VTEX's Q3 2025 Earnings Call: Contradictions in R&D Strategy, Churn, Argentina's GMV, and AI Investments

Date of Call: None provided

Financials Results

• Revenue: $58.4M subscription revenue, up 8% YOY (8% in USD, 7% FX‑neutral); GMV $5.0B, up 13% USD / 12% FX‑neutral
• Gross Margin: Non‑GAAP subscription gross margin ~80% (above 80% noted); total gross margin 77.5%, up 270 bps YOY
• Operating Margin: Non‑GAAP operating margin 16%, up 230 bps YOY

Guidance:

• Q4 2025 FX‑neutral subscription revenue growth target: 5%–10%, implying $65.8M–$68.8M
• Q4 2025 non‑GAAP income from operations margin targeted in the mid‑20s
• Q4 2025 free cash flow margin targeted in the high teens
• Full‑year 2025 FX‑neutral subscription revenue growth target: 9.3%–10.7%, implying $234M–$237M

Business Commentary:

* Revenue and Subscription Growth: - VTEX's subscription revenue reached $58.4 million, up 8% in U.S. dollars and 7% FX neutral in Q3 2025, compared to $53.9 million in Q3 2024. - The growth was driven by consistent execution, expanding margins, and the ramp-up of high potential revenue streams, particularly in global expansion, B2B use cases, retail media, and Agentic commerce.

• Operational Efficiency and AI Impact:
• VTEX achieved a non-GAAP operating margin of 16% and a net income of $10.6 million, up 41% year-over-year in Q3 2025.

• The improvement was attributed to AI-powered support automations that delivered sustainable efficiency gains, driving non-GAAP subscription gross margins above 80% for the first time.

  

• B2B and Global Expansion:

• B2B commerce is emerging as a major growth driver for VTEX, with significant projects including a large U.S. enterprise migration and Electrolux selling spare parts directly to its service network.

• The expansion into B2B is supported by the development of an AI-driven platform focusing on automation and deep integration into enterprise workflows.

• Retail Media and Revenue Streams:

• Retail media continued to stand out as a key growth driver, with significant milestones such as the integration of Globo's digital reach with retail media placements across VTEX-powered stores.
• This success is attributed to VTEX's role as an orchestrator within the first-party brand ecosystem, leveraging AI for personalization and attribution to enhance revenue generation.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted meaningful profitability improvement (non‑GAAP net income $10.6M, +41% YOY), margin expansion (total gross margin 77.5%, +270 bps YOY), strong cash ($200M) and explicit guidance to reaccelerate growth via U.S./EMEA, B2B, retail media and AI while targeting Q4 operating margins in the mid‑20s.

Q&A:

• Question from Marcelo Santos (JPMorgan): Can you explain the sequential increase in R&D spend while headcount declined ~49 employees? Also, how is churn trending amid LatAm weakness?
  Response: R&D is being increased (continuing investment into 2026) to build an AI‑native platform across four pillars (AI, B2B, retail media, core commerce); headcount decline largely reflects AI productivity gains and commercial adjustments; churn is stable overall (slight Tier‑3 pressure) and retention remains strong.

• Question from Maria Infantozzi (Itau): With elections behind us and signs of stabilization in Argentina, does outlook change? And how will AI investments help monetize clients going forward?
  Response: Argentina remains very challenging (credit constraints, weak consumption) so outlook stays cautious; AI investments aim to transform product and operations—enabling autonomous agents, higher efficiency and new monetization (retail media, AI services) while reinforcing VTEX as the backbone for brand‑owned channels.

• Question from Vitor Tomita (Goldman Sachs): Are you still confident on prior expectations for income from operations margin (high‑teens/year) while being more conservative on full‑year free cash flow? How are working capital initiatives progressing and will CapEx be higher in Q4?
  Response: Q4 targets mid‑20s non‑GAAP operating margin and high‑teens free cash flow margin; for the full year free cash flow is likely high‑end mid‑teens rather than high‑teens; working capital fluctuated due to timing/deferred revenue from elongating decision cycles but reflects timing effects, and no structural working‑capital change was noted.

• Question from Cesar Davanco (Santander): In Brazil you noted prior low‑20s GMV FX‑neutral growth but a mix shift to large enterprise lowered take rate—what were the Brazil numbers in Q3 and expectations for Q4?
  Response: Brazil performed largely in line with expectations: Q3 FX‑neutral growth moved from low‑20s previously to high‑teens this quarter with a modest quarter‑over‑quarter deceleration; Q4 is expected to be stable to slightly decelerating given elevated interest rates.

• Question from Lucca Brendim (Bank of America): Update on U.S. operations and any delays with large customers? Also, have new official stores from marketplaces (e.g., Shopee, Nelly) impacted your GMV or operations?
  Response: U.S. and EMEA traction remains strong with targeted enterprise playbook working (major multibillion migration progressing); no material delays highlighted; marketplaces are treated as channels—VTEX supports them and sees them as complementary, not existential threats, often driving volume while brands still value proprietary channels.

• Question from Madison Schrage (KeyBanc Capital Markets): How much of new‑logo pipeline is B2B and which features help win those deals? Also, how much more cost can AI remove from customer support or other areas?
  Response: In U.S. and EMEA ~50% of deals are B2B; competitive wins stem from offering both B2C and B2B on one composable platform and modernizing legacy systems; most customer‑support savings from AI have been captured, with incremental opportunities remaining for complex Tier‑1 needs, while focus shifts to preserving high support quality via agent orchestration.

• Question from Gustavo Farias (UBS): How does LatAm B2B momentum compare to U.S./EMEA and are those B2B contracts from existing or new clients? Also, what's VTEX's role/opportunity in agentic commerce/OpenAI commerce protocols?
  Response: LatAm B2B is emerging but behind U.S./EMEA where ~50% of pipeline is B2B (mix of expansions and migrations); B2B lets existing B2C customers expand to distributors/service networks; VTEX views agentic commerce/OpenAI aggregators as an opportunity—AI front doors will route demand to brand channels and VTEX aims to be the backend orchestration layer, leveraging multi‑tenant data to train commerce models and integrate agents.

Contradiction Point 1

R&D Expenditure and Focus

It involves the focus and purpose of R&D expenditures, which are crucial for understanding the company's strategic direction and financial commitments.

Could you explain the sequential increase in R&D expenses and discuss churn trends and their potential link to market weakness in Latin America? - Marcelo Santos (JPMorgan)

20251107-2025 Q3: Geraldo: R&D investment is increasing due to the powerful opportunity to build the platform for the AI era. Focus is on AI transformation, B2B commerce, retail media, and core commerce. R&D aims to build the next generation of VTEX, enhancing efficiency and growth. - Geraldo do Carmo Thomaz(CEO)

What drove the sequential increase in R&D expenditures? How are your current churn trends? - Marcelo Santos (JPMorgan Chase & Co)

2025Q3: Geraldo Thomaz: VTEX is continuing to invest heavily in R&D to build the next generation of VTEX focusing on AI transformation, B2B commerce, retail media, and core commerce foundation. AI is not just a buzzword but a driver for efficiency and growth. - Geraldo do Carmo Thomaz(CEO)

Contradiction Point 2

Churn and Customer Retention

It involves the stability and trends in customer churn, which are critical for understanding the company's customer retention strategy and financial performance.

Can you explain the sequential growth in R&D spending and the current trend in churn, including its connection to market weakness in Latin America? - Marcelo Santos (JPMorgan)

20251107-2025 Q3: Mariano: Churn is stable, with softness in Tier 3. Demand is mixed, strong in U.S. and EMEA, but Latin America faces challenges. - Mariano Gomide de Faria(CEO)

Can you explain the sequential increase in R&D expenditures and discuss current churn trends? - Marcelo Santos (JPMorgan Chase & Co)

2025Q3: Mariano Gomide de Faria: Latin America sales cycles are longer, but customer retention is strong, with no significant churn issues. Demand is mixed in Latin America but stable in the U.S. and EMEA, driven by large enterprise migration. - Mariano Gomide de Faria(CEO)

Contradiction Point 3

Argentina's GMV and Market Momentum

It involves differing interpretations of Argentina's market momentum and GMV performance, which could impact strategic decision-making and investor expectations.

Does Argentina's macroeconomic stabilization affect your outlook, and how will AI investments impact client monetization? - Maria Infantozzi (Itau)

20251107-2025 Q3: Argentina remains challenging due to interest rates and bank capacity issues. Consumption hasn't improved despite elections. - Mariano Gomide de Faria(Co-founder, Co-CEO, Co-Chairman & CTO)

Can you detail the decline in Argentina's operating momentum and the competitive landscape? - Maria Clara Infantozzi (Itaú Corretora de Valores S.A.)

2025Q2: Argentina's GMV recovery reversed, returning to double-digit negative growth. The region remains volatile, with no significant changes in the competitive landscape. - Ricardo Camatta Sodre(CFO)

Contradiction Point 4

R&D and AI Investments

It involves differing interpretations of the strategic rationale and expected outcomes of R&D and AI investments, which could impact resource allocation and competitive positioning.

Can you explain the sequential increase in R&D expenditures? Can you discuss current churn trends and if they're related to Latin America market weakness? - Marcelo Santos (JPMorgan)

20251107-2025 Q3: Geraldo: R&D investment is increasing due to the powerful opportunity to build the platform for the AI era. Focus is on AI transformation, B2B commerce, retail media, and core commerce. R&D aims to build the next generation of VTEX, enhancing efficiency and growth. - Geraldo do Carmo Thomaz(Founder and Co-CEO)

Can you explain the decline in GMV and new subscriptions sold? Can you detail the margin improvements and which business lines are driving the most benefit? - Marcelo Peev dos Santos (JPMorgan)

2025Q2: We have been focusing heavily on improving R&D product in support efficiency and reducing costs without impacting quality. That's actually what we deliver this quarter quite a nice surprise, considering the macro uncertainty we have. - Ricardo Camatta Sodre(CFO)