VTEX (VTEX) Q3 2021 Earnings Call Transcript

VTEX (VTEX 1.91%)
Q3 2021 Earnings Call
Nov 17, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello everyone, and welcome to the VTEX earnings conference call for the quarter ended September 30, 2021. I am Julia Vater Fernandez, investor relations director for VTEX. Our senior executives presenting today are Geraldo Thomaz Jr., co-CEO and co-founder; and Ricardo Sodre, finance executive officer. Additionally, Andre Spolidoro, chief financial 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 cautionary statement regarding forward-looking statements sections of VTEX's registration statement on Form F-1A and other VTEX's filings with the U.S.

Securities and Exchange Commission which are available on our investor relations website. Finally, I would like to remind you that during the course of this conference call we may discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our third quarter 2021 earnings press release available on our investor relations website. Now, let me turn the call over to Geraldo.

Geraldo, the floor is yours.

Geraldo Thomaz Jr. -- Co-Chief Executive Officer and Co-Founder

Thank you, Julia. Welcome everyone, and thanks for joining us today in our 2021 quarter three earnings results. I'm excited to announce our progress in making VTEX the platform designed to be the operating system for the commerce ecosystem. Strong execution enabled us to move closer toward our desired future.

This quarter, we had outstanding new contract signatures, we increased our backlog of new online stores under implementation, and we expanded our relationship with existing customers. We also continued launching product developments and signing important partnerships that position ourselves toward creating the future proof platform of choice for enterprise brands and retailers. Finally, we also over-delivered the guidance we provided to the market. We'll cover all of these points and more throughout today's call.

So I invite you to stay with us for the next hour to hear more about our progress and the principles guiding our strategic actions. Exciting times are here to come. Last year, we witnessed the surge in e-commerce as the consumer behavior shifted toward preferred and convenient online shopping and that trend is here to stay. As a consequence, our business is showing strong momentum, both in topline growth, as well as with new contract signatures.

And this is just the tip of the iceberg. E-commerce in Latin America is still an untapped opportunity. According to eMarketer 2021 report, Latin America is the fastest-growing region in the world, with almost 10 percentage points higher growth than the worldwide average. We are living in a new era, a revolution, and we are here to accelerate it.

We continued attracting premier brands to our platform across the globe. Some new customers that went live this quarter that didn't have online presence in the region before were Ronald McDonald's Institute in Brazil, Whirlpool in Guatemala and Mexico, and Elo in Brazil. We also added customers that migrated from other competitive platforms including Reserva in Brazil, Dior in Argentina, and Miniconf in Italy. Given our focus on zero friction onboarding, and our customers' need for digital commerce transformation to remain ahead of the curve, it's important to point out that speed-to-market continues to be a key differentiator and priority for VTEX.

For example, Reserva's implementation, a leading fashion retailer in Brazil with more than 110 stores and presence in more than 1,500 retailers across Brazil, went live in only four months. We continue to see strong sales momentum in new stores' contract signatures. As a result, year over year, we have doubled our backlog of new online stores in implementation, which gives us confidence in the future growth of the company. One highlight win this quarter was Mazda Motor.

They chose VTEX to power its commercial digital transformation across 22 countries in Europe. Winning Mazda Europe's vote of confidence is a tremendous honor for all of us at VTEX and another proof that our commerce and marketplace capabilities are a match for the greatest enterprises in the market. As we strive to increase our presence across markets, these global brands enable us to further validate our platform strategy, build success cases, and strengthen our position in new countries. This strong momentum with new customers is also validated by external market experts.

This quarter, VTEX was recognized as visionary in the Gartner Magic Quadrant for Digital Commerce 2021 report, and in the B2C Digital Commerce use case, as well as for B2C and B2B Digital Commerce on Same platform and composable commerce use cases in the 2021 Gartner Critical Capabilities for Digital Commerce. Additionally, VTEX was awarded seven medals overall with gold medals for Ability to execute and sales and channel enablement by Andy Hoar, a former Forrester analyst and B2B Commerce luminary. Not only do we see this strong momentum in new customers and external validation, but we are also obsessed with getting entrenched, sticky relationships with these premier brands and retailers. Some current customers that expanded their operations with us by opening new online stores in new countries during the third quarter were: Tommy Hilfiger in Peru, Levi's in Argentina, BMW in Chile, Xiaomi in Mexico, and Victoria's Secret in Costa Rica.

Additionally, our marketplace solution continues to gain traction, in Q3 it has been adopted by AB Inbev, Cobasi, Elefant, Decathlon, and many others. We know that we cannot do all this alone. We believe in the multiplying force of collaboration. One of our key competitive advantages is our ecosystem, and that's why we will continue to nurture and expand our partners.

Since our last earnings release, we have launched strategic partnerships with AWS, Facebook, Stripe, Mercado Libre, and McFadyen. We expect that the AWS partnership will enable us in the long term to expand our global digital commerce presence. Our customers, especially the CPG ones, will now be able to leverage machine learning services and other management capabilities with logistics and distribution operations to create their end-to-end DTC solution. The new global integration with Facebook aims to ensure better conversion rates in e-commerce by leveraging online campaigns with data intelligence and improving sales conversion natively on the platform.

Furthermore, we hope this is the beginning of a long-term partnership with Facebook. We launched a partnership with Stripe to help our customers to offer all their consumers preferred payment methods. The integration will work in all countries where both companies operate in North America, Europe, Latin America and Asia, supporting payments processing in more than 135 different currencies. The certified integration with Mercado Libre in Brazil is a significant milestone in our journey to become the center of a vast network that natively connects every part of the global digital commerce ecosystem.

We aim to roll out the certification across the rest of Latin America soon. Our strategic partnership with McFadyen, a leading marketplace strategy and implementation agency, in Brazil and in the U.S. excites us not only by the technical and architectural expertise that McFadyen Digital brings to our customers, but also by the depth and breadth of business planning their strategy practice can offer. Before wrapping up, I'd like now to revisit our four product strategic priorities: zero friction onboarding, zero friction collaboration, single control panel for every order, and the development platform of choice for digital commerce.

We don't innovate in a vacuum; those are the principles that guide our developments. On zero friction onboarding we've launched self-service onboarding. Our goal is to reduce our customers' time to revenue by giving them the tools to connect to the seller's portal faster and with a user-friendly experience. On zero friction collaboration, we built a new seller portal that enables partners of our customers, franchisers or SMBs to more easily sell into their marketplaces, making collaboration between the online store, the franchiser or the physical stores seamless.

We want to become the one stop shop solution. This approach will treat the physical store as an independent seller, with a seller panel to create and manage inventory and capacity of delivery. We are building tools for the physical stores to streamline the fulfillment process. We are very excited with these initiatives as we have success stories that showcases the benefits as it's the case of C&A, which tripled their sales because of this, adding incremental inventory and lower SLAs which resulted in a major boost in their conversion rate.

We also enhanced our OMS order progress flow system, reducing refresh time to seconds without external event dependencies, such as manual authorization, cancellation windows and anti-fraud. This fits grocery, food and beverage and pet shop companies' needs, among others, as it enables them to have faster communication between channels, avoid out of stock scenarios and deliver faster to their consumer's doorstep. And, of course, we will keep integrating with more channels, and enhancing the existing connections we have as to one I already highlighted with the MercadoLibre certified integration. On the single control panel, for every order front, we enhanced our in-store solution with an endless aisle approach that enables physical stores to sell products from other stores, as well as from the e-commerce store.

We've improved messaging between different channels, tuned search filters and added social selling. We've also launched a new dashboard that tracks additional key performance indicators for our customers, such as their cart to checkout and payment conversion rates. On the development platform of choice for digital commerce, I already covered all the strategic partnerships, which are a fundamental enabler for attracting more developers to our platforms as their preferred distribution channel. So to complement that, let me just share a couple internal KPIs we follow on this topic.

The monthly active developers accessing the VTEX development portal increased from more than 9,500 in Q2 to more than 14,000 in Q3. Additionally, we are excited to announce that this quarter U.S. developers were the second largest country accessing our platform, having grown more than four times versus the last quarter. We are also focusing on building security, privacy and compliance frameworks as features of our platform for our customers and developers to leverage on.

Our ambition is to convert security, privacy and compliance into differentiating factors for VTEX. This topic is a major requirement, especially in the European market. But it will soon be a worldwide requirement, and we plan to be in the forefront of it. Last, but not least, I would like to thank all 1,624 VTEXers that had worked and continue working insatiably to fulfill our mission, as well as our customers, partners, and investors.

Now, I'll turn the call to Ricardo, who can cover our financial progress report for the quarter. Ricardo, please.

Ricardo Sodre -- Finance Executive Officer

Thank you, Geraldo. Hi everyone, it's a pleasure to be here updating you on our financial performance for the third quarter of 2021. This quarter our revenue increased to $31.9 million, a year-over-year increase of 15.2% in U.S. dollars and 12.3% on an FX neutral basis, and above our guidance of $31 million to $31.5 million.

This increase was on top of our record same quarter last year revenue growth of 140% on an FX-neutral basis as COVID impact led to a further acceleration of e-commerce and reinforced the importance of having a holistic omnichannel strategy. Although some verticals were impacted by supply chain challenges or lower consumer confidence, which tend to be short-term impacts, revenue associated with new stores, which tend to bring long-term results, more than compensated that impact and allowed us to over-deliver our guidance. Total revenue two-year CAGR for the third quarter of 2021 was 64% on an FX-neutral basis, a 330 basis points sequential acceleration compared to the prior quarter. This demonstrates the sustainability and robustness of our revenue growth.

It also demonstrates how diversified across verticals we are, given that VTEX's software works well for many different industries, allowing us to perform well even while some verticals are impacted by macroeconomic events. July was our toughest comp, and as anticipated, the comps gradually eased throughout the quarter. We exited the quarter with September's year over year FX neutral growth in the 20% range, demonstrating that the gradual normalization trend we were expecting entering toward the end of the year already started. Subscription revenues represented 93% of total revenues.

We continue to see strong sales momentum by our sales and marketing team and go-live of new online stores, which drove an increase in our services revenue. As Geraldo mentioned, year over year we doubled our backlog in dollar amount, of new online stores in implementation. Subscription revenue increased to $29.6 million in the third quarter of 2021, from $26.3 million in the third quarter of 2020, a year-over-year increase of 12.6% in U.S. dollars and 9.7% on an FX neutral basis.

Now, moving down our P&L. Non-GAAP subscription gross profit was $20.2 million, compared to $20.4 million in the second quarter of 2021. Subscription gross margin was 68.2% in the third quarter of 2021, compared to 68.8% in the second quarter of 2021. The quarter-over-quarter compression reflects incremental investments in cybersecurity, privacy and compliance mostly related to our global expansion and becoming a public company.

We believe we can improve our subscription gross margin over the coming quarters and in the long-term. We are encouraged by the digital commerce opportunity, especially in Latin America. We see an attractive opportunity for further penetration, even after the strong acceleration we all witnessed last year. Therefore, we have decided to accelerate our investments to capture this market opportunity and leverage our leadership position in the region.

As a result, our non-GAAP loss from operations was $13.3 million during the third quarter of 2021, compared to a non-GAAP loss from operations of $10.4 million in the second quarter of 2021. We continue to see attractive unit economics from our investments to bring new online stores to our platform. Our LTV to CAC is still above six times cash on cash, even after we tripled our sales and marketing investments compared to the same quarter last year. We plan to remain focused on new online store additions, as we believe it is the right long-term decision for VTEX, even if that has some short-term impacts to our margins.

As of the three months ended September 30, 2021, VTEX had a negative $10.4 million free cash flow, primarily driven by our non-GAAP loss from operations, which is mostly attributable to sales and marketing and research and development efforts related to our growth stage. In this regard, it's important to highlight that this company has grown historically mostly self-funded, with limited primary capital injection. As I already mentioned, we have a powerful business model. We are currently focused on increasing our leadership in Latin America and discovering other regions.

And, given our attractive unit economics, we are more than happy to reinvest back in our business every incremental dollar and even burn cash in a disciplined fashion. Now, moving to our outlook, we expect to continue seeing strong new stores' growth as our encouraging backlog undergoes implementation. In Q4, our existing stores will face easier comps than Q3 comps. During Q4, we expect our revenue growth to continue accelerating.

While supply chain challenges may impact commerce during Q4, we are excited to support our customers on a successful Black Friday, Cyber Monday, and the holiday shopping season. We are working closely with our customers to understand how they are preparing, stocking inventory, and so on. With that said, we are targeting revenue in the $35.3 million to $37.3 million range for the fourth quarter of 2021, implying a 27% year over year FX neutral growth rate in the middle of the range. For 2021, although Lat Am currencies devalued 6.7% during Q3, we are confirming our guidance of $124 million to $126 million range.

This outlook assumes that current FX rates remain constant for the remainder of the year. Wrapping up today's call we want to reinforce that it is clear to us that e-commerce momentum is here to stay, and that the current state is just the beginning of a promising long road ahead for the region. We are seeing good indicators from the investments we are doing in the region and across other geographies, which is reflected in the strong momentum we are seeing in new contract signatures, as well as in the increase in our new store backlog under implementation. We have a strong leadership position in Brazil, we continue to quickly strengthen our position in Latin America, and we are starting our global expansion.

We feel encouraged by the opportunities we have in front of us. Thanks everyone for joining this conference call. We look forward to keeping you updated on our progress next quarter. Let's open it up for questions now.

Questions & Answers:

Operator

Our first question comes from Sterling Auty of JPMorgan. Your line is open. Please go ahead.

Sterling Auty -- JPMorgan Chase and Company -- Analyst

Yeah, thanks. Hi, guys. So one question, one follow-up. Just curious, in terms of the GMV, would you expect that the third quarter would be the bottom in terms of GMV growth? You mentioned the revenue acceleration expected in December.

Would you expect the GMV growth to accelerate as well?

Ricardo Sodre -- Finance Executive Officer

Yeah. Hi, Sterling. Great to speak with you. Thanks for the question.

GMV growth also should be the bottom for in Q3. We are already seeing an acceleration of GMV as well, as we mentioned for revenue. As you probably remember, to set the foundation, roughly two-thirds of our revenue comes from a take rate on our customers' GMV. So these two are tightly connected, right? And we are seeing a pickup in GMV, and that's driving recovery on the revenue growth as well.

And as we mentioned, there are, you know, supply chain impact that can have some of the impact on this GMV growth, but we are seeing a strong pickup in October, and we feel confident for November and going forward.

Sterling Auty -- JPMorgan Chase and Company -- Analyst

That's a perfect segue, my follow-up question was actually about that take rate. If I look at the subscription revenue in the quarter, coming in where it did despite GMV maybe being a little bit below what we would have expected. Was there a difference in mix in terms of take rate versus kind of the straight subscription fee that you saw in the quarter? Or what else kind of drove that strength in subscription revenue?

Ricardo Sodre -- Finance Executive Officer

Yeah. Great question, Sterling. So as you probably remember, our revenue is driven by the existing customers and the new customers. And as new customers are coming online, they have a slightly higher take rate because they are paying already a fixed fee, but they are not yet bringing a lot of GMV to the platform, right? So the implied take rate of new customers is higher than for existing customers.

And as they ramp up their GMV, which takes roughly six months, sometimes a year, they trend toward the average take rate of the company or the long-term take rate that they will have, right? So this slightly higher implied take rate that you're mentioning is mostly driven by more new customers joining the platform, which we see as the encouraging trend. And I think we mentioned during the prepared remarks that we are seeing strong sales momentum and that our backlog doubled on a dollar amount on a year-over-year basis. So this is an encouraging trend that we are seeing.

Sterling Auty -- JPMorgan Chase and Company -- Analyst

Understood. Thank you.

Operator

Our next question comes from Josh Beck of KeyBanc. Your line is open. Please go ahead.

Josh Beck -- KeyBanc Capital Markets -- Analyst

Many thanks for taking the question. I wanted to follow-up on your last point there, which I think you both had mentioned around the backlog doubling. So maybe just help us double-click there. If you were to look at maybe the verticals where you're seeing the momentum or the geographies, any other really standouts underneath that backlog strength?

Ricardo Sodre -- Finance Executive Officer

Yeah. I'm happy to take this one and then others on the call, if they want to chime in, please feel free. So Josh, it's across the board, it's not specific to one segment. So the VTEX platform works well across different industries.

And we are expanding globally. We are seeing strong momentum and continue to see very strong momentum in Brazil, where we have a strong market share. So the backlog in Brazil has increased, and we see further opportunity to continue growing in Brazil. As you know, we are investing a lot in Latin America outside of Brazil.

We pretty much tripled our sales and marketing investments in Latin America outside of Brazil. If you look at over the past 12 months. So as expected, these additional sales and marketing team is bringing pipeline and is bringing new opportunities, and these are getting signed, and this goes into the backlog. And just to take a step back on the sales cycle, right, it takes on average six months.

Between RFP launch and the contract signature. And then, that customer stays in the backlog for an average of six months because the contract is signed and takes about six months for the contract -- the store to go live, right? And because we increased a lot our investments in Latin America outside of Brazil, a lot of the backlog increase was driven by Latin America outside of Brazil. But we are also seeing increase in backlog in Brazil and outside of the region, outside of Latin America as well. So on segment and industry, not specific to one industry, it's across the board.

On geographies, we see a good trend in the geographies, but we see a bigger increase in Latin America outside of Brazil, given that the region that we made most of our sales and marketing investments.

Josh Beck -- KeyBanc Capital Markets -- Analyst

Very good to hear about that momentum. I wanted to follow-up on the supply chain impacts. As we've gone through this earning season, it has been really varied, I feel like some of the really large enterprise companies, even Walmart and Target this week have said their inventory levels are well positioned for the holiday season. So I think in the true enterprise, those are the dynamics, I think, once you get into SMB, right, there's probably less preparation.

So I'm just curious, as you look into next year, do you feel like for maybe the customers that had supply chain issues that there could be some type of overhang and the metric that I'm really trying to think through is net revenue retention, if we should maybe factor in some type of impact to some of those non enterprise customers as we start to think about next year?

Ricardo Sodre -- Finance Executive Officer

It's very hard to answer this precisely, right? I mean, what I can share what we saw during Q3 and how we are starting to see the performance of Q4, the supply chain issues impacted mostly the electronics and home appliances. And although these are enterprise customers, and they can prepare, they have better processes around supply chain planning, and they can foresee some of these trends before some of the SMBs, if chips are out of stock or if they can just get the raw materials to make their products, that does impact a little bit these companies, right? So as we have seen these two key segments being impacted, we are also seeing now in Q4, a stronger growth in their GMV than we were expecting. So it's hard to say if they are recovering, I think it's early for that, but maybe they were stocking for this holiday season to be ready for this important moment for the industry, right? Now, looking forward to 2022 and the net revenue retention, I mean, we would love to have more insight on that, but I think it's very early to know how these trends will evolve. But we do like the perspective that the enterprise customers bring because of their processes and their preparation and being able to be more prepared and control their inventory, so they have less ruptures than some other smaller players may feel, right? So we like our customer base, and we like how they try to position themselves.

And we try to stay very close to them on how they are preparing and stocking for the holiday season, understanding also their planning for this season, right? I mean, there is some uncertainty on that. There is always uncertainty on these topics, but we try to stay close with them so we can help them get the best GMV possible during this season.

Josh Beck -- KeyBanc Capital Markets -- Analyst

Very helpful context. Thanks, team.

Operator

Our next question comes from Diego Aragao of Goldman Sachs. Your line is open. Please go ahead.

Diego Aragao -- Goldman Sachs -- Analyst

Yes, Good morning. Thanks for taking my question. Actually, the first question is regarding the current macroeconomic environment in Brazil. We are now seeing inflation picking up in the country, partially driven by the BRL devaluation.

So I was just wondering if you can comment on how these -- what factors could end up impacting your business in the short term. Thank you.

Ricardo Sodre -- Finance Executive Officer

Yeah. Thanks, Diego. So first on the FX devaluation, right, I think as we mentioned on the earnings release, there was a meaningful devaluation of the Lat Am currencies during Q3, right, roughly 6.7% devaluation already as a weighted average by the VTEX revenue by currency, right? For example, if you take Brazil, as you mentioned, FX in Brazil was BRL5 to the dollar in June 30. And then, I think like almost BRL5.50 or BRL5.44 by September 30.

So it's almost like 9% devaluation during the quarter. And even though there was the 6.7% devaluation, which would impact our Q4 revenue in dollar amounts. So it reduces our expected revenue for Q4, just because of currency variable that we don't control, we are keeping the guidance, right, for the year, right? So yes, in the short term, there are currency impacts on our business. But if you think about long-term and VTEX being a high-growth company and inflation differential being a couple of percentage points that it has been historically, FX is not an important driver for us.

There is volatility. And in a quarter in the short term, you may see some impact, but in the long term, high growth company, with FX being a couple of percentage points impact per year. We don't see as a meaningful long-term impact, but again, in the short term, it could impact us. Quickly on inflation, I mean, we are seeing inflation, it's not just in Brazil, right? I mean it's a global phenomenon.

You can also see inflation in the U.S. peaking up. In Brazil, it's maybe slightly higher on a 10% LTM, but then U.S. is at 6% or so, right? And it's important to mention that the way our business model is designed, we are very well protected against inflation because two-thirds of all revenue comes from take rates on our customers in GMV.

And as the inflation impacts the economy, the GMV of our customers increases naturally because they are selling the goods that are driving this inflation, right? And we capture this automatically because of our business model. It's not a renegotiation of a contract of trying to increase prices or anything like that. It just flows through because of the take rate. So although we are seeing this inflation impacting the global economy, we feel well positioned because of the business model that we have.

But let me pause here. I don't know if Geraldo, if you want to add a few more thoughts on the topic.

Geraldo Thomaz Jr. -- Co-Chief Executive Officer and Co-Founder

Yes, Ricardo, your point is exactly what I was going to talk about. There're several reasons why we like the take rate component in our subscription revenue. One of them, the biggest one is alignment of interest. The other one is that we truly believe that in the long term GMV of e-commerce will grow much more than any other metric.

But also, when we started building a business model based on GMV, Mariano and I, we are here for 20 years, we saw the hyperinflation in Brazil, the inflation and usually, inflation in countries like ours, it's inflation with stabilization. So it's very difficult to renegotiate content in this period where you have inflation and recession at the same time. And so, there's business model that we have also protect us from charging less in real terms in the long-term, because we naturally adjust the contractual, the agreement with our customers because of this company. So I do believe that in this sense, especially in the long term, this company is kind of protected against the bad effect of pressuring the suppliers, in our case, because of inflation.

Diego Aragao -- Goldman Sachs -- Analyst

That's very, very helpful. Thank you, Geraldo and Ricardo. And maybe just a follow-up question regarding the GMV, ever since, I guess, it accelerated sequentially in the third quarter. So not sure, I think this was partially driven by FX movements and the BRL devaluation as well.

But maybe if you can just help us to understand the trends in there and comment on the performance of the GMV, let's say by client vertical and different industries, I think that would be great. Thank you.

Ricardo Sodre -- Finance Executive Officer

Yeah. Thanks for the question. As you can imagine, it's very hard to precisely calculate the impact of some of the supply chain challenges or lower consumer confidence that we are seeing in some countries. And as they are intertwined with other variables and doing the sector comparables analysis, it's almost impossible.

But having said that, right, historically, seasonality is that Q3 GMV is usually slightly higher than Q2 GMV. And this year, it was actually roughly $150 million lower. And doing some round number calculations, if you divide our revenue by our GMV, you get to an average take rate of roughly 1.3%. And you have to remember that only two-third of our revenue is based on GMV.

Thus, if you do this 1.3% on these $150 million lower GMV that we don't control, it's driven by the macro in some way. And you multiply by these two-thirds that I mentioned, it's almost $1.5 million directional impact of these events in the quarter. And this was mostly in, as we said, home appliances and electronics, a little bit on furniture. And I mean there is these potential short-term impacts being exposed to GMV, but we love that for the long-term, because as Latin America is very under-penetrated, and as this penetration increase over time and the GMV increases, we naturally capture that growth in our revenue growth.

So we like having this GMV exposure. But it's a variable that we don't control, and during this macro event, it could have some impact. But even considering this directional impact that I mentioned, we over-delivered the guidance with $31.9 million range levels from $31 million to $31.5 million.

Geraldo Thomaz Jr. -- Co-Chief Executive Officer and Co-Founder

Ricardo's point is very good. We don't control in the short term. And naturally, we don't control in the long term, but we have a good bet that in the long term, taking our revenue to GMV is a big deal. Eventually, in order to have this big disruption because of the supply changes after COVID and we had this very small impact in our revenue, that is just a short term.

So we were beating the guidance and everything. It's not that it's the end of the world, but in the long term, we're very optimistic to be attached to the GMV of our customers.

Diego Aragao -- Goldman Sachs -- Analyst

That's very helpful. Thank you both for the info. Very clear. Thank you.

Operator

[Operator instructions]. We have a question from Fred Mendes of Bank of America. Your line is open. Please go ahead.

Fred Mendes -- Bank of America Merrill Lynch -- Analyst

Hello, everyone. Good morning and thanks for the question. I have two questions as well. The first one, on sales and marketing expense, I mean it increased almost 20% quarter over quarter.

I'm just wondering, are you guys expanding this marketing campaign or that based on price of the digital channels that are, let's say, more expensive. And let's say, you are doing kind of the same, but it's paying a little bit more on this cost. This would be my first question. And then, on the second question, I think it's a more strategic one.

You look at the headcount of 1,600 employees. You almost doubled over the last 12 months. So just wondering, do you believe you have the optimal level? Or should we continue to see this the headcount to increase over the next quarters? This would be my second question. Thank you.

Mariano de Faria -- Co-Chief Executive Officer and Co-Founder

Hi. Mariano here, I am co-founder and co-CEO. Just introducing myself. The S&M, the most part of the S&M investment, it is in people.

So we are seeing an increase on the opportunities arriving on VTEX, and we need to prepare the people for these. So the most part of the investment is directly to people.

Geraldo Thomaz Jr. -- Co-Chief Executive Officer and Co-Founder

And it's important to highlight, Fred -- sorry, there you go. But it's important to highlight company is getting very not sensitive to digital market. Most of our investment in S&M is people we don't buy AdWords. We don't buy digital channels to sell.

Like this is like almost irrelevant to our expenses in sales and marketing because we are mostly sales-based company and an ecosystem sales company.

Ricardo Sodre -- Finance Executive Officer

To be more precise, it is a contraceptive solution engineering, CSM, people that are engaging on the opportunities that's arriving.

Fred Mendes -- Bank of America Merrill Lynch -- Analyst

Perfect. Thanks, Mariano. And then, on the second one, in terms of the headcount, you already believe you're at an optimal level? Or as you continue to develop products -- I mean, obviously as you grow, you'll be hiring more people. But the volumes that we have seen recently, should you continue ability already at the optimal level for the sites where you are? Thank you.

Ricardo Sodre -- Finance Executive Officer

Yeah. Happy to take the question, Fred, and thanks for the question. Yeah. As we explained during the IPO process in the last quarter, we are seeing a very strong opportunity for us to capturing the market, right? As the pandemic completely shifted the mindset of the C-level and board members of these enterprises, and they are accelerating their digital transformation.

And we are in a market where penetration is very low, our unit economics is very attractive, and the customer is very sticky, right? Our churn continues to be mid-single digits, right? So with these outset, it makes a lot of sense for us to invest now and capture these opportunity and bring the customers to VTEX. And as we mentioned, roughly half of our new customers agreed to it. So we want to capture them first than trying to steal this customer from another platform. And the switching cost plays both ways, right? Once the customer joins our platform, they tend to stay with us, but it's also hard to take customers from other platforms.

I mean, we have been successful in doing it, but you have to be at the right time at the right place. And the customer needs to be feeling some type of pain like trying to do omnichannel solutions or scaling a Black Friday and not being able to switch to us. So anyway, it makes a lot of sense for us to invest now to capture this customer. And that's what we have been doing over the past year now as we started to accelerate the expenses in Q3 last year.

So we see that we did a lot of the heavy lifting already. As you said, we almost doubled the headcounts year over year. Going forward, we don't see the same pace of increase in headcounts, but we feel there is an opportunity to continue investing. And as we're seeing a strong sales momentum and we've seen our backlog increasing, we feel it's important to invest to continue capturing this opportunity and driving the growth of the company going forward.

Fred Mendes -- Bank of America Merrill Lynch -- Analyst

Perfect, Ricardo. Thank you.

Operator

There are no further questions on the lines at this time. So I'll turn the call back over to Geraldo.

Geraldo Thomaz Jr. -- Co-Chief Executive Officer and Co-Founder

Thank you very much. So I think I want to make sure that I owe this opportunity that I have to finalize the call to thank you all again to join our earnings call conference. These are our first steps as a public company, and we are very happy and humbled to share the steps with you. VTEX's ambitions were always sizable, and you are enabling us to dream even bigger.

Thank you for that and for accompanying us in such an important moment. We will continue executing with the highest standards to continue to be the best partner for enterprises to do business in this new digital era. Thank you very much. See you next quarter.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Geraldo Thomaz Jr. -- Co-Chief Executive Officer and Co-Founder

Ricardo Sodre -- Finance Executive Officer

Sterling Auty -- JPMorgan Chase and Company -- Analyst

Josh Beck -- KeyBanc Capital Markets -- Analyst

Diego Aragao -- Goldman Sachs -- Analyst

Fred Mendes -- Bank of America Merrill Lynch -- Analyst

Mariano de Faria -- Co-Chief Executive Officer and Co-Founder

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