VTEX (NYSE:VTEX) Third Quarter 2022 Results Conference Call November 10, 2022 4:30 p. M. , Eastern Time
Participating companies
Julia Vater Fernandez – Director of Investor Relations
Geraldo Thomaz – Founder and Co-CEO
Ricardo Camatta Sodre – Chief Financial Officer
Mariano Gomide de Faria – Founder and Co-CEO
Conference Call Participants
Marcelo Santos – JPMorgan
Andrés Salas – UBS
Diego Aragao – Goldman Sachs
Clarke Jeffries – Piper Sandler
Thiago Kapulskis – Itua BBA
Operator
Hello and welcome to VTEX’s third quarter 2022 monetary effects reports. My call is Elliot and I am coordinating his call today. [Operator Instructions]
Now I would like to cede the ground to our host, Julia Fernández. The land is yours. Please continue.
Julia Vater Fernandez
Good morning everyone and welcome to the VTEX earnings convention call for the quarter ended September 30, 2022. I’m Julia Vater Fernandez, Director of Investor Relations at VTEX. Our senior executives present today are Geraldo Thomaz Jr. , founder and co-CEO, and Ricardo Camatta Sodre, chief monetary officer. In addition, Mariano Gomide de Faria, founder and co-CEO, and Andre Spolidoro, CFO, will be present at today’s Q&A session.
I must remind you that control would likely make forward-looking statements related to topics such as the company’s prospects for continued expansion, industry trends, and product and generation initiatives. These statements are based on available data and our existing assumptions and expectations. and projections related to long-term events. Although we know that our assumptions, expectations and projections are moderate in light of currently available data, we caution you not to place undue reliance on such forward-looking statements.
Certain dangers and uncertainties are described in the Risk Factors and Forward-Looking Statements sections of VTEX’s Form 20-F for the year ended December 31, 2021 and other documents filed through VTEX with the U. S. Securities and Exchange Commission. Investor relations website.
Finally, I would like to remind you that in this convention call, we would possibly talk about certain non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our third quarter 2022 earnings press release available on our investor relations website.
Now let me pass the call to Geraldo. Geraldo, he is yours.
Geraldo Thomas
Welcome to everyone and thank you for participating in our third quarter 2022 earnings convention call. Last quarter, we shared 3 key goals for the company: continuing to help our consumers outperform the market; continue with our gross margin; and optimize our expenses for operational efficiency. And, more importantly, all while continuing to deliver on our high-growth plans. With this as our north, let’s take an in-depth look at our operational functionality this quarter.
We are pleased to announce that our company continues to generate physically powerful expansion, cementing our position as a regional leader and building momentum outside of Latin America. A transparent demonstration of our physically powerful expansion is that in the third quarter, our GMV expansion accelerated by up to 29% year-over-year, whether in USD and independent currencies. Given our top-tier corporate visitor base, VTEX consumers continue to consistently outperform the market, an old long-term trend that we have highlighted more emphatically over the past few years. beyond 3 quarters.
Not only did GMV and profits become more powerful than expected, but our prices and expenses also decreased due to a more agile and efficient organizational structure. The trend that started at the time last year reflects progressive code optimization, migration to more effective operating systems and server processors, optimization of non-core cloud providers, as well as operational leverage on our staff pricing.
While there may be some gross margin volatility as we migrate non-core cloud providers, there is still a long way to go to reach gross margin and we are excited about what lies ahead in the medium to long term. We plan to continue optimizing our charging base, while expanding our service levels to deliver the most productive solution to our customers.
I’m incredibly proud of what our team has completed on the expense side. As planned in our previous call for results, we provide significant operating leverage. The efforts of our team have allowed us to continue to increase our profits at a stable pace, which is our main purpose as a high-growth company, while locating more opportunities to operate our business with a more agile and efficient structure.
Now let’s move on to our business updates. In the third quarter, we continued to attract top-tier brands and retailers. Some of the new consumers that were launched this quarter and that previously had an online store in the respective countries were: Giassi B2B in Brazil and Asics in Peru. In addition, the new consumers who migrated from other platforms launched this quarter were: Levis in Argentina, Vivara and Farma Delivery in Brazil, Belcorp in Colombia and Chile, Chedraui in Mexico, Claro in Peru, The Foschini Group in South Africa and WH Bonbons in the United States.
Most sensibly, we have continued to build ever stronger relationships with our existing customers. Some of the leading brands and stores that expanded their operations with us by opening new online retail outlets in new countries during the third quarter are:
In the third quarter, VTEX named a visionary to the 2022 Gartner Magic Quadrant for Digital Commerce. This popularity in the industry follows the effects we shared in the first quarter of this year, with the popularity of visitors in the Gartner Digital Commerce Report “Peer Customer Insights” where VTEX named Strong Performer.
In addition, in July of this year, Paradigm B2B launched its annual Combine reports, in which it evaluates e-commerce providers in the main spaces of interest of the B2B generation buyer. In 2022, VTEX won medals in each of the 12 categories evaluated through Paradigm in the medium edition with gold medals for notable functions or functions in the markets, promotion management, and visitor service and support. VTEX is the only vendor to earn a gold medal for market functions and won silver medals, awarded to sellers with impressive features, on-site research, compliance capability, overall ownership charge, and vision and strategy.
We are grateful and revered for the popularity of our multinational consumers who extend their appointments with us, open new retail outlets, and market experts like Gartner and Paradigm. This gives us the confidence and strength to continue advancing our strategic plans. we remain committed to proceeding to execute our vision with excellence and precision. But, as we say, we know that we cannot do all this alone. We are sure that the multiplier force of the ecosystem collaboration that we have built around VTEX will continue to allow for even greater results, so we will continue to nurture and expand those dates constantly.
In line with our payment partnership strategy and the ongoing monetization of our ecosystem, we are pleased to announce that we have introduced a partnership with Checkout. com, a leading global payment and fintech service provider in EMEA that can handle as many foreign transactions as possible apply. and local payment methods, as well as virtual wallets. They are an innovative solution, especially in new markets for VTEX, such as North America, Europe, the Middle East and Asia. The Checkout. com partnership agreement will enable foreign and local payment methods, fueling a giant and physically powerful ecosystem of partners and responses and driving greater conversion for our business customers.
In addition, a few quarters ago, we announced the news of our partnership with AWS. We are now pleased with the percentage that, in addition to supporting VTEX, AWS is actively enabling our global expansion. As we become one of your preferred global partners, we are very pleased to announce that Belcorp is a client, among others, who took care of us in the third quarter, thanks to this partnership. We are incredibly excited about this positive momentum and VTEX is looking forward to proceeding to unlock the prospect of this partnership, as AWS is also committed to making an investment with us in our global expansion, i. e. in Europe. There are still great things to come.
Before concluding, I would like to share with you some stories of passod fortune of visitors, because their passod fortune says much more than any other point of knowledge. We do not innovate in a vacuum, and for us, seeing how our 4 guiding pillars help our customers in achieving their passes is more than satisfactory. Let me jump straight to that. The Foschini Group, one of South Africa’s largest fashion retailers, with more than 4000 stores, 29 brands and operations in 26 countries, now operates with VTEX and is gradually implementing its brands, which are expected to grow over time. With our solution, they will be to centralize their 29 brands in one central market, customize the login process for their end users, deliver a frictionless customer experience, while helping them have a single source of information for their multi-brand sales process. We are beyond excited to welcome you to the VTEX family, we are sure that together we will do amazing things.
Erik’s Bike Shop, one of the largest motorcycle retail outlets in the United States, with more than 30 physical outlets nationwide, chose VTEX to deliver an incredible grocery shopping experience to its online consumers. VTEX worked hand in hand with Erik’s Bike Shop made a complete redesign of their homepage and, as a result, our consumer not only benefited from greater control on their website, resulting in a lower bounce score and a number of pages consistent with consistent perspectives with the visitor, but also with a double-digit improvement in their conversion rates, duration of the query and number of pages according to the perspectives according to the user. Finally, your average basket has almost doubled.
Hering, the leading textile and apparel retailer in Latin America with more than 800 stores, chose VTEX’s headless technique to offer its end users the grocery shopping experience across all channels: owned stores, franchisees, multi-brand third-party stores, e-commerce, as well as other sales channels such as Facebook and Google Shopping. With us, Hering has benefited from constant innovations in all of its website’s functionality metrics, such as page speed times, conversion rates, average price ticket size, bounce rates, cart abandonment rate, among others.
Motorola USA, a pioneer in the cell phone industry, has optimized with VTEX the display of its product detail page, maintaining the appearance while gaining power in the loading time of its page. They have been to achieve an overall improvement in page load time of 45% and 54% respectively for desktop and mobile, achieving an average time of one to two seconds. Motorola now has active online retail stores in 19 countries operating with VTEX and continues to expand into new geographies. This year, they expanded to EMEA and Asia Pacific, leveraging our market architecture.
By blurring the lines between physical and virtual commerce, we continue to see consumers deploy our product at an endless pace. Other retail outlets, franchisees and their e-commerce operation convert into their physical outlets.
Social commerce continues to show strong support for businesses to meet and sell to consumers, whether it’s on their favorite social media channels or on a product discovery level at live grocery shopping events. Care Marketing Company, which offers in thirteen countries with 3 advertising brands, is already a great user of this feature, which has been one of the many reasons why it made the decision to come to VTEX. Driving force of expansion for the adoption of VTEX, as we position ourselves as leaders in innovation worldwide.
This quarter, we also reached a vital milestone, organizing our first occasion in Mexico, VTEX Connect Latam. The occasion took place in Mexico City on September 7, bringing together more than 3,000 user participants and with the participation of 65 speakers from 11 countries. We are proud to have hosted the largest e-commerce occasion in the country, which marks a turning point for VTEX’s positioning in the country and region.
To conclude the operational upgrade section, I would like to thank our 1,405 VTEXers working to fulfill our mission, as well as our customers, partners and investors.
Now I’ll pass the call on to Ricardo, so he can cover our monetary progress report for the quarter.
Ricardo Camatta Sodre
Thank you, Geraldo. Hello everyone, it’s a pleasure to be here to update you on our monetary functionality for the third quarter of 2022.
As Geraldo pointed out, our GMV functionality in the third quarter accelerated to 29% year-on-year growth, both in USD and unbiased currencies. This is a transparent demonstration of the resilience of our top-tier visitor base and the fact that we follow our customers to outperform the market.
Breaking down our GMV functionality in more detail, in the third quarter, comparable store sales of our existing consumers reached the 1990s, demonstrating physically powerful functionality in a market that lately shows a flat single-digit expansion rate. In addition, it is vital to note that some countries such as Mexico, the United States and Europe have grown faster than the corporate average, while more mature regions such as Brazil continue to grow at a stable pace, below the overall corporate average. We expect those new regions to continue to worsen and contribute to VTEX’s strong expansion.
This quarter, our earnings increased to $38. 8 million, a 22% year-over-year accrual, either in U. S. dollars and with no currency impacts. The same quarter last year, a year-on-year accumulation of 23% in US dollars and non-cash effects. This quarter, subscription earnings accounted for 94% of overall earnings, up from 93% in the same quarter last year.
Non-GAAP gross underwriting profit was $26. 9 million, compared to $20. 2 million in the third quarter of 2021. Non-GAAP underwriting gross margin was 73. 8% in the third quarter of 2022, compared to 72. 5% in the last quarter and 68. 2% in the same quarter of 2021. The year-over-year margin of 560 basis points shows our team’s commitment to continue improving our margins. This margin improvement is basically due to the migration from non-central facilities to more effective hosting providers. , as well as the optimization and operating leverage of our costs. We are beyond proud of what we have completed on this front, and we are excited about what is to come.
We also continued our non-GAAP gross facility margin, resulting in an even greater expansion in non-GAAP gross margin, 670 fundamental issues year-over-year to be precise. Our non-GAAP general operating expenses decreased to $32. 4 million in the third quarter of 2022 from $43. 3 million in the prior quarter and $32. 8 million in the same quarter last year. This reflects the organizational restructuring we undertook in the last quarter, as well as other levers our groups were able to find.
Thanks to better-than-expected margin improvements, with earnings at a sustained and physically powerful pace, our non-GAAP operating profit source went from a negative margin of 41. 6% in the same quarter last year to a negative margin of 15. 5%. in the third quarter of 2022. This represents a year-on-year improvement of 26. 1 percentage points.
In the 3 months ended September 30, 2022, VTEX had negative monetary losses of $3. 3 million, compared to $12. 7 million in the previous quarter and negative monetary losses of $10. 7 million in the third quarter of 2021.
Now, before we move on to the outlook for the fourth quarter and fiscal year 2022, I’d like to brief you on the buyback program consistent with the percentage we approved in August of this year. Repurchases under this authorization are approaching $25 million. We bought just under 1. 3 million according to percentages at an average value of $4 according to constant percentage. We plan to continue executing our plan based on the assessment of market situations and applicable legal requirements.
With respect to our industry outlook, macroeconomic situations remain uncertain. We continue to see our sales cycle extend into the average time it takes for our new consumers to put the VTEX platform into effect. More recently, we are also seeing GMV slower growth for new consumers. Finally, in the fourth quarter we will have for the first time the mix of the FIFA World Cup with the Christmas shopping season, which will bring greater uncertainty to the existing macro scenario.
In this challenging environment, we have lately diversity revenue of $46. 0 million to $48. 0 million for the fourth quarter of 2022, implying a year-over-year expansion of 27% in U. S. dollars and 24% on a currency-neutral basis in between. . of diversity.
For full year 2022, given incremental macroeconomic volatility, we are cutting our objective for unbiased expansion of foreign currency earnings year-over-year from 23% to 24%, implying a diversity of $158 million to $160 million at average October exchange rates. We are excited to continue contributing to the virtual transformation journey of our top-tier customers, helping them increase their sales with the right set of equipment and products. Our customers continue to demonstrate their resilience, even in those dubious times. We are also revered through our customers’ continued trust in the VTEX platform, demonstrated through our strong annual utility renewal.
The result is a resilient style for VTEX that will continue to drive expansion in a sustainable and ambitious way.
With that, we’re going to open it up to questions. Thank you.
Q&A session
Operator
Thank you. [Operator Instructions] Our first is from Marcelo Santos of JPMorgan. Your line is open.
Marcelo Santos
Hello smart afternoon. Thank you for the opportunity to ask theArray. I have two. The first would be, given the functionality of its margin, would there be room to anticipate the balance target at the end of next year?Is there room to fulfill it sooner?
The factor at the moment would be that its forecast implies an acceleration in terms of neutral exchange rate for the fourth quarter. Drivers of this acceleration? Thank you.
Ricardo Camatta Sodre
Hello Marcelo, thanks for your question. We are happy to take this one. We remain committed to achieving our positive non-GAAP operating income stream through the fourth quarter of 2023, as discussed on the previous convention call. We are a high-growth company that operates in a market that is not very penetrated. with hot drive economics and higher exchange costs. Therefore, we will continue to focus on growth. At the same time, we will operate in an agile and lean manner, which, especially in times of uncertainty, can generate a lot of value. That said, if there is a way to go bankrupt even faster without compromising growth, we would. be satisfied to do so.
So, in the moment, inquire about acceleration. As you mentioned, we have accelerated our expansion. If we take a look at the current quarter, we had an unbiased currency earnings expansion of about 20%, and now 22% in the 3rd quarter. Take a look at our guidance for the fourth quarter, it’s in the middle of the 24% implied currency unbiased expansion range. quarter of this year and started to go blank a little longer in the third quarter. So you see some of that acceleration.
For this last quarter, we see in the aspect of existing visitors the same sales in the store that go to the level of young people, as I mentioned in the ready comments. And we also have new consumers joining the platform and helping us with those extra accelerations. Then I hope I’m helping you in that.
Marcelo Santos
Thank you so much. Very clear.
Operator
We turn now to Andre Salas UBS. Su line is open.
Andre Salas
Hello [indistinguishable]. Good evening everyone and thank you for answering my question. We noticed that the number of workers decreased from quarter to quarter. Could you explain this and the possible implications for your business model?What if staff relief is expected in the future?. And I have a supplementary question. The figures he presented were above our expectations, but I think it’s worth asking here. We see another dynamic of expansion between GMV and the net revenue source, which would result in a net revenue source of a lower expansion base than GMV. Should we expect, in the medium and long term, a rapprochement of these two variables?That’s all.
Geraldo Thomas
I will therefore be very pleased to answer the first inquiry on redundancies. Thank you for the inquiry. So, yes, we are adjusting the business to the reality that we are seeing in the market. We have overcome the pandemic. And as we discussed last quarter, the layoff was an adjustment to succeed in our optimal design to deliver the speed of expansion in the most productive way imaginable. We made the decision to do so in the most guilty and respectable way imaginable. the mandatory adjustment in the current quarter of 2022. We made the decision to do everything at once and convert the [indistinguishable] ones that matter.
In recent months, we have discovered additional opportunities to further adjust and optimize the previous structure, one at the edges. We also had a turnover of workers and a rotation of factories. We do not see the need to fill some positions, others will exceed the allotted time. Therefore, we will see the top bar for hiring. Therefore, we believe that some positions may take some time, but we will.
Finally, it is vital to mention that we are, that we are a company of high expansion. We will continue to invest to achieve a high expansion plan. And right now, we feel like we have a well-invested design that can our expansion plan for a while with just a few incremental incremental investments?So, the number of other people we have now is not going to grow that much. Ricardo, can you help me with the question of the moment, please?
Ricardo Camatta Sodre
Yes, Geraldo. Happy to do it. So, when it comes to GMV’s dynamics as opposed to earnings expansion, before going into details, it’s vital to recap that around one-third of our profits is a constant tariff, and two-thirds is a tax rate on our consumers’ incomes. GMV. As a result, only two-thirds of our consumers’ GMV expansion automatically translates into profit expansion for us. In other words, as a good fortune distribution model, there is an automatic minimization in the implicit capture rate for our consumers, where we make more money. It’s a win-win setup. We share some of our good fortune with our consumers in exchange for automatically expanding e-commerce penetration.
If you split our subscription earnings across our GMV, you will see a slight increase in share from quarter to quarter, but a slight year-over-year reduction. Our style of good fortune of the movements I just explained. In other words, we don’t see comparable price tension.
Finally, I would also like to point out that we transfer inflation to the lump sum component of our contracts in peak countries. It is more difficult to do in developed economies, however, we have done it in Brazil and we are also starting to do it in some countries. LATAM countries outside Brazil.
Andre Salas
They thanked me.
Operator
Our next one comes from Diego Aragao of Goldman Sachs. Your line is open.
Diego Aragão
Yes, good afternoon everyone. Thank you for answering my inquiry. In fact, perhaps to fulfill Marcelo’s query. As for gross margin on subscriptions, it’s smart to see this measure increase during the year. So, I guess my query is: How do they deserve?think about greater operational efficiency?What are the main points that can continue to replace the gross margin point of subscriptions in the future?I was wondering if it’s just because it’s going up to the VITEX platform in the markets where they’re in the discovery or validation phase and they’re moving the markets into the acceleration and scaling phases?Or is there some other explanation behind this?
And my query at the moment is related to the first. It appears that most of the additional net operating margin gain in this quarter came from declining marketing and sales. So is this where most of the reduction is reflected?And also, if you will allow me, just tell us how to think about the market and long-term sales since, I would say that component of the long-term expansion of the company deserves to come from investments in this position. Thank you.
Geraldo Thomas
Bonjour. Merci. Je I’m very pleased to respond to that. First, gross margin is very weakly similar to expansion in other countries. We have an exclusive infrastructure, a unique formula that percentage in each and every one of the countries we serve. It can have an effect on sales efficiency, it can have an effect on sales efficiency, but it reduces gross margin functionality very little.
The maximum applicable improvement in gross margin functionality is similar to hosting profitability, followed by aid optimization. I’m going to talk a little more. As a reminder, our lodging accounts for about two-thirds of our costs. Therefore, being effective on this front has been a main goal for the company with the right effects so far. other Intel processes to [indistinguishable]. I also communicate about transitioning some of our observability and logging — records software to — from a third-party solution to a solution that is more — to the maximum created, not created, but assembled through us using more open source.
Therefore, it is important to mention that as we migrate our margins and continue to work on this hosting optimization, we may face some volatility in our margin structure, especially at the beginning of each migration when we are running providers at the same time. and adjust codes and processes. Therefore, most of this improvement in hosting, etc. , comes from hosting costs. But also on the one hand, which we expect to represent a third of our costs. And it’s commonly personal to the maximum. And as we increase our revenue, we don’t see much desire to develop the team. And it can be similar in some ways to the fact that we’re getting a little bigger in this new country that we’re exploring.
The self-asked inquiry was about the balance between expansion and profitability, wasn’t it?So I don’t see everything. . . Yes, so downsizing is usually similar to sales and marketing. But the answer is What I’m going to give you is like, us. I don’t think it’s going to jeopardize VTEX’s possible long-term expansion for next year, two or 3 years. The company is now optimized, we are optimizing our design to continue to be in strong expansion, but there is a substitution of the landscape to which we are adapting.
I’ll give you an ancient context to illustrate my point. In 2019, we grew more than 40% in unbiased currencies with a slightly positive loose money matrix. In 2020, there was an increase, a massive demand in trade. % expansion on an unbiased currency basis with positive loose money equal to 10% of our profit that year. And then we accelerate our investments from the maturity due in 2020 to mid-2022 this year. Now, we have adjusted our design to fit the expansion of the e-commerce market, which is still very exciting and long-term. But since, due to the low penetration and digitization of the industry in general, the expansion we saw in 2020 is not there and corporations like ours and like many other corporations that we were, we didn’t need to lose the momentum of expansion. So, finally, we’ve increased the length of our equipment more than the existing demand we’re seeing right now.
So I don’t see us wasting momentum given the existing demand in the market.
Diego Aragão
This is very transparent and very useful, Gerardo. Thank you very much for that. And if I may, just one last questionan attractive store. But given the relevance of this market to VTEX, can you tell us a little more about the call you saw in this market?Maybe comment on your pipeline and provide colors in the visitor’s profile, for example, if we think it will be great for business consumers rather than SMB consumers. Thank you.
Geraldo Thomas
So, for that, I entrust the consultation to Mariano. Marianne is very aware of what is in the United States. It won’t make weird sense to it.
Mariano Gomide de Faria
So, in the United States, we see momentum in B2B. So, VTEX has an excellent B2B market that it offers and we see opportunities that arise organically in B2B. And we’re also seeing B2C lawsuits. So we can mention, as we said, the WH Candy, is an organization of ornamental candy stores. It’s the same organization. And we migrate them all. So we see B2C and B2B, B2B media. We’re going to be more focused on this. And B2C, we see momentum, also in the middle B2C channel. 50:50, let’s say.
Diego Aragão
Very clear, Mariano. Thank you.
Operator
Now we speak with Clarke Jeffries of Piper Sandler. Su line is open.
Clarke Jeffries
Hello. Thank you for answering the query. The first question is: could you know how the AWS marriage is structured?How will they market their solution?And what is actually invested through their side?Does it often mean looking for how a spouse fits into even their own amazon. com strategy?
Ricardo Camatta Sodre
Thank you for the question. So let me summarize the AWS partnership. Last year, we announced a multi-year collaboration agreement with them to provide e-commerce responses directly to consumers for global businesses. AWS then includes VTEX in its market, communicating this partnership internally to its representatives in Europe, the United States and Latin America. To make your customers interested in the virtual commerce platform for B2C and B2B capabilities, they can simply VTEX.
The AWS sales team is combining its efforts with VTEX solution engineering on 3 continents. At first, we were suspicious of how the contribution to our operations would occur. But the smart news is that we’re gaining momentum and traction from this. association. Therefore, we are grateful for all the opportunities AWS is taking with us on the ground. For example, as Gerardo mentioned, in the ready comments, this quarter we had the start-up of Bell Corp, a visitor with whom AWS and VTEX worked. — They worked together. B2B at Bridge Stratton is also another case where we already announced that VTEX and AWS are also partners. So it’s moving forward. We are positive for the long-term partnership. And I think for Europe and the United States, it will be relevant.
Clarke Jeffries
It is ok. Thank you so much. And then, Ricardo, maybe I wonder if I can ask for more color about the trend of the new merchant, the new region or the new pipeline of the store compared to your expectations. I mean think about the expansion algorithm, it turns out that the expansion of sales in branches in giant consumers is improving year after year. I wonder how we deserve to think about the other aspect of the equation as we arrive at what appears to be an implicit expansion of around 30% at GMV by 2022?
Ricardo Camatta Sodre
Yes. Hello, Clarke. Happy to expand this. As we have done over time on previous calls for results, we would like to review our P
Clarke Jeffries
Yes. Perfect. Thank you so much.
Operator
[Operator Instructions] We turn now to Thiago Kapulskis from Itaú. Your line is open.
Thiago Kapulskis
Hello everyone. Thank you for the opportunity to make inquiries. So, I only have two follow-ups from the previous query. So, the first, just to perceive a little what is integrated into the forecast for the fourth quarter. at the speed of its third-quarter forecast, but in nominal U. S. dollar figures. In the U. S. for the full year, the forecast is lower than the forecast you provided last quarter, right?So, I just need to perceive what exactly is like FX, are there any main points about the World Cup or the elections in Brazil, something like in terms of transactions?I just need to have a little concept of what’s here or if you just need to be conservative because of the macro. So, any additional color about it?would be interesting
And the other query I have is about gross margins, that’s true, because you make a smart charm here. And I know the cloud provider’s environment is rarely that smart, right?We’ve noticed it in the effects of AWS and Microsoft, haven’t we?And you just need to get an idea: is this improvement one hundred percent similar to the trading leverage they get from more volumes?Or is there some sort of renegotiation or even an opportunity to cut costs because of more challenging environments that call suppliers revel elsewhere. Thank you.
Mariano Gomide de Faria
Happy to answer the first query about the tips and dynamics there, and then I’ll pass the word over to Geraldo to communicate about gross margin and drivers. So, in recommendation for the fourth trimester, right? As I mentioned, we continue to see an acceleration from Q2 to Q3 and then halfway through the forecast for Q4. However, having said that, as I mentioned, there was a heartbeat for Q3 and it doesn’t fully transmit to Q4. So there is a smaller acceleration than we expected 3 months ago. Let me share some context about what we’re seeing here.
In the last two quarters, as we have mentioned, there has been a lengthening of our sales cycle that is translating into an accumulation in the average time that our consumers take to start up the VTEX platform. Momentum has remained solid over the past two quarters. It hasn’t improved, but it hasn’t deteriorated either. And we also talked about the strong functionality of our existing retail outlets throughout the year compared to the general e-commerce market. So none of those things had an impact on the fourth quarter forecast. Correct? But apart from a complicated macro and they discussed some of the things, and the uncertainty of the FIFA World Cup during the festive season. I would say there is the new data that we are starting to slightly increase the startup time for some of our new customers. This means that some of our new customers are taking longer than expected to be successful at their estimated point of sale, which has an effect on the acceptance rate percentage of our revenue. We will continue to monitor those dynamics. Ultimately, it’s up to our consumer to make a decision on how much to allocate to drive traffic to their eCommerce site once it’s live. That is the key that drives those fourth-quarter predictions and the FIFA World Cup uncertainty. Therefore, we will keep you informed of this trend.
Geraldo Thomas
And about the gross margin, I can give a little color here. The, I would say herbal, there’s an herbal-scale effect as we process more orders, process more traffic, and despite everything, gross margin improves a bit. But this is not significant. That’s not why it’s improved. The other speculation you brought is similar to advertising situations with hosts. That’s not the case this year. We have long-term contracts with AWS, our hosting providers. We don’t renegotiate all the time. It’s all we do from time to time and we haven’t done it, not this year, not specifically.
Most of our gross margin enhancement comes from R’s efforts.
And then for this year, as we get back on a general path of growth, we had bandwidth to put some resources into our R.
Thiago Kapulskis
That’s great. Thank you very much for the color. Very helpful guys. Thank you.
Operator
This concludes our Q
Geraldo Thomas
The effects of the third quarter were achieved against a backdrop of volatility and combined macroeconomic functionality globally. Under those cases and given the strong and consistent effects of all taxes, it is transparent to us the strong resistance of our business style and our visitor base. It gives us the confidence to continue executing our business plan reliably. It also highlights the immense opportunity before us as e-commerce continues to penetrate the economies of Latin American countries and the world. VTEX shows a transparent path to an applicable global player. We are still in the early stages of our long adventure and we are more convinced than ever of the price we are creating in the omnichannel era. VTEX has wonderful potential in the coming years. We are excited to continue executing our vision. Thank you all for joining us today. I look ahead to update you on our progress on our next effects call.
Operator
Today’s is already closed. Thank you for participating. You can now disconnect your lines.