Global-E Online Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 20, 2024

There are 16 speakers on the call.

Operator

Welcome to Global E First Quarter 20 24 Earnings Announcement Conference Call. This call is being simultaneously webcast on the company's website in the Investor Relations section under News and Events. For opening remarks and introductions, I will now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.

Speaker 1

Thank you, and good morning. With me today from Globalea are Amir Shlokit, Co Founder and Chief Executive Officer Ofer Khoran, Chief Financial Officer and Mir Debbi, Co Founder and President. Amir will begin with a review of the business results for the Q1 of 2024. Ofer will then review the financial results for the Q1 of 2024 followed by the company's outlook for the Q2 and full year of 2024. We will then open the call for questions.

Speaker 1

Certain statements we make today may constitute forward looking statements and information within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Safe Harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995 that relate to our current expectations and views of future events. These forward looking statements are subject to risks and uncertainties and assumptions, some of which are beyond our control. In addition, these forward looking statements reflect our current views with respect to future events and not a guarantee of future performance.

Speaker 1

Actual outcomes may differ materially from the information contained in the forward looking statements as a result of a number of factors, including those set forth in the section titled Risk Factors of our prospectus filed with the SEC on September 13, 2021, and other documents filed with or furnished to the SEC. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this call. You should not put undue reliance on any forward looking statements. Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward looking statements will be achieved or will occur. Except as required by applicable law, we make no obligation to update or revise publicly any forward looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

Speaker 1

Please refer to our press release dated May 20, 2024 for additional information. In addition, certain metrics we will discuss today are non GAAP metrics. The presentation of this financial information is not intended to be considered accordance with GAAP. We use these non GAAP financial measures for financial and operating decision making and as a means to evaluate period to period comparisons. We believe that these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operating decision making.

Speaker 1

For more information on the GAAP excuse me, for more information on the non GAAP financial measures, please see the reconciliation tables provided in our press release dated May 20, 2024. Throughout this call, we provide a number of key performance indicators used by our management and often used by competitors in our industry. These and other key performance indicators are discussed in more detail in our press release dated May 20, 2024. I will now turn the call over to Amir, Co Founder and CEO.

Speaker 2

Thank you, Erica, and welcome, everyone. With the financial results of Q1, which we are releasing today, we are off to a great start of what we believe will be yet another pivotal year of growth for globally. GMV, revenues and adjusted EBITDA all beat the top of our forecasted range for the quarter. With GMV growing 32% year on year, revenues growing 24% and adjusted EBITDA growing 47%. These strong results manifest our team's continued execution across all elements of the business, coupled with our effectiveness in controlling costs and the fact that macro conditions during the quarter were slightly more favorable than what we initially anticipated back in February.

Speaker 2

Moreover, we remain confident in our ability to uphold our plans for the remainder of the year as is reflected in our updated guidance for the full year of 2024. Most notably, the large client launches planned for the second half of the year are on track and Shopify Markets Pro continues to amass merchants at the planned pace. Among other things, we believe both these factors will contribute to our ability to accelerate growth in the second half of the year. Later in this call, Ofo will review our Q1 results in more detail and he will provide you with our guidance for Q2 and our raised guidance for the full year of 2024. But before we do that, I would like to share with you some of the exciting business developments we have seen recently.

Speaker 2

During Q1, we continue to experience strong demand for our services across all markets we operate in. Q1 saw many renowned brands go live with Global Eat Services. In the U. S, designer brands Donna Karan and DKNY, footwear brand Hey Dude by Crocs and sports fashion brand Golf Wang, Owen Clive, as did Imperial Workshop, our first U. S.

Speaker 2

Merchant on the Wix platform. Thanks to the combination of Wix and Globally, all aspiring Jedi Knights can now do their essential lightsaber shopping online on the Imperial Workshop website regardless of where they live, course as long as it's not in a galaxy far, far away. During the quarter, we also launched with lingerie brand La Senza in Canada as well as high street fashion brands Hobbs and TM Luwene, luggage brand Antler and a home brand So Home in the UK. In Europe, we launched with the French Pinchot style fashion brand, Louis Michel with fashion brands, Gerard D'Oreal, Zohr and Carrot and with the renowned luxury lifestyle brand Repetor, which thanks to globally can now sell its iconic ballerina shoes worldwide as seamlessly and effectively as it does so in France. The quarter also saw the launches of innovative fashion brand, Marcaine and the online store of workwear and protective gear retailer Engelbert Stoss, both in Germany.

Speaker 2

Moreover, we launched with the leisure brand Pasha in Spain with its famous Cherries logo, women's luxury fashion brand Costelloos in Greece and the fashion brand, Lobato in Sweden among many others. Our business in APAC continues to expand all the time as well, with examples of recent launches in the region being Infamous Swim and Carla Zampati in Australia, Hi Muno by Avex and Common Smart in Japan, DIY Watch Club in Hong Kong and more. During Q1, we also continued our efforts to expand our business with existing merchants and with brand groups. As such, we opened new markets for Adidas and Boann and went live with InfiniMed, an additional brand from the Cotego. We also went live with Tap to Style, a new brand by Motes in Italy who themselves just went live the previous quarter and with NNormal, a new Spanish brand from the Kemper Group.

Speaker 2

With dozens of other brands going live and with robust integration and sales pipelines, we believe we can continue on our growth path into the future as more and more merchants put emphasis on global direct to consumer sales. Switching gears, I would like to update you regarding the various components of our strategic partnership with Shopify. On the 3P or direct integration side, the migration of our historical merchant base onto the new native integration is nearing completion and the team's focus has turned now towards the continued gradual transition of all Shopify merchants onto checkout extensibility. On the 1P or Shopify Markets Pro side, merchants continue to sign up and go live gradually amassing GMV at the planned rate. In parallel, the teams on both sides continue to work on developing additional features and capabilities, further enhancing the solutions reach.

Speaker 2

Given the large market potential on the Shopify platform and innovative Markets Pro solution continues to rise, we remain highly convinced in our ability to capture a meaningful part of this massive market opportunity over the course of the next few years. With all these exciting developments and with many others across the entire business, we continue to believe more than ever in our ability to exhibit long term and durable growth as we capture more and more of the vast greenfield opportunity that lies ahead of us. I will now hand it to Ofer, our CFO, to take us through the quarterly numbers in more depth as well as present our updated guidance going forward.

Speaker 3

Thank you, Amir, and thanks everyone for joining us today for our earnings call. We are off to a strong start in 2020 We are off to a strong start

Speaker 4

in 20 24.

Speaker 3

Q1 was another quarter of fast growth and robust adjusted EBITDA as we continue to drive progress on all fronts and remain committed to delivering value to merchants in their international initiatives. I'd like to point out again that in addition to our GAAP results, I'll also be discussing certain non GAAP results. Our GAAP financial results along with the reconciliation between GAAP and non GAAP results can be found in our earnings release. As Amir mentioned, we have experienced rapid growth of GMV in Q1 as we generated $930,000,000 of GMV, an increase of 32% year over year, 3.9% over the midpoint of our guidance for Q1. We continue to benefit from the growth of global e commerce, which is back to its pre COVID long term pattern, taking share from brick and mortar retail.

Speaker 3

And the continued focus of merchants of direct to consumer, while there is still uncertainty regarding consumer demand, which remains volatile. In Q1, we generated total revenue of $145,900,000 up 24% year over year. Service fee revenue were $68,300,000 up 36 percent and fulfillment services revenue were up 15% $77,600,000 The higher growth of service fee revenue compared to fulfillment services revenue was mainly driven by the higher share of our multi local offering. As reflected in our guidance, we expect take rates to stabilize at close to 16%, driven by elevated levels of fulfillment services adoption. Non GAAP gross profit continued to outpace revenue In Q1, non GAAP gross profit was $66,100,000 up 36% year over year, representing a gross margin of 45.3% compared to 41.4% in the same period last year, driven by the higher share of service fee revenue and our continuous efficiencies efforts.

Speaker 3

GAAP gross profit was $63,300,000 representing a margin of 43.4%. Moving on to operational expenses, We continue to invest in the development of our platform to further enhance and expand our offering. R and D expense in Q4 excluding stock based compensation was $20,100,000 or 13.8 percent of revenue compared to $16,900,000 14.3 percent in the same period last year. Total R and D spend in Q4 was $23,500,000 We also continue to invest in sales and marketing to expand our pipeline while maintaining efficiencies. Sales and marketing expense excluding Shopify related amortization expenses, stock based compensation, acquisition related intangibles amortization was $17,200,000 or 11.8 percent of revenue compared to $10,500,000 or 8.9 percent of revenue in the same period last year.

Speaker 3

Shopify warrant related amortization expense was $36,300,000 Total sales and marketing expenses for the quarter were $57,000,000 General and administrative expenses, excluding stock based compensation, acquisition related expenses and acquisition related contingent consideration was $8,300,000 5.7 percent of revenue compared to $7,400,000 or 6.3 percent of revenue in the same period last year. Total G and A spend in Q1 was $12,100,000 Adjusted EBITDA continued to grow rapidly and totaled 21 point $3,000,000 representing a 14.6 percent adjusted EBITDA margin and increasing by 47% from $14,500,000 or 12.3 percent margin in the same period last year. Net loss was 30 $2,100,000 compared to a net loss of $43,100,000 in the year ago period, driven mainly by the amortization expenses related to Shopify warrants and by the transaction related intangibles. Switching gears and turning to the balance sheet and cash flow statement. We ended the quarter with $298,000,000 in cash equivalents including short term deposits and marketable securities.

Speaker 3

Cash flow used by operating activities was $54,300,000 compared to $29,500,000 used a year ago, driven by typical Q1 post peak working capital dynamics and a $12,200,000 payment of held back acquisition related proceeds to the Flow Founders. Moving on to our financial outlook and guidance for Q2 and our updated 2024 full year guidance. For Q2, 2024, we're expecting GMV to be in the range of $1,025,000,000 to 1.065 $1,000,000,000 At the midpoint of the range, this represents a growth rate of 27% versus Q2 of 20 23. We expect Q2 revenue to be in the range of $162,500,000 to $168,500,000 At the midpoint of the range, this represents a growth rate of 24% versus Q2 of 2023. For adjusted EBITDA, we're expecting a profit in the range of $24,500,000 to $28,500,000 For the full year of 2024, we are raising our guidance and representing a 33.4 annual growth rate at the midpoint of the range.

Speaker 3

Revenue is now expected to be in the range of $733,000,000 to $773,000,000 representing growth rate of 32.1 percent at the midpoint of the range. For adjusted EBITDA, we're now expecting a profit of $124,000,000 to $140,000,000 We continue to believe growth will accelerate in the second half of the year, driven by large merchant launches planned for H2, which are on track, anticipated elevate volume contribution from Shopify Market Pro, which is growing as expected and the lower impact from BorderFree on a year on year comparison. In conclusion, the opportunity in front of us remains massive and we continue our journey to support merchants worldwide in expanding their direct to consumer business. We focus on execution and believe we can continue to grow rapidly while further expanding cash generation in the coming years. And with that, Amir and I are happy to answer questions you may have.

Speaker 3

Operator?

Operator

Thank Our first question comes from the line of Will Nance from Goldman Sachs. Go ahead please.

Speaker 5

Hey guys, good morning. Appreciate you taking the question. I know you had a comment in the prepared remarks that the macro environment ended up being a little bit better than the expectations in the Q1. And I'm just wondering if you could kind of speak to what you're seeing so far in 2Q, just given some of the negative data points around luxury spending? And is anything have you guys noticed any change in spending patterns over the last month

Speaker 6

and a half?

Speaker 2

Hey, Will. Thanks for the question. Basically, we haven't seen any material changes in Q2 so far. Things continue

Speaker 3

to be volatile

Speaker 2

in terms of macro conditions. We see it basically in the trading patterns, but our anticipation and what we've seen so far in Q2, our assumption for the remainder of Q2 is that the volatility and hence the macro environment in general will remain similar to what we've seen in Q1.

Speaker 5

That's super helpful. And then can you just talk about the pipeline of product enhancements on the market's pro side, things like fulfillment and just sort of what the rollout schedule for things like that would be?

Speaker 4

Hey Will, it's Neil. We continue to work according to our roadmap, developing enhancements and features towards Shopify Markets Pro, and we continue to roll those out. I think over the next few quarters, we will see a gradual rollout of all the key elements we are working toward, and we expect it to continue and accelerate the growth in the coming quarters of the solutions adoption.

Speaker 5

Got it. Appreciate you taking the questions.

Operator

Thank you. Our next question comes from the line of Samad Samana from Jefferies. Go ahead

Speaker 7

please. Hi, good morning. Thanks for taking my questions. So maybe first, you guys mentioned multiple times that markets grow, that the merchant ramp is tracking to plan. Can you just remind us what the planned target is, whether that's in terms of number of merchants or GMV that you're targeting for 2024?

Speaker 7

And what have you assumed in guidance for the rest of the year?

Speaker 4

Hi, Samad. We haven't guided for specific numbers of what we expect this year on market growth. In the future, as we indicated before, once it becomes a large enough business lines, we will look at more clarity specifically on Markets Pro. However, the market expectations as reflected between different markets reports is in line with what we today. So we are trading within the numbers that are outside in the market.

Speaker 7

Understood. And then maybe just, Ofer, as I think about the I know you mentioned what drove the quarter, but I didn't catch NRR. Could you maybe help us understand how NRR tracked through the quarter and what you've observed maybe post quarter and if that's tracking to kind of historical assumptions that you've seen over the last few years?

Speaker 3

Yes. So, hey, Samad. Thanks for the question. So as you know, we provide annual NDR and NRR numbers. However, generally speaking, we can say that while as Amir mentioned, there is volatility in consumer behavior, All in all, except for the lower 2 weeks in February, it has been around or just slightly below the numbers we usually see or the numbers we've expected for this year.

Speaker 3

So it's not at its peak and it is below average, but it's more or less in line with what we've expected for 2024.

Speaker 7

Great. Thanks again and congratulations on quarter.

Speaker 3

Thank you, Philip.

Operator

Our next question comes from the line of Brian Peterson from Raymond James. Go ahead please.

Speaker 8

Thanks gentlemen and congrats on the quarter. So I know you mentioned some commentary on the macro. I'm curious how that relates to the top of the funnel. What are you seeing in terms of pipeline creation in deal timing thus far in 2024?

Speaker 4

Hi, it's Neil. Thank you for the question. For now what we see as year to date is that our pipelines remain strong or even stronger than what we've seen ever in the past. We are looking towards the 2nd part of the year where we expect the launch of several large merchants that are currently in project state as well as the signing of at least additional one. So we're quite optimistic.

Speaker 4

I don't think that we ever had a pipeline in terms of sheer dollars that is that was as strong as this one.

Speaker 7

That's great to hear. And I'll refer to you.

Speaker 8

Maybe just a follow-up. You had a nice beat in gross margins this quarter. I know the mix is maybe a little bit different, but want to understand what drove that and how we should be thinking about modeling gross margins going forward? Thanks guys.

Speaker 3

So yes, gross margins have been high this quarter and that is due to two factors. The first one is actually the mix of revenues. So service fees share was higher compared to last year to the prior quarter. And in addition, we are continuously working on efficiencies, improving processes and so on and so forth. So this contributed as well.

Speaker 3

Going forward, we don't expect as we previously stated, we don't expect any significant expansion this year. We are happy with the level of gross margins we currently have. So going forward, we do not expect a significant increase.

Operator

Thank you. Our next question comes from the line of Koji Ikeda from Bank of America. Go ahead please.

Speaker 9

Yes. Hey guys, thanks so much for taking the questions. I wanted to ask on the guidance here, just thinking about the GMV guide specifically. And when I look at the Q2 guide and the full quarter guide and a little bit of the historical seasonal pattern in GMV, It looks like a pretty heavy ramp into the Q4 here. So just trying to understand or maybe a bit more qualitative color in the way you're thinking about linearity and GMV ramp for the rest of the year?

Speaker 9

Thank you.

Speaker 3

Yes. So you're right. This year is not our typical year and we've discussed that in the previous quarter as well. H2 growth takes into account a few drivers. The first one is the large client launches that we expect and currently are on track on time.

Speaker 3

So this is one main contributor. In previous years, we had large client launches, but they were not all in the second half of the year. The second driver is obviously Shopify Markets Pro, which is ramping up. So we expect it to contribute more in H2. And it is currently, as we mentioned, it's on target.

Speaker 3

So we feel quite confident with the way it's progressing. The third one is we do expect to see reduced effect of border free. Border free is weighing on our growth a bit due to the nature of the merchants trading on Border Free, a lot of large department stores and so on. And as we go forward, 1, its share of our volume is decreasing because the other business is growing and we are migrating those merchants to globally and we expect to see uplift once those migrations are done. So those are the main drivers behind the H2 growth.

Speaker 9

Got it. Thank you. And just a follow-up here on the large merchants that you've mentioned that you're expecting to come on in the second half. It definitely sounds like it's a positive and on the progression here to get them to go live. But it also sounds like it's a pretty big risk to guidance if they don't go live.

Speaker 9

So maybe you could speak to what is giving you that confidence that these guys will be able to get the Globally platform live later this year? Thanks guys.

Speaker 4

Hi Koji, it's Neil. The large projects are currently on track. It's projects that are already deep into the project phase of it in order to launch in Q3 and early Q4 because no one launches in November or December. Usually, everybody is doing it pre peak. So in the next 4 months, in order to launch, large merchants are already deep into the integration and the testing cycle.

Speaker 4

So we do have high confidence that it is happening. While there is always a risk of delay, we do have high level of confidence based on the current status of the project that it's actually going to go as planned. So as we do take some, I would say, some level of into our guidance. Our guidance, of course, we do have we did factor out certain delays a few weeks here, a few weeks there in order to absorb minor changes in the launches.

Speaker 9

Thank you. Thank you for taking the questions.

Speaker 2

Thanks, Koji.

Operator

Our next question comes from the line of Scott Berg from Needham. Go ahead please.

Speaker 10

Hi everyone, nice quarter. Thanks for taking my questions. Nir, I think it was you that responded to the pipeline question in the second half and pleased that actually I think it was dollar wise might be an all time high here. As you look back at your Q1 business, how are what do sales cycles look like? Are you able to continue to close deals at similar rates?

Speaker 10

Or is there anything in the back that might be accelerating or delaying some of those sales cycles?

Speaker 4

Yes. So to be honest, I think after, I would say, a slight delay sometime in mid half last year, as of, I would say, late last year, this Q1, we are more optimistic that merchants are, I would say, starting see a light at the end of the tunnel and we see willing to make commitments faster. The main change we see is on the larger project side where we see more RFPs coming in, more interest from large merchants. And if that continues, we do expect it to affect very positively our 2025 launches. So it's pipeline that is being built now, very strong one, and we believe that if this continues along the year, we will see a very positive effect on our 2025

Speaker 10

business. Got it. Very helpful. Thank you. And then as you all look at 6 months into the Markets Pro opportunity with Shopify, you seem pleased with current traction, at least year to date and what the second half looks like.

Speaker 10

But are there additional levers that you believe that you can pull? Maybe they don't impact this year, maybe it's more impacting next year in fiscal '25, but are there additional levers that you can pull to maybe accelerate some of the merchant adoption of that platform?

Speaker 2

Yes. Thanks, Scott. It's Sameer. So as you said and as we noted, we're indeed pleased with the pace in which merchants are onboarding and that GMV is amassing. And yes, there is a joint pipeline and roadmap between us and Shopify, which is aimed at constantly adding more features and enhancing the solution, which by itself should enlarge the applicability of the solution for additional merchants and accelerate down the line into as you indicated into next year and beyond, the pace in which it is adopted.

Speaker 2

In addition, as a reminder, this Markets Pro is currently available just for U. S.-based merchants. Again, as part of our road map into the future, we do also plan together with Shopify down the line to open the Markets Pro offering for merchants from additional markets like the UK others that's still there's no date yet set. It's still in the future, but when that goes online, it will further accelerate the adoption rate.

Speaker 10

Understood. Very helpful. Thanks and congrats again on a good quarter. Thanks, Karl.

Operator

Our next question comes from the line of James Faucette from Morgan Stanley. Go ahead please.

Speaker 6

Great. Thank you. I wanted to ask just a couple of follow-up questions. First, in terms of your existing customers, I know you said that, DNRR was kind of moving around and wasn't quite as strong as it has been historically. But can you give us a little color on how the same store sales component of that is tracking and if you've made any adjustments to how that's being incorporated into your outlook for this year?

Speaker 6

Sure.

Speaker 3

Thank you for that James. It's so fair. So I was referring previously mainly to that component. The same store sales has been lower than the historical average and it has been volatile. However, we see it sort of stabilizing around the levels that we've assumed or used for our budget.

Speaker 3

So it's there was a drop in mid February that we talked about in the previous quarter, then it came back. And since then, it is sort of hovering around the same levels with

Speaker 6

some volatility. Great, great. Appreciate that. And then when back on Shopify, Shopify and Marcus Pro. It sounds like that that's continuing to track well.

Speaker 6

If you can give us a little more insight into how that develops sequentially? And then, clearly, you're doing a lot to add incremental functionality. Is I guess with the comment that that will increase the applicability, is that built into the acceleration you're expecting in the latter part of this year? Or should we think about there being more of a lag and there being more of an impact in trajectory in 2025? Thanks.

Speaker 2

Yes. Thanks, James. So in terms of the adoption rate, we see a constant stream of merchants that is joining and it's we're constantly working not just on features that have to do with the offering itself, but also the onboarding process, which is not less important and making it even more seamless and even faster for merchants to onboard and start trading. So this together with the larger appeal as we roll down rollout more features should gradually enhance that kind of daily or weekly pace of merchants joining the platform. So we do bake into our assumptions going forward the gradual increase in that pace when we look on the longer term, but also take into account that these are all new merchants.

Speaker 2

So as the year progresses, we should get it should get increasingly meaningful because we get more and more of these merchants to trade in parallel on the platform.

Operator

Thank you. Our next question comes from the line of Brandt Berselin from Piper Sandler. Go ahead please.

Speaker 11

Thank you. So, it sounds like the large merchants here are helping drive this second half acceleration. It sounds like you're getting more interest from large merchants in the pipeline. I just wanted to double click into why now. Could you talk about why these large merchants are now turning to Global E, the tough macro out there, there's certainly challenges.

Speaker 11

So love to better explain kind of why you're seeing the large markets turn to globally now? Thanks.

Speaker 4

Hi, Brent, it's Nir. Then overall, we have seen a movement toward larger merchants started in COVID. COVID pushed much more larger retailers towards accelerating the direct to consumer approach, especially on a global level as most of them had it in the home markets. And we do see this being accelerated now with more RFPs coming out as domestic markets, I assume, are more challenging or more saturated for many of them. And they do want to have further growth and further profitability that can be provided by direct to consumer and through wholesale or middlemen in different countries around the world.

Speaker 4

So we do expect it to continue to grow. And I think it also relates to globally positioning that over time builds much more expertise and brand position as market leader in supporting those large brands generating great results and making the operations much more seamless and simple trading around the world. And we continue to see this growing and accelerating over time as we are able to build more markets around the world and gain and generate more data out of this growth. So the combination of it all, I think, creates this flywheel effect that would continue to attract a larger business into the company as we see it.

Speaker 11

Couple of color. Thanks for that. And then, Oferior, if I think about the GMV growth guide at the midpoint versus the revenue guide at the midpoint, can you just talk a little bit about take rate and expectations on take rate and what's driving improvement here in

Speaker 3

Q2? So basically as we mentioned previously, we expect while we do expect some volatility intake rates depending on specific GMV mix, we expect it to be much more stable if you look at the entire year compared to previous years. So we expect it to be close to 16% over the year with less volatility between quarters. As we've mentioned, we do see multi local growth normalizing not because those merchants are not growing, they're growing very nicely, but last year they either the larger of those either expanded their business with us or launched the business with us. So it was unique here in that perspective.

Speaker 3

So we see more normalized take rates. There aren't many changes. It's mainly sort of marginal movement depending on the GMV mix. But we do expect it to stabilize below 16%.

Speaker 11

Makes sense. Thank you so much.

Speaker 2

Thanks, Brent.

Operator

Our next question comes from the line of Andrew Buck from Wells Fargo. Go ahead, please.

Speaker 12

Hey, good morning. Thanks for taking the question. Just wanted to get a product update on the demand gen solution that you're planning to launch in the second half? Maybe an update on early receptiveness you heard from clients and whether that can meaningfully move the needle on revenues or margins as we get in the back half of the year?

Speaker 4

Hi. Thank you for the question. It's Bill. We continue to invest in building our demand gen capabilities. We did over the last few quarters build expertise and an in house specialized agency to support our brands in growing the demand generation.

Speaker 4

In the 2nd part of the year, we are going to launch to support it based on the Borderfree acquisition, a unique proposition that would support us in driving our brand's growth. We are now in the early stages of introducing this solution to our merchants. It's not live for them yet. It's just being introduced to them now in order to get a buy in, in order to get them live on it in the 2nd part of the year. We do see a very great interest in it and we do expect high adoption.

Speaker 4

We do believe it will accelerate the growth and we will start seeing positive effect as of the last quarter of the year, but much more when we're looking to 2025 onwards. This does going to, as we see it, accelerate our growth. And our clients growth based on actually increasing NDR. We expect that trading merchants today and merchants that will launch with us in the future would be able to penetrate new markets and increase their footfall in current markets with these services. So we do have high hopes to it and most of it will not materialize, of course, in 2024.

Speaker 4

We do see it as a contribution that's going to grow as of 2025 onwards.

Speaker 6

Got it.

Speaker 12

It's definitely something to look forward to. Just touching on adjusted EBITDA, another nice quarter of stability there. Just thinking about the back half ramp with Markets Pro and with the 2 large merchants, how do you feel from an investment perspective that you're positioned today? And how do you think that that can translate to margins as we get in the back half of this year and then into 2025? Just trying to better understand the modeling here.

Speaker 3

So EBITDA, as reflected in our guidance, we expect the margin to grow to continue to grow in 2024 and to be around 18%. The economics of new merchants

Speaker 13

pro offering

Speaker 3

on obviously, those are large merchants, the economics are a bit different. But on the same level, we've launched many smaller merchants in the first half of the year. So there is a balance there. We don't expect any significant changes. We expect to see an improvement over time as reflected in our guidance for the entire year as well.

Speaker 2

Yes. And it's Amir. I'll just add maybe that we do or we've spoken a couple of times in the past and also in this call, we strongly believe that there's a huge greenfield opportunity still ahead of us. So we do it's important to note that we do still prioritize growth over profitability. So whenever we see and we continue to see all the time opportunities to reinvest in the business, of course, always watching our operational expenses growth and making sure that we continue to gradually improve on margins, but still we continue to invest in adding more resources on both on the R and D side and across the rest of the business to make sure that we continue to be well positioned to capture this opportunity.

Operator

Thank you. Our next question comes from the line of Pat Walraven from JMP. Please go ahead.

Speaker 7

Great. Thank you. So, Amir, big picture, you have all these growth drivers. You've got Shopify. You can go more in the U.

Speaker 7

S. And go internationally. You just launched with mix. You're adding more bigger brands. You have the demand gen solution coming out.

Speaker 7

So the question is, what are the constraints on the ability of this company to scale? You're going to do $1,000,000,000 next year, why can't it grow to 10,000,000,000

Speaker 6

dollars

Speaker 2

I don't think we can't. I think we can, Pat. I think it's the opportunity is there. I think our product market fit is there. I think we have in the pipeline also additional complementary services that we can add.

Speaker 2

So all of that together, I think we're on the right path to continue growing. We are also constantly working on enlarging our already significant ecosystem of great partners around us where they can contribute to our growth and we can contribute to their growth. So I think the main constraints are time and of course as always execution. And we continue to focus on execution. We continue to make sure that we do the best job possible for the growth of our merchants and we believe that as we continue to do so, growth will continue to come and we can continue to materialize that opportunity ahead of us.

Speaker 7

Awesome. All right. And I'm looking forward to seeing you guys on Wednesday in Tel Aviv. So congratulations.

Speaker 2

Same here. Thanks, Pat.

Operator

Our next question comes from the line of Marie Schwich from KeyBanc Capital Markets. Please go ahead.

Speaker 14

Hey guys and thank you for taking my question. I was just wondering if you can give an update on the border free migration. Just kind of wondering maybe what percentage of customers have moved over to the Global E platform and kind of any early learnings on that uplift that you could potentially see there? Thanks.

Speaker 4

We do continue to work with the clients toward migration to end by the end of this year or latest if we see there is a need for it early Q1 next year. The clients that have migrated, we have seen great results in uplifting the sales conversion rates, driving better performance, better sales based on the, I would say, larger suite of solutions and services on our platform. We do expect that once the vast majority of Borderfree clients would migrate, we will see a better trading with them in the following quarters. So we're optimistic about it. It is, as we indicated in the past, going slower than initially expected.

Speaker 4

So we do believe that some of it will roll out into Q1 of next year. However, we are happy with the results that we have seen on migrated sites.

Speaker 14

Great. And then just a quick follow-up. Do you have any callouts from maybe a geo perspective? Are there any standouts in terms of inbound markets, either headwinds or tailwinds? Thanks.

Speaker 4

I think that we constantly see different changes in different markets around the world in terms of inbound volumes. As some countries face more challenging macro, You see their growth declining. Some of the markets are affected by geopolitics. If you look at the inbound into Israel or Ukraine, where you see the market actually shrinking in 2 digits percentage base heavily. But because of our global nature and the amount of corridors we sell into, And then actually, I think that all in all, as Ofer indicated, we do see some stability.

Speaker 4

So the overall numbers are slightly below historical averages, but they are in line with what we expected for this year, which was, I would say, a bit softer macro in general than previous years, despite the fact that, yes, there is volatility. Some weeks looks better or less. But overall, I think that we do see now a stable, relatively okay macro, not as great as previous years, but I would say an okay macro in general reflected in same store sales across different corridors.

Operator

Thank you. Our next question comes from the line of Mark Gutsiewicz from The Benchmark Company. Go ahead please.

Speaker 13

Thank you. Hi guys. Just a question around the onboarding process for MarcusPro Merchants. I know there's been some progress made there. Just curious in terms of lifting the friction there, are those capabilities now in place?

Speaker 13

Are there still more enhancements that may accelerate the onboarding of U. S. Merchants? And then is this the key variable in terms of moving Markets Pro outside the U. S.

Speaker 13

With Shopify? Thanks.

Speaker 4

Yes. Thank you for the question. It's Neil. We do continue to roll out features and process alignments in order to make the onboarding quicker, more seamless and to gain even better results out of the gate. However, also on the ongoing trading and as the market segments and vertical that the solution is geared for, we do have still a rollout plan of different feature and capabilities that will be rolled out through the coming quarters.

Speaker 4

On the back of this completion, of course, we would go into a much wider rollout, but this is dependent, of course, on Shopify and third decision. But we are fully aligned on the roadmap ahead and what we need to achieve in the coming quarters in order to continue with the rollout.

Speaker 13

Thanks, Neil. That's helpful. And then one quick one for over possibly on luxury. Just curious how that segment is pacing first half versus just year over year, first half year over year? Thanks.

Speaker 3

Yes. So regarding Luxury, 2020 3 was not a good year for luxury as we discussed several times. And since then, we've seen it sort of stabilizing and coming back to growth, not very strong growth, but after the lows that we have seen during some of the quarters, mainly I think it was in Q3 last year. It has stabilized and gone back to growth maybe not growing as fast as other segments, but positive growth.

Operator

Thank you. Our next question comes from the line of Matt Code from Autonomous Research. Go ahead please.

Speaker 6

Hi. Hey guys. Thanks for taking the question. I'm curious if you could unpack the growth in sales and marketing expenses ex the warrant amortization. Sorry about that.

Speaker 6

It's growing at a really fast pace as you noted in your prepared remarks. Just curious, is a lot of this growth coming mainly from Shopify's revenue share? Or are there changes to your go to market approach that we should be aware of? Thanks.

Speaker 3

Sure. So as you mentioned, we do have sort of a variable cost in our sales and marketing, which is the Shopify rev share component and it is growing. So I think most of the growth in expenses or not most of the growth, but most of the extra growth is due to Shopify rev share expenses. However, nothing special to report, but we are continuously expanding our sales force. It's a gradual expansion.

Speaker 3

But as we grow, we are bringing in more people, but not anything out of the ordinary.

Operator

Thank you. We will take our last question from the line of Matt O'Neill from FT Partners. Go ahead please.

Speaker 15

Hey gentlemen, thanks so much for squeezing me in at the end. A lot of good questions asked and answered. Maybe first, Ofer, I know you mentioned a couple of points contributing to the gross take rate, how that will stabilize close to 16%, you mentioned. This quarter, the net take rate actually outperformed by a good amount. And I was just curious if there was any callouts to attribute that to or anything that we should expect to be stickier going forward or if it was maybe more of a mix shift?

Speaker 15

And then I'll just get my follow-up in there now. I know a bunch of people asked about Shopify Markets Pro, and specifically, kind of the international rollout. Is that something just from timeline perspective, to be conservative, we should think about international markets there as a 2025 and beyond type of discussion? Thanks a lot.

Speaker 4

In terms of the international rollout, I think it's also dependent on Shopify plans. So we can't commit or comment about it without being aligned with Shopify. But I do expect that if in the coming quarters we meet our targets, we will see additional markets being rolled in when I think it's much more a decision for Shopify to make.

Speaker 15

Understood. And on the net take rate this quarter, anything to think about going forward or maybe some unique mix elements that were idiosyncratic?

Speaker 3

Yes. So as we previously stated, some of it is due to GMV mix. However, we do see a clear line of improvement over time due to one efficiency, so different processes. We brought in we have a team, a very senior team that is going through the organization and mapping it for AI I think that we've mentioned in the previous call that we had some very nice processes that are implemented that are already contributing mainly around our service, but also in other areas. So this is just an example.

Speaker 3

Another example is classification, duty classifications and we do have quite a few and we do have quite a few initiatives, but it's not just AI initiative, but also other processes and also economies of scale that we're pushing. So over time, we do expect to see an improvement. However, as I mentioned, this the gross margin we had this quarter was high and some of it was due to the specific revenue and GMV mix.

Operator

Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. Amir Tslakas for final closing comments.

Speaker 2

Thank you very much and thank you everyone for joining us today. And we very much look forward to seeing you again on our future earnings calls. Just before we adjourn, I would like to take this opportunity again to say a big thank you to all of our wonderful team members throughout the world. Your hard work and complete dedication to the success of our merchants are and will always be the key driving force behind our continued growth and success. So goodbye to you all and take care.

Operator

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

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Earnings Conference Call
Global-E Online Q1 2024
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