VTEX(VTEX) - 2023 Q4 - Annual Report

Introduction Forward-Looking Statements This section outlines forward-looking statements, emphasizing their inherent risks and uncertainties, and advises against undue reliance on them - Key business risks highlighted include the ability to attract and retain customers, respond to technological advances, manage international expansion, and navigate macroeconomic uncertainty and competition[18][25] Certain Definitions This section defines key financial and operational terms like Gross Merchandise Value, Annual Recurring Revenue, and Net Revenue Retention used throughout the report - Gross Merchandise Value (GMV) is defined as the total value of orders processed through the platform, including taxes and shipping, but excluding orders from SMB platform customers or B2B transactions[30] - Annual Recurring Revenue (ARR) is calculated as the subscription revenue from the most recent quarter multiplied by four[24] - Net Revenue Retention (NRR) is calculated monthly by dividing the current period's subscription revenue by the prior year's subscription revenue from the same base of active online stores[31] Financial Information and Non-GAAP Measures The company's financial statements adhere to IFRS, using USD as currency, and include non-GAAP measures like Free Cash Flow and FX Neutral for enhanced performance analysis - Free Cash Flow is calculated as net cash from operating activities minus acquisitions of property, equipment, and intangibles It is used by management to evaluate liquidity[38] - FX Neutral measures are calculated by applying the prior year's average monthly exchange rates to the current year's results to exclude the impact of currency fluctuations and provide a stable comparison[39][40] Market Data and Emerging Growth Company Status This section details the use of third-party market data and VTEX's status as an emerging growth company under the JOBS Act, which grants certain reporting exemptions - As an emerging growth company, VTEX is exempt from certain reporting requirements, including the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act[48] Part I Item 3. Key Information This section outlines key risks, including business, industry, Latin American market, and Class A common share-related challenges, such as profitability and dual-class share structure implications D. Risk Factors This subsection details comprehensive risks, including historical net losses, intense competition, customer acquisition challenges, reliance on third-party services, cybersecurity threats, international operational complexities, and dual-class share structure implications for shareholders Net Loss by Fiscal Year | Fiscal Year | Net Loss (USD Million) | | :--- | :--- | | 2023 | $13.7 | | 2022 | $52.4 | | 2021 | $60.5 | - The company faces intense competition from major players like SAP Hybris, Oracle Commerce, Magento (Adobe), Salesforce Commerce Cloud, and Shopify Plus, many of whom have greater resources and brand recognition[77][78] - International operations are a key part of the business, with 45.7% of total revenue in 2023 generated from customers outside Brazil This exposes the company to risks including currency fluctuations, regulatory compliance, and political instability[85][86] - The dual-class share structure gives Class B shareholders 10 votes per share, concentrating approximately 61.6% of the voting power with controlling shareholders, which limits the influence of Class A shareholders[255][257] Item 4. Information on the Company This section provides a detailed overview of VTEX's business, including its history, corporate structure, physical properties, enterprise digital commerce platform, revenue model, and market leadership in Latin America A. History and Development of the Company Founded in 2000, VTEX evolved into a SaaS platform, expanded globally from Latin America, and became publicly listed on the NYSE in July 2021 - The company completed its Initial Public Offering (IPO) on July 21, 2021, raising net proceeds of US$296.3 million[315] B. Business Overview VTEX offers an enterprise digital commerce platform integrating commerce, marketplace, and OMS, emphasizing 'Collaborative' and 'Composable Commerce' approaches, serving 2,600 customers globally with a subscription-based revenue model Gross Merchandise Value Performance | Metric | 2023 | 2022 | | :--- | :--- | :--- | | GMV | US$16.5 billion | US$12.7 billion | | GMV Growth (USD) | 30.2% | 31.3% | | GMV Growth (FX Neutral) | 25.3% | 26.8% | - The company serves 2,600 customers with 3,500 active online stores across 43 countries Approximately 86% of its GMV comes from large, blue-chip companies[297] - The subscription-based revenue model, which accounted for 94.4% of revenue in 2023, includes a fixed fee and a transaction-based fee tied to customer GMV[312] - VTEX has received multiple industry recognitions in 2023, including being named a 'Visionary' in Gartner's Magic Quadrant for Digital Commerce and a 'Leader' in IDC's Marketscape for Midmarket B2B Digital Commerce[302] C. Organizational Structure This section illustrates VTEX's corporate structure, detailing subsidiaries and ownership stakes as of the report date - The report includes a corporate structure chart that outlines the company's subsidiaries and major shareholders, including founders, LA Holdings DE LLC (SoftBank), Riverwood Managed Entities, and others[397][398] D. Property, Plant and Equipment The company leases all its facilities, with significant office spaces in Rio de Janeiro, São Paulo, and New York Leased Office Spaces | Location | Square meters (m2) | Lease Expiration Date | | :--- | :--- | :--- | | João Pessoa, Brazil | 235 | 03/31/2024 | | New York, USA | 719 | 02/28/2025 | | Rio de Janeiro, Brazil | 3,100 | 05/30/2024 | | São Paulo, Brazil | 1,106 | 09/30/2027 | Item 5. Operating and Financial Review and Prospects This section provides management's analysis of VTEX's financial condition and operations, detailing key performance metrics, revenue and cost components, liquidity, capital resources, R&D, and market trends A. Operating Results This subsection details financial performance, including a 27.8% increase in total revenue to US$201.5 million in 2023, a net loss of US$13.7 million, and key metrics like NRR of 107.4% on an FX neutral basis Gross Merchandise Value Performance | Metric | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | | :--- | :--- | :--- | :--- | :--- | | GMV (USD Million) | $3,303.7 | $3,838.5 | $3,999.3 | $5,382.7 | | GMV Growth FX Neutral (%) | 20.6% | 21.2% | 27.8% | 29.9% | - Net Revenue Retention (NRR) was 107.4% on an FX Neutral basis for the year ended December 31, 2023, compared to 105.3% in 2022[410] Summary of Operating Results | (in millions of U.S. Dollars) | 2023 | 2022 | | :--- | :--- | :--- | | Total revenue | 201.5 | 157.6 | | Gross Profit | 140.6 | 104.8 | | Loss from operations | (14.6) | (49.9) | | Net loss for the year | (13.7) | (52.4) | - Sales and marketing expenses decreased by 12.3% to US$59.5 million in 2023 from US$67.8 million in 2022, primarily due to headcount reductions made in the second half of 2022[460] B. Liquidity and Capital Resources As of December 31, 2023, VTEX held US$28.0 million in cash, generated US$4.3 million in operating cash flow, and had no outstanding indebtedness Cash Flow Summary | (in millions of U.S. Dollars) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | 4.3 | (29.2) | (53.0) | | Net cash provided by (used in) investing activities | 38.4 | (43.4) | (166.8) | | Net cash provided by (used in) financing activities | (38.4) | (19.6) | 283.7 | - The company had no outstanding indebtedness as of December 31, 2023, down from US$1.2 million at the end of 2022[504] C. Research and Development, Patents and Licenses, etc. The company holds approximately 119 trademark registrations worldwide, one pending patent application in the USA, and numerous registered domain names - As of December 31, 2023, the company has been issued trademark registrations in Brazil, the United States, Mexico, Argentina, Colombia, Chile, India, Peru, the United Kingdom, and Europe[378][505] D. Trend Information This subsection discusses the company's business seasonality, with the fourth quarter typically strongest due to holiday sales and the first quarter being the slowest - The business experiences seasonality, with the fourth quarter being the strongest due to holiday sales and events like "Black November" in Brazil, while the first quarter is the slowest[507] Item 6. Directors, Senior Management and Employees This section details the company's leadership, including board and executive team composition, compensation policies, equity incentive plans, and employee statistics A. Directors and Senior Management The company is managed by a seven-member board, including two co-founders and four independent members, with co-founders also serving as Co-CEOs - The board of directors consists of 7 members: Geraldo do Carmo Thomaz Júnior (Co-Chairman), Mariano Gomide de Faria (Co-Chairman), Francisco Alvarez-Demalde, and four independent members: Alejandro Raul Scannapieco, Arshad Matin, Benoit Fouilland, and Silvia Mazzucchelli[531] B. Compensation Director and executive compensation totaled US$10.1 million in 2023, utilizing equity incentive plans like the VTEX 2021 Share Plan for stock options and RSUs Aggregate Compensation (USD Million) | Year | Aggregate Compensation (USD Million) | | :--- | :--- | | 2023 | $10.1 | | 2022 | $8.2 | | 2021 | $8.3 | - The VTEX 2021 Share Plan is the current equity incentive plan As of December 31, 2023, 4,951,689 stock options and 2,879,265 RSUs were outstanding under this plan[554] C. Board Practices This subsection outlines director duties and board committee structures, including an audit committee with three independent members and a compensation committee with two members - The Audit Committee consists of three independent members: Alejandro Raul Scannapieco, Benoit Fouilland, and Silvia Mazzucchelli[559] - The Compensation Committee consists of Francisco Alvarez-Demalde and Arshad Matin[560] D. Employees As of December 31, 2023, VTEX had 1,277 employees, with 32.7% in R&D and 73.1% located in Brazil Employee Distribution by Department | Department | Employee Percentage | | :--- | :--- | | Research and Development | 32.7% | | Sales and Marketing | 26.9% | | Professional Services & Support | 21.1% | | General and Administrative | 19.3% | Item 7. Major Shareholders and Related Party Transactions This section details the company's ownership structure, highlighting co-founder voting control via Class B shares, and outlines related party transaction policies and registration rights agreements - Co-founders Geraldo do Carmo Thomaz Júnior and Mariano Gomide de Faria each beneficially own approximately 33.0% of Class B shares, collectively controlling approximately 61.6% of the total voting power as of December 31, 2023[569][583] - Other major shareholders include entities affiliated with SoftBank (LA Holdings DE LLC), Riverwood Capital, Dynamo, and GIC Private Limited[569] Item 8. Financial Information This section incorporates consolidated financial statements by reference, discusses legal proceedings including a lawsuit with Mirakl, Inc., and states the company's lack of a dividend policy - The company is a defendant in a lawsuit filed by competitor Mirakl, Inc. in October 2020, alleging misappropriation of confidential information The case is currently in the discovery phase, and the outcome cannot be predicted[587][588] - The company has not adopted a dividend policy and intends to retain future earnings to fund business development and expansion[590] Item 9. The Offer and Listing This section details the listing of VTEX's Class A common shares on the New York Stock Exchange under the symbol VTEX since July 23, 2021 - VTEX's Class A common shares are listed on the New York Stock Exchange under the ticker symbol "VTEX"[593] Item 10. Additional Information This section provides detailed information on corporate governance, including memorandum and articles of association, share capital structure, material contracts, exchange controls, and taxation, highlighting the dual-class share structure and director appointment rights B. Memorandum and Articles of Association This subsection details the company's governing documents, including a dual-class share structure with differential voting rights and provisions granting controlling shareholders the right to appoint a majority of the board - The company has a dual-class share structure: Class A common shares (1 vote per share) and Class B common shares (10 votes per share)[604][611] - Controlling shareholders have the right to appoint a majority of the board of directors as long as they hold at least 25% of the outstanding voting power[648] - The board of directors will become classified into three classes (Class I, II, and III) after the controlling shareholders' beneficial ownership drops below 50% of the total voting power[650] C. Material Contracts This subsection describes a material contract with Amazon Web Services (AWS) for cloud storage services, valid until December 31, 2025, with usage-based monthly charges and an annual commitment - The company has a private pricing addendum with Amazon Web Services (AWS) for cloud storage services, valid until December 31, 2025[736] E. Taxation This subsection summarizes tax considerations for shareholders in the Cayman Islands and the United States, noting no Cayman Islands taxes and the company's belief it is not a Passive Foreign Investment Company (PFIC) - The Cayman Islands does not levy taxes on profits, income, or capital gains, and the company has received a 20-year undertaking against future taxation[742][744] - The company does not believe it was a Passive Foreign Investment Company (PFIC) for its most recent taxable year and does not expect to become one in the foreseeable future[759] Item 11. Quantitative and Qualitative Disclosures about Market Risk This section discusses the company's exposure to market risks, primarily interest rate and foreign currency exchange risks, and its use of derivatives to hedge foreign exchange exposure - The company's primary market risks are interest rate risk on its cash and investments, and foreign currency risk from its international operations[780] - In 2023, 20.3% of revenues were denominated in or linked to U.S. dollars As of December 31, 2023, 61.3% of assets and 11.7% of liabilities were in U.S. dollars[784] Part II Item 15. Controls and Procedures This section confirms the effectiveness of disclosure controls and the remediation of a previously identified material weakness in internal control over financial reporting as of December 31, 2023 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[797] - A material weakness in internal control over financial reporting related to restricted access management, identified as of December 31, 2022, has been remediated as of December 31, 2023[800] Item 16. Corporate Governance and Other Matters This section covers corporate governance, including audit committee experts, accountant fees, share repurchase programs, foreign private issuer exemptions, and cybersecurity risk management Item 16C. Principal Accountant Fees and Services This subsection details the US$0.5 million in fees paid to Pricewaterhousecoopers Auditores Independentes Ltda. for fiscal year 2023, primarily for audit services Principal Accountant Fees | Fee Type | 2023 (USD Million) | 2022 (USD Million) | | :--- | :--- | :--- | | Audit fees | 0.5 | 0.5 | | All other fees | 0.0 | 0.1 | | Total fees | 0.5 | 0.6 | Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers This subsection describes the company's share repurchase programs, including a US$20 million program authorized in August 2023, and the repurchase of 7,388,846 Class A common shares in 2023 - In 2023, the company repurchased 7,388,846 Class A common shares for a total of approximately US$35.2 million under its publicly announced buyback programs[812][814] - A new share repurchase program for up to US$20.0 million was authorized on August 8, 2023, and is scheduled to expire on August 8, 2024[810] Item 16G. Corporate Governance As a foreign private issuer, VTEX utilizes exemptions from certain NYSE corporate governance rules, including requirements for independent directors and formal committees - The company relies on foreign private issuer exemptions from NYSE rules, including those requiring a majority of independent directors and the establishment of a formal nomination committee[819] Item 16K. Cybersecurity This subsection details VTEX's cybersecurity risk management and governance, including its specialized Information Security team, multi-level oversight, and key security certifications - The Information Security team is structured into a Blue Team (defense), Red Team (simulated attacks), and SecOps Team (policy and risk management)[825][826][827] - Cybersecurity governance follows an escalation path from the Information Security Team to a Privacy & Security Committee, then to the Audit Committee, and ultimately to the Board of Directors for material incidents[833][834] - VTEX holds key security certifications including Service Organization Control (SOC) type 1 and type 2 and Payment Card Industry Data Security Standard (PCI DSS) certifications[837] Part III Item 18. Financial Statements This section presents the company's audited consolidated financial statements for fiscal years 2021-2023, prepared under IFRS, including balance sheets, income statements, and cash flow statements Consolidated Balance Sheet | (in thousands of U.S. dollars) | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total assets | 341,145 | 357,673 | | Total current assets | 266,253 | 287,157 | | Total non-current assets | 74,892 | 70,516 | | Total liabilities and equity | 341,145 | 357,673 | | Total current liabilities | 77,244 | 62,016 | | Total non-current liabilities | 23,569 | 20,980 | | Total shareholders' equity | 240,332 | 274,677 | Consolidated Statement of Profit or Loss | (in thousands of U.S. dollars) | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total revenue | 201,517 | 157,620 | 125,773 | | Gross profit | 140,568 | 104,788 | 76,181 | | Loss from operations | (14,602) | (49,919) | (65,929) | | Net loss for the year | (13,694) | (52,419) | (60,514) | Item 19. Exhibits This section lists all exhibits filed with the annual report, including corporate documents, material contracts, and required certifications