Hello everyone, and welcome to the VTEX Earnings Conference Call for the Quarter Ended December 31, 2024. I am 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 currently 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, 2024 and other VTEX’s filings with the US 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 fourth quarter 2024 earnings press release available on our investor relations website. Now, let me turn the call over to Geraldo. Geraldo, the floor is yours.

Thank you, Julia. Welcome everyone and thanks for joining our fourth quarter 2024 earnings conference call. We closed the year with our underlying business remaining stronger than ever. Looking at the medium to long term, 2024 was a transformative year for VTEX. We delivered significant milestones in our evolution as a global leader in digital commerce. First, we continue to see robust sales momentum in signing new enterprise customers onto the VTEX platform, demonstrated by the number of customers that pay us more than $250,000 per year increasing from $126,000 to $155,000. Second, our annual revenue churn remains stable in the mid-single digit percentage range, evidence of our customer satisfaction and our strong position in the competitive landscape. Third, we introduced new products such as VTEX, add data pipeline and Shield designed to empower our customers with AI-supported add-ons that enhance business outcomes and revenue generation, delivering efficiency and tangible business results for our customers and potentially contributing to VTEX's monetization capabilities. The three operational pillars highlighted above: adding new enterprise customers, maintaining low churn and launching innovative products are key to VTEX's medium- and long-term success. While our revenue model, with two thirds coming from a take rate on customer GMV, closely aligns our success with that of our customers and benefits us from the growth of digital commerce, it also introduces short-term volatility. This was evident this quarter and year with revenue coming below expectations due to weaker same-store sales, particularly in Brazil amid softer consumer spending and significant effects of devaluation. Ricardo will elaborate further on this in the financial section. Now going back to the three key operational growth drivers: on adding new enterprise customers in 2024, we saw strong contract signature momentum with Brazil standing out as a highlight throughout the year, with notable contributions from the US and Europe in the second half. As a result, our deferred revenue increased 29% year over year, which is a testament to the attractiveness of our value proposition for net new customers. These achievements reaffirm VTEX's global ambitions of becoming the backbone for connected commerce. They are more than just a software provider but the preferred comprehensive commerce suite by bold CIOs and CEOs worldwide. On keeping a low and stable churn, we further solidified our partnership with top-tier brands and retailers demonstrating our ongoing upmarket trajectory with a 23% increase in the number of customers generating over $250,000 in annual recurring revenue. In 2024, we celebrated the go-live of several key customers including H-Mart, MyEye, Dr. Jeffers, Pett & Hurst's ongoing expansion in the US, OBI, an enterprise multinational fashion retailer in Europe, Motorola in Sweden, Whirlpool in Poland, Pashmina in India, Nike, Adidas and Elektra across Latin America, and Fast Shop, Orange Fruits and Demol in Brazil among many others. Although our total number of customers has slightly decreased year over year, that's driven by a lower intake of small customers that are not strategic nor financially relevant for VTEX. Our annual revenue churn remains stable in the mid-single digits as our base of customers paying us more than $250,000 in ARR grows and compounds over time. It further strengthens VTEX's long-term growth and resilience on launching product innovations. VTEX is successfully transitioning from a single product platform into an integrated suite of solutions. Our offerings now span B2C, B2B, Sales App, Pick and Pack, Data Pipeline, Retail Media, Security Shield and many more, empowering business through a well-connected ecosystem. Our strategic investments, including a stake in Synerise and the acquisition of Weni, expanded our AI and conversational commerce capabilities while enabling us to enter two new segments: retail media and post-sales markets. This diversification strengthens our position as the most comprehensive suite of commerce solutions, going beyond software to serve as a trusted ally in executing our customers' growth strategies. As we look ahead, we remain steadfast in building trust with our customers and delivering on our promises alongside our ecosystem partners. Trust is at the core of VTEX's DNA and will continue to guide us as we solidify our leadership in digital commerce. With this segue, let me go to the newly added customers during the fourth quarter of 2024 including Dakota croissants, Donna Carioca, Hortifruti, Ortobom and Rissul in Brazil, Torre in Chile, an enterprise multinational fashion retailer in Ireland, Coolbox, Hanes in Mexico, Sameca in Portugal, Rahr Corporation and Lyon Bakery in the US. We also focus on strengthening our relationship with existing customers, actively supporting the GROW initiatives. During the fourth quarter, several premier brands and retailers chose VTEX to expand their operation with us, including Amo Beleza that launched a new brand, Mascavo, and now operates two B2C stores in Brazil. Cartamundi has introduced the Grimaud brand in France, extending its operation to Europe in addition to its two B2C stores in the US. Keune continues to expand its B2B presence across Europe, adding Germany to its Belgium, France, Netherlands and UK operations. Mazda is further strengthening its European presence with the addition of France, which is now operating in four countries. Solar has expanded to B2B in Colombia with two new accounts, Solla B2B and Distraves B2B, adding their two existing B2C stores in the country and VOIT has expanded its B2C presence into the US, complementing its operation in Mexico. Additionally, in our continued pursuit of fostering our trusted ecosystem, we're thrilled to announce that we've launched a strategic partnership with Accentric, the retail technology systems integrator. This collaboration empowers US Enterprises to modernize their digital commerce infrastructure, addressing shifting buyer trends and rising market challenges. With record retail closures highlighting the urgency for transformation, VTEX and Accentric are united to help brands stay competitive by leveraging VTEX's agile platform and Accentric's expertise in business transformation. This partnership positions VTEX at the forefront of driving growth and resilience for US Companies in today's dynamic retail landscape. Now, before leaving the stage to Ricardo, I would like to share some customer success cases demonstrating our platform's tangible impact and potential. An enterprise multinational fashion retailer in Ireland partnered with VTEX to overcome significant technical and operational challenges. Before VTEX, the company relied on a dedicated e-commerce intelligence textile platform that lacked scalability, functionality and the flexibility needed to support its growing digital commerce ambitions. Their primary objectives were integrating inventory from over 100 stores, centralizing digital sales and driving revenue and efficiency improvements. VTEX implemented its core platform with a white label B2C operation to address this need and enhance the user experience with out-of-the-box features like color and sizing options. The architecture was further strengthened by a redesigned front end and integrations facilitated by middleware from our partner Logic. Early indications suggest improved sales efficiency and platform usability by integrating smart checkout. Carajas, the leading retailer in the home improvement segment in Brazil, transformed its customer experience and boosted sales with Weni by VTEX. With 11 physical stores, two distribution centers, and over 20,000 SKUs ranging from decoration to construction products, Carajas needed an efficient post-sales channel to enhance customer service and drive incremental revenue. By integrating conversational commerce with Weni by VTEX, Carajas automated key processes, including cart recovery with optional human assistance, order updates, and financial solutions like invoice retrieval and PIX payments. This automation led to remarkable results such as: a 15x higher conversion rate on WhatsApp than email; an expansion in their return on investment in abandoned cart recovery, which reached double digits; and a 68% message read rate, well above the 40% to 45% average for emails. We are proud to help Carajas embark on their conversational commerce journey, where WhatsApp has already become a comprehensive and efficient channel, delivering convenience, trust, and competitive differentiation throughout the customer journey. Heineken Brazil, home of some of the most beloved alcoholic beverage brands, chose VTEX Ads to run their digital campaigns. It achieved exceptional results, with above-average return on ad spend in the fourth quarter of 2024. This success was powered by identifying Zona Sul's highly qualified audience through first-party data, including transaction insights and search behavior on the platform. By analyzing shopper intent, Heineken's campaigns were strategically optimized, targeting consumers with high purchase intent and ensuring maximum impact across many SKUs. Through this data-driven approach, VTEX Ads provided Heineken Brazil with actionable insights into key performance indicators like sell-out and market share, helping them define their strategy for even better results. Pashmina.com, the leading B2C e-commerce platform specialized in luxury handcrafted Kashmiri pashminas, has partnered with VTEX to transform its digital operations and accelerate global growth. With 85% of its business coming from international exports, Pashmina.com migrated from its legacy platform to VTEX's platform to enhance scalability, flexibility, and operational efficiency. This transition empowered the brand to offer personalized shopping experiences, multilingual support, and local currency options for its customers across the US, Europe, Australia, and India. This partnership allows Pashmina.com to expand its global presence while celebrating the rich heritage of Kashmiri craftsmanship, all without the burden of managing its web infrastructure. Together, we aim to redefine India's digital retail landscape and set new benchmarks in global e-commerce innovation. Sony, the renowned global electronics company, has selected Sales App as their primary platform to manage sales operations across LatAm stores. This partnership represents the first multi-country implementation of the Sales App, with seven stores across Ecuador and Chile already becoming their main in-store sales platform. To meet its specific operational needs, Sony has extended Sales App within the VTEX ecosystem using Jitterbit, integrating it with their existing systems. Sony plans to expand Sales App usage to four additional countries in LatAm: Peru, Panama, Colombia, and Mexico, bringing the total number of stores to 18. With Sales App as its exclusive platform for all operations, this rollout underscores its potential to drive significant results across Sony's regional network. Walmart, the multinational discount store operator and one of the largest corporations in the global retail industry, is transforming the mobile shopping experience across Central America by launching new apps in Costa Rica and Guatemala. The apps offer a flexible, customized shopping solution for each country and store format, from Walmart Supercenters to Supermarkets and Discount Stores. Leveraging VTEX IO infrastructure and our API-first approach, the app's advanced architecture enhances load time and performance, while intuitive navigation improves user experience, driving higher customer satisfaction. This is just the beginning, with additional brands across the region set to go live. Through its digital expansion, Walmart is setting new standards for retail innovation in Central America, a development we proudly support. The Smart Storage Solutions business unit of Black & Decker successfully launched its Smart Storage digital commerce store, migrating from a content-only Sitecore website to the VTEX FastStore platform. This new platform delivers a seamless catalog browsing and purchasing experience for prominent brands like Vidmar, LISTA, and CribMaster. Built on the proven global architecture used for Stanley Engineered Fastening's website, also powered by VTEX, Smart Storage expands Stanley's assortment availability and commerce capabilities, positioning it to meet the rising demand of digitally-native B2B customers. The migration represents a pivotal step in enhancing operational efficiency and customer engagement in B2B digital commerce. To conclude this session, I want to express my gratitude to our 1,368 VTEX employees dedicated to making VTEX the backbone for connected commerce and to our customers, partners, and investors. With that, I will now hand over the call to Ricardo to discuss our financial performance for the quarter and the full year 2024.

Thank you, Geraldo. Hi everyone, it's a pleasure to update you on our financial performance. In the fourth quarter of 2024, our GMV reached $5.4 billion, representing flat year-over-year growth in US dollars and an 11% increase in FX-neutral. With this, we concluded the full year 2024, reaching $18.2 billion in GMV, representing 10% and 16% growth in US dollars and FX-neutral, respectively. Our revenue totaled $61.5 million, growing year-over-year by 1% in US dollars and 12% in FX-neutral in the fourth quarter of 2024, and reached $226.7 million for the full year 2024, representing a 13% and 18% growth in US dollars and FX-neutral, respectively. These results came below our guidance range of 14% to 17% FX-neutral for the fourth quarter and 18.5% to 19.5% FX-neutral for the full year. The primary driver for the gap versus our expectations came from a softer-than-expected GMV from existing customers in Brazil, where consumer spending softened. On top of this, the US dollar's meaningful appreciation against most currencies, and especially the Brazilian real, further pressured our US dollar reported results. Despite Brazil's challenging consumption scenario, as mentioned by Geraldo, we remain confident in our ability to sustain a profitable growth trajectory based on the robust momentum in adding new enterprise customers, our stable and low churn, and our recent product innovation launches. Double-clicking on our revenues, our subscription revenue reached $59.5 million in the fourth quarter of 2024, representing a year-over-year increase of 2% in US dollars and 13% in FX-neutral, on top of last year's 36% in US dollars and 27% in FX-neutral growth. For the full year, subscription revenue reached $217.7 million, up from $190.3 million in 2023, representing a 14% and 20% growth in US dollars and FX-neutral. In 2024, our existing stores revenue increased to $169 million. Our net revenue retention reached 104% in FX-neutral. As a key driver of net revenue retention, our same-store sales growth reached 10% in FX-neutral. Looking at same-store sales throughout 2024, for the first three quarters, same-store sales growth was in the teens level while in Q4 it dropped to the single-digit range, given tougher comps in Argentina and softer consumer spending in Brazil. It is important to mention that the upselling of new features, contract renewals at better terms and inflation adjustments have partially offset the impact on our net revenue retention from the weaker same-store sales from our customers. On top of our existing stores' growth, we continued attracting new stores, adding $27.9 million in revenue to our base, representing approximately 16% of our 2023 VTEX Platform revenue. The solid contract signature momentum is coupled with our LTV/CAC ratio that remains at a strong fold, exceeding the 6x cash-on-cash mark. This year, a significant highlight is the continued progress of our existing stores' P&L, reinforcing the strength of our inherently attractive business model. Existing stores' gross margin increased from 77% in 2023 to 81% in 2024, while operating margin reached 43%, marking an eight percentage point increase year-over-year. Additionally, given our net revenue retention of 104% in FX-neutral, our existing stores' P&L is significantly above the Rule of 40, giving us confidence in our Rule of 40 goal at maturity. Meanwhile, for new stores' margins, we delivered a 10 percentage point improvement in gross margin year-over-year and five percentage point operational leverage improvement in R&D and G&A, which were all basically re-invested into Sales & Marketing, strategically positioned to seize the significant growth opportunity ahead. Now, analyzing the geographical breakdown of our revenue. In 2024, revenue generated outside Brazil accounted for 43.4% of our total revenues. Looking at the year-over-year FX-neutral growth by region: Brazil's subscription revenue grew 28% in FX-neutral, a slight acceleration versus last year mostly given the solid sales momentum mentioned throughout the year and despite the year-end softness in same-store sales. Latin America excluding Brazil's subscription revenue increased 6% in FX-neutral, and removed the Argentina headwind the region grew at a pace just slightly below Brazil's; and the Rest of the World subscription revenue grew 34% in FX-neutral, demonstrating a relevant compounding rate even as we increase the baseline. Moving down our P&L, we have maintained strong discipline on costs and expenses. Important to note that, all figures I will now present are non-GAAP. You can find the reconciliation of those measures to the nearest comparable GAAP measures in our fourth quarter 2024 earnings press release on our investor relations website. Our subscription gross profit reached $46.9 million, resulting in a 78.9% subscription gross margin, up from 78.6% in the same period last year. Our total gross margin, which includes services, rose to 75.1%, compared to 74.1% in Q4 2023. Our total gross margin improvement was mostly driven by the lower mix of services revenue in our total revenue, as we are relying more on our ecosystem to provide implementation services, and, to a smaller extent, by operational efficiencies in support cost, despite the currency headwind experienced in the quarter. Operating expenses were $33.8 million, slightly below the $34.2 million recorded in the prior quarter, resulting in an operating income of $12.4 million, representing a 20.1% margin, up from 19.1% in the same quarter of the prior year. Aligned with this, our free cash flow performance was equally strong reaching the same $12.4 million and 20.1% margin, consistent with the target model we communicated to the market. The resiliency of our operating income and free cash flow margin clearly demonstrates our natural operational hedge against FX fluctuations, as even though the weighted average of our basket of currencies depreciated approximately 10% year-over-year against the US dollar, we still improved our operating income margin by one percentage point and our free cash flow margin by 4.5 percentage points. Looking at the full year, the improvements have been even more significant. Our subscription gross margin improved 196 basis points, reaching 78.2%, while our overall gross margin expanded by 402 basis points, reaching 74.1%. Operating margin improved 9 percentage points, reaching 13%, going from $7.7 million in 2023 to $29.5 million in 2024. Free cash flow also significantly increased, from $3.8 million in 2023 to $25.2 million in 2024. We also did strategic capital allocations, like Weni and a minority investment in Synerise, and launched a new share-repurchase program. Approved by our board of directors on December 3, 2024, the program authorizes the repurchase of up to $30.0 million in Class A common shares and will remain in effect until December 2, 2025. In the fourth quarter of 2024, we repurchased 1.8 million Class A common shares at an average price of $6.08 per share, totaling $11.2 million. We'll continue to allocate capital with diligence, aligned with our strategic vision and aiming to maximize long-term returns and value generation for VTEX, our customers, partners, employees, and investors. As we move forward with our business outlook, we remain confident in our business resiliency. Despite Brazil's FX volatility and existing customers' GMV softness in the short term, we see an attractive opportunity to help our customers outperform the market, attract new customers, cross-sell our suite of products to our base, and efficiently manage our costs and expenses to deliver operational leverage. Considering these, we are currently targeting FX-neutral year-over-year subscription revenue growth of 13% to 15% for the first quarter of 2025, implying a $51 million to $52 million range. For the full year 2025, as we continue executing our profitable growth strategy, we are targeting FX-neutral year-over-year subscription revenue growth of 14% to 17%, implying a range of $235 million to $241 million based on the quarter-to-date average FX rate. We are targeting non-GAAP operating income and free cash flow margins of mid-teens. Given the evolution of our partner ecosystem, we plan to increasingly rely on VTEX's ecosystem of system integrators for new customer implementations. We view our lower short-term growth rate as temporary, influenced by the abrupt FX devaluation and a softening of consumption in Brazil. Looking ahead, our operational and long-term indicators are showing strong performance. We have seen a significant 23% increase in the number of customers generating over $250,000 in ARR, and our deferred revenue has also meaningfully increased by 29% year-over-year. Our annual revenue churn remains in the mid-single digits, with larger customers experiencing low-single-digit churn. Finally, and not less important, we are excited to be expanding with compelling new products that are enhancing our offerings. Overall, we remain optimistic about the future and look forward to the opportunities that lie ahead in the coming years. With that, let's open it up for questions now. Thank you.

We'll take our first question from Marcelo Santos at JPMorgan.

Hi, good evening. Thank you for taking my questions. My first question is about the guidance for subscription revenue growth in FX-neutral terms for 2025. Could you elaborate on this in relation to the regions where you operate, perhaps comparing last year's growth and your projections for the key drivers affecting that guidance? My second question is related to your opening remarks where you mentioned transitioning from a single product company to more of a platform of solutions. What long-term impact do you anticipate this transition will have on the profit and loss statement, and what should we expect for the various lines?

Marcelo, thanks for the question. Happy to take the first one regarding the guidance for 2025. So our Q1 and full year 2025 guidance assumptions reflect a balanced view of consumption headwinds and the continued strength of our operational execution. So on the same-store sales growth front, remember that this was in the teens level during the first three quarters of 2024, but it decelerated to single digits in Q4. And as mentioned in the prepared remarks, and for 2025, we are assuming a same-store sales growth rate in FX-neutral, roughly aligned with what we saw in Q4, factoring in ongoing consumption pressures, particularly in Brazil. We are going to your question on geographical right side, we are embedding a recovery in Argentina, where we are starting to see some signs of year-over-year consumption improvement. And then with that, we are assuming Argentina should return to positive growth in 2025, although we still expect it to grow less than the average of the company given the uncertainty of the speed of recovery of the country. And as we like to talk as well as we separate existing customers and new customers. On the new customer front, we are assuming some increase in average implementation plus ramp-up time given the mix of larger customers we currently have in the backlog across the world. And with that, and given the meaningful new customers already signed in 2024, you can note that there is an implied acceleration from the midpoint of our Q1 guidance to the midpoint of our full year guidance. And this acceleration is mostly driven by operational drivers, not by macro recovery assumption. And the operational driver is basically the expected go-lives of already signed new enterprise customers. And on the second question, Marcelo, if you could repeat it, please?

You mentioned at the start of your prepared remarks that VTEX is moving from being a single product company to what I believe you described as a platform of solutions or an ecosystem of solutions. I would like to understand better what the midterm impact on your profit and loss statement will be as you add more solutions and products. How does this affect the various components of your profit and loss?

Yes, I'm happy to start and then others can add their thoughts. We are already going through this transition. When we refer to the commerce suite, we mean not only the comprehensive B2C platform but also B2B, Retail Media, the Sales App, VTEX Shield, Data Pipeline, and more. We have been executing this for the past few quarters and have invested in research and development to launch these products. These are actual products that we have already launched, and they are being used by customers. Therefore, we don't anticipate any significant impacts on the investment side of the profit and loss statement. On the other hand, when considering the profit and loss in the long term, we believe that some of these products are aimed at different buyers within organizations. This can potentially enhance the stickiness of the VTEX solution by having various products utilized not just in commerce but also in marketing, security, and data. It focuses more on customer stickiness and lifetime value rather than short-term effects on the profit and loss statement.

I can add something here, Sodre. I can add something. The financial distress that retailers and brands are suffering creates the opportunity for a company like us to give them an out-of-the-box full integrated solution. So they can write off providers and unify in a very simple way what we are calling the simplification of the operation, that gives them more margins and unlocks some revenues. So when we call ourselves, that's what we explained in the VTEX 2028 charter in our VTEX 2024 annual report, quote, VTEX is the common suite of choice for both CIOs and CEOs globally. That means that we will not provide only B2C anymore. So as we are testing those markets in the last two years, now we became a common suite. So you can have the B2C with us, you can have the B2B with us, but also you can have the add-ons such as, for example, the Pick & Pack, the VTEX Ads, the Shield, Data Pipeline. All of this, it is to simplify the operation of our customers and allowing them to serve this efficiency necessary way they will be forced to serve. So what we can expect in terms of P&L impact, as Sodre said, not really much. What we can see is that the capacity that we do have inside our clients to guide them to use a simple solution is pretty strong, and we are using it. So we already have clients that are using three or four products of VTEX, and this is creating more stickiness and preparing the clients for the future.

We'll move to our next question from Thiago Kapulskis with Itau BBA.

Hi everyone. Thanks for the opportunity to ask questions. I also have two questions. So the first one, just to get a little bit more color on the softness that you saw in Brazil this quarter. Is there anything specific in terms of sectors, verticals, regions that you would call out? And also, how are you thinking about that on your guidance looking into Q1 and also into the full year? How are you incorporating those effects? And my second question is more related to the environment in the US given the new administration coming in. I know that by the end of last year, there was a lot of bullishness on everything. Just want to hear a little bit from you guys more on the pipeline of new deals and the conversations the mood continues to be positive, if it changes? Any color there would be great.

Great. Thanks, Thiago. Ricardo here. Happy to take the first one, and I believe Mariano can address the second one. So on the GMV softness and macro impact, before answering the question, let me take a step back and do a quick recap of our revenue model as I think it helps in aligning the foundations. So as you know, Thiago, approximately one third of our revenue comes from a fixed fee, while the remaining two thirds are tied to our customers' GMV. We like the revenue model structures as it aligns our success with our customers' success, provides us with long-term exposure to the continued penetration of e-commerce and automatically protects us against inflation. Having said that, this revenue model may also introduce some short-term volatility. In the positive consumption cycles, it's a tailwind to our short-term performance. And in the negative cycles, it's a short-term headwind. From an operational and medium- to long-term perspective, our focus remains on signing new enterprise customers, keeping a high gross retention, and helping our existing customers grow their GMV above the market. And from this perspective, we are seeing a strong performance. New customer contract signatures continue at a solid pace, which is reflected in our deferred revenue growing 29% and the number of customers paying us more than $250,000 per year growing 23%, and also our annual revenue churn remains in line with historical levels in the mid-single-digit range, where our fastest-growing clusters of customers, the ones above $250,000, our revenue churn is even lower in the low single digits. So on the GMV softness, let me just try to share some context in Brazil. The same-store sales that we saw in Brazil, which is the GMV growth of our existing customer base, for instance, the year-over-year same-store sales growth in FX-neutral in Brazil unexpectedly decelerated by roughly 6 percentage points from Q3 to Q4. The abrupt FX devaluation and the rising interest rates weighted on consumer spending and the significant appreciation of the US dollar against most currencies, particularly the Brazilian real, also further pressured this type of consumption behavior. On specific segments, we saw a more relevant deceleration in home appliances and electronics. But as you know, this is volatile. Every quarter changes a bit, but those were the key segments that we saw some of this deceleration. Hopefully, that answers your question.

Our next question comes from Leonardo Olmos at UBS.

Sorry, I believe there was a second question.

Yes. There was a second one. It's about the new administration in the US. Is that correct?

Yes, if I'm still in, yes, about the environment, the new administration remember that by the end of last year, the environment was very positive overall in the US. and I guess that would be good for deals and everything. Just want to understand how you see the new administration came in and how the move from the perspective of eventually signing deals or negotiating deals and that kind of thing.

Okay. So I will answer in two aspects. The first one is in what matters for VTEX. So we keep seeing the same sales momentum, increasing the pipeline in the US in B2C, B2B grocery. So we continue to see the same trend and a good momentum to be created in the United States. And what can the new administration affect this momentum? I am not sure if this will affect VTEX specifically. But let me say that, if macro that we cannot predict, if the new administration creates volatility that will affect inflation, that will affect interest rates, of course, the retail and the brands will be affected. And on this scenario, you do have a more kind of momentum for the companies to change and to simplify their operations. So we always see a crisis on the retail as a good momentum for VTEX because the companies that used to have their own custom platform that's pretty expensive to maintain use the crisis to make the decisions to simplify their process. So we cannot anticipate that the volatility will be good or bad for VTEX in the US, and even that is a very small country for us. But we like a lot when crisis creates the momentum for companies to change, and we are seeing this in our pipeline.

And now we'll go to Leonardo Olmos at UBS.

Hi everyone. Good evening. Can you discuss a little bit the assumptions for the guidance? I'm sorry to go back to Marcelo and Thiago's question. But just to understand, so we saw Latin America excluding Brazil growing 6% in 2024. You said that Argentina may go to 0. So if you could discuss a little bit the other challenges in LatAm, excluding Brazil and excluding Argentina. And Brazil has been doing great. So I assume you're putting some retraction in the guidance, which, of course, makes a lot of sense. However, the rest of the world, which is mentioned in the US is not that relevant. So there was a 37% growth in '23 going down to 34% almost. And then what you're assuming is still seeing deceleration in the rest of the world? So I know you don't give guidance, but just to understand the assumptions in Marcelo's question is with Argentina a little bit. I just was hoping you could discuss other countries as well online.

Thank you, Ricardo here. In the fourth quarter, our subscription revenue grew approximately 13% year-over-year on an FX-neutral basis. This is how we are finishing the year. As we've noted, there was a significant headwind from Argentina affecting this growth rate, which we anticipated when we provided guidance for the fourth quarter. What caught us off guard was the deceleration in same-store sales growth among our existing customers, particularly the roughly six percentage points slowdown we observed in Brazil during Q4. Starting from this base of about 13% growth in Q4, for Q1, the guidance midpoint is set at 14%, which then accelerates to a midpoint of 15.5% for the year. Part of this acceleration compared to Q4 stems from a reduction in the headwind from Argentina. We expect to see some recovery there, with positive growth anticipated, though still below the overall company growth rate. Nevertheless, Brazil continues to present challenges with its lower same-store sales and reduced consumer spending. These are the critical factors influencing our guidance. Additionally, as I mentioned to Marcelo previously, we expect an increase in average implementation and ramp-up time due to the mix of larger customers in our backlog. This impact is felt globally, including in the US and Europe, where we are implementing more substantial clients.

Next, we'll move to Lucca Brendim at Bank of America.

Good afternoon, everyone. Thank you for taking my question. I have two here. The first one is on Brazil. Regarding the payroll tax exemption, if you guys will be passing that through to clients in some way? And what can we expect in terms of the impact for that? And also second, you guys showed the breakdown for the margins for existing stores and also the margins for new stores for 2024. And the margin for new stores actually went down and the one for existing stores went up. So I just want to check if this has to do with the profile with larger clients? And how can we think about that going forward if most of the expansion should continue to come from the existing stores or if we should see an expansion for new stores as well?

Thank you, Luca. I'm ready to answer the questions. Regarding the payroll tax change in Brazil, after various discussions around the potential regulation, it appears that the situation will allow for a gradual reintegration of taxes over the next few years. Since we have also been steadily improving our margins, the likely effect of the current payroll tax proposal should not significantly affect VTEX. Under the existing approved legislation, VTEX could experience an annual impact of about low single-digit millions on our operating income and roughly half that on our net income, considering VTEX Shield for these additional costs. We anticipate that these impacts will lessen and could eventually vanish as we continue to improve our operating margin. It's important to highlight that, regardless of the potential effects, our operating margin target for the year, set at mid-teens, remains unchanged. And Luca, could you please repeat the first question?

Yes. The other question is for the breakdown for the existing stores and new store margins that the margin for the new stores actually went down for existing stores went up? And how can we think about that going forward? And why the new stores went down if it was because of the larger clients coming in?

Yes. Perfect, Lucca. So on the new stores, we achieved a 10 percentage point improvement in gross margin year-over-year, right? So that's important to note. And this improvement is largely attributed to our increased reliance on the ecosystem for implementations, which reduces the pressure on the service side. And we also realized five percentage point operational leverage improvement in R&D and G&A. And then the drag on the margin on your question is that we chose to strategically reinvest these 10 percentage points from gross margin and the five percentage points operating leverage in R&D and G&A in sales and marketing to capitalize on the growth opportunity. So with that, if you look at the operating level, it didn't change that much. It slightly reduced versus the prior year. And this is as we invest in sales and marketing to go after larger customers and expand geographically the company as well. And I would say that's also important to highlight that our LTV over CAC, right, which when we think about the new stores P&L, we lose money in the short-term, but to get customers for us for the long-term. So it's about the return on invested capital. And the way that we think about return on invested capital is the LTV or CAC and that remains above 6x cash on cash with a payback period around 2.5 years. So this is a strong performance that underscores the attractiveness of our investment in acquiring new customers and making it a compelling proposition for the long-term growth of the company as well.

And that concludes our Q&A session. I will now turn the conference back over to Geraldo for closing remarks.

2024 was a transformative year for VTEX, defined by innovation, operational excellence and robust momentum in both new and renewed contracts. While the fourth quarter growth fell short of expectations due to short-term FX volatility and existing customers' GMV softness in Brazil, we have laid an exceptionally strong foundation to propel VTEX into its next phase for the company. We expanded our platform into a connected ecosystem with AI-powered solutions like VTEX Ads and Shield, enhancing customer outcomes and positioning VTEX as the most comprehensive commerce suite. Our strategic investments and evolving product portfolio have strengthened our leadership and opened new revenue streams, reinforcing confidence in our long-term growth potential. We've made significant progress towards sustainable profitable growth. As we step into 2025, we're committed to building on this solid foundation, delivering value and driving innovation for our customers and shareholders. Thank you for your trust and partnership. We look forward to updating you at our next earnings call.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.