Participants

Juila Fernandez; Investor Relations Director; VTEX

Geraldo Do Carmo Thomaz; Co-Chairman of the Board, Co-Chief Executive Officer; VTEX

Ricardo Sodré; Chief Financial Officer; VTEX

Marcelo Santos; Analyst; JPMorgan Chase & Co

Leonardo Olmos; Analyst; UBS Group AG

Luca Bernardinelli; Analyst; Bank of America Merrill Lynch

Presentation

Juila Fernandez

Hello, everyone, and welcome to the VTEX earnings conference call for the quarter ended December 31, 2024. I am Julia Vater Fernández, VP of Investor Relations for VTEX. Our senior executives presenting today are Geraldo Thomaz Jr., Founder and Co-CEO; and Ricardo Camatta Sodre, Chief Financial Officer. Additionally, Mariano Gomide de Faria, Founder and Co-CEO, and Andre Spolidoro, Chief Strategy Officer, will be available during today’s Q&A session.
I would like to remind you that management may make forward-looking statements relating to such matters as continued growth prospects for the company, industry trends, and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations and projections about future events. While we believe that our assumptions, expectations and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on these forward-looking statements.
Certain risks and uncertainties are described and the risk factors and forward-looking statement sections of VTEC Form 20 for the year end of December 31, 2024 and other VTEC filings within the US Security and Exchange Commission, which are available on our industry relations website.
Finally, I would like to remind you that during the course of this conference call we might discuss some non-ga measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our fourth quarter 2024 and expressly available on our investor relation website.
Now, let me turn the call over to Geraldo. Geraldo, the floor is yours.

Geraldo Do Carmo Thomaz

Thank you, Julia. Welcome, everyone, and thanks for joining our fourth-quarter 2024 earnings conference call. We closed the year with our underlying business remaining stronger than ever.
Looking at the medium to long term, 2024 was a transformative year for VTEX. We delivered significant milestones in our evolution as a global leader in digital commerce.
First, we continue to see a robust sales momentum in signing new enterprise customers onto the VTEX Platform, demonstrated by the number of customers that pay us more than $250,000 per year increasing from $126,000 to $155,000.
Second, our annual revenue churn remains stable in the mid-single digit percentage range, an evidence of our customer satisfaction and our strong position in the competitive landscape.
Third, we introduced new products such as VTEX Ads, Data Pipeline, and Shield, designed to empower our customers with AI-supported add-ons that enhance business outcomes and revenue generation, delivering efficiency and tangible business results for our customers and potentially contributing to VTEX's monetization capabilities.
The three operational pillars highlighted above – adding new enterprise customers, maintaining low churn, and launching innovative products – are key to VTEX's medium and long-term success. While our revenue model, with two-thirds coming from a take-rate on customer GMV, closely aligns our success with that of our customers and benefits us from the growth of digital commerce, it also introduces short-term volatility. This was evident this quarter and year, with revenue coming below expectations due to weaker same-store-sales, particularly in Brazil, amidst softer consumer spending and significant FX devaluation.
Ricardo will elaborate further on this in the financial section. Now, going back to the three key operational growth drivers. On adding new enterprise customers. In 2024, we saw a strong contract signature momentum, with Brazil standing out as a highlight throughout the year and with notable contributions from the US and Europe in the second half.
As a result, our deferred revenue increased 29% YoY, which is a testament to the attractiveness of our value proposition for net new customers and existing ones that renewal-after-renewal keep choosing VTEX. These achievements reaffirm VTEX’s global ambitions of becoming the backbone for connected commerce, being more than just a software provider but the preferred comprehensive commerce suite by bold CIOs and CEOs worldwide.
On keeping a low and stable churn. We further solidified our partnerships with top-tier brands and retailers, demonstrating our ongoing upmarket trajectory with a 23% increase in number of customers generating over $250k in annual recurring revenue. In 2024, we celebrated the go-lives of several key customers, including Hmart, MyEyeDr, Jeffers Pet, and Heart's ongoing expansion in the US; OBI and an enterprise multinational fashion retailer in Europe; Motorola in Sweden and Whirlpool in Poland; Pashmina in India; Nike, Adidas, and Elektra across Latin America; and Fast Shop, Hortifruti, and Bemol in Brazil, among many others.
Although our total number of customers has slightly decreased year-over-year, that’s driven by a lower intake of small customers that are not strategic nor financially relevant for VTEX. Our annual revenue churn remains stable in the mid-single-digits. As our base of customers paying us more than $250,000 in ARR grows and compounds over time, it further strengthens VTEX’s long-term growth and resilience.
On launching product innovations. VTEX is successfully transitioning from a single-product platform into an integrated suite of solutions. Our offerings now span B2C, B2B, Sales App, Pick & Pack, Data Pipeline, Retail Media, Security Shield, and many more, empowering businesses through a well-connected ecosystem. Our strategic investments, including a stake in Synerise and the acquisition of Weni, expanded our AI and conversational commerce capabilities while enabling us to enter two new segments: Retail Media and Post-Sales markets. This diversification strengthens our position as the most comprehensive suite of commerce solutions, going beyond software to serve as a trusted ally in executing our customers' growth strategies.
As we look ahead, we remain steadfast in building trust with our customers and delivering on our promises alongside our ecosystem partners. Trust is at the core of VTEX’s DNA and will continue to guide us as we solidify our leadership in digital commerce.
With this segway, let me go to the newly added customers during the fourth quarter of 2024, including: Dakota Criações, Donna Carioca, Hortifruti, Ortobom, and Rissul in Brazil; Torre in Chile; An enterprise multinational fashion retailer in Ireland; Coolbox and Hanes in Mexico; Sameca in Portugal; and Rahr Corporation and Lyon Bakery in the US.
We’ve also focused on strengthening our relationships with existing customers, actively supporting their growth initiatives. During the fourth quarter, several premier brands and retailers chose VTEX to expand their operations with us, including, Amo Beleza has launched a new brand, Mascavo, and now operates two B2C stores in Brazil. Cartamundi has introduced the Grimaud brand in France, extending its operations to Europe in addition to its two B2C stores in the US.
Keune continues to expand its B2B presence across Europe, adding Germany to its Belgium, France, Netherlands, and UK operations. Mazda is further strengthening its European presence with the addition of France, which is now operating in four countries. Solla has expanded to B2B in Colombia with two new accounts, Solla B2B and Distraves B2B, adding to their two existing B2C stores in the country. And VOIT has expanded its B2C presence into the US, complementing its operations in Mexico.
Additionally, in our continued pursuit of fostering our trusted ecosystem, we're thrilled to announce that we've launched a strategic partnership with Accenture through Logic, their retail technology Systems Integrator. This collaboration empowers US enterprises to modernize their digital commerce infrastructure, addressing shifting buyer trends and rising market challenges.
With record retail closures highlighting the urgency for transformation, VTEX and Accenture are uniting to help brands stay competitive by leveraging VTEX’s agile platform and Accenture’s expertise in business transformation. This partnership positions VTEX at the forefront of driving growth and resilience for US companies in today’s dynamic retail landscape.
Now, before leaving the stage to Ricardo, I would like to share some customer success cases demonstrating our platform's tangible impact and potential. An enterprise multinational fashion retailer in Ireland partnered with VTEX to overcome significant technical and operational challenges.
Before VTEX, the company relied on a dedicated ecommerce textile platform that lacked scalability, functionalities, and the flexibility needed to support its growing digital commerce ambitions. Their primary objectives were integrating inventory from over 100 stores, centralizing digital sales, and driving revenue and efficiency improvements. VTEX implemented its core platform with a white-label B2C operation to address these needs and enhanced the user experience with out-of-the-box features like color and sizing options. The architecture was further strengthened by a redesigned front end and integrations facilitated by middleware from our partner, Logic.
Early indications suggest improved sales efficiency and platform usability by integrating smart checkout. Carajás, the leading retailer in the home improvement segment in Brazil, transformed its customer experience and boosted sales with Weni by VTEX.
With 11 physical stores, 2 distribution centers, and over 20,000 SKUs ranging from decoration to construction products, Carajás needed an efficient post-sales channel to enhance customer service and drive incremental revenue. By integrating conversational commerce with Weni by VTEX, Carajás automated key processes, including cart recovery with optional human assistance, order updates, and financial solutions like invoice retrieval and PIX payments.
This automation led to remarkable results such as a 15 times higher conversion rate on WhatsApp than email; an expansion in their ROI in abandoned cart recovery, which reached double-digits; and a 68% message read rate, well above the 40% to 45% average for emails. We are proud to help Carajás embark on their conversational commerce journey, where WhatsApp has already become a comprehensive and efficient channel, delivering convenience, trust, and competitive differentiation throughout the customer journey.
Heineken Brazil, home to some of the most beloved alcoholic beverage brands, chose VTEX Ads to run their digital campaigns. It achieved exceptional results, with above-average return on ad spend in the fourth quarter of 2024. This success was powered by identifying Zona Sul’s highly qualified audience through first-party data, including transaction insights and search behavior on the platform. By analyzing shopper intent, Heineken’s campaigns were strategically optimized, targeting consumers with high purchase intent and ensuring maximum impact across many SKUs. Through this data-driven approach, VTEX Ads provided Heineken Brazil with actionable insights into key performance indicators like sell-out and market share, helping them refine their strategy for even better results.
Pashmina.com, the leading B2C ecommerce platform specializing in luxury handcrafted Kashmiri pashminas, has partnered with VTEX to transform its digital operations and accelerate global growth. With 85% of its business coming from international exports, Pashmina.com migrated from its legacy platform to VTEX’s platform to enhance scalability, flexibility, and operational efficiency. This transition empowered the brand to offer personalized shopping experiences, multilingual support, and local currency options for its customers across the US, Europe, Australia, and India. This partnership allows Pashmina.com to expand its global presence while celebrating the rich heritage of Kashmiri craftsmanship, all without the burden of managing its web infrastructure.
Together, we aim to redefine India’s digital retail landscape and set new benchmarks in global ecommerce innovation. Sony, the renowned global electronics company, has selected Sales App as their primary platform to manage sales operations across LATAM stores. This partnership represents the first multi-country implementation of the Sales App, with seven stores across Ecuador and Chile already becoming their main in-store sales platform. To meet its specific operational needs, Sony has extended Sales App within the VTEX ecosystem using Jitterbit, integrating it with their existing systems. Sony plans to expand Sales App usage to four additional countries in LATAM, Peru, Panama, Colombia, and Mexico, bringing the total number of stores to 18. With Sales App as its exclusive platform for all operations, this rollout underscores its potential to drive significant results across Sony’s regional network.
Walmart, the multinational discount store operator and one of the largest corporations in the global retail industry, is transforming the mobile shopping experience across Central America by launching new apps in Costa Rica and Guatemala. The apps offer a flexible, customized shopping solution for each country and store format, from Walmart Supercenters to Supermarkets and Discount Stores. Leveraging VTEX IO infrastructure and our API-first approach, the app’s advanced architecture enhances load time and performance, while intuitive navigation improves user experience, driving higher customer satisfaction. This is just the beginning, with additional brands across the region set to go live. Through its digital expansion, Walmart is setting new standards for retail innovation in Central America, a development we proudly support. The Smart Storage Solutions business unit of Stanley Black & Decker successfully launched its Smart Storage digital commerce store, migrating from a content-only Sitecore website to the VTEX FastStore platform. This new platform delivers a seamless catalog browsing and purchasing experience for prominent brands like Vidmar, LISTA, and CribMaster. Built on the proven global architecture used for Stanley Engineered Fastening's website, also powered by VTEX, Smart Storage expands Stanley's assortment availability and commerce capabilities, positioning it to meet the rising demand of digitally-native B2B customers. The migration represents a pivotal step in enhancing operational efficiency and customer engagement in B2B digital commerce.
To conclude this section, I want to express my gratitude to our 1,368 VTEX employees dedicated to making VTEX the backbone for connected commerce and to our customers, partners, and investors. With that, I will now hand over the call to Ricardo to discuss our financial performance for the quarter and the full year 2024

Ricardo Sodré

Thank you, Geraldo. Hi everyone, it’s a pleasure to update you on our financial performance. In the fourth quarter of 2024, our GMV reached USD5.4 billion, representing a flat YoY growth in USD and 11% increase in FX-neutral. With this, we concluded the full year 2024, reaching USD18.2 billion in GMV, representing 10% and 16% growth in USD and FXN, respectively. Our revenue totaled USD61.5 million, growing yearover-year 1% in USD and 12% in FXN in the fourth quarter of 2024, and reached USD226.7 million for the full year 2024, representing a 13% and 18% growth in USD and FXN, respectively.
These results came below our guidance range of 14% to 17% FXN for the fourth quarter and 18.5% to 19.5% FXN for the full year. The primary driver for the gap versus our expectations came from a softer-than-expected GMV from existing customers in Brazil, where consumer spending softened. On top of this, the US Dollar meaningful appreciation against most currencies, and especially the Brazilian Real, further pressured our USD-reported results. Despite Brazil's challenging consumption scenario, as mentioned by Geraldo, we remain confident in our ability to sustain a profitable growth trajectory based on the robust momentum in adding new enterprise customers, our stable and low churn, and our recent product innovation launches.
Double-clicking on our revenues, our subscription revenue reached USD59.5 million in the fourth quarter of 2024, representing a YoY increase of 2% in USD and 13% in FXN, on top of last year’s 36% in USD and 27% in FXN growth. For the full year, subscription revenue reached USD217.7 million, up from USD190.3 million in 2023, representing a 14% and 20% growth in USD in FXN.
In 2024 our existing stores revenue increased to USD169.0 million. Our net revenue retention reached 104% in FXN. As a key driver to net revenue retention, our SSS growth reached 10% in FXN. Looking at SSS throughout 2024, for the first three quarters SSS growth was in the teens level while in Q4 it dropped to single digit range, given tougher comps in Argentina and softer consumer spending in Brazil.
It is important to mention that the upselling of new features, contract renewals at better terms and inflation adjustments have partially offset the impact in our NRR from the weaker SSS from our customers. On top of our existing stores' growth, we continued attracting new stores, adding USD27.9 million in revenue to our base, representing approximately 16% of our 2023 VTEX Platform revenue. The solid contract signature momentum is coupled with our LTV/CAC ratio that remains at a strong fold, exceeding the 6x cash-on-cash mark.
This year, a significant highlight is the continued progress of our existing stores' P&L, reinforcing the strength of our inherently attractive business model. Existing stores' gross margin increased from 77% in 2023 to 81% in 2024, while operating margin reached 43%, marking 8 percentage point increase year-over year. Additionally, given our net revenue retention of 104% in FXN our existing stores’ P&L is significantly above the Rule of 40, giving us confidence in our Rule of 40 goal at maturity. Meanwhile, for new stores' margins, we delivered a 10 percentage point improvement in gross margin YoY and 5 percentage point operational leverage improvement in R&D and G&A, which were all basically re-invested into Sales & Marketing, strategically positioned to seize the significant growth opportunity ahead.
Now, analyzing the geographical breakdown of our revenue. In 2024, revenue generated outside Brazil accounted for 43.4% of our total revenues. Looking at the YoY FXN growth by region: Brazil’s subscription revenue grew 28% in FXN, a slight acceleration versus last year mostly given the solid sales momentum mentioned throughout the year and despite the year end softness in SSS; Latin America excluding Brazil subscription revenue increased 6% in FXN, and removing the Argentina headwind the region grew at a pace just slightly below Brazil’s; and the Rest of the World subscription revenue grew 34% in FXN, demonstrating a relevant compounding rate even as we increase the baseline.
Moving down our P&L, we have maintained strong discipline on costs and expenses. Important to note that all figures I will now present are non-GAAP. You can find the reconciliation of those measures to the nearest comparable GAAP measures in our fourth quarter 2024 earnings press release on our investor relations website. Our subscription gross profit reached USD46.9 million, resulting in 78.9% subscription gross margin, up from 78.6% in the same period last year. Our total gross margin, which includes services, rose to 75.1%, compared to 74.1% in Q4 2023. Our total gross margin improvement was mostly driven by the lower mix of services revenue in our total revenue, as we are relying more on our ecosystem to provide implementation services, and, to a smaller extent, by operational efficiencies in support cost, despite the currency headwind experienced in the quarter.
Operating expenses were USD33.8 million, slightly below the USD34.2 million recorded in the prior quarter, resulting in an operating income of USD12.4 million, representing a 20.1% margin, up from 19.1% in the same quarter of the prior year. Aligned with this, our free cash flow performance was equally strong reaching the same USD12.4 million and 20.1% margin, consistent with the target model we communicated to the market. The resiliency of our operating income and free cash flow margin clearly demonstrates our natural operational hedge against FX fluctuations, as even though the weighted average of our basket of currencies depreciated approximately 10% YoY against the USD, we still improved our operating income margin by 1 percentage point and our free cash flow margin by 4.5 percentage points.
Looking at the full year, the improvements have been even more significant. Our subscription gross margin improved 196 basis points, reaching 78.2%, while our overall gross margin expanded by 402 basis points, reaching 74.1%. Operating margin improved nine percentage points, reaching 13%, going from USD7.7 million in 2023 to USD29.5 million in 2024. Free cash flow also significantly increased, from USD3.8 million in 2023 to USD25.2 million in 2024. We also did strategic capital allocations, like Weni and a minority investment in Synerise, and launched a new share-repurchase program. Approved by our board of directors on December 3, 2024, the program authorizes the repurchase of up to USD30.0 million in Class A common shares and will remain in effect until December 2, 2025. In the fourth quarter of 2024, we repurchased 1.8 million Class A common shares at an average price of USD6.08 per share, totaling USD11.2 million. We’ll continue to allocate capital with diligence, aligned with our strategic vision and aiming to maximize long term returns and value generation for VTEX, our customers, partners, employees, and investors.
As we move forward with our business outlook, we remain confident in our business resiliency. Despite Brazil’s FX volatility and existing customers’ GMV softness in the short term, we see an attractive opportunity to help our customers outperform the market, attract new customers, cross-sell our suite of products to our base, and efficiently manage our costs and expenses to deliver operational leverage. Considering this, we are currently targeting FXN YoY subscription revenue growth of 13% to 15% for the first quarter of 2025, implying a USD51.0 million to USD52.0 million range.
For the full year 2025, as we continue executing our profitable growth strategy, we are targeting FXN YoY subscription revenue growth of 14% to 17%, implying a range of USD235.0 million to USD241.0 million based on the quarter-to-date average FX rate. We are targeting non-GAAP operating income and free cash flow margins of mid-teens.
Given the evolution of our partner ecosystem, we plan to increasingly rely on VTEX's ecosystem of system integrators for new customer implementations. We view our lower short-term growth rate as temporary, influenced by the abrupt FX devaluation and a softening of consumption in Brazil. Looking ahead, our operational and long-term indicators are showing strong performance. We have seen a significant 23% increase in the number of customers generating over $250k in ARR, and our deferred revenue has also meaningfully increased by 29% YoY. Our annual revenue churn remains in the mid-single digits, with larger customers experiencing low-single-digit churn.
Finally, and not less important, we are excited to be expanding with compelling new products that are enhancing our offerings. Overall, we remain optimistic about the future and look forward to the opportunities that lie ahead in the coming years.
With that, let’s open it up for questions now. Thank you.

Question and Answer Session

Operator

(Operator Instructions) Marcelo Santos, JPMorgan.

Marcelo Santos

Hi, good evening. Thanks for taking my questions. The first question is regarding the guidance, the subscription revenue guidance growth, and ASA mutual terms for 2025. Could you discuss this a bit more into the regions that you operate. Maybe comparing how they grew last year, like what are you kind of testing that the main moving part that you have on that guidance? That's the first question.
And the second question, I think on the opening remarks, you commented that you're transitioning from a single product company to more of, I forgot the exact words, but more of a platform of solutions. What would be the P&L impacts over the long term of of such transition? What should we expect in a different line? Thank you very much.

Geraldo Do Carmo Thomaz

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

Marcelo Santos

So, you mentioned in the beginning of the prepared remarks that VTEX is transitioning from being a single product company to use the word that I forgot, but I think it was something like a platform of solutions, an ecosystem of solutions. I just wanted to understand better what would be the midterm P&L impact of such transition like as you add more solutions and products to your shelf. How does this impact the different parts of your P&L?

Geraldo Do Carmo Thomaz

Yeah, perfect. So happy to start, and then others feel free to chime in. So we are undergoing this transition already, right? I mean, when we're talking about this commerce suite, we are talking of not just the all you can eat B2C platform, but also the B2B video media, the sales app, the VTEX shield, data pipeline, and so on. So this is something that we have been.
Executing for the past, let's say a few quarters, and we have been already investing behind it, on the R&D side so we can actually launch these products. These are not ideas, right? I mean, these are products that have been launched and we have customers using them. So, we wouldn't expect, any, relevant impacts on the investment side of the P&L.
And then on the other parts of the P&L I'm thinking long term, the way that we think about it is that some of these products, they have a different buyer inside the organization. And then you you potentially increase the thickness of the VEX solution. By having these different products, being used, on, not just on the commerce side but also on the marketing side, the security side, the data side, and so on. So it's more about, stickiness and, lifetime value of customers than short-term impacts on the P&O.
I can add something here so the, thank you, I can add something, the financial distress that the retailers and brands are suffering.
Creates the opportunity for a company like us to give them an out of the box fully integrated solution so they can write off providers and unify in a very simple way what we are calling the simplification of the operation that gives them more margins and unlocks some revenues, so.
When we call ourselves, that's what we disclaim in the VTEX 2028 charter in our VEX 2024 annual report, quote, VTE is the commerce street of choice for both CIOs and COs globally. That means that we will not provide only B2C anymore. So as we are testing those markets in the last two years now we became a commerce suite. So you can have the B2C with us, you can have the B2B with us, but also you can have the addons such as. For example, the pick and pack, the shield data pipeline, all of this, it is to simplify the operation of our customers and allowing them to serve these efficiency necessary ways they will be forced to serve. So what we can expect in terms of P&L impact is said not not really much.
What we can see is that the capacity that we do have inside our clients to guide them.
To use a simple solution is pretty strong and we are using it so we already have clients that are using 3 or 4 products of eTex and this is creating more thickness and preparing the clients for for the future.

Marcelo Santos

Perfect, very clear. Thank you very much.

Operator

Tiago Kaapolskis, Eel BBA.

Hi everyone, thanks for the opportunity to ask questions. I also have two questions for myself. So the first one, just to get a little bit more color on the on the softness that you saw in Brazil this quarter, is there anything specific in terms of factors, verticals, regions that you would call out? And also how are Thinking about that on your guidance looking1 and also into the full year, how are you are you incorporating those effects? And my second question is more related to the environment in the US, given the new administration.
I know that by the end of last year, there was a lot of bullishness on everything. I just want to hear a little bit from you guys more on the pipeline of new deals and conversations. If the mood continues to be positive, if it changes any color there, it would be great. Thank you.

Geraldo Do Carmo Thomaz

Great, thanks, Tiago, Ricardo here. Happy to take the first one, and I believe Mariano can address the second one.
So on the GMB softness and macro impact, before answering the question, let me take a step back and do a quick recap of our revenue model as I think it helps on aligning the foundations. So, as Chago, approximately 1/3 of our revenue comes from a fixed fee, while the remaining 2/3 are tied to our customers' GMV.
We like these revenue model structures as it align our success with our customer success, provides us with long term exposure to the continued penetration of e-commerce, and automatically protects us against inflation.
Having said that, this revenue model may also introduce some short-term volatility in the positive consumption cycles. It's a tailwind to our short term performance, and in the negative cycles, it's a short term headwind.
From an operational and medium to long term perspective, our focus remains on signing new enterprise customers, keeping a high gross retention, and helping our existing customers grow their GMV above the market. And from this perspective, we are seeing, a strong performance, new customer contract signatures continue at a solid pace, which is reflected in our deferred revenue growing 29. 9% and the number of customers paying us more than $250,000 per year growing 23%.
And also our annual revenue churn remains in line with historical levels in the mid single digit range where our fastest growing clusters of customers, the ones above $250,000 our revenue churn is even lower in the low single digits.
So, on, the GMV, softness, let me just, TRY to share some context in Brazil.
The same source sales that we saw in Brazil, which is the GMB growth of our existing customer base, for instance, the same source sales growth in FX neutral in Brazil, unexpectedly decelerated by roughly 6% points from Q3 to Q4. The abrupt fact devaluation and the rising interest rates, weighted on consumer spending.
And the significant appreciation of the US dollars, against most currencies, particularly the Brazilian how also further pressure, this type of consumption behavior.
Specific segments, I, we saw a more relevant deceleration in home appliance and electronics, but as this is, volatile. Every quarter changes a bit, but those are the key segments that we saw some of this, deceleration.
Hopefully that answered your question.

Well, great, that's great caller. Thank you very much.

Operator

Leonardo Olmos, UBS.
Sorry. I think there was a second question.

There was a question.

Geraldo Do Carmo Thomaz

Oh, it's about the new administration in the US, is that correct?

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

Geraldo Do Carmo Thomaz

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

Alright, great. Thank you very much.

Operator

Leonardo Olmos, UBS.

Leonardo Olmos

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

Ricardo Sodré

Yeah, sure. Thanks, Laur Ricardo here. So if we look at our growth, the subscription revenue growth in effect neutral in the 4th quarter, we grew roughly 13% year over year, right? So this is how we are exiting this year, right? And as we have been mentioning, there is a relevant headwind from the.
On this growth rate that was expected when we issued the guidance for for the 4th quarter. The unexpected part was the deceleration on the same source sales growth of our existing customers, this roughly 6% point deceleration. That we saw in Brazil, in Q4.
So we're starting from this base of roughly 13% growth that we saw in Q4. And then for Q1, if you look at the guidance, the midpoint of the guidance is 4. 1%, right, and that accelerates to a midpoint of 50.5 for the year. So part of this acceleration versus Q4, it's, the decrease of the headwind, of Argentina.
As I said, we are assuming some recovery and starting to see some recovery in Argentina. They are going to positive territory, but there's still, the assumption is that they will still grow less than the overall of the company, so there's still some headwind there. Although we do see, but then there is this now headwind of Brazil with these lower same store sales and this consumption at a lower level.
So this, is the key moving pieces of the guidance. And as I mentioned to to Marcelo on the first question, on the new customer side, we are assuming some increase in average implementation plus ramp up time. Given the mix of larger customers that we have in the backlog. So there is also some impact there and that's kind of across the world, including, US and Europe as we have, customers on the implementation that are more in this, larger site.

Leonardo Olmos

Understood. Thank you very much and have a good night. Everyone.

Operator

Luca Bernardinelli, Bank of America.

Luca Bernardinelli

Good afternoon, everyone. Thanks for taking my question. I have 2 here. The first one is on Brazil, regarding the payroll tax exemption, if you guys will be passing that through to clients, in some way, and what can we expect in terms of the impact for that?
And also second You guys showed the breakdown for the margins for existing stores and also the margins for new stores 2024, and the margin for new stores actually went down and the one for existing stores went up. So I just want to check if this has to do with the profile with larger clients and how can we think about that going forward if most of the expansion should continue to come from the existing stores or if we should see an expansion for new stores as well. Thank you.

Geraldo Do Carmo Thomaz

Great. Thanks, Luca. Happy to take the questions here. So on the payroll tax change in Brazil, as after, some back and forth for potential payroll tax regulation in Brazil, the situation seems to accommodated with the progressive reinclusion of taxes over the next few years.
Given that we have also progressively improved our margins, the potential impact of the current proposed change in payroll taxes should not have any material impact to the tax.
At the most under the current legislation approved. VTE could face, annual impact of approximately, low single digit million dollars on our operating income and roughly half of that on our net income, as you have, the tax shoot on these additional expenses.
Over time, we expect that these impacts, to diminish and potentially disappear altogether as we continue to, enhance our operating margin. And it's important to reinforce that, regardless of the potential impact, our target for the operating margin, for the year, the meetings, remains, intact.
And the first question, Luca was about, sorry, could you please repeat?

Luca Bernardinelli

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

Geraldo Do Carmo Thomaz

Yeah, perfect. So on the new stores, we achieved a 10% point improvement in gross margin year over year, right? So that's important to note. And this improvement is largely attributed to our increased reliance on the ecosystem for implementations, which, reduces the pressure on the service side. And we also realize 5% point operational leverage improvement in R&D and GNA.
And then the drag on the margin on your question is that we chose to. Strategically reinvest these. 10 percentage points from gross margin and the 5% points operating leveraging R&D and GNA in sales and marketing to capitalize on the growth. Opportunities. So with that, if you look at the operating level, it didn't change that much. It slightly reduced versus the prior year and this is as we invest in social marketing to go after, larger customers and expand geographically, the company as well.
And I would say that it's also important to highlight that our LTV over CA, right, which when we think about the new stores P&L, we lose money in the short term, but you get, customers for us for the long term. So it's about, the return on invested capital. And the way that we think about return on invested.
Is the LTA and that remains above 6 times cash on cash with a payback period around, 2.5 years. So this is a strong performance, that underscores the effectiveness of our investment in acquiring new customers and making it, a compelling proposition for the long term growth of the company as well.

Luca Bernardinelli

Perfect, very clear. Thank you for the answer.

Operator

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

Geraldo Do Carmo Thomaz

2024 was a transformative year for the tax, defined by innovation, operational excellency, and robust momentum in both new and renewed concepts. While the 4th quarter growth fell short of expectations due to short-term effects of volatility and existing customers GMV softness in Brazil, we have laid an exceptional strong foundation to propel VEx into this next phase for the company.
We expanded our platform into a connected ecosystem with AI powered solutions like Vech and Shield, enhancing customer outcomes and positioning Vech as the most comprehensive commerce suite. Our strategic investments and evolving product portfolio have strengthened our leadership and opened new revenue streams, reinforcing confidence in our long term growth potential.
We've made significant progress towards sustainable, profitable growth. As we step into into 2025, we're committed to building on this solid foundation, delivering value and driving innovation for our customers and shareholders.
Thank you for your trust and partnerships. We look forward to updating at our next install.

Operator

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