VTEX

NYSE:VTEX

Earnings Call Analysis

VTEX Posts Strong Q3 Outcomes, Improves FY Outlook

VTEX showcased a robust Q3 2023 performance, achieving 35% year-over-year growth in GMV and a 31% surge in revenue, reaching $50.6 million, hitting breakeven targets earlier than anticipated. Subscription revenue increased 30%, while non-GAAP subscription gross profit jumped by 35% to $36.2 million. Non-GAAP operating income showed a remarkable improvement, posting a positive 3.4% margin compared to a negative 15.5% in the previous year, with an overall non-GAAP gross margin rise to 70.7%. Positive free cash flow was recorded at $2.7 million. Q4 revenue is expected to be between $55.0 million to $57.0 million, with full-year 2023 revenue projected to reach $196-$198 million, representing a 22-23% year-over-year growth on an FX-neutral basis.

VTEX Powers Through for a Stellar Quarter Amid Economic Uncertainty

VTEX kicked off their financial discourse with a note of triumph, showcasing a remarkable year-over-year growth in Gross Merchandise Volume (GMV) by 35%, propelled by resilient same-store sales and the launch of new stores. In a display of operational agility, they beat revenue projections handsomely with a turnover of $50.6 million, marking a 31% increase from last year. Investors would be particularly heartened to learn about the pre-scheduled attainment of breakeven targets on both non-GAAP operating income and free cash flow indicators. This early achievement reinforces VTEX's commitment to growth alongside efficient capital management.

Exponential Growth with Strategic Customer Acquisition

VTEX's customer portfolio continued to expand with multiple significant gains from competitors. With notable mentions like Calvin Klein, Farmacity, Reebok, Whirlpool, and impressive new customer wins such as Beautycounter and Pierce Manufacturing in the U.S., it's evident that VTEX is carving out a dominant space in digital commerce. Their vision is further substantiated by the operational successes of clients like The Foschini Group, experiencing a staggering 73% increase in multi-brand orders post implementing VTEX's marketplace solution.

Innovation, Partnerships, and Recognition Fuel Global Ascent

The company's innovation is seen through the integration of advanced AI and AR technologies, enhancing user experiences and operational efficiencies. This quarter witnessed a resounding participation at VTEX Connect Latam with over 7,000 attendees, propelling brand presence and influence within the industry. Moreover, VTEX's status as a 'Visionary' in the Gartner Magic Quadrant and as the top-rated digital commerce platform emphasizes its edge in a competitive market. Crucial partnerships with payment leaders like Cielo and PayU in Latin America bolster the company's comprehensive payment ecosystems, further emphasizing VTEX's robust trajectory.

Customer Success Stories Underscore Platform Potency

Real-world customer applications of VTEX's platform, from retail to pharmaceuticals, illustrate tangible benefits. Prominent examples include Naldo implementing innovative payment and logistics features within VTEX's ecosystem, translating to an enhanced customer experience, and brands like Sergio K. reporting conversion boosts and reduced operational costs through VTEX’s adaptable digital commerce solutions. High-profile live shopping events during New York Fashion Week reflect the potency of VTEX's platform in driving sales through engaging and innovative commerce experiences.

Financial Resilience and Optimistic Guidance Looking Forward

Financial prudence mixed with strategic vision allowed VTEX to achieve a positive free cash flow of $2.7 million, a significant rebound from previous quarters. Ricardo Sodre, the architect of VTEX's financial strategy, forecasts a Q4 revenue target between $55.0 million to $57.0 million, representing a 22% growth on an FX-neutral basis at the midpoint of the range. The full-year revenue is projected in the range of $196 million to $198 million, amounting to a 22% to 23% year-over-year growth. These projections, along with anticipated improvements in non-GAAP operating income margin, paint a robust financial outlook for investors.

Answering the Market’s Call with Composable Solutions and Economic Adaptability

In a period of economic volatility, VTEX acknowledges the challenges and reaffirms their commitment to surpassing expectations. The company’s composable commerce platform addresses growing price sensitivity concerns among retailers by providing efficient solutions, effectively turning market challenges into opportunities. Their B2B offerings in Brazil and abroad, recognized for their innovative single-platform management for both B2C and B2B, is noted to be driving their competitive advantage forward.

Navigating Geopolitical Uncertainties with Confidence in Argentina

Operating in diverse geopolitical climates, VTEX is keeping a close eye on Argentina, where political and economic conditions could potentially impact their revenue. Nevertheless, they express confidence in their strong competitive positioning and the country's overall growth potential, highlighting their adeptness at handling market uncertainties.

Earnings Call Transcript 2023-Q3

[Julia Fernandez, executive]

Hello, everyone, and welcome to the VTEX Earnings Conference Call for the quarter ended September 30, 2023. I'm Julia Vater Fernandez, Investor Relations Director for VTEX. Our senior executives presenting today are Geraldo Thomaz Junior, 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 Statement sections of VTEX Form 20-F for the year ended December 31, 2022, 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 call 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 third quarter 2013 earnings press release available on our Investor Relations website.Now let me turn the call over to Geraldo. Geraldo, the floor is yours.

[Geraldo do Carmo Thomaz, executive]

Thank you, Julia. Welcome, everyone, and thanks for joining our third quarter 2023 earnings conference call. I'm pleased to announce that VTEX delivered another quarter of strong results. We achieved a 35% year-over-year growth in GMV driven by the resilience of the same-store sales of our existing customers and the successful go-lives of new stores. On the latter, despite the ongoing uncertainty in the macroeconomic environment, we're pleased to continue to see a stabilization of the ramp-up periods and the implementation times, which, as mentioned before, also contributes to our robust performance.Turning briefly to our financial results, as Ricardo will delve into it later, I'd like to highlight 2 points. First, we've surpassed our revenue projection, reaching $50.6 million this quarter and a 31% growth year-over-year. Second, we achieved our breakeven targets from a non-GAAP operating income and free cash flow basis, 1 quarter before our expectation. This is a clear testament of our focus on growth and the power and scalability of our team. Efficiency is ingrained in our DNA, amplifying our results and bringing us closer to becoming the backbone for commerce. Additionally, we delivered a 36% year-over-year gross profit growth and held expenses steady while accelerating our growth under uncertain macro, demonstrating our business model resiliency and operational leverage.Now let's go into some operational updates. In Q3, we added several new customers that migrated from other platforms. including Naldo in Argentina, Aiwa, Precolandia and PicPay B2B in Brazil, Ren-Wil in Canada, ICB Food in Chile, CoopiDrogas, Gabrica, Eurosuper and Mattelsa in Colombia, Vianney and Farma Piel in Mexico and Beautycounter and Pierce Manufacturing B2B in the U.S. In addition to attracting new customers, we also focused on strengthening our relationship with existing customers, actively supporting their growth initiatives.During the third quarter, several premier brands and retailers chose to expand their operations with us by opening new online stores and further integrating with us. This includes: Calvin Klein, who added a new store in Ecuador, now operating in 9 countries in Latin America; Farmacity, who added its Simplicity brand in Argentina, now operating with 3 stores in Argentina and 1 in Uruguay; Reebok, who added a store in Panama, now operating in 6 countries in Latin America; and Whirlpool, who added its Kitchenaid brand in Austria, Denmark, Finland, France, the U.K. and Italy, now operating in Latin America, EMEA and APAC.We're excited to provide an update on one of the new customers wins we shared during our Investor Day. Beautycounter, a Carlyle portfolio company, successfully migrated from its legacy platform to VTEX. This migration enabled the consolidation of all their channels into a unified commerce experience. VTEX globally recognized as the #1 unified commerce platform provided by Gartner has demonstrated its ability to launch large and complex projects in the U.S. This accomplishment represented significant milestones in our global expansion journey, and we are committed to a partnership with Beautycounter.Furthermore, in addition to the new customer acquisition and the existing customers expanding their operations with us to significantly advance this quarter underscore our progress in solidifying our position as the global enterprise digital commerce platform where forward-thinking CEOs and CIOs smarten up their investments. The success of VTEX Connect Latam in Mexico and our inclusion in the 2023 Gartner Magic Quadrant for Digital Commerce. We saw remarkable growth at our second VTEX Connect Latam in Mexico, expanding from over 3,000 to over 7,000 participants.The impressive success of VTEX Connect in Mexico demonstrates our opportunity to continue expanding Latam, especially in Mexico. The event featured 60-plus global e-commerce experts and success stories from VTEX customers, like Arcor, Dior, Levi's, Reebok and Samsung. We also introduced AI, AR-driven improvements focus on customer experience and operational efficiency, such as AI in live shopping, which automates product recognition during live streams, eliminating the need for a production team, AI for the intelligent search to personalized customer experience and boost conversion rates, and AI in pick and pack, which enhances fulfillment efficiency, adapting to demand fluctuations for precise resource allocation.On the industry expert's recognition front, VTEX was named a Visionary in the 2023 Gartner Magic Quadrant for Digital Commerce for its ability to execute and completeness of vision. VTEX was also ranked second for the step following use cases, B2C digital commerce, B2C and B2B digital commerce on the same platform and complex business models. Additionally, VTEX was the top-rated digital commerce platform by Gartner Peer Insights over the last 12 months. We are both humble and excited about the recognition, underscoring our commitment to helping enterprises achieve agility and cost effectiveness by choosing the best components for their business.Continuing our commitment to fostering our ecosystem and offering our customers the most comprehensive solutions, we're thrilled to announce 2 partnerships that have materialized this quarter. First, we're partnering with Cielo, a leading name in payment solutions in Brazil. Their expertise in accrediting establishment for card payments and [ Pic ] will expand our payment offering, ensuring our customers access robust solutions in the Brazilian market. Additionally, we've joined forces with PayU, extending our reach across Latin America.These partnerships cover Brazil and all Latin countries, offering a comprehensive payment ecosystem with diverse options, including credit cards and alternative methods like PSA in Colombia. Our mission is to create a seamless payment experience to our customers in the region. These partnerships showcase our dedication to deliver top-tier solutions and enhancing the customer experience.Now before leaving the stage to Ricardo, I would like to share a couple of success cases from our customers that demonstrate the tangible impact and potential of our platform. At the core of our organization, our customers are in the spotlight, and their success will always remain our focus. The Foschini Group, a leading South African retailer with a diverse portfolio of 26 brands, successfully transformed its commerce landscape by partnering with VTEX. They launched the innovative Bash marketplace, consolidating 18 brands into 1, while retaining the flexibility for each brand to customize its marketplace. Since the platform launch, there has been a remarkable 73% increase in multi-brand orders, showcasing the effectiveness of the marketplace and the surge in app sales, accounting for over 35% of total online sales within just 2 months. Its conversion rate surpassed both mobile web and desktop by over 200% and 80%, respectively. Furthermore, TFG achieved a remarkable 33% improvement in page load speed, contributing to enhanced user experience.Sorte Online, a leading Brazilian lottery intermediation platform, chose the VTEX's headless solution to meet their unique business needs. This decision aimed to enhance their go-to-market strategy, focused on flexibility, experimentation and improved availability. After migrating to VTEX, Sorte Online saw a significant conversion rate improvements across multiple channels, thanks to reduced latency and VTEX's scalability, enabling seamless management of high traffic without downtime.A U.S. aftermarket vendor partnered with VTEX to enhance their B2B online experience, improve customers' interactions and optimize product tracking. By seamlessly integrating VTEX with the ERP system, they achieved efficient data exchanges and utilized a unified B2B commerce platform, enhancing both sales operations and buying experiences. VTEX data redundancy and an extensive product catalog allows customized dealer experience without extensive development. This adaptability, combined with VTEX's platform flexibility underscores the transformative power of modern digital commerce in delivering seamless and enhanced customer experiences.Naldo, an Argentine retail brand specialized in appliances, electronics and beauty products with a presence in 14 states and over 70 physical stores, chose the VTEX platform to manage its extensive range of SKUs in the marketplace efficiently. Naldo has implemented payment and promotion features and logistics integrations with third-parties, enhancing their ability to seize sales opportunity and improve their customer experience.Farma Conde, a major Brazilian chain with numeral physical stores, partnering with VTEX to implement omnichannel capabilities. They integrated over 160 of their stores with VTEX, harnessing regionalization, intelligent search and third-party solutions from the VTEX ecosystem, like Mercado Pago and Google Analytics, for enhanced customer experiences and business performance monitoring.Sergio K., a premium men fashion brand in Brazil with 11 physical stores and 200 points of sales, chose VTEX's composable architecture for their digital commerce platform. They implemented features like the wishlist using VTEX IO to enhance the customer experience. Sergio K. also leverages VTEX Shipping Network for efficient deliveries and integrate with Google Analytics for user-friendly sales data visualization. This integrated solution significantly improved performance, results in a 7x increase in order conversion rate, a 25% boost in average order value and a 60% reduction in shipping costs.A global clothing and accessories retailer operating in 39 countries through 11 online stores and 10 marketplaces recently adopted an innovative approach. They integrated VTEX's headless CMS with an app that directly retrieves content and seamlessly integrates into the store framework using native components. This implementation empowers them to customize and oversee webpage content [indiscernible]. As they can easily define structure and reposition sections, they've improved their performance by reducing errors and safeguarding against content loss.Pague Menos, a leading player in pharmaceutical retail, swiftly integrated Extrafarma into their digital ecosystem using VTEX IO Store Framework. In just 29 days, this strategy integration led to remarkable results, a substantial increase in sales, a 200% boost in conversion rates, significant orders growth and reduced operational costs, enhancing the financial efficiency of the Pague Menos Group while uniting both stores seamlessly.This quarter, we achieved significant success with our Live Shopping solution. Notably, PatBo, in collaboration with VTEX, hosted a Live Shopping event during New York Fashion Week become the sole Brazilian brand to do so. The results were outstanding with PatBo experiencing a remarkable 300% sales increase and a 125% boost in orders and a remarkable 79% rise in average order value. This event underscores the growing preeminence and effectiveness of Live Shopping as a dynamic sales channel.Additionally, at VTEX Connect Latam, Live Shopping took center stage, hosting 7 40-minute events from customers such as KitchenAid, which experienced a remarkable 152% sales spike in their event. In Argentina, Style Store did an event at the most relevant TV show, attracting over 75,000 viewers and achieving a 700% sales boost compared to the previous month.To conclude this session, I would like to express my gratitude to our 1,276 VTEX employees dedicated to making our declared future a reality, and to our customers, partners and investors. I will now hand the call over to Ricardo to discuss our financial performance for the quarter.

[Ricardo Sodre, executive]

Thank you, Geraldo. Hi, everyone. I'm pleased to share VTEX Q3 2023 financial results with you. In the 9 months of 2023, our performance was consistently strong, surpassing expectations and resulting in positive free cash flow 1 quarter ahead of schedule. Our Q3 GMV grew by 35% in U.S. dollars and 28% on an FX-neutral basis, with Q3 revenue reaching $50.6 million or 31% year-over-year growth in U.S. dollars and 25% on an FX-neutral basis. Our existing customers remain resilient and new customers exceeded our expectations with faster-than-expected go-lives.In Q3 2023, our subscription revenue hit $47.5 million, marking a solid 30% year-over-year growth in U.S. dollars, while services revenue climbed from $2.2 million to $3.1 million, largely due to new project implementations. In Q3 2023, our subscription gross margin continued to increase. Non-GAAP subscription gross profit rose to $36.2 million from $26.9 million in Q3 2022, a 35% increase year-over-year with the margin at 76.2% compared to 75.3% last quarter and 73.8% in Q3 2022. The 247 bps year-over-year margin increase reflects our commitment towards efficiency and customer success. The margin increase resulted mainly from optimizing our hosting costs and architecture. We are excited about the progress and remain dedicated to delivering further margin improvements in the future.Now our overall non-GAAP gross profit rose to $35.8 million from $26.3 million in Q3 2022, a 36% increase year-over-year with the margin at 70.7% compared to 68.0% in Q3 2022. This achievement was driven by hosting improvements that I just mentioned and an improvement in our services gross margin in the quarter as we started dialing back on the hypercare mode for [ 2 ] new customers in U.S. and Europe. In Q3 2023, our non-GAAP total operating expenses stood at $34.1 million, remaining steady compared to our previous quarter. Therefore, our expenses as a percentage of our revenues significantly improved from 83% in Q3 2022 and 71% last quarter to 67% in Q3 2023, demonstrating our commitment towards efficient expense management while also accelerating our business under uncertain macro conditions.In Q3 2023, we achieved positive non-GAAP operating income a quarter earlier than expected. Our Q3 2023 non-GAAP operating margin reached a positive 3.4% compared to a negative 15.5% margin on the same quarter last year. The significant 19 percentage points year-over-year increase was exclusively driven by revenue growth and gross margin improvements, as non-GAAP total operating expenses actually slightly increased year-over-year. Furthermore, we saw a solid 6.1 percentage points improvement in our non-GAAP operating income margin on a quarter-over-quarter basis. These trends underscore our commitment to profitable growth, subscription cost efficiencies and stable expenses aligned with market demand and sales efficiency, demonstrating our dedication to strengthening financial performance while sustaining high revenue growth.We are delighted to announce that for the 3 months ending on September 30, 2023, VTEX achieved a positive free cash flow of $2.7 million. This is a significant improvement from the negative free cash flow of $3.3 million reported in the previous quarter and the corresponding quarter of the previous year. Our positive non-GAAP operating income and improvements in our payables and collection efforts primarily drove this free cash flow result.Before I move to the outlook for Q3 and fiscal year 2023, I would like to update you on our share repurchase program. As of September 30, 2023, the remaining balance under the current authorization was nearly $10.1 million. We've purchased 1.9 million shares at an average price of $5.53 per share. Considering the previous plan that concluded on August 8, 2023, the total repurchased shares amounted to 9.0 million shares with an average price of $4.16 per share and a total cost of $37.9 million.As we look to the future, we are thrilled about VTEX's remarkable adaptability and resilience. Regardless of market conditions and their inherent volatility, VTEX has consistently surpassed market expectations while delivering strong long-term performance metrics. For the fourth quarter of 2023, we are currently targeting revenue in the $55.0 million to $57.0 million range, implying a year-over-year growth of 22% on an FX-neutral basis in the middle of the range. For the full year 2023, considering the current performance of the company, we are increasing the bottom and the top of the range, now targeting the full year trend between 22% to 23% on FX neutral year-over-year basis, implying a range of $196 million to $198 million based on October average FX rate and assuming a devaluation of the Argentina's currency aligned with the market future rates.As we continue executing our profitable growth plans, we anticipate year-over-year improvements in the non-GAAP operating income margin in the fourth quarter 2023. We hold strong confidence in VTEX's distinctive value proposition centered on empowering our customers to achieve profitability and sustainable growth by reducing their total cost of ownership and simplifying their commerce infrastructure. Our commitment to incorporating physical stores as the centerpiece of the omnichannel experience position us to provide the rapid growth and profitability our customers aspire to.We'll continue to work towards building outstanding success cases with our customers, offering innovative solutions and seizing opportunities to ensure long-lasting success for our dedicated employees, value customers, innovative partners and long-term investors. The future is filled with exciting prospects that we are eager to pursue.With that, let's open it up for questions now. Thank you.

[Operator]

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

[Marcelo Santos, analyst]

I have 2. The first is if you could comment, what were the main countries that posted a positive surprise and led VTEX to beat the original guidance? So just wanted to see where the surprise came more from. And the second question is more about the service margin. It was negative, but it was one of the, let's say, lowest negative margin that you ever print, at least that we have history as a reported company, as a listed company. What's the dynamics in there? Why is it so low now? And is there some change in the way you do the services? So if you could comment on that, I would be glad.

[Ricardo Sodre, executive]

Marcelo, thanks for the question. Great questions. So I'll take this one. Ricardo Sodre here. So on the overperformance versus the guidance, in Q3 2023, our robust performance can be attributed to multiple factors with new customers additions playing a significant growth, both coming from new ACV signs and the go-live of ACVs that were signed in previous quarters. On the latter, we continue to observe a promising trend in regards to the stabilization of our sale and implementation cycle, which had a positive impact in our results. Also on existing customer base same-store sales, we continue to see growth in the teens level, outperforming the market and slightly above our internal expectations for Q3.And on the country specific, as you asked, we continue to see a robust performance across the board. Brazil performed pretty well in Q3. And we also saw the global U.S. and Europe outperforming the overall company. As you know, we provide more detailed numbers on the geographic breakdown on an annual basis. So when we publish Q4 in next quarter, we can give more details on the geographic breakdown. And looking forward, we acknowledge the potential impact of an uncertain macro scenario on the same-store sales of existing customers. And the sales cycle for new customers. Nevertheless, our competitive position remains strong, and we are focused on delivering value and enabling growth for our customers. And with a pipeline of promising projects implementation and favorable trends in sales cycle stabilization, we are pretty confident in the sustainable growth trajectory that we have.On the second question on the services gross margin, as mentioned in the prepared remarks, we are gradually evolving the hypercare mode for project implementation for [ 2 ] new customers in U.S. and Europe to our more ongoing regular modes. So just to recap, the hypercare mode is how we call our deliberate commercial decision to closely support the implementation of relevant new customers in U.S. and Europe to ensure their successful go-lives. And as a result of this strategic move, we were able to create strong relationships with flagship signed customers, ensuring a high-quality integration and onboarding experience and advancing our expansion into these new geos with reputational cases.And also with the hypercare, we can more actively guide our customers into the vision of commerce that we believe in. At that time, we committed that this decision was going to impact our services gross margin in the short term, but that this was going to position us better in these new regions in the medium to long term. And in Q3, as a demonstration of that, we had the go-live of the B2C of Beautycounter, as you can see in beautycounter.com. And also the B2B of Pierce Manufacturing, an Oshkosh company, and we have a relevant pipeline of go-lives to come over the next [ few ] quarters as well. And we're encouraged to see the improvement in services gross margin after the go-live of these new customers. Now we still have all the relevant global customers under implementation and some services gross margin volatility is natural in our business. But looking further out, we expect gross margin to continue improving.

[Marcelo Santos, analyst]

Perfect.

[Operator]

Our next question will come from the line of Maddie Schrage with KeyBanc Capital Markets.

[Madison Schrage, analyst]

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

[Mariano Gomide de Faria, executive]

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

[Ricardo Sodre, executive]

Yes. Happy to, Mariano. So Maddie, regarding the holiday season and how we're seeing it, so we continue to see uncertainty in the macro environment, which makes it challenging to have clear visibility into the holiday season. Last year, we observed a shift in the seasonality a bit with sales spreading out all over November instead of concentrating around the typical Black Friday event or week. And there is currently conflicting information regarding holiday season expectations. So we are approaching predictions for sales cautiously. Consumer appear to be eager to make holiday purchases, but they seem to be seeking significant discounts before committing to buying.And on the retailer side, it remains uncertain to which extent they can afford to sacrifice margins to offer substantial discounts and boost sales. So as a result, we are closely monitoring both the end consumer and our customers' activity to assist the latter in performing well during the holiday season. And most importantly, we're taking steps to ensure our customers can entirely rely on our platform during this critical time of the year.

[Madison Schrage, analyst]

Super helpful. And congrats on the quarter.

[Operator]

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

[Leonardo Olmos, analyst]

So can you discuss a little bit the product approach. So if you can you talk a little bit about B2B in Brazil? How has that been evolving? And all the product launches that you have in the Q3, how is that being accepted by the market in Brazil?

[Geraldo do Carmo Thomaz, executive]

Well, thank you, Leonardo. So first of all, B2B, it seems -- it's appearing as a very appealing offer at VTEX. It's not constrained to Brazil. You just saw the announcement that we announced PicPay B2B as a go-live. But Brazil is accelerating the sales of B2B a lot, but not only Brazil, Latin America, U.S., we're selling B2B scenarios everywhere. And the beauty of our platform, if you saw the Gartner report, the Critical Capability report, we are the #2 platform in B2C and B2B in the same platform. This creates a big advantage for our customers because they can deal with one single control panel for both channels. And this also creates a big advantage for us as a product because we don't redo a lot of the core things that we need to have in both scenarios.So B2B for us is some specialization that we developed in some modules at VTEX so that it works nicely with B2B. We -- B2B also is very customizable. So we have like a customer called Pierce Manufacturing in the U.S., launching a B2B operation with us. And this case is -- you can see that we have the inventory of all the sales that Pierce Manufacturing did in the past for the parts of each truck that they sold and all its customized in our platform. So B2B is actually a specialization of our e-commerce platform, and we are investing a significant amount of energy, specializing even more on modules with features just like buying organizations, capacity to customize with master data. There's several things that we are doing to be more competitive, but we're very competitive already.

[Leonardo Olmos, analyst]

And another question, can you discuss a little bit the market in Argentina. We've been talking so much about political, but can you talk about the retail market and how are you seeing things for year-end?

[Ricardo Sodre, executive]

Leo, Ricardo here. I'm happy to take on Argentina. So on the overall retail market, I think there were some news in the local newspapers in Brazil talking about how consumers are accelerating their purchases in Argentina. So we see some of that happening. But more broadly regarding the country, we are closely monitoring the situation in Argentina and the uncertainties surrounding this year's election. Argentina represents roughly 10% of our revenue. And while we are -- we have successfully navigated changing political and economic conditions in Argentina over the years, we are aware of the challenges and complexities that come with operating in this market.And as mentioned in the earnings release, for our Q4 guidance, we are assuming that the Argentine peso will devalue in line with the FX market futures, losing roughly half of its value in December. So considering that we have part of our revenue in Argentina U.S. dollars, this level of FX devaluation would result in a revenue impact of high single digit, roughly $1 million in 2024. And only half of that would flow through operating income. Therefore, it's a one-off and a pretty small impact on our overall business. And having said that, we are confident that despite this potential headwind, VTEX should continue to improve its operating margin and maintain an attractive FX-neutral growth rate as we are very well positioned in the country. We have a strong competitive position in Argentina, and the underlying growth of the country over the years could be attractive for us.

[Leonardo Olmos, analyst]

Yes, sounds great. And sorry for my background noise.

[Operator]

Your next question will come from the line of Franco Granda with D.A. Davidson.

[Franco Granda Penaherrera, analyst]

Congrats on the solid quarter here. I was hoping if you could share some statistics with us to highlight or maybe to better characterize the performance of some of the recent product introductions, namely the ones that you talked about back in June at VTEX Day.

[Geraldo do Carmo Thomaz, executive]

Happy to do that. Mariano can complement me if necessary. So we're very excited with developing capabilities to empower the workforce of our customers, Live Shopping is one of them, the personal shopper is another one, the sales app. All these deliver the functionality of delivering from store also gives more roles to the salesperson inside the physical stores. These are things that we're very excited with, and it's very aligned with the broad range of customers that we serve. There's a lot of our customers that can benefit from delivery from store from integrating the store, the salespeople, the salesperson into the digital experience. This is also very powerful for B2B scenarios as well. When you have salespeople serving and helping the sales of the manufacturer that is doing the B2B business. So this is something that we're very excited.We -- on this topic, there's also the pick and pack capability that it's a tool that enables streamlining of the process of delivering from store, like there's no similar tool in the market for -- to streamline such a process. We are developing some capabilities on top of AI. There's a natural path for this, which is our search, our recommendation. These are all AI [ aid ] features that we are developing even more. But we're not doing only that. All these new tools that I just mentioned to you, they are all -- they have also AI capability embedded on that because we're very excited with these capabilities.VTEX is also very committed in delivering security capabilities to our customers, privacy compliance. These are also something that we're very excited to deliver to our customers so that they can rely on a robust platform that is elastic and secure, so we can process the data and keep the data as safely as possible.

[Franco Granda Penaherrera, analyst]

Great. And I was hoping to also get an update in regards to some of the new customers that you talked about during your Analyst Day. You did give us a few on those. But any updates on Casino and what they're doing there, how their expansion is going and whether they're planning to expand across the entire company in France?

[Geraldo do Carmo Thomaz, executive]

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

[Franco Granda Penaherrera, analyst]

Yes. No, of course. And a very brief follow-up on that. Maybe if you could speak to the sales cycles, the timing of those quarter-over-quarter and then year-over-year, if possible.

[Ricardo Sodre, executive]

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

[Franco Granda Penaherrera, analyst]

Appreciate the color.

[Operator]

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

[Geraldo do Carmo Thomaz, executive]

VTEX is entering an exciting phase, reaping the initial rewards of our global expansion investments. We've shown consistent execution and financial results, reaching breakeven and generating cash a quarter ahead of schedule. A solid quarter marked by sustainable gross margin improvements and expense discipline demonstrates the success of our business model even in uncertain macro conditions.We serve a multitude of models and customer touch points from B2C, B2B, B2B2C to physical stores and marketplaces, including large shopping and conversational commerce, among others. VTEX is becoming the platform of choice for forward-thinking leaders, and this is just the beginning. Thanks to our customers, partners, investors and our dedicated team who make it all possible. We look forward to keep you updated at our next earnings call. Have a wonderful week.

[Operator]

That will conclude today's meeting. You may now disconnect.