplined execution and already identified productivity gains support continued improvement in profitability and enable increased R&D investments that drive our AI transformation and deepen our value with top-tier customers.

We're evolving VTEX from a platform that powers commerce to a multiproduct company, AI-first platform that increasingly automates and orchestrated. We will keep executing behind this plan, expanding with existing customers as they scale on VTEX and adding more enterprises to the mix. So, these 4 growth levers translate into sustained compounding growth.

With that and moving to the fourth quarter of 2025, we added new enterprise customers, including Atacado Vila Nova, Lofty Style, Luz da Lua and TCL in Brazil, Mercacentro in Colombia, Pharmacy's and Cruz Azul in Ecuador, Llantas Avante and T-fal in Mexico. We also saw expansion activity within our existing customer base, such as EssilorLuxottica, launched 2 new brands in Brazil, eOtica and E-Lens, adding to its existing portfolio of stores.

Impresistem launched their B2B website in Colombia, adding to its B2C operation running on VTEX. Mondelez launched a B2B operation in Brazil, expanding its VTEX footprint ranging from Latin America to Europe. OBI, who expanded to Italy, adding to its operation in Germany and Austria. And Whirlpool launched KitchenAid in Canada, building on its successful store launch in the U.S., while continuing our global relationship in over 20 countries.

Even in a softer macro environment, customers continue to choose VTEX to support strategic initiatives involving new channels, new geographies and more complex operating models.

Now before I hand over the call to Ricardo, I would like to express my sincere gratitude to our 1,139 VTEX employees whose dedication and adaptability were critical. I also would like to thank you, customers, partners and investors for their trust and support.

Ricardo, over to you.

Thank you, Geraldo, and hello, everyone. I will now walk you through our financial performance for the fourth quarter and the full year of 2025.

Before going into the details, I'd like to frame the year in context. As mentioned by Geraldo, while the external environment pressured our customers' GMV growth and lengthened enterprise decision cycles, 2025 demonstrated the resilience of our business model and the strengthen of our unit economics.

As evidenced, we continue to drive efficiency gains and deliver record profitability even in a slower growth environment. In the fourth quarter of 2025, our GMV reached $6.3 billion, representing a year-over-year growth of 17.2% in U.S. dollars and 10.0% in FX-neutral.

For the full year, GMV reached $20.5 billion, up 12.1% in U.S. dollars and 12.9% in FX-neutral. Subscription revenue reached $66.7 million in the fourth quarter, representing a growth of 12.2% year-over-year in U.S. dollars and 5.4% in FX-neutral. For the full year, subscription revenue reached $234.9 million, growing 7.9% in U.S. dollars and 9.5% in FX-neutral.

Turning to revenue retention. In 2025, subscription revenue from existing stores reached $194 million, and our net revenue retention was 99.5% in FX-neutral. Annual dollar churn remained broadly stable year-over-year. However, given that roughly 60% of our revenue come from a take rate on our customers' GMV, the decline in net revenue retention compared to 2024 was primarily driven by lower same-store sales growth of 6.8% in FX-neutral in 2025. This lower same-store sales growth reflected continued softness in Argentina and more muted consumer spending in Brazil, which weakened over the course of the year.

A key highlight for the year was the continued improvement in the profitability of our existing stores. Existing stores gross margin increased from 80% in 2024 to 82% in 2025, while operating margin reached 44%, representing a 1 percentage point increase year-over-year. This marks the second consecutive year in which this P&L exceeded the Rule of 40, reinforcing our confidence in sustaining a Rule of 40 performance as the business scales.

Moving on to subscription revenue addition. In 2025, new stores added $25 million to our base, representing approximately 13% of our 2024 VTEX platform revenue. As discussed in prior quarters, elongated sales cycles throughout the year impacted revenue added from new stores and will carry over some impact in 2026.

On the new stores P&L, our focus remains on maintaining a healthy return on the capital allocated to sales and marketing. On that front, LTV over CAC reached approximately 4x in 2025. The year-over-year decline in this metric was primarily driven by longer sales cycles and timing rather than changes in win rates or the underlying attractiveness of the cohort.

In fact, our continued enterprise focus drove our number of customers generating over $250,000 in ARR to reach 158 customers in 2025. While this represents only 1.9% increase in customer count, it resulted in 14.5% FX-neutral revenue increase from this cohort.

Looking forward, as mentioned by Geraldo, we adjusted our sales and marketing investments, and we are reallocating capital towards R&D investments to enhance key product offerings such as B2B, retail media and AI-powered aftersales support.

From a geographic perspective, Brazil subscription revenue grew 12.2% in FX-neutral, supported by the go-live and ramp-up of new stores despite softer same-store sales. Latin America, excluding Brazil, grew 2.1% in FX-neutral. And excluding Argentina, the region grew just slightly below Brazil's pace.

Subscription revenue from global markets, formerly reported as Rest of the World grew 19.2% in FX-neutral, demonstrating continued compounding even as the base expands. Additionally, global markets represented 11.1% of our total revenue. Its contribution margin, defined as gross profit minus directly allocated sales and marketing expenses, improved significantly and approached breakeven.

Moving down the P&L. We maintained strong cost and expense discipline while continuing to prioritize investments aimed at supporting revenue reacceleration. All figures I will now reference are non-GAAP unless otherwise stated. You can find all GAAP to non-GAAP reconciliations on our Investor Relations website.

Subscription gross profit reached $54.6 million in the fourth quarter, resulting in 81.8% subscription gross margin, up from 78.8% in the same period of the prior year. Total gross margin increased to 79.6% compared to 75.0% in the fourth quarter of 2024, driven largely by AI-powered customer support automation and to a smaller extent, a higher mix of subscription revenue. Operating expenses totaled $38 million in the fourth quarter, resulting in income from operations of $16.2 million and an operating margin of 23.8%, up from 19.9% in the same period of last year.

During the quarter, we executed a reorganization in the sales and marketing to simplify layers, centralized global teams to better leverage AI as well as align investments with the expected demand. These actions resulted in approximately $2 million severance expense above normalized level. Excluding that one-off impact, operating margin would have been just under 27%.

Free cash flow reached $11.1 million in the quarter, representing a 16.3% margin. Adjusted for one-off severance payments above normalized levels, free cash flow margin would have been just over 19%. Considering this level of cash generation and our current cash position as a percentage of our market cap, we are announcing a new $50 million 12-month share repurchase program for Class A shares.

Looking ahead into 2026, as Geraldo highlighted at the beginning of the call, we remain focused on our 4 growth levers, global expansion, B2B, retail media and AI. We are executing with discipline. The productivity we have unlocked across cost of revenue, sales and marketing and G&A are expanding profitability while funding higher R&D to accelerate our AI transformation and deepen our value with top-tier customers.

While macro headwinds persist, we remain encouraged by the quality of new customer additions, our competitive position among global enterprise customers and the compelling market opportunity across our 4 key long-term growth initiatives.

With that, and recognizing that Q1 seasonality is our lowest GMV quarter and faces the toughest year-over-year comparison for Q1 2026, we expect subscription revenue to grow at mid-single-digit percentage rate on an FX-neutral year-over-year basis. Gross profit to grow at a high single-digit percentage rate on an FX-neutral year-over-year basis. Non-GAAP income from operations to be in the mid-teens' percentage margin and free cash flow to be in the high teens percentage margin.

For the full year 2026, we are targeting subscription revenue to grow at mid- to high single-digit percentage rate on an FX-neutral year-over-year basis, gross profit to grow at a high single-digit to low teens percentage rate on an FX-neutral year-over-year basis. Non-GAAP income from operations to be in the low 20s percentage margin and free cash flow to be in the low 20s percentage margin.

Assuming FX rates remain broadly consistent with January 2026 averages, the FX-neutral growth guidance outlined above would translate into higher reported USD subscription revenue growth, adding approximately 8.4 percentage points in the first quarter and 4.5 percentage points in the full year 2026.

Before we open to Q&A, I would like to reiterate, we are executing with discipline, investing behind our 4 growth levers to drive durable growth and shareholder value and expanding profitability while maintaining a strong balance sheet.

With that, let's open it up for questions now. Thank you.

[Operator Instructions] Our first question comes from the line of [indiscernible] with JPMorgan.

I would like to explore a little bit the point of the sales cycle. So what I would like to understand is mainly if you see a turning point on this elongated sales cycle, I mean, from your conversations with CTOs and the industry players, what is the feedback that you are having regarding this point? And is there any market intelligence that you could share with us to help us understand when this could normalize? And what do you think is necessary to happen in the market to change the scenario? Is there something that you see as a turning point?

And the second point that I would like to explore is the gross margin gains in the fourth quarter. Is it all coming from AI? Is there other elements that are helping you to bring this margin level up?

Mariano will take the first question, and I can take the second one. Mariano?

Yes, I can take. So, make no mistake, what we were seeing is not a deterioration in competitiveness, but a clear elongation of sales cycle. 2024 was a record year for bookings. In 2025, we signed fewer new contracts. That's a fact. And RFP processes are taking longer to close. So, enterprise customers are simply taking more time to make platform decisions due to macro scenarios and uncertainty of AI future.

The primary driver is what we call the AI wait-and-see effect. There is an enormous amount of discussions around how AI will reshape software. When companies are making a 5 to 10 years infrastructure decision with high switching costs, they want clarity. So, decisions are being delayed, sales cycles are being elongated.

Importantly to mention is that our win rates remain stable. Our churns remain in the mid-single digits and is stable. And this is, in my opinion, a market-wide excitation, not a VTEX-specific issue. In response, we streamlined our sales and marketing organization to operate more efficient, leveraging all the new AI paradigm and capabilities. The productivity gains are being redirected into R&D, accelerating our AI road map and positioning VTEX an AI-first native platform for commerce enterprise companies. So yes, momentum is slower, and cycles are longer, but fundamentals remain strong.

Sodre?

Thanks, Mariano. On the second question on gross margin. As we mentioned in the prepared remarks, we gained roughly 3 percentage points in subscription gross margin this quarter, from 78.8% to 81.8%. And this is basically all AI-driven.

So, just to recap over the past 3 years, we gained a lot of subscription gross margin. Over the first 2 years in this 3-year period was mostly driven by hosting optimizations and gains. Over the last 1 year, so during 2025, it was driven on the support function of our existing customers. And by automating the support using AI tools, we have managed to gain 3 percentage points in margin, and this is sustainable going forward as well.

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

I have 2 on my side here. The first one, if you could comment a little bit on what you think are the main risks and also the main opportunities of AI that you see for the company, both in the short term, but also in the long term? And how do you think both sides will pan out in the long run?

And also, second, if you could comment a little bit on capital allocation. You guys announced the new buyback program, which is very robust. So, how can we think about what VTEX plans to do with the cash generation that will be coming in the next years?

So, thank you very much, Lucca, for the question. I am Geraldo, I'll answer that. So, first of all, like AI is not a feature that we create. It's a structural shift comparable to the move to the cloud that we did a decade ago and make us viable as a company. Our role in this transition is very clear to be the mission-critical orchestration layer of AI-driven commerce.

AI is lowering the cost of writing code. Everybody is talking about it, but it's raising the bar for security integration and reliability. Global enterprise, they don't buy lines of code. They buy future-driven domain knowledge packaged around security and reliability. They need a backbone that propels them for the future with resilience and security.

As commerce fragments across AI agents, bots, and new interfaces, the front end becomes increasingly commoditized. But every transaction still needs a centralized system of records to validate inventory, manage price, and trigger fulfillment. That orchestration layer, the single source of true is where VTEX operates.

We have a cloud-native multi-tenant architecture that give us access to billions of real-world commerce data points across a lot of verticals. That deterministic data is a strategic asset for training proprietary models, something similar that are on legacy platform that they cannot replicate. In our own operations, Sodre and Mariano talked about this already, we're seeing a lot of tangible impact.

So, I would say, Lucca, that the risk is that for us and for any other software company is that we don't embrace and adopt the revolution, the technological revolution. But if we do a software company that goes to this technological shift, they will be stronger, not weaker. And we are working very hard to get there with the strength that we already got from a lot of years from now, which is the credibility, the security, the customer base, the proprietary data, I think there's a lot of room for us to use and leverage the AI revolution.

And on the capital allocation, Lucca, so our capital allocation is guided by a simple principle. We prioritize long-term value creation while maintaining the flexibility to navigate a dynamic macro environment. So, we are operating from a position of significant financial strength.

As our year-end 2025, we held roughly $200 million in cash. So, this robust position, combined with our consistent free cash flow generation allow us to announce a new $50 million 12-month share repurchase program that you just mentioned.

So, we view buybacks as a disciplined tool to optimize our capital structure and importantly, to mitigate dilution from our share-based compensation program. While organic growth remains our primary focus, and we talked a lot in the prepared remarks about how we plan to reaccelerate the organic growth, and we are investing more in R&D to boost our AI transformation and strengthen our main key growth pillars.

We are also strategically active in the M&A market. More recently, our approach has been about acquiring capabilities that accelerates our product road map to enhance the platform differentiation. So, you've seen this recently with the Weni acquisition, which strengthened our Agentic CX product and Newtail, which accelerated our retail media capabilities. So, our capital allocation remains anchored in discipline ROI and long-term view for the shareholders.

And your next question comes from the line of Rafael Oliveira with UBS.

I got 2 questions here on my side. So first, I want to start here by asking what are the main drivers that could drive revenue growth back to double digits in the next few years? If you could disclose any regional breakdown on the current macro backdrop would be very helpful.

And the second question would be, how is the B2B pipeline evolving, both in terms of size and quality? And again, any color on the global expansion of B2B will be very helpful.

Good. I'll get that. So to address the path forward, like we know, as I said in the first remarks, we're not satisfied and we think that we have a lot of more bandwidth to deal with more complex problems to reaccelerate the comp to initiate other -- to start other initiatives that will make the company accelerate and go back to the growth we were used to.

So, first of all, we need to distinguish between what is cyclical and what is structural. While our Q4 of 2025 subscription revenue growth of 5.4% FX-neutral reflect a cyclical slowdown, mostly driven by macro softness in Brazil and Argentina and also an unusually promotional marketplace environment our structural foundations have never been stronger in my opinion.

We have deliberately evolved VTEX into a multiproduct company, AI-driven commerce platform, and we are now seeing double-digit growth momentum across 4 levers that will power our next phase. And I'll try to give some picture on these 4 levers.

So, first of all is the global expansion. Our markets in the U.S. and Europe delivered 22% subscription revenue growth in 2025. These operations are now approaching breakeven contribution margins and are becoming largely self-funded.

Second is B2B commerce. This is a natural extension of our platform that effectively doubles our addressable market in our opinion, roughly half of our new deals in the U.S. and EMEA are now B2B related as enterprise migrate from outdated 20 years old legacy system to a modern architecture.

The third one is retail media. We moved from a pilot to a core engine this year by enabling retailers to monetize their digital traffic, capturing ad revenue that represents 3% to 8% of GMV for marketplaces. We're creating a high-margin accretive revenue streams for our customers and for VTEX.

The fourth one is the AI-first approach. AI is already delivering measurable outcomes such as the 3 percentage point expansion on the gross margin that we talked about, but we'll also reinvest these productivity gains back into R&D to lead the transition to our AI workspace and vision products that can be transformational to our customers.

For the full year of 2026, as comps ease throughout the year, we anticipate a trajectory of gradual acceleration with the expectation that we will exit the year at a faster pace than we entered. While we recognize there are external factors that we do not control such as the interest rate cycles, the consumption cadence, the broader market volatility, we believe we have the right tools to help our customers reaccelerate their same-store sales and reinvigorate our own sales funnel.

So, we're staying the course, executing with discipline and positioning the tax as the backbone for the next era of connected commerce. All of that while delivering record profitability, as you noticed.

Okay. About the B2B, can you -- if I'm not answering correctly, but can you please repeat the B2B question, if I misunderstand. But just an overall perspective on B2B. VTEX is a company that has 3 products and multiple solutions. The products are commerce platform, Retail Media platform and Agentic CX platform. And we do support with those 3 products, multiple solutions, omnichannel B2C, B2B commerce, advertising, retail media for advertisers, retail media for publishers.

About B2B, we are seeing that B2B is getting traction. Something that we call an acceleration phase, each in deploys and pipeline generation. Our commerce platform product delivers multiple solutions, specialist in B2B, showing great momentum. So, in fact, something that we can share is roughly half of our deals in the U.S. and EMEA are now B2B related. So that effectively doubles our addressable market within the enterprise tier. If I don't -- if I didn't answer what you wanted about B2B, please let me know.

No, it was super clear. I was just asking about how the B2B pipeline is evolving, but thanks for the color. If I may do just a follow-up here on the AI team. How are you guys seeing the development of these new AI tools from the large tech or LLM providers? Are you guys seeing some competitive pressure? And if you guys could comment about agentic e-commerce and how this should be maybe beneficial for the B2C platforms?

I think every one of us are very impressed with the velocity of this evolution and eventually are getting to conclusions that are maybe faster than we should have. I don't -- I see that this AI company, they are very powerful. They are doing a lot of nice work, a lot of aggregated value, but they're also enabling companies like us to deliver even better software, just like the cloud revolution, they are enabling us to build much better software.

And if we embrace that technology, if we embrace the APIs that they provide to us, I believe that companies like us can provide to the retailers and brands, and manufacturers a better solution than they could do it alone. Why? Because these are high-risk workflows. These are problems that are difficult to articulate. These are problems that require more than building software. This requires credibility, as I said, security, compliance, and trust. And I believe we're better positioned as a domain application to provide the solution to our customers than the generic ones.

This was always true. We always believed that in every revolution, when open-source code arrived, we believed that when everybody thought open-source code would dominate the world, and we are here selling software, selling subscriptions. When the cloud revolution came, everybody thought that people would internalize their software because now it's so easy to deploy a server and software industry, and VTEX is much bigger because of the cloud revolution, not despite that. And now I believe that the AI revolution will give us even more strength to deliver even more value to our customers.

And just adding up on Geraldo's comments here. If the question on LLMs were about the kind of monopoly on traffic control that can generate the way we see the world of traffic, we used to be controlled by Meta, Google, and a few marketplaces. And now with new entrants like Chinese brands becomes a huge traffic controller, OpenAI, with the LLM like cracking the code of becoming a huge aggregator. Actually, we are seeing more fragmentation in the traffic industry.

So, when the traffic layers fragment, the backbone for a multichannel operation increases value. WhatsApp in LatAm, for example, is a huge traffic originator. So, the world is evolving in creating more channels and not more consolidation of channels. We see it as a foundation for strengthening the positioning of anyone in the backbone for the commerce market as we are.

We talk about that in our founder's letter on this annual earnings report. I think it's worth it to take a look at our perspective on how this revolution affects us and the market in general.

And our final question comes from the line of Maddie Schrage with KeyBanc Capital Markets.

Obviously, you guys called out some macro headwinds, but also we're emphasizing global expansion as a key growth lever. So, how are you thinking about the pace and prioritization of geographic investments?

And then, in particular, as you guys move faster internationally, what do you think is the biggest factor in terms of gaining traction? Was it brand awareness, maybe partnerships, or product localization? Is there something we should call out?

Perfect. I can give some color, and Geraldo can give as well. We cannot avoid to understand that a company that will leverage the most of the AI revolution is the company that can group competencies under org charts.

So recently, precisely in December, we changed a lot of our regional approaches by having the same competencies of people below different managers in many regions in the world, countries, and regions. We understood that we need to bring them more in specialization, like a functional-oriented org chart. So we announced a big reorg on the growth structure, where now a majority of the sales and marketing organizations are oriented by functions. And with that, we can leverage most of the AI agentic revolution. The agents are unified by knowledge.

What we are seeing, VTEX has reached the level of a brand by being recognized on Gartner for 2 consecutive years as the customer choice in the Gartner voice. The brand of VTEX was able to produce clients in all the regions. And now with the globally oriented by function org chart, we can deliver through our ecosystem services and solutions among any kind of regional definition.

We believe the company that will crack the code on really using AI in favor of operational gains will be the one with a global readiness by joining human plus agentic labor. And so, the regional approach lost importance for us. This doesn't mean that the regional localization, is less. It's quite the opposite. We reduced our solution architect layer of FTEs, increasing the trust we do have in our ecosystem. That's a sign of the maturity of our ecosystem in the world.

We are delivering global projects in Abu Dhabi, in Asia, in EMEA, in Africa, in North America, in LatAm. And now we are doing this through the ecosystem. That is a transition coming from the last 5 years. So, we are not seeing any more the go-to-market of VTEX heavily or kind of exclusively based on regions. Now we are defining our scope to the world that is 3 products commerce platform, a Retail Media platform, and Agentic CX platform with multiple solutions. The 2 the biggest solutions are B2B commerce and omnichannel B2C.

Super helpful. And if I could just ask 1 follow-up. In your conversations with CIOs and digital leaders, how often are you guys talking about discoverability in the age of agentic commerce and conversion?

The AI, agentic, is a kind of top-notch topic in any RFP today, right? What VTEX is really focused is to deliver the value aggregation of the disruption in technology. Talking about the technology itself doesn't aggregate outcomes to our customers. But with the Agentic CX platform of VTEX, we have already deployed clients that have saved 80% in the customer service costs. This is AI for us.

AI is a median to deliver the outcome that our clients need. And our clients all over the world, they trust us to future-proof them in terms of AI. So, the AI bet of VTEX is pretty big. It's all across all our products and solutions. But the one that I would say, that is delivering the most results, it is our solution of agentic customer service based on our product of Agentic CX platform.

There are no further questions at this time. I will now turn the call back over to Geraldo Thomaz for closing remarks. Geraldo?

Before we conclude, I want to step back once more and reflect on where VTEX stands today. 2025 tested the market, our customers, and our industry, but it also reaffirmed the strength of our foundation. We navigated a challenging environment to deliver record profitability while deepening our relevance with enterprise customers.

Crucially, we did this while increasing our investment in R&D to accelerate our AI transformation. As we look ahead, our focus is on execution. As discussed, we remain focused on our 4 growth levers, global expansion, B2B, retail media, and AI. We believe VTEX is structurally aligned with where enterprise commerce is going, and that alignment positioned us to improve growth over time as these initiatives scale.

Finally, I want to thank our employees, customers, partners, and investors for their continued trust. VTEX has been built over decades by navigating moments of transition, just like [Technical Difficulty]. Our history shows that our willingness to adapt early and invest with discipline creates durable value over time. We entered the next chapter with clarity, resiliency, and confidence in our ability to deliver long-term growth and profitability.

Thank you for joining us today, and we look forward to updating you in our progress in the quarters ahead.

That concludes today's call. You may now disconnect.

Hello, everyone, and welcome to VTEX's Earnings Conference Call for the Third Quarter of 2025. I'm Julia Vater Fernandez, VP of Investor Relations. Joining me are Geraldo Thomaz Jr., Founder and Co-CEO; Ricardo Camatta Sodre, CFO; and for the Q&A, our Founder and Co-CEO, Mariano Gomide de Faria; and Chief Strategy Officer, Andre Spolidoro, will also join us.

Before we begin, please note that today's remarks may include forward-looking statements. Actual results may differ due to risks and uncertainties described in our Form 20-F for the year ended December 31, 2024, and other SEC filings available on our IR website. We will also reference certain non-GAAP measures. Reconciliations to GAAP are included in our Q3 2025 earnings press release in our IR website.

With that, I will turn the call over to Geraldo. Geraldo, the floor is all yours.

Thank you, Julia. Good afternoon, and thanks for joining our third quarter 2025 earnings conference call. This quarter played out in line with the expectations we shared after Q2. Our business continues to show the hallmarks of a durable profit growth model, consistent execution, expanding margin and the gradual ramp-up of high potential revenue streams.

Focusing on our consistent execution and expanding margins, profitability improved meaningfully this quarter. AI-powered support automations continue to deliver sustainable efficiency gains, driving our non-GAAP subscription gross margins above 80% for the first time. We also achieved a 16% non-GAAP operating margin. And in a seasonally neutral quarter, our non-GAAP net income reached $10.6 million, a 41% growth year-over-year.

Our margin expansion reflects a deeper AI-driven transformation in how we operate. The most tangible outcome so far is in customer support, where automation has structurally reduced costs while enhancing service quality. The vast majority of the recent [ rep count ] optimization stems from these AI productivity gains in support, while the remainder reflects normal commercial adjustments to market demand levels. At the same time, we're partially reinvesting these savings into R&D, fueling innovation and future growth.

Now expanding on our gradual ramp-up of high potential revenue streams, we're doubling down our 4 growth pillars: global expansion, B2B use case customers, retail media and Agentic commerce. Our global expansion continues to make solid progress. We are seeing rising demand for enterprise-grade composable commerce solutions, especially in B2B as global brands modernize complex operations and migrate from legacy systems.

A highlight this quarter is continued progress with a multibillion-dollar U.S. enterprise implementation, a strong validation of our ability to serve large sophisticated customers globally. In Brazil, we expanded our enterprise footprint with wins such as H&M, Itau and Picpay, reinforcing our competitive strength even in more penetrated markets. Across Latin America, the environment remains cautious with longer decision cycles and slower top-of-funnel activities but our win rates remain stable, demonstrating the resiliency of our value proposition and our readiness to reaccelerate as macro conditions improve.

On the product front, B2B commerce is emerging as a major growth driver, developed with an AI-driven design focused on automation, scalability and deep integration into enterprise workflows, we're leveraging our existing customer base to expand into B2B. For instance, Electrolux, a long-time B2C customer, now uses VTEX to sell spare parts directly to its service network.

We're also pursuing flagship projects globally, including the migration of a large U.S. enterprise from legacy mainframes to VTEX. Success here would further validate our enterprise capabilities and open doors to new opportunities in the U.S. and Europe. While B2B today represents a mid-single-digit percentage of our revenue, the new U.S. deals are already roughly split between B2C and B2B, signaling a clear long-term opportunity. Retail media continues to stand out as a key growth revenue, unlocking monetization layers for our customers.

Following our strategic partnership with Globo, Brazil's largest media network, this quarter, we achieved another milestone with Electrolux, launching the first integrated campaign connecting Globo's digital reach with retail media placements across VTEX-powered stores. The campaign exceeded expectations, validating both the scale of the opportunity and the VTEX roles as the orchestrator of Brazil's first retail media ecosystem at scale.

Finally, our AI transformation is redefining how we build and deliver software. VTEX sits at the center of first-party brand other commerce as a platform orchestrating price, promotions, payments, fulfillment, service and loyalty. As AI accelerates fragmentation across customer touch points, these orchestration becomes increasingly critical. The new theme aggregators such as the Agentic Commerce Protocol are routing demand to brand owner channels, reinforcing the need for a unifying platform like VTEX. And our outcome-based pricing already aligns incentives so that we win as we help our customers win in these new AI channels.

Additionally, through our multi-tenant cloud-native architecture, VTEX represents the collective intelligence of billions of click streams and transaction signals across hundreds of enterprises. This unified aggregated data set, combined with our enterprise customer base enables models that can predict behavior, increase conversion and personalize experiences at scale. Unlike on premise or single-tenant systems, VTEX is structurally advantaged to harness these network effects.

And to make it tangible, AI is already delivering real business outcomes today. First, through data monetization with retail media. AI now enable our clients to turn their commerce data into a profit center, building their own retail media networks and generating high-margin revenue that can potentially double their margins over time. Our AI-driven recommendation and intelligence search features are already in beta with leading customers and results have been excellent.

Second, through automation that cut costs at scale, Weni by VTEX, our AI-powered customer support platform, helps retailers reduce after-sales services cost by up to 10x and in some cases, saving millions by automating over 80% of call center interactions. AI is also transforming how we operate, making us faster, leaner and more efficient across support, implementation and product development. and we are investing decisively behind it, not as a feature, but as a full company transformation, an early demonstration in our subscription gross margin gains over the last year, resulting from our AI-empowered support.

At the heart of our road map, we're seeking to power new AI agents to connect commerce, advancing conversational experiences and simplifying complex workflow through automation and semantic understanding. We're reshaping our R&D and our mindset to be fully AI native because companies that don't embrace this shift risk being left behind, just like those that missed the cloud revolution. That's the foundation of the next chapter for VTEX, one built on innovation, execution and profitable growth.

Shifting gears, our focus on driving solid and consistent commercial progress remains unchanged. This quarter, we celebrated several important go-lives from new customers, including H&M, Itau Shop and Picpay in Brazil, Cromantic in Colombia, Kep Italia in Italy, STIHL in Mexico and Etihad Arena in the United Arab Emirates.

We also deepened relationship with existing customers, showcasing the scalability of our platform across models and markets. Belliz company launched a B2B store in Brazil, expanding beyond the VTEX powered B2C operations. It already runs for its Ricca, Kess, and Vertix brands. Casa Pinheiro has launched a new operation, Prosam, and now runs two B2C stores in Portugal.

Johnson & Johnson launched the Johnson & Johnson MedTech store in Brazil, expanding its B2B operations in the region. A leading German home improvement retailer expanded into Austria, now operating in both Germany and Austria. And U.S. Electrical Services launched 2 new stores in the U.S., Walters Wholesale Electric and Lade Electric Supply, now running three VTEX-powered stores.

Expanding our customer base through new wins and deeper relationship is central to our growth strategy. Each successful customer success case serves as a proof point that attracts future customers. Consistent delivery builds trust, which we amplified through visibility initiatives like VTEX Connect, our global flagship event series inspired by VTEX Day.

This quarter, VTEX Connect LATAM in Mexico City solidified its position as the leading digital commerce event for Spanish-speaking Latin America with record scale over 20,000 registrations, 60 sponsors and more than 40 speakers, including Netflix Co-Founder, Marc Randolph. The event reinforced our brand leadership in the region and created new opportunities to deepen relationships and drive customer acquisition.

Now to illustrate the process we are making on multiple fronts, let's highlight a few customer success stories from this quarter, featuring innovative brands that chose VTEX to accelerate their digital transformation, expanding into new business models and deliver superior experiences to their consumers.

Etihad Arena, the Middle East largest state-of-the-art indoor entertainment venue in Abu Dhabi's Yas Bay’s Waterfront, partnered with VTEX to launch a fully headless mobile commerce solution that powers food and beverage ordering during high-profile events such as NBA games, UFC fights and world-class concerts. Designed to eliminate the long queue typical of larger venues, the app delivers real-time ordering and payment capabilities with 0 tolerance for downtime.

The app supports bilingual Arabic and English experiences and dynamically handles event-specific menus tied to each guest seating area, so orders are routed directly to the appropriate kitchen.

By orchestrating every transaction end-to-end, VTEX enables Etihad Arena to offer a seamless high-performance digital experience for thousands of simultaneous users, setting a new standard for venue-based commerce and marking a strategic milestone in VTEX expansions into the Middle East. Itau Shop, the marketplace integrated into the super app of Itau, Latin America's largest private bank, migrated to VTEX in order to power the next stage of its digital commerce growth.

The initiative rebuilt the platform end-to-end to support faster expansion, greater reliability and an even better shopping experience for millions of customers. With stronger and more flexible foundation, Itau Shop can now onboard new sellers more quickly, expand its product assortment with easy and handle seasonal peaks and launch campaigns with confidence and efficiency.

Early results already show significant growth in the number of sellers, along with higher click-through and conversion rates and noticeable gains in overall performance. More than a technology refresh, this new chapter gives Itau the agility to introduce new services, loyalty programs and shopping benefits at speed, all while keeping the customer experience at the center and strengthening engagement and long-term loyalty.

A leading German home improvement retailer selected VTEX as the backbone for its global commerce strategy to unify channels and accelerate international rollout, operating in Germany and now adding Austria. After consolidating its home market on VTEX composable platform, the customer activated marketplace capabilities integrated 350-plus store accounts under a single control plane and delivered a truly omnichannel journey with rapid options like 2-hour pickup. The result is faster time to market, greater developer autonomy and the agility to tailor features by country without disrupting core operations.

This streamlined infrastructure and automated business logic equip them to scale efficiently across Europe, enhance customer convenience and innovate continuously, as highlighted by the leadership turning Austria into a blueprint for resilient high-velocity expansion. Picpay, one of the largest digital banks, has entered a new phase in its commerce strategy by integrating Picpay Shop, its marketplace into the app to VTEX platform, marking a major milestone in the company's evolution from an affiliate model to a fully integrated commerce ecosystem, previously limited to product showcases that redirected users to external sites.

Picpay now allows customers to browse, purchase and complete the transaction entirely within the app. Seamlessly positioning the platform as the unique hub where commerce and digital banking converge. In parallel, Picpay Ads powered by VTEX Ads enables brands and retailers to promote products directly within Picpay Shop, reaching a highly engaged audience at the moment of purchase.

Acting as both technology and commercial partner, VTEX Ads integrates product catalog, ad inventory and performance data while leveraging its network to onboard new advertisers and expand Picpay's monetization ecosystem.

This partnership combines Picpay's scale, financial intelligence and consumer reach with VTEX Commerce and retail media leadership, creating a powerful new benchmark for convergency between media, payments and commerce in Brazil. Sephora, a global beauty retailer with a strong and loyal customer base, expanded its retail media strategy by becoming a publisher in the VTEX ads network, creating new opportunities for brands to reach highly qualified audience.

Building on its previous retail media experience, Sephora has transitioned seamlessly from its former setup to VTEX Ads, enabling makeup, skin care, fragrance and dermocosmetic brands to advertise directly within its digital experience, ensuring visibility across high-impact touch points.

With this move, Sephora offers its partners a premium media environment powered by VTEX technology, turning its digital storefront into a performance-driven channel for brands growth and measurable results. U.S. Electrical Services, one of the largest electrical distributors in the U.S. is transforming its digital experience with VTEX to better serve customers and meet evolving expectations.

With an extensive branch network and a highly diverse product catalog, the company needed a scalable platform capable of delivering seamless, consistent and personalized interactions across online, mobile and in-branch channels. By adopting VTEX, U.S. Electrical Services unifying its customer experience into a single connected environment, enabling real-time access to accurate product data, faster support and flexible fulfillment option from in-store pickup to delivery.

This integrated approach creates a smoother, more intuitive buying journey that builds trust, strengthens loyalty and drives repeat business, while VTEX flexibility allows the company to continuously introduce new services and stay agile in a rapidly changed marketplace.

As the business continues to grow, VTEX will support them in delivering higher quality engagements and value-added solutions, ensuring company remains customer-centric, competitive and future-ready.

Before handing it over to Ricardo, I want to extend my appreciation to the 1,234 VTEXers across our global offices whose work is essential in shaping the future of commerce. I also want to thank customers, partners and investors whose trust and partnership continue to inspire us and propel our journey forward.

With that, I'll hand the call over to Ricardo.

Thank you, Geraldo. Hi, everyone. I'm pleased to share with you VTEX's financial results. In Q3 2025, GMV reached $5.0 billion, up 13% in U.S. dollars and 12% FX neutral. Subscription revenue was $58.4 million versus $53.9 million in Q3 2024, an increase of 8% in U.S. dollars and 7% FX neutral. Given our Q2 performance, we had already adjusted expectations for Argentina.

The country faced additional challenges in Q3, so performance was worse than expected with no signs of short-term recovery amid weak consumer sentiment. Moving north, Brazil performed in line with expectations, showing a modest deceleration of a couple of percentage points quarter-over-quarter. Within this context, in Q3, our non-GAAP subscription gross margin reached 80%, underscoring the success of the efficiency initiatives we've been highlighting over the past several quarters, particularly the continued deployment of AI-powered automation and customer support.

These initiatives are consistently delivering structural gains in customer support productivity and cost reduction, reinforcing the last durability of our margin improvement and the scalability of our business model. Our total gross margin, including services, reached 77.5%, an expansion of 270 basis points year-over-year. This continued improvement reflects not only the steady gains in subscription gross margin, but also the ongoing shift of services in our revenue mix as our global ecosystem of partners increasingly takes the lead in complex implementation projects.

Our expense management continues to reflect our discipline and alignment with long-term growth priorities. Total non-GAAP operating expenses in the third quarter were $36.7 million, up 7% year-over-year and down 1% quarter-over-quarter, even though LatAm currency depreciation drove most of our expenses up in U.S. dollars terms.

We delivered savings in S&M and G&A, and we chose to reinvest through R&D in innovation, product development and AI capabilities that strengthen our competitive position. In other words, while optimizing margins, we are building a more efficient engine for sustainable profitable growth.

As a result, our non-GAAP income from operations reached $9.5 million, up from $7.6 million in Q3 2024, a 25% growth in U.S. dollars. This also represented a non-GAAP operating margin of 16%, an improvement of 230 basis points year-over-year. In short, our operational discipline continues to translate into stronger margins and a more profitable growth trajectory.

Non-GAAP net income was $10.6 million in Q3 2025, up 41% year-over-year. This earnings step-up reflects structural profitability driven by operating leverage and efficiency gains and reinforces the sustainability of our model.

These continued profitability gains keep showing up in our cash generation, which remained strong once again this quarter. Free cash flow for the quarter was $7.5 million, reaching a free cash flow margin of 13%. Our capital allocation strategy remains grounded in disciplined long-term value creation and efficient use of our strong financial position.

We ended the quarter with approximately $200 million in cash, representing about 25% of our market capitalization. With a business that consistently generates positive free cash flow, we have the flexibility to fund innovation, pursue strategic growth opportunities and return capital to shareholders.

Our priority remains organic growth, particularly through continued investment in becoming a multiproduct AI-driven platform, as Geraldo highlighted earlier. This may be complemented by selective M&A focused on accelerating capabilities that can scale across our customer base, such as the Newtail acquisition in Retail Media and Weni in AI-powered aftersales support.

We continue to allocate capital with the same rigor that defines our operating model, investing where returns are measurable, risk-adjusted and accretive to shareholder value. We also maintain a disciplined and opportunistic approach to share repurchases. As of September 30, we repurchased almost $100 million of shares across 4 programs. Under the $40 million authorization approved in July 2025, we repurchased 4.5 million shares in Q3 at an average price of $4.14 per share, a total of $18.8 million.

As we look ahead to the fourth quarter, our focus remains on disciplined execution amid a persistently complex macro environment. In Latin America, we expect the headwinds seen in prior quarters to continue. In Argentina, consumption may remain weak and highly volatile, while in Brazil, elevated interest rates are likely to keep pressuring demand and extending enterprise decision cycles.

While top-of-funnel activity is softer than last year, our win rates remain stable and the quality of late-stage opportunities continue to reinforce our confidence in the long-term relevance of our platform. In this environment, we are using the current cycle to deepen our focus on 4 core strategic priorities: scaling in the U.S. and Europe, expanding B2B in our retail media products and accelerating the AI transformation of our products and processes.

Supported by strong cash generation and expanding margins, these priorities position us to create sustainable long-term value even amid short-term volatility. With that in mind, for the fourth quarter 2025, we are targeting FX-neutral year-over-year subscription revenue growth of 5% to 10%, implying $65.8 million to $68.8 million.

Additionally, we are targeting for the fourth quarter a non-GAAP income from operations margin in the mid-20s and a free cash flow margin in the high teens range. For the full year 2025, we are targeting FX-neutral year-over-year subscription revenue growth of 9.3% to 10.7%, implying a range of $234 million to $237 million based on October's average FX rates.

We remain confident in our ability to reaccelerate our growth over the coming quarters and years through our commercial expansion into the U.S. and Europe and our product innovation in B2B, retail media and AI-powered solutions.

With that, let's open it up for questions now. Thank you.

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

I have 2. The first, I wanted to explore a bit the sequential increase in R&D expenditures. At the same time, I think the number of employees declined around 49 employees. So just wanted to get a bit more color on what you're doing, if you hire more people or not and why did employees decline? Just want to connect these 2 things.

And the second thing -- second question is, could you discuss qualitatively how your churn is trending? Has the weakness in the market -- in the LatAm market also reflected in a somewhat higher client disconnection? Or is it more linked to GMV and maybe a longer cycle to close new deals?

Marcelo, this is Geraldo. I'll talk a little bit about the R&D investment. So we are continuing to invest heavily in R&D because we see this as a powerful moment for the company, for the whole world actually, one where technology and especially AI is redefining the entire commerce landscape. In 2026, we expect our R&D investment to continue to increase, reflecting our conviction that now is the time to build the VTEX platform of the future.

Our priorities are clear and centered on 4 strategic pillars: AI transformation, the biggest one, B2B commerce that will grow us outside of LatAm and inside of LatAm, retail media that will make our customers viable and profitable and will give a lot of revenue to us as well. And we will also strengthen our commerce -- core commerce foundation [ formed ] by AI.

First, the AI transformation is at the center of everything we're doing. We're rethinking both how we build software and what software we build. That means that evolving from static admin tools to a fully AI-driven workspace powered by autonomous agents that automate commerce workflows from onboarding products to launching promotions or optimizing searching and pricing. So this is how we will become the AI native backbone for connected commerce.

Second, B2B is an investment that we are accelerating, which we see as a massive global opportunity. We're developing a comprehensive B2B platform, including AI-assisted sales interfaces that connect buyers and reps in a single digital experience. Third, retail media is becoming an increasingly strategic part of our road map.

We're helping retailers monetize their traffic and data by creating one of the largest retail media networks in Latin America, combining on-site, off-site, off-line media with AI powering personalization, recommendations and attribution. And finally, we continue to strengthen our core commerce and omnichannel platform, advancing in areas like semantic search, product recommendations, delivery promise, physical store integrations to make the overall experience more intelligent and connected.

Across all this, the common thread is AI, not as a buzzword, but as an enabler for efficiency, growth and differentiation. We're investing to lead this transition just as we did when we became a cloud-native company a decade ago.

So in short, our R&D focus is about building the next generation of VTEX, one that is AI native, outcome-driven and ready to power the future of global commerce. So you're going to see us going -- continue investing in R&D, Marcelo. On the churn, the churn -- no, the churn is stable. It's not -- what we're seeing is less momentum in sales, and we can elaborate this more if the other audience wants to.

Marcelo, I can elaborate a little bit more on the sales. And on churn, as Geraldo said, it's Mariano here. So on churn, as Geraldo said, is stable. We are seeing more in the Tier 3, but the overall number of the company stays the same, not a point of attention here. In demand, we can elaborate a little bit more. The demand environment remained mixed, soft in Latin America, but resilient in U.S. and EMEA.

In Brazil and across Latin America, high interest rates are lowering the consumer spending and continue to weight on activity. So we are seeing sales cycles are longer and overall bookings remain below last year record levels. That said, we are not losing deals to competitors. Decisions are simply taking more time and sometimes being postponed. Importantly, our customers remain engaged and retention is strong, and we help them to navigate this very, very challenged macro backdrop.

At the same time, we are gaining share through new growth levers. B2B solution adoption in the region is picking up. And also our retail media platform and our AI support platform offering is helping retailers to monetize and make more margin. Their initiatives reinforce customer economics and deep longer-term relationship between VTEX and our customers.

Outside Latin America, demand remains resilient. The U.S. and EMEA continue to grow roughly twice as fast as the company overall, driven by our focused go-to-market strategy and the migration of large enterprises from outdate and high-cost legacy platforms. Roughly half of our new deals in the U.S. and EMEA are now B2B, validating both our position and product strategy. Competitively, our position remains strong.

Our comprehensive product offers a unique advantage, B2C and B2B in a single platform. Against legacy providers, we win on modernization and cost efficiency. Against the market-moving competitors, we win on depth, composability and high-touch enterprise service. Our public company's credibility and consistent execution are helping us to secure large strategic deals with global brands. So while in the macro environment in Latin America is still a headwind, pretty uncertain, our sales momentum and competitiveness remains solid.

We see attractive opportunities in our global expansion, the B2B solutions use case customers, the retail media and the Agentic commerce. The foundations are intact. Our pipeline is healthy, and we are confident that we're building the right base for reacceleration as continues improve.

And our next question comes from the line of Maria Clara Infantozzi with Itau.

The first one is related to Argentina. Now that the elections are behind us and you're seeing more signs of macro stabilization, does this change anything on your outlook for the region? Can you comment briefly on how you perceive things evolving there, please? And the second question, more structural and qualitative one. If you could please develop on how you see AI investments leveraging the way you monetize your clients going forward?

Okay. I'm going to take the first one about Argentina. So Argentina continues to be a tough market, the toughest we operate in. The macroeconomic environment remains extremely challenging with a very high interest rates. close to 50% nominal against a roughly 25% inflation. So it's a pretty tough environment. Credit systems are largely paralyzed.

In Argentina, retailers effectively operate as banks. The Tier 1 retailers operate as banks. And what's breaking today is not retail itself, but the banking capacity to fund inventory and the financing of consumption, the famous [ quotas ] in Argentina, right? So that's mainly what's driving the weakness we are seeing in GMV and ultimately in revenue.

After the sharp reversal we saw early in the year, Q3 underperformed our expectations. And while we recent elections -- the recent elections were received positively by the market, on the ground, consumption haven't improved yet. Visibility remains limited. So we continue to model Argentina with very cautious for the rest of the year. We are staying very close to our customers there.

Our teams are on the ground having tough conversations with them on a weekly basis. What is clear is that the issue isn't lack of will. it's credit. The entire system runs on financing and without access to affordable credit consumption simply stalls. In the end, for better for the worse, we don't provide financing ourselves. We need to rely on our ecosystem and the macro to do so.

In parallel, we're helping customers protecting their margin and strengthen their competitiveness. We are showing them how AI can cut operational costs. For example, our AI customer support platform can automate call centers and save a lot of money. We can save up to 1% of the revenue or more also in monetizing their traffic through retail media. So it's us delivering on the ground operational efficiency for them and preparing them to the bounce back of the market.

One interesting point here is what we are seeing an entire new set of players like Chinese brand appearing, popping up in all Latin America. In Brazil, we've already secured some of those relationships, brands like Midea, and we are working to replicate that success in Argentina as well. So overall, while Argentina remains as a headwind for us, it's also a market where we understand really deep.

We close -- we are really close to our customers and help them to go through this moment. We are positioning ourselves and themselves to capture the upside when the conditions finally stabilize.

Thank you, Mariano. And Maria I will take this AI question about the monetization. So monetization is a matter of product positioning and also we need to benchmark with the competition. So monetization is kind of a separate topic that we don't like couple exactly with the AI. AI for us is much bigger than a source of monetization, although it can create some new services that we eventually can monetize through our company. So AI for us is not just a technology or monetization tool, but it's like a once in a-decade transformation.

Similar to the move to the cloud more than 10 years ago. Back then, rebuilding our platform natively for the cloud allow us to leapfrog incumbents and become the e-commerce leader in Latin America. Today, we're approaching AI with the same urgency, ambition and clarity.

AI is reshaping enterprise software and especially the commerce value chain. So we believe that it will strengthen decentralized brand-owned channels where VTEX is structurally advantaged. Unlike marketplace aggregators, we power first-party channels, helping brands own the transactions, the data and the customer relationship.

This new -- as new Agentic model emerged, routing demand back to this proprietary channel, VTEX becomes even more essential as the orchestration layers that connect price, promotion, fulfillment, loyalty and services across all digital touch points. So we have a product road map that reflects this conviction.

We're building autonomous agents and AI copilots that automate key commerce workflows from onboarding products and launching promotions to analyzing data and managing logistics. These agents integrate natively into our ecosystem to accelerate time to value, improve outcomes and free users to focus on strategy.

So key things that we are doing just to illustrate. So we're doing the data insights agents for performance diagnostic and action. We're doing a visual editor agent for storefront updates. We're doing book import agents. We're doing developer assisted agents. So we're doing a lot of things. And we're developing what we call the AI workspace, which is our next-generation admin experience designed to make commerce operations outcome-driven, proactive and personalized.

Over time, this will transform how merchants work, reduce cost, improve conversion and lower time to market. What makes all this possible is our multi-tenant architecture, which gives us access to R&D purposes for R&D -- access for R&D purposes with customer concept to billions of commerce data points across hundreds of enterprises.

This allow us to train and fine-tune models, specifically for commerce, something few others can do at our scale. Finally, we're also embedding AI deeply into our own operations, improving productivity, speeding up implementation and reducing cost to serve. This addresses Marcelo's question as well, Marcelo, because when you asked about the headcount that it's going down, it's going down because we are evolving our processes to incorporate AI into our internal processes.

So this is not just a product evolution on our monetization tool, we're going through a full company transformation here. So just as we became a cloud-native commerce leader like 10 years ago, we're now building VTEX to be the AI native backbone for connected commerce, which is outcome-driven, intelligent and designed to help brands to sell more, spend less and operate smarter. So that's -- the AI is just like cloud for us, like we were born into the cloud revolution, we will be reborn into the AI revolution.

And our next question comes from the line of Vitor Tomita with Goldman Sachs.

Since the topic is already addressed, I would like to ask a few questions more about the free cash flow side specifically. Looking at what 9 months results and your Q4 guidance implied for the full year, am I correct in understanding that you remain confident on the prior expectation of high teens margin in income from operations, but have become a bit more conservative on the free cash flow side where you were anticipating high teens margin as well?

And my second question also related to this, how are your initiatives related to working capital optimization or other cash flow drivers progressing, if there were any surprises on that area this quarter? And if we should especially, for example, expect CapEx to remain a bit higher than usual in Q4.

Ricardo here. So on the free cash flow, I'll take the opportunity to take a step back and talk about the Q4 guidance and 2025 guidance more broadly, and I'll go into the profitability metrics as well. So for Q4, our guidance reflects a balanced and realistic view. Although subscription revenue in October grew faster than in Q3, we continue to see persistent GMV volatility. For example, the Cyber Monday event in Argentina, which started this week was softer than expected. So given this volatility and the uncertainty around the holiday season GMV performance, we are providing a wider range for our Q4 guidance.

When we look forward, we remain confident in our ability to reaccelerate our growth over the coming quarters and years. Our key levers to do that, as we mentioned in the earnings call prepared remarks, is the commercial expansion into the U.S. and Europe and our product innovation in B2B, retail media and AI-powered solutions.

For instance, each one of these 4 levers is currently running above double-digit growth rate and with a long runway ahead. Now on profitability and free cash flow, we expect another solid quarter with non-GAAP operating margin in the mid-20s and free cash flow margin in the high teens. That reflects both the natural seasonality of Q4 and the structural efficiencies we built through the AI-powered support automation on the cost side as well as continued discipline on G&A and S&M on the expense side.

Now on free cash flow, as we discussed in prior earnings calls, our model is structurally front-loaded, meaning for the fixed fee portion of our contracts, we typically bill customers upfront when new contracts are signed. And as a result, cash flow can fluctuate depending on the pace and timing of new bookings, especially with decision-making cycles elongating in Latin America, even while our competitive position and win rates remain stable.

So if you look at the full year for free cash flow, we are more in the high end of mid-teens than in the high teens for the full year, but we are in the high teens for the quarter. And for the non-GAAP EBIT, we are in mid-20s and still in the high teens -- mid-20s for the quarter and still in the high teens for the year.

So overall, despite a challenging environment, we remain focused on reaccelerating our growth rate while continuing to advance on our profitability metrics. And we see attractive opportunities ahead in the U.S. and Europe in B2B, ads and AI, and we are executing behind them.

And I think the second question was related to working capital, so I can cover this one as well. Working capital in this quarter reflected the market environment. So although we manage collections well, reducing our receivables, the longer decision-making cycles in Latin America impacted our deferred revenue line.

So this is normal timing effect, no structural change given our upfront annual billing model. So working capital can fluctuate with timing and booking pace. So we continue to manage with discipline, balancing customer support and cash efficiency, and we expect conversion to improve as conditions stabilize and new bookings also stabilize.

And our next question comes from the line of Cesar Davanco from Santander.

I have one here regarding Brazil. [indiscernible] mentioned that the total GMV FX-neutral growth in Brazil was in low 20s, but that you had a mix shift towards new and large enterprise, which, of course, lowered the implied take rate. What you can comment about these numbers for the third quarter and what you have been expecting this to evolve towards the fourth quarter and so on?

Yes. Happy to take the question, specifically on Brazil. So as I mentioned on the prepared remarks of the call, Brazil performed largely in line with expectations. Q3 unfolded largely in line with expectations, right? If you look at the number, we came slightly below the midpoint of the guidance in FX neutral and slightly above the midpoint in U.S. dollars terms.

And Argentina performance was weaker than expected with no tangible signs of short-term recovery and Brazil was largely aligned with expectations and with a modest deceleration of a couple of percentage points quarter-over-quarter. So we were in the low 20s last quarter. This quarter, we were in the high teens. And all other countries were mostly aligned with expectations. So I think that covers it. If we look at Q4 for Brazil, we continue to see a high interest rate environment. So we would expect Brazil to be stable to slightly decelerating Q4 versus Q3.

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

I disconnected for a little bit. So I'm sorry if any of those have already been answered. So first, if you could give us an update on the U.S. operations, if everything is still on track or if there have been any delays with the larger customers that you're expecting at the start of the year?

And then second, for the past few months, we have seen Nelly and Shopee announcing the launch of several official stores for some enterprise customers. Have you seen this having any impact on your operations? Have you seen GMV migrating for some of those official stores or something that has not impacted your operations?

Okay. So we continue to see -- I'm going to answer -- Mariano here. I'm going to answer first the U.S. and EMEA momentum, and then I will comment on the marketplaces. We continue to see a strong traction in the U.S. and EMEA. In the U.S., our go-to-market strategy is pretty focused and clearly paying off. We are executing a well-defined playbook targeting large enterprise, especially those migrating from legacy B2B platforms. This segment represent our largest growth opportunity in U.S. and EMEA, and it is providing to be the right bet.

Our competitive differentiation is resonating. We combine the sophistication needed to replace complex legacy systems with the agility and composability to modern enterprise that -- to execute. Today, roughly half of our deals in U.S. and EMEA are B2B, underscoring how our strategy to lead the enterprise commerce is taking shape.

We are also making encouraging progress on both the commercial and execution fronts. We continue to advance the multibillion-dollar enterprise migration in the U.S., which remain a major validation milestone for our capabilities. Global CIOs and CTOs are choosing VTEX for its comprehensive functionalities. Recent wins such as KitchenAid e-commerce launch and the expansion of a U.S. electrical service with 2 new stores highlight both new logo wins and deeper adoption with existing customers.

In EMEA, progress remains steady. This quarter, [ a leader ] DIY operation expand cross country and opened Austria as a new go live. Another client that we can quote is Etihad Arena that opened and went live in United Arab Emirates, reinforcing our scalability across diverse regions and business models. So overall, our global pipeline is robust and contract momentum continues to build. While we've made meaningful progress, we are still in the early stage of what we believe is a long run ahead.

Our position as a complete and composable enterprise solution and to have both B2B and B2C solution in a single commerce platform is resonating, and it is resonating in U.S. and EMEA. So we are seeing increasingly competing capabilities and winning markets once we're dominated by these legacy players. This is about the Europe and U.S. market.

And now you asked about the marketplace in LatAm, right? You mentioned specifically Shopee. So we see marketplaces as a defining forces in digital commerce, but not as an existential threat. Brands and retailers will continue to value owning their customer relationships. Marketplaces operate under a vertical model. They -- the merchant of record, they control the data, the logistics, the consumer relationship.

And they ask a pretty high stake, 10% to 20% of GMV to operate. So while this gives a customer kind of convenience, but actually it weakens the brand equity over time. For brands that use VTEX, marketplaces are one of the channels we support. So the marketplace is thriving actually drives also volume for VTEX as well. So it's a balance.

As more companies join the marketplace race diluting the power of 1 or 2 marketplaces, actually, it is good for platforms that orchestrate their operations in the backbone. And this is our motto, right, the backbone for connected commerce. So as more operators in marketplace join Latin America, more VTEX strength their position as the backbone for the brands that operate in Latin America. Most of our electronics and home appliance brands in Brazil rely on VTEX as the core platform supporting their marketplace channels.

On the other hand, VTEX is also power proprietary brand owner channels, the organic channels, as we call, first-party apps, first-party stores, direct-to-consumer experience where brands own the transaction, the margin and the relationship. And make no mistake, there is not -- the organic go-to-market D2C is not going away. The D2C and marketplace will coexist. In fact, we believe new technologies such as AI and agentic commerce will rebalance the ecosystem in favor of those proprietary channels.

We are also seeing the rise of new aggregators that, in fact, are thin layers directly traffic and leads back to the brands instead of capturing the full transaction as the marketplace do. I'm talking about the new tools on AI. That creates a more open ecosystem and makes platforms like VTEX even more valuable as the backbone that orchestrates those transactions in between those channels. I believe this is our point of view on marketplaces.

And our next question comes from the line of Maddie Schrage with KeyBanc Capital Markets.

I was just wondering, where does B2B sit in terms of your new logo pipeline today? And maybe what unique features is getting you guys to win those deals?

I can take. Could you repeat the question, please?

Yes. I was saying in your new logo pipeline, how much of those would be B2B customers versus a B2C customer? And then what's helping you guys build those deals?

Yes. Most of all, I believe the B2B is the B2B offering and the solution that we offer in the same platform. So it's the same product commerce platform that we offer B2C and B2B. And that's resonating as a comprehensive solution when companies want to migrate from their legacy systems to the new platform, they are now choosing for the platform that provides the most comprehensive solution where they can explore multiple channels. So this is our main differentiator.

We don't disclaim on overall pipeline, how much is the B2B. What we are disclaiming is that on the United States and EMEA, B2B roughly represents 50% of the deals that we are landing, including a multibillion operation that we are migrating from legacy systems. So as we established, we only disclaim new clients when they go live, and I invite you to wait for the quarters to come where we can disclaim more on the customers that we are putting live on B2B in those regions.

Perfect. And then my second question for you is you guys obviously called out the customer support line utilizing AI to cut costs. I'm wondering how much costs are left to be taken out of that line item or if there's other areas that you guys think you'll implement AI to replace heads?

Thanks, Maddie. Happy to start on this one, and I want Ricardo feel free to chime in as well. So on the customer support, we started this in Q4 of last year, and we rolled it out over time, and we continue to do so. Most of the savings have been captured. We still could capture additional savings. But for very large Tier 1 customers, they still expect some level of personal engagement, not just through AI.

And there is also complex support problems that usually a person needs to get involved and not fully AI. So there could be additional savings, but they need to go through these true challenges, let's say. But most of the savings have been captured at this moment from what we see.

Yes. And I would like -- just adding up here, the focus now is to increase quality and how to orchestrate multiple agents to keep our support level in the high as we are really recognized in the market as one of the best companies that provide customer support. This is a Gartner recognition. So we want to keep in the high level of support recognition with a very efficient layer of operations. So this is the goal is now that we reached the efficiency now is to really focus on the quality.

Perfect. On R&D, I should add that, yes, as I said before, like we are working very hard on not only on what to build, what software should look like after the AI revolution, but on how we should build software after the AI revolution. And we, like everybody else, think that this should be much more efficient building software informed by the AI revolution. But our choice, at least right now, is to leverage this gain of efficiency to have more throughput, not less expenses. So that's where we're going with our R&D.

We -- our customers, they need and they claim for a very comprehensive platform. There's always a lot of things that they ask us and we cannot do because of the lack of throughput and now we hope that we're expecting that this revolution will help us a lot to serve them even better.

And our final question today comes from the line of Gustavo Farias at UBS.

I've got 2. So the first one on B2B, and of course, if you can disclose that, how does the LatAm B2B momentum compared to U.S. and Europe if those new B2B contracts are usually from existing or new clients?

And the second one, maybe a follow-up on Mariano's answer to an AI question that was -- that was the previous question. I was wondering the role of VTEX in this new agentic commerce. And I'm specifically talking about the new OpenAI commerce protocol. So if you could provide any color on the challenges as well as the opportunities you see coming from this new way of commerce, of doing commerce, it would be very helpful.

Okay. Let's see the B2B progress. So our B2B solution is based in the same commerce platform product that we do have. And that's a big strength of our operation. We allow customers to operate multiple channels in a very, very lean way. So -- our product is -- the B2B solution is the most exciting and strategic growth drivers for VTEX today.

It enables brands already using VTEX for their B2C channels to increase their operations to the B2B or B2B2C operators, to distributors, service networks and all with the same platform. This is a natural extension of our value proposition and opens a market opportunity roughly the same size as the B2C market. We are starting to crack the B2B market in LatAm. That's a little bit behind of what we are seeing in U.S. and EMEA. In U.S. and EMEA, we are disclaiming that roughly 50% of our pipeline is coming from B2B solutions.

Globally, B2B is becoming a major differentiator for VTEX. Complex migrations like multibillion-dollar U.S. enterprise are moving away from legacy systems to VTEX. The value proposition is clear. Many, many enterprises are still on the 20 years old system costly rigid not built for AI era. And VTEX helps them to cut 3% to 5% of GMV in operating costs while gaining speed and innovation capacity.

So our B2B solution is AI native with agents that simplify catalog management, automating onboarding, accelerating, implementing scale, orchestrating orders through multiple channels. It is still early, but the momentum is notable. We see B2B as a transformational opportunity that can significantly accelerate growth, strengthen our global footprint and effectively double our addressable market over time.

Gerald, do you want to?

Yes. Yes, yes. So about the agentic commerce and the rise of the potential new aggregator, right, OpenAI or ChatGPT. So we see the rise of agentic commerce and OpenAI in general as a major opportunity to our customers and hence to us because in our view, it represents the next evolution of digital commerce, and it actually seems to strengthen the model VTEX was built for.

OpenAI approach looks more like Google and Meta acting as an aggregator --aggregation layers that direct leads and traffic back to brands and retailers rather than like Amazon, Mercado Libre, which own the full transaction and the opt-in of the customer -- of the consumer. That's critical because it reinforces the importance of proprietary brand-owned channels where VTEX is structurally advantaged.

Our goal is clear. We're the backbone for connected commerce, the one that powers those channels. So we provide everything that happens after that. AI agents send the customers to the brand from pricing and catalog management, checkout, fulfillment services, loyalty, you mentioned. So even if AI becomes the new front door, the new aggregator that will expand in the next phase of e-commerce, VTEX will remain the operating system that runs everything behind it.

So we are already preparing for this future. We're building AI agents and integrations that connect directly to new protocols like that one that you mentioned, just as we did in the past with marketplaces, social commerce and other sales channels. And because our platform is multi-tenant and data rich, we have this unique advantage in training commerce-specific models that can predict, personalize and optimize at scale.

So we see agent commerce as a catalyst, one that makes VTEX even more relevant. It plays to our strength, aligned perfectly with our vision of being the AI native backbone for connected commerce and expands the ecosystem where our customers can win and where we can win with them. So it's -- we're very excited with this new channel.

And that does conclude our Q&A session today. So I will now turn the call back over to Geraldo Thomaz for closing remarks. Geraldo?

Thank you for the great questions. As we look ahead, our conviction remains strong. VTEX is operating from a position of strength, a differentiated, scalable product architecture, a focused and experienced team and a strong balance sheet. We're confident in our ability to navigate short-term uncertainty while delivering long-term value through innovation, execution and disciplined growth.

We remain focused on what we can control united by a clear vision. VTEX has proven its resilience not only by delivering consistent margin expansion and strong cash generation, but also by staying deeply committed to the long-term levers that will shape the next era of enterprise commerce.

We're making tangible progress on those levers from our expanding international footprint where the U.S. and Europe represent an enormous opportunity to the ramp-up of new revenue streams like retail media and B2B and ongoing transformation shift as our transition to an AI-driven company.

We believe that AI and agentic commerce are rewriting the rules of enterprise software. And at VTEX, we're not watching it happen. We're actively designing our platform, our organization and our future in the light of this paradigm. With a multi-tenant architecture, outcome-based model and a massive aggregated data set, we are uniquely positioned to lead in this next chapter.

We're building a platform that not only powers commerce but increasingly executes. And we're doing it in a way that drives measurable outcomes for our customers and enduring value for our shareholders. We have the strategy, we have the technology, and we have the team. The opportunity ahead of us is exciting, and we are here to seize it.

Thank you for your continued trust and partnership. We look forward to sharing the next milestones of our journey in the quarter to come. Have a great rest of the day. You might now disconnect.