26.1	Financial instruments by category

(i)	Financial instruments valued at amortized cost

Financial instruments valued at amortized cost represent financial assets and liabilities whose Group’s business model maintained to receive contractual cash flows. Those mentioned above comprise exclusively payments of principal and interest on the principal amount outstanding. Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment. When the asset is derecognized, modified, or impaired, gains and losses are recognized in profit or loss.

The Group has the following financial instruments valued at amortized cost:


	December 31, 2022		December 31, 2021
Financial assets:
Cash and cash equivalents		24,394		121,006
Restricted cash		1,608		1,183
Marketable securities		10,119		—
Trade receivables		42,276		40,825

Total		78,397		163,014

Financial liabilities:
Trade payables		14,064		12,695
Lease liabilities		5,635		5,991
Loans and financing		1,153		3,279
Accounts payable from acquisition of subsidiaries		—		1,470

Total		20,852		23,435

(ii)	Financial instruments valued at fair value through profit or loss

The Group has the following financial instruments valued at fair value through profit or loss:


	Carrying amount
	December 31, 2022		December 31, 2021
Financial assets:
Short-term investments		204,045		177,191
Derivative financial instruments (i)		117		—

Total		204,162		177,191


	Carrying amount
	December 31, 2022		December 31, 2021
Financial liabilities:
Derivative financial instruments		—		133
Accounts payable from acquisition of subsidiary (“earn out”)		299		4,953

Total		299		5,086

(i)	In 2022, VTEX ARG had positions in future derivative financial instruments raised through Matba Rofex designated as forei g n exchange protection for intercompany loans obtained with VTEX UK, with a total notional value of US$5,000 and last maturity date in March 2023.

The Group uses derivative financial instruments to hedge against the risk of change in the foreign exchange rates. Therefore, they are not speculative. The derivative financial instruments designated in hedge operations are initially recognized at fair value on the date on which the derivative contract is executed and are subsequently remeasured to their fair value. Changes in the fair value of any of these derivative instruments are immediately recognized in the income statement under “financial results, net.”

For the years ended December 31, 2022 and 2021 the Group had positions in Swap derivative financial instruments designated as a hedge of foreign currency debt, raised through Itaú bank. The hedge contracts had maturity dates equal to those of the loan raised in foreign currency (note 16), which was also raised through Itaú bank. The contract is due May 2023. Additionally, on December 31, 2022, the Group also had positions in future derivative financial instruments designed as a hedge of foreign currency risk related to intercompany transactions. The hedge contracts had maturity dates equal to those of the principal, which was raised through Matba Rofex. The last hedge contract is due March 2023.

The following amounts were recognized in profit or loss in relation to financial instruments:


	December 31, 2022		December 31, 2021			December 31, 2020
Net gain (loss) on financial instruments		2,364		(193	)		(174	)

The following amounts were recognized in profit or loss in relation to marketable securities and short-term investments:


	December 31, 2022			December 31, 2021		December 31, 2020
Net gain (loss) on marketable securities and short-term investments		(4,766	)		640		1,116

a.	Fair value hierarchy

This section provides details about the judgments and estimates made for determining the fair values of the financial instruments recognized and measured at fair value in the financial statements. The Group has classified its financial instruments into the three levels prescribed under the accounting standards to indicate the reliability of the inputs used in determining fair value. An explanation of each level follows underneath the table.


	December 31, 2022
	Level 1		Level 2		Level 3
Assets
Short-term investments		204,045		—		—
Derivative financial instruments		—		117		—
Liabilities
Accounts payable from acquisition of subsidiary (“earn-out”)		—		—		299


	December 31, 2021
	Level 1		Level 2		Level 3
Assets
Short-term investments		177,191		—		—
Liabilities
Derivative financial instruments		—		133		—
Accounts payable from acquisition of subsidiary (“earn-out”)		—		—		4,953

There were no transfers between levels 1, 2, and 3 for recurring fair value measurements during the year.

The Group’s policy is to recognize transfers into and out of fair value hierarchy levels as of the end of the reporting period.

•

Level

: The fair value of financial instruments traded in active markets (such as publicly-traded derivatives, and equity securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1.

•

Level

: The fair value of financial instruments that are not traded in an active market (for example,

over-the-counter

derivatives) is determined using valuation techniques that maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

•

Level

: If one or more of the significant inputs are not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities.

Specific valuation techniques used to value financial instruments could include:

•

the use of quoted market prices or dealer quotes for similar instruments

•

for interest rate swaps – the present value of the estimated future cash flows based on observable yield curves

•

for foreign currency forwards - the present value of future cash flows based on the forward exchange rates at the balance sheet date

The majority of the resulting fair value estimates are included in level 1, except for a contingent consideration payable

(“earn-out”),

where the fair values have been determined based on present values and the discount rates used were adjusted for counterparty or own credit risk.

Fair value measurements using significant unobservable inputs (level 3)

The fair value of the

earn-out

classified as level 3 is calculated based on the judgment of the Group and the probability of meeting the goals of each acquisition made during the year. The sale and purchase agreement of each acquisition is established if the clients of the acquired entities migrate to the Groups platform and reach an agreed amount, the seller will be entitled to an

earn-out.

As at December 31, 2022, the fair value of the

earn-out

amounts US$299 (2021- US$4,953). Refer to note 3 for more details about the

earn-out.

The following table presents the changes in level 3 items for the year ended on December 31, 2022:


	2022			2021
Opening balance on January 1		4,953			542
Acquisitions of subsidiaries		—			6,483
Payments of principal/finance charges - earn-out		(916	)		(1,378	)
Earn-out adjustment		(3,740	)		(785	)
Exchange differences		2			91

Closing balance on December 31		299			4,953

b.	Fair values of other financial instruments (unrecognized)

The Group also has several financial instruments which are not measured at fair value in the balance sheet. As at December 31, 2022, these instruments’ fair values are not different from their carrying amounts since the interest receivable/payable is either close to current market rates or the instruments are short-term in nature. Differences were identified for the following instruments at December 31, 2022:


	Carrying amount		Fair value
Financial assets:
Marketable securities		10,119		9,948

Total		10,119		9,948

Financial liabilities:
Loans and financing		1,153		990

Total		1,153		990

26.2	Financial risk management

The risk management of the Group is predominantly controlled by a central treasury department (Group treasury) under policies approved by the board of directors. Group treasury identifies, evaluates, and hedges financial risks in close

co-operation

with the Group’s operating units. The board provides written principles for overall risk management and policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, the use of derivatives and

non-derivative

financial instruments, and investment of excess liquidity.

The main financial risks that the Group is exposed to in carrying out its activities are:

a.	Credit risk

Credit risk is the risk of a business counterpart not complying with obligations provided in a financial instrument or contract with the client and resulting in a financial loss. In connection with credit risk related to financial institutions, the Group operates to diversify such exposure among market financial institutions.

(i)	Risk Management

The Group monitors the credit risk inherent to financial instruments capable of generating counterparty risk, such as cash and cash equivalents and trading securities, as they are composed of bank deposits and fixed income securities, including bonds, time deposits and fixed income funds.

(ii)	Impairment of financial assets

The Group has a single type of financial assets that is subject to the expected credit loss model:

•

Trade receivables from consulting services and subscriptions;

The expected credit losses for financial assets are based on assumptions about risk of default and expected loss rates. The Group uses judgment in making these assumptions and selecting the inputs to the impairment calculation, based on the Group’s history and existing market conditions at the end of each reporting period. Details of the key assumptions and inputs used are disclosed below.

(iii)

Trade receivables and contract assets

The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected credit losses for all trade receivables and contract assets.

To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. The contract assets relate to unbilled work in progress and have substantially the same risk characteristics as the trade receivables for the same types of contracts. The Group has therefore concluded that the expected loss rates for trade receivables are a reasonable approximation of the loss rates for the contract assets.

To define the loss rate, clients were split into 4 different groups as follows:

•

Tier 1 – Clients with yearly GMV greater than 20 million US dollars.

•

Tier 2 – Clients with yearly GMV between 1 and 20 million US dollars.

•

Tier 3 – Clients with yearly GMV below 1 million US dollars.

•

Other – Clients that do not sell through VTEX platform, such as marketplaces and partners or clients that operate only through business units other than VTEX, such as SMB.

The tier hypothesis was taken into consideration because of the nature of the businesses in each tier. The tier 1 clients, for example, have higher revenue, thus the fixed amount paid related to the take rate is lower, so the more they sell, the more they pay for VTEX. This is a large risk reducer, because when the client has a larger cash flow coming from its commerce operation, they also have a larger invoice, reducing the risk of the invoice not getting paid. For tier 3 clients the fixed amount is larger compared to the variable one, and if the client does not sell much the invoice will not reduce as much as in a tier 1 client. The Group expects that the tier 1 clients would have a lower aging rate than tier 3 and 2 clients.

As of December 31, 2022 and 2021 the percentage provision per type of customer/revenue and age of balance are as follows:


	Days past due
	As of December 31, 2022
	Current			More than 30			More than 60			More than 120			More than 180			More than 270			More than 300
Tier 1		0.28	%		1.66	%		4.18	%		16.82	%		47.00	%		87.08	%		100.00	%
Tier 2		0.43	%		10.86	%		24.25	%		50.98	%		68.68	%		92.28	%		100.00	%
Tier 3		1.15	%		18.72	%		30.24	%		56.91	%		77.94	%		96.91	%		100.00	%
Others		0.92	%		5.61	%		12.50	%		74.13	%		95.64	%		98.57	%		100.00	%


	Days past due
	As of December 31, 2021
	Current			More than 30			More than 60			More than 120			More than 180			More than 270			More than 300
Tier 1		0.35	%		2.12	%		5.93	%		24.68	%		53.91	%		87.56	%		100.00	%
Tier 2		0.57	%		11.78	%		26.32	%		53.94	%		71.59	%		95.92	%		100.00	%
Tier 3		1.61	%		28.20	%		50.25	%		80.79	%		86.94	%		95.85	%		100.00	%
Others		1.86	%		9.75	%		14.68	%		45.79	%		77.04	%		96.97	%		100.00	%

Impairment losses on trade receivables and contract assets are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item.

The trade receivables by aging list and the reconciliation of expected credit losses to the opening loss are disclosed on note 8.

Trade receivables and contract assets are written off where there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, a failure to make contractual payments for a period greater than 300

days past due.

b.	Liquidity risk

Liquidity risk is the risk of the Group and its subsidiaries encountering difficulties in performing the obligations associated with its financial liabilities that are settled with cash payments. The approach of the Group and its subsidiaries in liquidity management is to guarantee, as much as possible, that they will always have sufficient liquidity to perform their obligations upon maturity, under normal and stress conditions, without causing unacceptable losses or with a risk of sullying the reputation of the Group and its subsidiaries.

The table below presents the Group’s

non-derivative

and derivatives financial liabilities divided into the relevant maturity group based on the remaining period from the end of the reporting period and the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.


	Less than 1 year		Between 1 and 2 years		More than 2 years
December 31, 2022
Non-derivatives
Account payables		34,136		372		208
Loans and financing		1,153		—		—
Lease liabilities		1,898		1,804		2,437
Accounts payable from acquisition of subsidiaries		299		—		—
Other liabilities		70		—		—

Total non-derivatives		37,556		2,176		2,645


	Less than 1 year		Between 1 and 2 years		More than 2 years
December 31, 2021
Non-derivatives
Account payables		29,537		1,243		836
Loans and financing		2,087		1,253		—
Lease liabilities		1,105		1,471		3,665
Accounts payable from acquisition of subsidiaries		4,260		2,274		—
Other liabilities		133		190		—

Total non-derivatives		37,122		6,431		4,501

Derivatives
Net settled		133		—		—

Total derivatives		133		—		—

c.	Market risk

(i)	Foreign Currency risk

The Group considers itself exposed

mainly

to market risk associated with unfavorable foreign currency movements related to contracts and investments in its subsidiaries as well as in costs and expenses.

The Group is hedging the exposure to foreign currency risk related to loans obtained with related parties and third parties. Refer to note 26.1 for additional details.

Foreign currency sensitivity analysis

The table below shows the impact on the Group’s net revenues, costs, operation expenses, net income (loss) from operation and equity for a positive and a negative 10% fluctuation as of December 31, 2022 for all subsidiaries with a functional currency other than U.S dollar.


	Foreign currency sensitivity analysis
	-10%			Actual			+10%
Net revenue		143,420			157,620			171,820
Costs and operating expenses		(190,016	)		(207,539	)		(225,062	)

Loss from operation		(46,596	)		(49,919	)		(53,243	)

Total Shareholders’ equity		278,001			274,677			271,354

A sensitivity analysis is set out below, showing a scenario for foreign exchange risk on financial instruments, computed based on external data along with stressed scenarios (a range of 10% in the foreign exchange rates).


	Exposure at December 31, 2022			Risk		-10%			10%
Assets		12,171			Brazilian Real /U.S. Dollar (2021 – 5.57 2022 – 5.29)		1,217			(1,217	)
Liabilities		(2,603	)				(260	)		260

		9,568					957			(957	)

Assets		114			Argentine Peso/U.S. Dollar (2021 – 102.69 2022 – 177.10)		11			(11	)
Liabilities		(8,647	)				(865	)		865

		(8,533	)				(854	)		854

Assets		115			Mexican Peso/U.S. Dollar (2021 – 20.45 2022 – 19.48)		12			(12	)
Liabilities		—					—			—

		115					12			(12	)

Assets		5,356			British Pounds/U.S. Dollar (2021 – 0.74 2022 – 0.83)		536			(536	)
Liabilities		(1,894	)				(189	)		189

		3,462					347			(347	)

Assets		579			Colombian Peso/U.S. Dollar (2021 – 4,068.51 2022 – 4,846.04)		58			(58	)
Liabilities		(535	)				(54	)		54

		44					4			(4	)

Assets		240			Peruvian sol/ U.S. Dollar (2021 – 3.99 2022 – 3.81)		24			(24	)
Liabilities		(973	)				(97	)		97

		(733	)				(73	)		73

Assets		1,589			Chilean Peso/ U.S. Dollar (2021 – 851.60 2022 – 852.17)		159			(159	)
Liabilities		(661	)		Chilean Peso/ U.S. Dollar (2021 – 851.60 2022 – 852.17)		(66	)		66

		928					93			(93	)

Total at December 31, 2022		4,851					486			(486	)


	Exposure at December 31, 2021			Risk	-10%			10%
Assets		4,147		Brazilian Real /U.S. Dollar (2020 –5.20 2021 – 5.57)		415			(415	)
Liabilities		(6,216	)	Brazilian Real /U.S. Dollar (2020 –5.20 2021 – 5.57)		(622	)		622

		(2,069	)			(207	)		207

Assets		97		Argentine Peso/U.S. Dollar (2020 – 84.17 2021 – 102.69)		10			(10	)
Liabilities		(2,862	)	Argentine Peso/U.S. Dollar (2020 – 84.17 2021 – 102.69)		(286	)		286

		(2,765	)			(276	)		276

Assets		271		Mexican Peso/U.S. Dollar (2020 – 19.92 2021 – 20.45)		27			(27	)
Liabilities		(2,881	)	Mexican Peso/U.S. Dollar (2020 – 19.92 2021 – 20.45)		(288	)		288

		(2,610	)			(261	)		261

Assets		15,730		British Pounds/U.S. Dollar (2020 – 0.73 2021 – 0.74)		1,573			(1,573	)
Liabilities		(1,228	)	British Pounds/U.S. Dollar (2020 – 0.73 2021 – 0.74)		(123	)		123

		14,502				1,450			(1,450	)

Assets		8		Colombian Peso/U.S. Dollar (2020 – 3,438.59 2021 – 4,068.51)		1			(1	)
Liabilities		(1,920	)			(192	)		192

		(1,912	)			(191	)		191

Assets		525		Peruvian sol/U.S. Dollar (2020 – 3.62 2021 – 3.99)		53			(53	)
Liabilities		(1,193	)	Peruvian sol/U.S. Dollar (2020 – 3.62 2021 – 3.99)		(119	)		119

		(668	)			(66	)		66

Assets		472		Euro/U.S. Dollar (2021 – 0.88)		47			(47	)
Liabilities		(41	)	Euro/U.S. Dollar (2021 – 0.88)		(4	)		4

		431				43			(43	)


Assets	176		Romanian leu/U.S. Dollar (2021 – 4.35)	18		(18	)
Liabilities	(10	)	Romanian leu/U.S. Dollar (2021 – 4.35)	(1	)	1

	166			17		(17	)

Assets	597		Chilean Peso/U.S. Dollar (2020 – 711.25 2021 – 851.60)	60		(60	)
Liabilities	(407	)	Chilean Peso/U.S. Dollar (2020 – 711.25 2021 – 851.60)	(41	)	41

	190			19		(19	)

Total at December 31, 2021	5,265			528		(528	)

(ii)	Interest rate risk

The interest risk arises from the possibility of the Group incurring losses due to fluctuations in interest rates in respect of fair value of future cash flows of a financial instrument.

The Group’s exposure to market risk for changes in interest rates relates primarily to the cash, cash equivalents, restricted cash, marketable securities and short-term investments. The Group investments are made for capital preservation purposes, and the Group does not enter into investments for trading or speculative purposes. The Group’s trade receivables account payable, and other liabilities do not bear interest.

The Group’s cash, cash equivalents, restricted cash, marketable securities and short-term investments consist primarily of interest-bearing accounts held by our parent company in USD. Such interest-earning instruments carry a degree of interest rate risk. To minimize interest rate risk, the Group maintains its portfolio of cash equivalents in a variety of investment-grade securities, which include commercial papers, money market funds, and government and

non-government

debt securities. Because of the short-term maturities of the Group’s cash, cash equivalents, restricted cash, and marketable securities, as of December 31, 2022, we are not materially exposed to the risk of changes in market interest rates.

The Group also has financial liabilities that are exposed to interest rate risk, as described in note 16.1. Such liabilities are exposed to the long term interest rate based on inflation in Brazil (“TJLP”) and Brazilian interbank deposit rate (

Certificado de Depósitos Interbancários

“CDI”)

, which is an average of interbank overnight rates in Brazil.

26.3	Capital management

The policy of the Group is to maintain a strong capital base to secure investor, creditor, and market confidence and also to sustain future development of the business. Management monitors the return on capital.

In addition, the Group objectives to manage capital are to safeguard its ability to continue as a going concern to provide returns for shareholders and benefits for other stakeholders, to maintain an optimal capital structure to reduce the cost of capital, and to have resources available for optimistic opportunities.

To maintain or adjust the capital structure of the Group, management can make, or propose to the shareholders when their approval is required, adjustments to the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce, for example, debt.

The Group monitors capital based on the adjusted net cash / net debt. Adjusted net cash / net debt is calculated as adjusted cash (including cash equivalents, marketable securities and short-term investments in the consolidated statement of financial position), net of debt (loans and financing, lease liabilities and accounts payable from acquisition of subsidiaries as shown in the consolidated statement of financial position)

The Group’s strategy is to keep positive adjusted net cash. The adjusted net cash as of December 31, 2022 and 2021 was as follows:


	December 31, 2022			December 31, 2021
Loans and financing		1,153			3,279
Lease liabilities		5,635			5,991
Accounts payable from acquisition of subsidiaries		299			6,423
(-) Cash and cash equivalent		(24,394	)		(121,006	)
(-) Short-term and Marketable securities		(214,164	)		(177,191	)

Adjusted net cash/debt		(231,471	)		(282,504	)

Total Equity attributable to VTEX’s shareholders		274,658			327,182

Financial leverage ratio		84.28	%		86.34	%