Vtex Q2 FY2023 Earnings Call

Hello, everyone, and welcome to the VTEX Earnings Conference Call for the Quarter Ended June 13, 2023. I am Julia Vater Fernandez, Investor Relations Director for VTEX. Our senior executives presenting today are Geraldo Thomaz Jr., Founder and Co-CEO; and Ricardo Sodre, Chief Financial Officer. Additionally, Mariano Gomide de Faria, Founder and Co-CEO; and Andre Spolidoro, Chief Statutory Officer, will be available during today's Q&A session. I would like to remind you that management may make forward-looking statements related to such matters 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 assumed expectations and projections are reasonable in view of the corporate information, you are cautioned not to place undue reliance on these forward-looking statements. Certain risks and uncertainties are described in the Risk Factors and Forward-Looking Statements sections of VTEX Form 20F for the year ended December 31, 2022, alongside other filings within the U.S. Securities and Exchange Commission, which are available on our Investor Relations website. Finally, I would like to remind you that during the course of this conference call, we may discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our second quarter 2023 earnings press release available on our Investor Relations website. Now let me turn the call over to Geraldo, the floor is yours.

Thank you, Julia. Welcome, everyone, and thanks for joining our second quarter 2023 Earnings Conference Call. In the past few months, we have witnessed significant milestones and exciting events that have propelled us forward. From the successful celebration of Tax Day, our commercial events that gathered over 20,000 attendees per day, to the announcement of our launch of 5 new products which received excellent customer reception to our first time after Investor Day on the second anniversary of our IPO. For those who didn't have the chance to connect to our Investor Day, I highly recommend you take a look at the audio recording available on our Investor Relations website. As we embark on this earnings call, I'm here to provide an update on our performance during the second quarter. I'm pleased to announce that our company has demonstrated remarkable resilience and achieved a strong performance in the second quarter. Our GMV experienced a significant 23.4% year-over-year growth. This growth is a testament to VTEX's strong value proposition that continues to attract new customers to our platform. Moreover, despite the challenging macroeconomic scenario, our existing customers continue to outperform the market, with same-store sales remaining in the teens range, although slightly below historical levels. Additionally, not only have we exceeded our revenue projection, reaching almost $48 million this quarter, but we have also successfully maintained leverage across all our cost and expense centers. Despite the demanding environment, our team's unwavering dedication and strategic decision-making have allowed us to drive and deliver exceptional results. Thanks to these efforts, every quarter, we feel closer to our goal of becoming the backbone of connected commerce, the platform that powers unified commerce experiences for businesses around the globe. Now let's delve into specifics. In the second quarter, we added several new customers that migrated from other platforms, including Springer Carrier and Privalia in Brazil; Riviera Bike and ProBeauty in Romania; Supermercados Internacionales HEB in Mexico; New Zealand Wine Cellars in New Zealand; and Kayser Roth in the U.S. In addition to attracting new customers, we are also focused on strengthening our relationship with existing customers by supporting their expansion efforts. During the second quarter, several premier brands and retailers chose to expand their operations with us by opening new online stores and further integrating with us. These include Belcorp, which added a store in Panama, currently operating in Latin America in countries such as Mexico, Colombia and Chile, among others; Tommy Hilfiger, which added a store in Costa Rica, currently operating in Latin America, in countries such as Brazil, Mexico, and Colombia, among others; and Whirlpool, which added stores in Mexico, Spain, and Sweden, now operating in Latin America, EMEA, and APAC, in countries such as Brazil, Italy, India, and Singapore, among others. The decision of these brands to expand their operations with VTEX serves as a testament to the strength of the platform and its compelling value proposition, which has fostered trust and loyalty among our customers. We take immense pride in being the partner of choice for ambitious growth plans. We're thrilled to offer unwavering support leveraging the assets of the physical stores and maximizing their potential. Upselling the right features and products is at the forefront of our strategy, empowering our customers to accelerate their growth and enhance operational efficiency. Our commitment lies in helping them surpass overall market expectations, and we are dedicated to guiding them on a profitable growth journey every step of the way. We're proud to share that VTEX was awarded medals in all 24 categories of the 2023 paradigm B2B combined, enterprise, and mid-market issues. We received gold medals in customer service and support, integrations, operations and infrastructure, marketplace, and promotions management. Our standout achievement is that we were the sole vendor to achieve a gold medal for the marketplace product capability in both reports, certifying our reputation as the top choice for enterprise B2B companies. On top of all the Investor Day customer cases, let me share some incremental success stories that demonstrate the capability of our platform and the remarkable outcomes they have achieved. My Geisha, the renowned beauty brand with a presence in 13 countries and over 58 stores, partnered with VTEX in Romania to propel its online sales growth. By leveraging our marketplace solution, My Geisha diversified its sales channels and expanded its reach by offering complementary beauty products. Furthermore, we worked closely with them to customize the front end of their site, resulting in a staggering seven-fold increase in online sales. This collaboration accelerated its e-commerce success and solidified its brand's position in the competitive beauty industry. Midea, a prominent Chinese electrical appliances manufacturer with a vast global footprint comprising 200 subsidiaries and over 60 overseas branches, turned to VTEX for scalable solutions and improved business performance in Brazil. Midea successfully implemented critical features such as catalog management, pricing optimization, and promotional tools through our out-of-the-box solutions. The results were impressive, with Midea achieving a remarkable 10% increase in overall conversion rates, a 40% boost in organic revenue, an 8% rise in mobile conversion rates, and a significant 13% reduction in bounce rates after their migration to VTEX. This partnership exemplifies how VTEX empowers businesses to unlock their potential and thrive in targeted markets. Kopenhagen, a leading premium chocolate brand under the CRM Group in Brazil, harnessed the power of VTEX's omnichannel architecture to enhance its sales during the Easter season. Leveraging our platform, the CRM Group achieved a remarkable 20% increase in sales by seamlessly integrating its physical stores and franchisees into its e-commerce operations. This integration allowed for expedited delivery options and boosted customer satisfaction. Additionally, Kopenhagen experienced a 50% surge in in-store pickups, a 55% growth in sales from loyal customers, and an influx of 2 million customer contacts via WhatsApp. VTEX's comprehensive solutions proved instrumental in driving Kopenhagen's growth and delivering an exceptional customer experience. A global sportswear giant and key player in the local market selected VTEX in Latin America to enhance customer experience and safeguard against reseller attacks. Utilizing VTEX's customizable checkout process, they integrated anti-fraud protocols to thoroughly assess orders across both the web and user interface channels, pre- and post-order creation. This proactive approach empowered our customers to manage potential attacks more effectively, enhancing security and customer satisfaction. Through this collaboration, VTEX enabled them to protect their limited-edition SKUs and provide consumers with an exceptional online shopping experience. Williamson Balfour Motors, a BMW dealer in Chile, partnered with VTEX to successfully transition its automotive e-commerce to cater to customers' needs through digital channels. By implementing platforms for BMW, MINI, and BMW Motorrad, they provided a tailored online shopping experience. Overcoming automation challenges, BMW utilized VTEX's user-friendly and comprehensive tools, allowing various business areas to participate. Looking ahead, BMW plans to enhance its platform and offer customers an even more convenient experience, bringing the option of vehicle reservations closer to them. This transformation in the automotive industry enables customers to purchase cars from the comfort of their homes, thanks to advancements in digitalization and seamless communication with sales representatives. Iguatemi 365, a luxury marketplace representing over 200 national and international brands from Brazil's renowned Iguatemi network of luxury malls, leveraged VTEX FastStore to optimize its website's performance. By implementing our solutions, Iguatemi 365 achieved impressive results in core performance metrics, including making the page much more stable with a remarkable 92% reduction in shifting content, ensuring smoother interactions with an 81% decrease in input delays, and making the overall loading experience faster with a 27% improvement in displaying the main content. These substantial improvements enhance user experience and solidify Iguatemi 365's position as a premier destination for luxury shopping in Brazil. Metatools, a leading company in the DIY industry, partnered with VTEX in Germany, Italy, and Romania to launch the e-bricoshop.ro marketplace. With an estimated 50 major merchants and brands with a minimum of 100,000 SKUs listed expected in the first year, Metatools aims to promote Romanian companies and drive business growth. The marketplace will offer a wide range of products, including power tools, gardening equipment, cleaning supplies, and more. By partnering with VTEX, Metatools has built a user-friendly platform that allows for easy expansion and international scalability. The e-bricoshop.ro marketplace aims to cater to DIY enthusiasts and professionals, connecting them with quality products and fostering a sense of community. In addition to the remarkable customer success cases, I am delighted to share with you that during our Investor Day, we had the privilege of hosting a panel with Hisham Faour, Principal of Transformation & Portfolio Operations at Carlyle Group, the controlling shareholder of Beauty Counter, our recently announced new customer in the U.S. We also had the pleasure to announce Casino in France and Hearst in the U.S. as our new customers during our Investor Day. These esteemed brands have chosen VTEX as their trusted digital commerce platform. They are expected to go live progressively in the coming quarters. Their decision to partner with VTEX holds significant importance, and it is worth delving into the reasons behind their choice. By selecting VTEX, these forward-thinking companies recognize our platform's unparalleled value and robust capabilities, including its scalability, flexibility, and ability to seamlessly support their expansion into new markets. We are excited to accompany Beauty Counter, Casino, and Hearst on their journey, and we are confident that our partnership will yield exceptional results. Our global expansion journey has been progressing, and these additions to our growing list of esteemed customers are a solid step towards our goals. We take great pride in our efforts to provide cutting-edge solutions that empower businesses to embrace digital transformation, which industry leaders have also recognized. We believe that as we continue to onboard new customers such as Beauty Counter, Casino, and Hearst, we will pave the way across the globe to achieve our mission to become the backbone of connected commerce. I now would like to express my gratitude to our 1,305 VTEX employees who are 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.

Thank you, Geraldo. Hi everyone, I am pleased to share VTEX's Q2 2023 financial results with you. I'm excited to share that, once again, our company's top-line performance was robust. As highlighted by Geraldo, our Q2 GMV growth achieved 23.4% in USD and 21.2% on an FX-neutral basis. Our Q2 revenue exceeded expectations, surpassing the upper end of our guidance, reaching $47.9 million and reflecting a YoY increase of 23.7% in USD and 22.9% on an FX-neutral basis. This outcome demonstrates our ability to attract new customers to the VTEX platform and the resilience of our blue-chip customer base. We are reassured to observe that we are continuing to assist our customers in outperforming the market. Double-clicking on our topline, our subscription revenue reached $44.8 million in the second quarter of 2023, from $36.6 million in the same quarter last year, a YoY increase of 22.2% in USD, and 21.4% on an FX-neutral basis. Our services revenue reached $3.1 million in the second quarter of 2023, from $2.1 million in the same quarter last year, a significant YoY increase given the new projects that are under implementation. Our subscription gross margin also improved compared to previous quarters. Our non-GAAP subscription gross profit was $33.7 million, compared to $26.6 million in the second quarter of 2022. The non-GAAP subscription gross margin was 75.3% in the second quarter of 2023, compared to 73.9% last quarter and 72.5% in the same quarter of 2022. The 280 bps YoY margin expansion shows the commitment of our team to keep improving our margins. This margin improvement was driven mainly by migrating non-core services to more efficient hosting providers and optimizing and gaining operational leverage on our support costs. We are proud of what we have achieved on this front and excited about what is to come. We delivered a YoY improvement of more than 120 bps on our overall gross margin in Q2. We continue working on a few implementations in the U.S. and Europe, such as the ones previously mentioned: Beauty Counter, Casino, and Hearst, where we are proactively investing in our services offering to ensure successful go-lives. By design, this impacted our services' gross margin and, therefore, our overall gross margin. Even though this quarter we've delivered an improvement in services gross margin compared to last quarter, we anticipate this commercial decision to still have some impact on our gross margin in the short term, as it will position us better in newer regions in the medium to long term, enabling us to implement new customers smoothly and successfully. Our non-GAAP total operating expenses reached $34.1 million in the second quarter of 2023, from $31.9 million in the prior quarter and $43.3 million in the same period last year. The YoY improvement reflects the organizational restructuring we made over the past year. The QoQ increase in expenses is mainly attributed to the foreign exchange appreciation of the Brazilian Real since most of our payroll in R&D and G&A is based in Brazil. Other drivers that also impacted our expenses, to a smaller extent, were the annual salary increase in the R&D team, and a minor impact from the VTEX DAY event, whose efficiency improved significantly compared to the previous year. Thanks to our diligent expense management and strong revenue growth, our non-GAAP operating income showed significant improvement. In the second quarter of 2023, we achieved a negative 3.2% margin, a remarkable improvement from the negative 45.1% margin recorded in the same quarter last year. This represents an impressive YoY improvement of 42 percentage points. Furthermore, on a QoQ basis, we saw a 6.5 percentage point improvement in our non-GAAP operating income margin. These positive trends highlight our commitment to enhancing profitability and strengthening financial performance while still delivering high revenue growth. As of the three months ended June 30, 2023, VTEX had a negative $3.3 million free cash flow, compared to negative $5.0 million in the prior quarter and negative $12.7 million free cash flow in the same quarter of the prior year. This also demonstrates operational efficiency from a cash flow perspective. Before I move to the outlook for Q3 and FY2023, I would like to update you on the share repurchase program approved in August last year. As of June 30, 2023, the remaining balance under this authorization was nearly $3.5 million. We've purchased 6.7 million shares at an average price of $3.93 per share. Today, we are pleased to inform our investors that VTEX's Board of Directors has approved another 1-year share repurchase program for VTEX's Class A Common Shares, up to $20.0 million. The decision on the timing and quantity of shares repurchased, if any, will be at the discretion of our management, taking into consideration market conditions and other relevant factors. This move reflects our confidence in the company's financial position and our commitment to delivering long-term value to our shareholders. Looking ahead, we are excited about VTEX's adaptability and ability to thrive. Despite the uncertain macro, VTEX has consistently outperformed the market while also delivering robust long-term performance metrics. We are currently targeting revenue in the $48.2 million to $49.0 million range for the third quarter of 2023, implying a YoY growth of 19% 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 both the bottom and the top of the range, now targeting the full year to end between 18% to 20% on an FX-neutral YoY basis, implying a range of $191 million to $195 million based on Q2 average FX rates. As we continue executing on our strategy for profitable growth, we anticipate relevant YoY improvements in non-GAAP operating income margin in the second half of 2023. We are confident in VTEX's unique value proposition, centered around enabling our customers to achieve profitability and sustainable growth by reducing total cost of ownership and simplifying their commerce architecture. We will continue to execute the integration of e-commerce with physical stores, delivering omnichannel excellence that enables us to deliver the rapid growth and profitability that our customers seek. We remain focused on adapting to market conditions, providing innovative solutions, and capitalizing on emerging opportunities to drive sustained success for our valued customers, partners, employees, and investors. We are excited about the opportunities ahead. With that, let's open it up for questions now. Thank you.

Our first question comes from Marcelo Santos at JP Morgan.

I have 2 questions. The first is the P2 revenues versus management expectations. Can you please discuss a bit? I mean, is this like more stores or more volume or has the sales cycle been shorter? I just wanted more color on what came in better than you expected. And the second question is regarding the further decline in headcount. Could you please just discuss what changes are you making now? Where is this change located?

Thanks for your question, Marcelo. It's great to have the opportunity to go deeper into the reasons behind VTEX's outstanding performance in the market and to address the sustainability of this achievement. So first and foremost, our overperformance can be attributed to the new customers coming and joining the VTEX platform, both on new ACV signed and on backlog projects going live. This demonstrates the attractiveness of our value proposition to our customers of achieving profitability and sustainable growth by reducing the total cost of ownership and simplifying their commerce architecture under the current market demands.

Additionally, as mentioned in our earnings press release, we have seen an encouraging stabilization of our sales cycle in the current quarter, which also had a positive impact on our results through the go-live of projects under implementation. Another factor that contributed to our resilient performance was our existing customer base. Although the same-store sales were slightly below expectations, our existing enterprise customer base GMV still grew in the teens levels in Q2, significantly above the market, and was a remarkable driving force behind our Q2 growth. While we acknowledge that we are still navigating an uncertain macro scenario that may impact the same-store sale of existing customers and the sales cycle of new clients, our positioning remains strong. Our commitment to providing a composable and complete platform with a low total cost of ownership and our relentless focus on delivering value to our customers continue to set us apart. We have a pipeline of promising cases undergoing implementation, and we are seeing an encouraging stabilization of the sales cycle, further bolstering our confidence in maintaining our growth trajectory. Looking ahead, we remain grounded in our guidance and confident in our growth prospects. Our strategy is aligned with our execution, and we are confident in achieving our outlined targets.

So about the headcount, our headcount has remained pretty stable when compared to the previous quarter. We are confident that our current staffing levels align well with the demand we are experiencing, and we don't foresee any substantial changes in this regard. Our headcount will likely hover around these levels, possibly with a slight uptick, but we maintain rigorous hiring standards, which can occasionally result in a longer turnaround time for replacements and natural attrition. So in some cases, we might choose to refrain from refilling acquisition in a sense. Simultaneously, new roles will be introduced based on our operational requirements. This dynamic might lead to minor fluctuations in headcount from quarter to quarter, but we are not anticipating any significant shifts. Considering that personnel, in the first quarter of 2023, we had around 1,300, second quarter around 1,300, and we foresee that level. So we are not anticipating any changes on that. And considering that personnel costs make up a substantial portion of our expenses, the stabilization in headcount in conjunction with our projected revenue growth is a driving force behind our expectations of continued year-over-year operating income margin improvement for the second half of this year.

From my side here, the first one is, you mentioned during your Investor Day and today also new products and solutions for customer engagement. So can you please comment on the reception by the clients of the new product launches? And how do you see it going forward? The second one is on competition. Are you seeing competitors being more aggressive on pricing or take rates or general pricing?

Pleased to get this, Mariano. First on the competition. We don't see a drastic change in the market dynamics. We observe the market operating at the same kind of price points. However, we see a shift from a client perspective, where clients are much more aware of the total cost of ownership of the platforms in the market. So although we don't see competitors changing their pricing strategy, we notice a momentum around pricing becoming a more significant topic in the RFP processes that have been higher. So in this aspect, as we position ourselves as a low total cost of ownership sustainable platform, we bet that we can capture the movement of the market in this regard. As for the second question around Products & Solutions for engagement, we see the organic channels as one of the highly profitable operations for our customers. To sell more with their organic assets is one of our strategies to make our clients grow. So I can quote, for example, to extend the endless aisle in physical stores and joining operations with the platform. VTEX launched the VTEX pick-and-pack, which combines with VTEX e-commerce and gives our clients the ability to have a seamless pick-and-pack solution that integrates all the physical stores into the digital journey. Another one is live shopping. It's a new organic channel that is trending in the market and very big in Asia but not yet in the United States and Europe. We announced live shopping with a personal shopper during VTEX Day. We believe the missing link between online and offline is the sales team, the individuals who are inside the stores. For that, we've launched a sales app—the in-store solution of VTEX—that allows the sales team to participate in the journey. We believe that the combination of the in-store sales app and the Commerce suite fulfills the necessity of our unified commerce while enhancing our position as the number one solution for unified commerce according to Gartner.

Hello. First question is really around some of those North American merchants that you indicated are going through implementation or recent deals. How should we size those merchants? I mean, what’s the line of sight to being able to claim 100 million-plus GMV merchants in North America at this point? And then the second question is really around running another share repurchase authorization today. Is this an opportunistic use of capital, given the focus on leveraging in the model right now? Or do you think even looking beyond this year, buybacks will continue to be attractive?

So, Mariano here. I’m going to address the cases that we announced on Investor Day. We are proud of the solid steps we are making in our international expansion. We can see that our positioning as a commerce specialist with a very technical approach and our designation as a composable and complete solution are helping our message to resonate more with potential customers in the U.S. and Europe. At our recent Investor Day, we shared those contracts. We’ve renowned brands like Beauty Counter, Casino, and Hearst—these companies have chosen VTEX as their preferred unified commerce platform and will progressively go live in the forthcoming quarters. We also have additional customers who have signed contracts that are under implementation and look forward to announcing once they are live. We are seeing a consistent pipeline in the U.S. and Europe. So we have a lot of work ahead of us in the coming quarters. As always, we will announce when our clients go live as well. It’s also interesting to remark the surge of B2B opportunities that are emerging. As I’ve mentioned in previous earnings calls, nearly half of the opportunities in the United States are B2B leads. Our value proposition is resonating with potential customers. We are consistently advancing through the more mature stages on RFP processes and showcasing in the growing consideration of our composable and complete platform. For instance, with Beauty Counter, we’ll handle all online operations and transactions for them, encompassing the multi-level marketing go-to-market strategy. We’ll also manage a digital direct-to-consumer channel alongside their physical stores in the United States, and this rollout will be progressive, impacting our operational metrics next year as well. Just to clarify, we will not handle their wholesale channel, which is an important note. On Casino, they will start the go-live phase, inviting family to experience the new web store. This limited introduction will occur in a single store in the coming months, and we’ve mapped out our rollout strategy for a progressive deployment. We expect full deployment in Casino in France in the second half of 2024. As you know, achieving a seamless transition in optimal operational volumes requires disciplined execution that typically translates into a 6 to 12-month ramp-up time after the go-live. Regarding Hearst Corporation, the U.S. announcement we made during Investor Day, they are gearing up to add more than 10 brands to the VTEX platform. Each brand will operate as a separate marketplace, characterized by its unique attributes and offerings. While the brands will share a common pool of sellers and a unified catalog, their autonomy will be preserved through distinct product descriptions and presentations. In summary, we see a significant opportunity for VTEX in the U.S. and Europe. We are witnessing increased interest in our offering. Analyst recognition from firms like Gartner, IDC, and Forrester regarding the VTEX brand is on the rise. This is translating to customers who are pursuing VTEX organically. Consequently, we are cautiously optimistic for the future as it relates to opportunities coming from the U.S. and Europe.

Perfect, Mariano. And on the second question, Clark, regarding the buyback, it’s more an opportunistic opportunity that we are seeing as we approach the decision. Approving a buyback program for another year reflects our confidence in the company’s financial position and our commitment to delivering long-term value to our shareholders. As a high-growth company, we constantly look for opportunities to invest our resources to accelerate growth. Now considering our strong cash position and the clarity we have regarding our capital allocation for the next year, we view this buyback program as an attractive capital allocation opportunity for the next year. Finally, it’s important to note that the current buyback program we are announcing is relatively aligned with the current dilution from our share-based compensation that we are observing. So hopefully, that answers the question.

I have 2 here. First, could you provide an outlook on how you're assessing the e-commerce market for the main regions you operate in? Has there been any improvement in the second quarter compared to what we've seen in the first quarter? Or does it remain difficult? And second, a follow-up on competition. We have seen many players focused on smaller clients stating that they are now targeting the market of larger clients. Have you observed any impact on that from your side? Have you seen any of your smaller clients being targeted by those players? Have there been any major impacts?

Ricardo here. Happy to take the first question on market growth. I'll comment a little bit on the overall e-commerce market growth, and then we can talk about the regions. So while e-commerce continues to grow in single digits, we continue to consistently outperform the market and perform on a GMV basis as strong as the top performers in the industry. Our ability to adapt and stay resilient has been crucial. Our dedication to customers and partners remains very strong, and we are continuously refining our offering to stay ahead of the game. There are a few reasons that drove our overperformance versus the market in Q2. The first and most relevant one, as I mentioned to Marcelo's questions, was that we added new customers, generating net new GMV for our platform. We believe we are successful in attracting new customers because we are helping them achieve profitability and sustainable growth by reducing the total cost of ownership and simplifying their commerce architecture. The second reason is that our large enterprise existing customer base continued to show resilient growth in same-store sales, which remain in the teens range. Importantly, our existing customers are significantly outpacing the market by seamlessly integrating their physical stores into the digital shopping experience, as we outlined in previous quarters. This merge of physical and digital storefronts has led to increased conversion rates, expanded inventories, fewer stockouts, and faster deliveries among many other benefits. As for geographical breakdown, we typically provide this disclosure on an annual basis due to the long sales cycles we experience. Hence, not much meaningful variation occurs from quarter to quarter. If you recall our 2022 disclosures, we experienced mid-20s percentage growth in Brazil, which aligned closely with the overall performance, slightly below the aggregate average, while the rest of the world, including the U.S. and Europe, grew in the 50% range or so, outpacing the overall company. These types of trends have been consistent for some time. Thus, as I mentioned, we typically provide detailed disclosures of our growth on an annual basis. In terms of the second question concerning competition, I'll pass it over to Mariano.

Regarding competition, we are not seeing a different landscape compared to prior quarters. Speaking regionally, we are not noticing any new entrants in the markets of Europe, the U.S., LatAm, and Brazil. The same players continue to dominate. As our penetration in B2B increases, we are observing some of our traditional B2B competitors emerging, particularly within the United States. However, the market remains largely unchanged with the same familiar names. The only significant notice was Oracle withdrawing from the commerce environment, but no additional public competition announcements have surfaced.

I'm happy to hear that sales cycles have kind of come back to normalized levels. Just wondering if your guidance assumes this recovered level in your sales cycles. And then my second question is wondering if you guys could give some color on the ramp speeds of your new go-lives and whether we've seen some recovery, too, or if we're still seeing merchants pulling back on sales and marketing spend.

Thanks for your question. So on the sales cycle, we mentioned both in the earnings release and in the prepared remarks that we have seen an encouraging stabilization in the sales cycle. They have not reverted back to normal historical levels. They are still slightly above, but we are seeing an encouraged trend in this stabilization. Now the go-lives and ramp-ups, we are including that in the overall cycle, as mentioned. We are witnessing a similar trend here as well, which is encouraging to see. As for what's factored into our guidance, both our Q3 and 2023 guidance assume the same-store sales from existing customers remaining in line with current levels and continued stabilization in the sales cycle for new customers. While it has not returned to normal, we are observing a continued stabilization. If you reflect on previous quarters, you’ll find that our Q3 FX-neutral guidance matched that of Q1 and Q2. Notably, we have increased our 2023 FX-neutral guidance from previously outlined figures to reflect a more favorable outlook. However, I should note that market conditions remain uncertain. The holiday shopping events of Q4 add volatility to promotional behavior and therefore impact GMV contributions from our customers under the current retail landscape. To conclude, we believe we are well-positioned to capitalize on the digital market opportunity, although some volatility in same-store sales persists. Our existing customer base continues to outperform the market, and we’re observing strong momentum in new customer sales that should continue to bolster our growth moving forward.

The collective effort of our dedicated team, loyal customers, and partners have propelled us into a new phase of commerce transformation. Our customer base has consistently showcased remarkable resilience, serving as a testament to the strength and reliability of the VTEX platform. The consistent low annual revenue churn we have experienced highlights the unwavering trust our customers place in us. This, in turn, has enabled us to foster our robust and sustainable business model, positioning us for continued growth. The macroeconomic environment poses a significant challenge for enterprises and retailers to meet their operational and financial targets. This represents an opportunity for VTEX. Legacy players, once dominant, are now being perceived as outdated providers that enterprises and retailers actively seek to migrate away from. On the other hand, emerging players aren't the best option either, as even though they offer great customization, it comes at the cost of complexity and high operating expenses. We stand out by offering a composable and complete platform that combines the best of both worlds, with an offering that addresses exactly what enterprises and retailers are looking for. Together, we're shaping remarkable customer experiences and solidifying our position as leaders in the e-commerce industry. Thank you, everyone, for joining us today. We look forward to keeping you updated in our next earnings call. Have a wonderful week.

Thank you. And once again, ladies and gentlemen, that does conclude today's call. Thank you all for joining. You may now disconnect.