VTEX Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2024

There are 8 speakers on the call.

Operator

Thank you for standing by, and welcome to the Vtech's First Quarter 2024 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I'd now like to turn the call over to Julia Vater Fernandez, Investor Relations Director.

Operator

You may begin.

Speaker 1

Hello, everyone, and welcome to the Vitek's earnings conference Call for the quarter ended March 31, 2024. I'm Julia Barre Fernandez, Investor Relations Director for Vitex. Our senior executives presenting today are Gerardo Tomas, Jr, Founder and Co CEO and Ricardo Camata Sodre, Chief Financial Officer. Additionally, Mariano Gomira de Paria, Founder and Co CEO and Andres Polidoro, Chief Strategy Officer, will be available during today's Q and A session. I would like to remind you that management may make forward looking statements related to such matters as continued growth prospects for the company, industry trends and product and technology initiatives.

Speaker 1

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 current 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 Forward Looking Statements sections of BTEC Form 20 F for the year ended December 31, 2023, and other BTEC filings within the U. S. Securities and Exchange Commission, which are available in our Investor Relations website.

Speaker 1

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 Q1 2024 earnings press release available on our Investor Relations website. Now let me turn the call over to Gerardo. Gerardo, the floor is yours.

Speaker 2

Thank you, Julia. Welcome, everyone, and thanks for joining our first quarter 2024 earnings conference call. As we step into 2024, despite macroeconomic uncertainties, our GMV continued to outperform the market, growing 22% year over year. Slightly above that, our revenue grew 25% year over year in the Q1 of 2024. We remain encouraged by new contract signatures and the operational leverage of our business model, resulting in significant operating margin expansion.

Speaker 2

In today's retail landscape, seamless integration of software solutions, content creators and suppliers within an efficient architecture is imperative for low maintenance costs and rapid revenue generation. Commerce has evolved into an ecosystem driven play and Ztec is at the forefront of connectivity. With an extensive network comprising over 1,000 system integrators and independent software vendors and over 6,000 VTechs IO extensions by 3rd parties, we delivered comprehensive solutions with remarkable speed and efficiency. Our ecosystem extends beyond that. Our customers can easily become marketplaces and connect to external marketplaces.

Speaker 2

Sales rep also play a crucial role in the consumer journey, and we're investing in connecting them across all channels. Additionally, this year, we're strengthening connections to data, leveraging AI to extract valuable insights. We envision VITEX as the source of truth for sales attribution data, which is vital for developing AI models in commerce. At VTEX, we are delivering significant year over year operating margin increases, while also launching products that reshape commerce for IT and business teams, driving sustainable growth with compelling ROI. Introducing new revenue streams paves the way for our long term expansion, while enhancing operational efficiency and margins.

Speaker 2

We're excited about Vitak's future, focusing on growth, margin optimization and customer success. Positive feedback from customers and industry experts reaffirms our position as the global leader in connected commerce. We're leveraging these trends to drive significant sales momentum. Our recent expansion into Germany underscore our commitment to global growth, while sustained sales momentum in Brazil highlights our long term growth potential. In the Q1 of 2024, we celebrated successful go lives of new customers, including Quni Hair Cosmetics Manufacturing in Belgium, the Netherlands and France, Arado Cruzeiro do Sul, Petyard in Brazil, TrezMontez in Chile, OVI in Germany, Pagina Diale shop in Italy, KFC in Romania at H March in the U.

Speaker 2

S. Furthermore, we have strengthened our relationship with existing customers such as Grupo Soma, who added a new store in Chile expanding its presence to more than 10 stores across Latin America and the U. S. Hino de Group, who added a B2B store in Brazil, now operating both B2B and B2C models across 2 countries in LatAm. Googlebots, who added a new store in Colombia and Peru, increasing its footprint to 4 stores across Latin America and Nike, who added a new store in Colombia, extending its reach to 3 countries in Latin America.

Speaker 2

This year, Vitex achieved a significant milestone in its journey of growth and innovation by successfully launching the OBI operation in Germany. This move marks a pivotal moment in our commitment to the European market. Talking about milestones, I would like to draw attention to a significant event in the Q1 of 2024 that happened right after NRF. The TextConnect Live New York City made a resounding debut as the 1st U. S.-based event of its kind, drawing over 1,000 influential in person attendees eager to immerse themselves in the latest trends and strategy shaping digital commerce.

Speaker 2

The event was a hub of inspiration and network opportunities for commerce leaders seeking to navigate the evolving retail landscape. In addition to featuring the renowned entrepreneur and Basketball Hall of Fame, Magic Johnson, our event included a panel discussion with Hearst. They shared insights into their decision to partner with Vitex, highlighting how this choice enabled them to significantly decrease the total cost of ownership, transitioning from a TCO of high single digits after GMV to low single digit with Vitex. The event highlighted the significance of equipping retailers and brands with the essential tools in today's high interest rates environment. As global interest rates remain high, business must optimize organic sales channels and enhance margins.

Speaker 2

The event demonstrated that ZhiTech strikes the balance between flexibility and low maintenance commerce technology, enabling its customers to stay ahead in the dynamic world of retail. Additionally, as mentioned, we started 2024 with strong momentum with industry analysts, firms recognizing Vitex as top performer. In January, we were recognized as the customer's choice and got the voice of the customers for digital commerce. By February, we also earned the top spot in the IDC marketplace worldwide B2C digital commerce platform for mid market growth vendor assessment study. With the strong start, 2024 is shaping to be an even more remarkable year for Big Tex.

Speaker 2

Now let's focus on what matters most, our customers. Here are just a few customer success stories that exemplify our platform capabilities and the remarkable outcomes they achieved. OBI, one of our new life customers this quarter is a tightening Europe's home improvement sector, with more than 6 40 stores scattered across 10 European countries with headquartered in Germany. By migrating away from the previous legacy platform and choose VITEX over the others, ODI can now leverage the VTech's composable and complete commerce platform, market based capabilities and unparalleled automation processes. ODI seamlessly integrated to its e commerce operation 349 Germany located physical stores and 3rd party sellers into a unified transaction platform, expanding product offerings and providing customers with a seamless shopper experience across various delivery and pickup options.

Speaker 2

With integrated physical stores nationwide, customers can now pick up online orders within just 2 hours, showcasing the platform efficiency and effectiveness and meeting consumer needs. Since migrating to Vtech, OBI has experienced significant enhancements, including unified franchise management, smooth ramp up of platform traffic, improved front end metrics and increased agility in development processes. This collaboration not only enhances OBI's current operation, but also opens doors to a world of future possibilities. It's a testament to VITAC's enabling commitment to driving profitable growth and fostering innovation for enterprise brands globally. Chloe, the most relevant leather good brand in Mexico, partnered with Vitex to lead through omni channel strategies and its international expansion.

Speaker 2

Vitek's compostable platform helped them reduce implementation costs and streamline processes. Among its standout feature, Personal Shopper emerged as a game changer, offering customized shopping experiences. With VITAAC's innovative solutions, Chloe achieved remarkable results, a 14% increase in digital sales by the end of 2023. Standout features like Personal Shopper reduced returns and improved decision making, while enhancing checkout performance and diverse payment methods boosted offline sales. Chloe's e commerce success evidenced by a 60.5 percent conversion rate increase and a 12.5% growth in average order value underscored the impactful collaboration between VTech and Cloe.

Speaker 2

Future plans include adding the cross border functionality for expansion into new markets and personalized experiences through life shopping, demonstrating Clouet's commitment to consumer growth and innovation. Cogaint partnership with Hipset is the embodiment of innovation in digital commerce, Recognizing a gap in the customer experience between dental professionals and their customers, Colgate got to work by building a unique B2B2C marketplace e commerce model. With a network of consultants covering diverse regions, scalability of this digital transformation was vital. Colgate saw a platform accommodating complex B2B requirements, including a specialized locking system for certified dentists and seamless integration with partners. Leveraging VTech's native capability, Colgate developed a pioneering marketplace for dentists, offering integrated distributor products and fostering sales growth without logistical expenses, streamlining implementation and reducing costs.

Speaker 2

The strategic enhancements like cash back promotions and the loyalty program further outmoded its sales. Colgate started its operation with detecting the 0, and in the Q4 of 2023, it added 2 B2B sites in the U. S, PCA scheme and Cogate Profession, further leveraging our fully composable and marketplace enabled architecture. Dimac, our grocery distributor in Chile catering to over 24,000 customers across 8 regions, partnering with Vitex to revolutionize their B2B operations. Embracing VITAC's innovative solutions, Demark embarked into on a digital journey to tap into strategic growth opportunities by expanding its sales channels.

Speaker 2

With the launch of the B2B website, GMAC established a 20 fourseven online stores ensuring seamless access to their products for customers around the clock. Utilizing B2B Suite as the cornerstone for of their architecture, Demark implemented a closed website model offering product prices exclusively upon customers' login, while leveraging essential tools such as checkout, catalog and OMS. With VTech's guidance, Demark streamlined its pricing strategy, condensing its price list from 600 to 6 tiers based on location and customer segment. Since the platform launched within Swift's format implementation period, TIMAC witnesses remarkable growth, experiences a 10x increase in GMV and orders, doubling their commercial rates and achieving a 4 percentage point boost in profitability compared to traditional channels alone. Hearst, the leading global diversified media information and service company chose Vitex for its extensive native capabilities, adaptable, move site architecture and Vitex IO development platform, enabling the integration of custom features.

Speaker 2

Leveraging VTech, Hertz established a marketplace supporting multi vendor business models, thereby seamlessly enhancing the customer experience across its publication and shoppable interfaces, facilitating the easy purchase of featured products. With ZTech's out of the box features and acceptable APIs, Hearst swiftly launched its platform and iteratively leverage new business models in the digital economy. Furthermore, Hearst serves as the flagship customers piloting VTech Data Pipeline and VTech's fast checkout, currently undergoing AB testing for the Men's Health website as the primary checkout experience. Interfood, a leading Brazilian beverage importing company with a global presence of over 100 locations has been a satisfied Vtech's B2C customers since 2020. Recently, they chose Vtech's also to power the B2B operations, unlocking a new realm of opportunities.

Speaker 2

Leveraging VTech's B2B switch to Interfood seamlessly integrated APIs to create microservices, streamlining customers' registration and credit control processes for enhancing organizational management. Additionally, with ZEETEX IO apps, the ZEETEX team tailored tax requirements to met Interfood needs precisely, exemplifying Witek's dedication to meeting and exceeding customer expectations. KFC, a quick service restaurant giant, selected Zitax in Romania to power the B2C operations. Seamlessly aligning with Vitex out of the box functionalities, KFC swiftly launched the website and mobile web for both iOS and Android, all from a single code base. I am proud to say that Vitek's team was able to adapt the tailored ordering and payment methods to meet KFC specific requirements and be ready to launch the products in only 4 months.

Speaker 2

Mezzo, a leading Brazilian dermal cosmetics chain expanding 9 states partnered with Vitex to develop their B2C and B2B platforms. The Swift launched 2 stores, Meso Cosmetics and Meso Professionals, leveraging seamless connectivity with physical stores and a unified data source for streamlined operations. Each franchisee account serves as a white label seller, representing individual physical stores and ensuring optimal inventory management across territories. Remarkably, the project was completed within a mere 3 months. New Balance, the global brand catering these sneakers enthusiasts migrated to VTechs and doubled their website conversion base in Brazil.

Speaker 2

With their previous e commerce platform, New Balance struggled to deliver innovative experiences limited to basic sales journey due to the high development costs and resource allocation constraints. The text composable platform, plug and play functionalities and extensive partners ecosystem caught New Balance's attention. Once manual and labor intensive, integration of pricing catalogs and XML automation became seamless with Vitex API integrations, empowering their teams to manage promotion and discounts autonomously. The migration to Vitex facilitated rapid results for new balances e commerce, which led to a significant increase in product page visits, doubled conversions and revenue growth within a month post migration. Before handing over to Ricardo, I want to revisit some exciting announcements from Detect Day.

Speaker 2

This year's event boasted over 20,000 attendees highlighting the impressive reach of the VTech's ecosystem. Some of the announcements included Fresh Store empowering brands with agile front end solutions for tailored store experiences, now available for both B2B and B2C use cases. Vitek's ad network revolutionizing digital advertising through AI driven targeting and auctions. Vitek's data pipeline offering specialized APIs for seamless data retrieval and sharing. Detect Shield safeguarding against security threats and preserving revenue and trust Along with AI powered features across the search engine like shopping and pick and pack operations, optimizing user experiences and boosting conversion rates and marketplace enhancements for streamlined operations and accelerated time to revenue.

Speaker 2

This represents just a handful of the thrilling advancements we've reviewed on our innovation and growth journey here at ZYTEX. We're reshaping the commerce landscape with pioneering products specifically designed for enterprise customers and their IT and business teams. Our solutions empower IT teams to with petinet functionalities, while our intuitive interface empower businesses teams to implement strategies seamlessly. Ultimately, our products are geared towards optimizing end user retention and attraction, boosting conversion rates, helping our customer optimize their e commerce platform to amplify their ROI. Moreover, these products will open up new revenue streams for Dyntechs.

Speaker 2

While the short term impact may not be significant, they could play a role in our long term growth trajectory. I'd like a moment to express my gratitude to our 1334 dedicated ZTECH employees, whose unwavering dedication and commitment propel us forward as the backbone for Connected Commerce. I'd like also to thank our valued customers, partners and investors. I will now hand the call over to Ricardo.

Speaker 3

Thank you, Geraldo. Hi, everyone. I'm pleased to share Vitek's Q1 2024 financial results. As emphasized by Geraldo, our Q1 GMV hit $4,000,000,000 marking a year over year growth of 22% in U. S.

Speaker 3

Dollars and 20% in FX neutral. This led to a year over year revenue growth of 25% in U. S. Dollars and 21% on an FX neutral basis, reaching $52,600,000 Although macroeconomic conditions impacted the same store sales of existing customers, the Q1 of 2024 witnessed relevant momentum in signatures of new annual contract value. That, coupled with significant gross margin improvements and a disciplined operational expenses approach, results in significant operational leverage and an encouraging sign for VTech's profitable growth trajectory.

Speaker 3

Double clicking on our top line, our subscription revenue reached $50,400,000 this quarter, up from $39,800,000 in the Q1 of 2023, representing a year over year increase of 27 percent in U. S. Dollars and 23 percent in FX neutral, while our services revenue totaled $2,300,000 Now moving down the P and L. We have exciting updates. We are pleased to announce the positive operational leverage achieved even with the inherently weaker seasonality observed in our 1st quarters.

Speaker 3

This performance instills confidence in our sustainable profitability prospects. Our non GAAP subscription gross margin reached 77.2%, a 3 28 basis points year over year improvement compared to the 73.9 percent margin in the same quarter last year. This margin expansion underscores our team's dedication to enhancing profitability and highlights our ongoing efforts to migrate non core services to more efficient hosting providers and optimize support costs for operational leverage. While we've made substantial progress, there is still further opportunities for marginal improvements going forward. Consequently, our non GAAP gross margin reached 72.4%, representing a 6 41 basis points improvement year over year compared to 65.9% in the Q1 of 2023.

Speaker 3

Notably, our gross profit increased 37% year over year in the Q1 of 2024, reaching $38,100,000 Our non GAAP total operating expenses reached $35,100,000 in the Q1 of 2024 from $33,400,000 in the prior quarter and $31,900,000 in the same period last year. We remain steady fast in our commitment to controlling expenses and optimizing investment returns. Our expenses have remained notably stable throughout 2023 and the Q1 of 2024, reflecting our ongoing efficiency and enhancements. R and D and G and A expenses remained relatively stable quarter over quarter, while the increase in sales and marketing is mostly explained by special events such as NRF and the previously mentioned VitexConnect New York City. As a result, our non GAAP operating income improved from a negative 9.7% margin in the same quarter last year to a positive 5.7% margin in the Q1 2024.

Speaker 3

Given that expenses increased only slightly year over year, the significant 15 percentage points improvement is driven by our revenue growth with operational leverage and by gross margin improvements. This reinforces our dedication to managing our business efficiently, fostering growth responsibly and sustainably, and aiming towards reaching the rule of warning. For the 3rd consecutive quarter and in a seasonally weak quarter, Vitex generated cash. As of the 3 months ended March 31, 2024, we had a positive $1,900,000 free cash flow compared to a negative $5,000,000 free cash flow in the same quarter of the prior year. Looking ahead, despite the uncertain macroeconomic conditions, we remain encouraged by our sales momentum and operational leverage.

Speaker 3

From a revenue perspective, we are currently targeting $54,500,000 to $56,000,000 range for the Q2 2024, implying a year over year growth of 18% on an FX neutral basis in the middle of the range. For the full year 2024, we continue executing our strategy for profitable growth. Recognizing heightened volatility in Argentina's macro situation, we are targeting FX neutral year over year revenue growth of 16% to 20%, implying a range of $234,000,000 to $243,000,000 based on April's average FX rate. Further demonstrating our operational leverage, we are targeting free cash flow and non GAAP operating income margins of high single digits. We are excited about the future of BTEX.

Speaker 3

Our business model has proven its robustness, and now our journey revolves around achieving business growth, expanding margins and generating cash. We anticipate in supporting our customers while extending our value proposition to more brands and retailers to help them reach their financial and operational objectives in a high interest rate environment worldwide. Our journey so far has been filled with rewarding moments, and we are encouraged about all that lies ahead to solidify our position as a global backbone for connected commerce. With that, let's open it up for questions now. Thank you.

Operator

Thank you. We will now begin the Kapuskas from Banco Itau BBA. Your line is open.

Speaker 4

Hi, everyone. Can you guys hear me here?

Speaker 3

Yes, we can hear you, Charlie.

Speaker 4

Great, great. So thanks a lot for for the question. So I have 2. So I think the first one regarding the full year guidance, right? I mean the nominal numbers are the same, right?

Speaker 4

But the FX neutral growth is lower than the previous guide, right? So you guys mentioned Argentina. Is there anything else in terms of the business that is going different or doing different than your previous expectations? And if you guys could give us some color also on Argentina, if it's just FX related or how the business is there in terms of overall strength? I know that this was a concern back in Q4.

Speaker 4

And the other question is about the AI products that you are providing. I mean, there's a lot in the pipeline. I think there was the shareholder letter to last quarter. So if you guys could comment a little bit more on the roadmap that you have and how you think this could actually enhance your strategy or future opportunities that could come from your strategy there? Thank you.

Speaker 3

Great. Hi, Thiago, Ricardo Soudre here. Happy to take the first two questions on the full year guidance in Argentina, and then I'll pass it over to Gerardo to talk about AI. So on the guidance, for the full year, we are maintaining our annual guidance in dollar terms, as you mentioned. This is supported by steady and robust performance observed in key markets such as Brazil, Colombia, Mexico, the U.

Speaker 3

S. And Europe. And although consumption in real terms is being severely impacted in Argentina, which impacted our FX neutral guidance. Given that there hasn't been any significant change in the FX rates in Argentina over the past couple of months that also led us to maintain our revenue guidance in U. S.

Speaker 3

Dollars for the full year. And it's important to recognize a certain level of risk in our guidance considering the volatility associated with the situation in Argentina, especially in Q2, given, 1, their current macro situation and consumption level and 2, their most relevant e commerce event of the year called hot sales that will happen next week in the midst of these uncertain environment that they're going through. Now going back to things that are under our control, looking forward, we are encouraged by our meaningful new contracts sales momentum. And on the operating margin front and encouraged by our Q1 achievements, we have also adjusted our full year operating income and free cash flow margins guidance, raising our forecast from mid to high single digits that we mentioned last quarter to high single digits that we gave this quarter. So these adjustments reflect our unwavering confidence in our ability to navigate and improve our financial performance throughout the year.

Speaker 3

And then just double clicking on Argentina, the macroeconomic situation in Argentina is challenging. While FX rates have remained stable over the past 2 months, this stability has come at a cost of significant economic slowdown. Even though this slowdown was by design to control inflation, the extent of the decline in consumption has been severe. And predicting the trajectory of this environment is difficult, as you can imagine, and it remains beyond our control. So with that said, our performance in Argentina, although weak, stands out as significantly better than the overall e commerce market and other e commerce reporting companies, largely due to the resiliency of our customers.

Speaker 3

For instance, if we look at Q1 performance on a year over year basis, our GMV increased above inflation in local currency and was down only single digits in U. S. Dollars. Now nonetheless, it's important to acknowledge the high level of volatility in this situation and that the situation may get worse before it gets better. And then finally, it's important to point out that Argentina's performance was the most relevant driver responsible for our Q1 revenue being closer to the bottom of the guidance and also the most relevant driver responsible for us, reviewing down our FX neutral annual revenue growth guidance.

Speaker 3

With that, let me pass it over to Gerardo on AI.

Speaker 2

Thank you, Ricardo. Thiago, very good question. Like there's been this revolution about using AI as a new building block, right? We're getting so many new capabilities being created by LLMs and models and stuff like that. And we believe that VTech is uniquely positioned to leverage these building blocks and give business meaning to the retailers and manufacturers and brands in the world.

Speaker 2

So that's why we're investing so much and leveraging the building blocks that people are creating all over the world. And you can see that I invite you to explore our latest Bitext Vision Spring 2024 Edition. We talk a lot about the things that we did and the road map that we are heading to. And we have product launches that are around 4 key devices more or less, like creating fast and high converting composable experiences, empowering sales reps across all channels and ensuring faster and efficient fulfillment. All this boosting productivity through AI.

Speaker 2

We launched a Dash Store, Dash Store framework. We're revolutionizing the way we are letting our customers building fast experiences in the website. We this is not completely related to AI, but we think it's very important to our customers right now. But the ad network, as you can imagine, is leveraging AI a lot. And I think customers will leverage this a lot.

Speaker 2

Data pipelines, with data pipeline, we will enable our customers and partners to build AI models, to leverage AI with to create possibilities of their own, actually turn data into gold. We also launched a product called Detect Shield, Security Shield. I think with this value data has with more value, people will capture more value. Being sure that the data is self guarded, is fundamental to a software like ours. So we launched this product as well.

Speaker 2

And so we are investing a lot. And as I said, we are with the right company to give business meaning to this AI revolution.

Speaker 4

Great. Thank you so much for the answers guys. And I'll definitely explore the video, the content. Thank you.

Speaker 2

Thank you.

Operator

Your next question comes from the line of Matti Schrag from KeyBanc. Your line is open.

Speaker 5

Hey guys and thank you for taking my question. Besides Argentina, just kind of wanted to talk through maybe some of your other geographies. I'm wondering if there may be any tailwinds in rest of world or anything like that that could partially offset it. Thanks.

Speaker 3

Yes. Happy to start and then others feel free to chime in. Thanks, Mehdi. So as I mentioned on my first answer, we saw this headwind in Argentina, but we saw the other countries performing well, Brazil, Colombia, Mexico, the U. S, Europe.

Speaker 3

Also, I would highlight that Brazil continues to show strong momentum in signing new contracts and new sales. Even with the relevant market share that we have in the country, our strong position and the strong ecosystem that we have is helping on that. And also the way we see our retailers, our customers in Brazil integrating the fiscal stores and accelerating their same store sales has been a positive. So overall, we see good performance on our other geographies, which is encouraging for our year as well. I'm not sure if that answers the question or if others want to chime in.

Speaker 5

Yes. I think I just have a quick follow-up for you as well. But wondering if you could maybe talk about the sales motion right now, kind of what's maybe the mix of revenue between existing and new customers? And maybe if you could kind of size the backlog for us, I think that'd be helpful too.

Speaker 6

Hey, Mariano here. Just mentioned about a little bit on the sales momentum, if understand correctly your question. We are seeing a consistent improvement in the pipeline, not one specific country, but globally. This is a consequence of Vitek's position in most of analyst companies such as Forrester, IDC and Gartner. So we are receiving good reports.

Speaker 6

So we are enhancing our positioning and we are inviting to more and more RFPs globally. We are recognizing the good momentum. We are on track with the sales goals we planned for the year. However, we need to highlight the volatile period for retailers and manufacturers all over the world in this environment of high interest rates. So these will bring some volatility and we might end up being a good solution for this world that will pursue more efficiency.

Speaker 6

And it's going to be really tough years ahead for all retailers. It's not 1 year, it's going to be like 3, 4, 5 years in a shift. So we are being very diligent in open new organic channels and increasing profitability for our active customers. And we are really focused on helping them to simplify their operations and delivery efficiency in the bottom line. In these high interest rate and high inflation environment, seamless integration, ecosystem ready software and efficient architecture are essential to minimize maintenance costs and accelerating revenue.

Speaker 6

So with all the more than 1,000 system integrators and more than 6,000 Vitex IO extensions by 3rd parties. Vitex provides a very comprehensive solution we call the complete and compostable solution that can help retailers all over. Mentioning Brazil, we still have a lot of room to grow on the B2C and we have an enormous B2B market to be discovered. Latin America, we have significant groundwork to cover. This quarter having the go live of Nike in Colombia is a significant milestone.

Speaker 6

In Europe, our expansion into Germany with OBI sets solid foundations for us to build up. So that's the summary, mainly the recognition of the industry experts, Gartner Customer Choice, we were the only company to achieve the Customer Choice Award. And the IDC acknowledgment of Vitex as the main leader on B2C and a major leader for B2B also completes the good momentum on branding and positioning for Vitex.

Speaker 3

And maybe just to build quickly, Mariano, I think there was a question from Mehdi as well on the existing versus new customers. So we continue to see our same store sales on the mid teens level if you look at a GMV basis. And on the overall revenue growth for the company, we continue to see that roughly 1 third of our revenue is coming from our existing customer base and roughly 2 thirds of the revenue growth coming from adding new customers to the customer base.

Speaker 1

Appreciate it guys. Thank

Operator

Your next question comes from the line of Luca Brednam from Bank of America. Your line is open.

Speaker 7

Hi, good afternoon everyone. Thank you for taking my questions. I have 2 here on my side. First of all, on gross margin, it was really strong this quarter and it's getting close to what you guys said as the target model for the coming years, even in a soft quarter. So we probably should expect gross margin to be higher for the full year.

Speaker 7

So I just wanted to see when do you guys think you could be reaching the target model? And looking forward, what do you think could be the gross margin for the company maturity or how can we think about that going forward? And then second ties a little bit to the first question, but on service revenues, it was down year over year. And I just wanted to understand how we could think about this line going forward. Should it continue at similar levels in the nominal rates?

Speaker 7

Or should it also expand from current levels? Thank you.

Speaker 3

Thanks. Thanks, Luca. Thanks for bringing that up. I'll start with gross margin and then I'll pass it over to Mariano regarding services revenue. So in Q1, we achieved a non GAAP gross margin of 72%, marking a year over year expansion of over 600 basis points.

Speaker 3

And despite the seasonal effects typical to Q1, as you mentioned, this brings us closer to our Investor Day target of 75% for our overall gross margin. And it's 80% for the subscription gross margin, right? And we also achieved 77% on the subscription gross margin, so always also getting closer there as well. And approximately 2 thirds of our subscription costs are related to hosting and we have significantly enhanced our cloud efficiency. These efforts include migrating systems to Linux, optimizing CPU usage and reducing costs through caching and outscaling and all while maintaining or improving performance, right?

Speaker 3

So that has been helping a lot our subscription gross margin. Regarding the services gross margin side, although some volatility has been observed, the improvement is primarily attributed to our strategic adjustment away from the hyper care modes for key new customers in the U. S. And Europe as they go live. So we remain focused on the opportunities to enhance our subscription gross margin and the overall business, we anticipate further improvement in this area in the future, and we are moving towards our goal that was disclosed in the last Investor Day of 80% subscription gross margin and 75% overall gross margin.

Speaker 3

And that's a medium term goal for the next like 3 to 5 years. It's not a terminal model growth. We don't have the visibility yet for the terminal model, but for these next 3 to 5 years, that's what we are going after. With that, let me pass it over to Mariano to talk about services revenue.

Speaker 6

Yes. Clarifying a little bit more on the service margin. Our service revenue, which includes our solution architect offering during major customer implementations, naturally experienced some volatility as accounts goes live and the stage of development of new geos are expanding. So it's expected by design to have some volatility. This time last year, we had a few accounts in implementation phase, like for example, OBI that we just announced in a hypercare model that said we would expand a little bit more on hypercare.

Speaker 6

So that volatility is expected. But while there are no significant changes in the model and design of the services to report, aside from what I already mentioned, that's expected volatility. We will continue to execute. We remain optimistic on service as we are increasing our system integrator reach and the system integrators are becoming more and more mature. So broader and more mature ecosystem will bring the volatility on the service revenue and service expenses of Vitex in a little bit down.

Speaker 6

So we will be able to scale the deliveries with less direct service of the detects and that's by design the ultimate goal for a platform like us.

Speaker 7

That's it. Very clear. Thank you for the answers.

Operator

That concludes our question and answer session. I will now turn the call back over to Geraldo for some final closing remarks.

Speaker 2

In conclusion, it's evident that in today's high interest rate environment, retailers and brands urgently need effective tools to enhance margins and optimize organic sales channels. Vitex is fully committed to providing actionable strategies for B2B and B2C enterprise to maximize ROI and elevated e commerce platforms. By integrating continued innovations, we're ready to unveil fresh audiences and insights, empowering our customers to achieve even more impactful consumer engagement. Our unwavering dedication to customer centricity and innovation driven solutions is not merely shaping the future of commerce, it is redefining it. We are excited about the results of the Q1.

Speaker 2

Our gross margin and operating margin expansion was remarkable and sets a strong foundation for our sustainable profitable growth. At Vitex, we stand stronger and more robustly positioned than ever before. We focus on growth and margins underpinned by a remarkably strong business model. This is our time and we are ready to seize it. Thank you everyone for being part of this exciting journey.

Speaker 2

We look forward to keeping you updated at our next earnings call. Have a wonderful week.

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