Global-E Online Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2024

There are 12 speakers on the call.

Operator

Welcome to the Global East Second Quarter 2024 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 Global E are Amir Shlokit, Co Founder and Chief Executive Officer Ofer Koren, Chief Financial Officer and Nir Debi, Co Founder and President. Amir will begin with a review of the business results for the Q2 2024. Ofer will then review the financial results for the Q2 of 2024 followed by the company's outlook the Q3 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 24A 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, 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 are 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 in 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 August 14, 2024 for additional information. In addition, certain metrics we will discuss today are non GAAP metrics. The presentation of these financial of this financial information is not intended to be considered in isolation or as a substitute for or superior to financial information prepared and presented in accordance with GAAP. We use these non GAAP financial measures for financial and operating decision making as well 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 non GAAP financial measures, please see the reconciliation tables provided in our press release dated August 14, 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 August 14, 2024. I will now turn the call over to Amir, Co Founder and CEO.

Speaker 2

Thank you, Erica, and welcome, everyone. Our 2nd quarter financial results, all of which are at the top end or above our guidance range, demonstrate a continuation of our strong business momentum and growth trajectory as well as our execution towards our long term strategic target. In terms of GMV, Q2 marked yet another historical landmark for us, representing our first ever non peak quarter above $1,000,000,000 with quarterly GMV accounting to $1,080,000,000 representing 31% year on year growth. Our revenues grew by 26 percent reaching $168,000,000 in the quarter. Our adjusted gross profit margin continued to expand from 43.3% in Q2 of last year to a record 47.8% in Q2 of this year, enabling adjusted gross profit growth to outpace that of our revenues.

Speaker 2

Finally, our adjusted EBITDA for the quarter came in at $31,000,000 representing nearly 50% growth over the same period last year, a testament to our growing economies of scale, our team's continued efficient execution across all elements of the business and our proven effectiveness in controlling costs. Looking ahead at the rest of the year and beyond, we remain confident in the reacceleration of the business. As Ofer will discuss later in the call, we expect 34% growth in GMV and 30% in revenues in the second half of twenty twenty four, with significant contributions from large new merchants who are already or about to go live, as well as the anticipated continued growth of managed markets on Shopify. This strong expected growth is especially noteworthy as it comes despite some mixed macro signs in the form of slight softness in consumer sentiment we encountered during late July early August as well as the unfortunate and unexpected churn of one of our largest merchants, Ted Baker's U. K.

Speaker 2

And Europe franchisee, which went bankrupt and took its online store off the air earlier this month. Moreover, given our strong integrations pipeline, including additional large merchants whose integration projects are currently on track And given our year to date new bookings, which stand at a record high, we remain highly confident in our ability to continue delivering strong and durable top line growth levels of 30% and above also beyond the second half of twenty twenty four. As usual, when I hand the call to Ofer, he will describe in more detail our quarterly financial results as well as our updated guidance for the Q3 and for the full fiscal year. However, I would first like to walk you through some key updates regarding our business. As in every quarter, during the last period, we continued to see strong demand for our services with the onboarding of many new merchants located all around the globe and trading in various different verticals.

Speaker 2

In North America, we went live with the innovative customizable glasses brand, Per Eyewear, curated apparel and former brand, Tucker Nook, LA based streetwear brand, Minimal, and luxury lifestyle and art book publisher, Asomine. In the UK, the iconic British country clothing brand, CORTINGS, the renowned footwear brand, Clarks, Germane Street shirt maker, Haus and Curtis, cosmetics brand Revolution Beauty and fashion brand, BRIDFISH, all went live on our platform. In France, we launched several high street fashion brands, including Ami Paris and Isabelle Morin. But across other parts of continents of Europe, we went live with other renowned brands, such as Clothes and Juke in Germany and PINKO in Italy. We also went live with a fast growing Swedish brand, I am Runwell, that creates backpacks designed specifically for runners.

Speaker 2

And with our first ever Polish brand, the online store of Polish fashion designer, Magda Butsu. In addition, our growing presence in APAC received a big boost during the last quarter, with many Japanese brands going live, including the Japanese pop culture merch stores Geekjack and Nagano Market, curated fashion site Fascinate, Saiko Epson's watch brand Orientstar and Matcha Tea Provider Matcha Direct. We also went live with Australian dressmaker Shona Joy and fast fashion brand Outcast Clothing with Hong Kong based consumer electronics brand Heavy, which creates headphones designed for heavy metal enthusiasts and with the fast growing Korean sunglasses brand Gentle Monster. As part of our commitment to growth in APAC, we continue to expand our local presence in our main regional offices in Tokyo and Melbourne and establish a new office in Korea, welcoming on board 3 new colleagues in Seoul to support our growing business there. We also completed an integration onto the Singaporean based e commerce platform Shopline with averaging £5, a long standing U.

Speaker 2

K. Merchant of ours, being the first to launch on this newly supported platform. In terms of verticals, we continue to expand our portfolio of sports teams, adding the famous Spanish soccer club FC Barcelona, also known as Balsa, as well as the UK Premier League Club Newcastle United to the growing list of sports clubs that use globally to sell their branded merchandise directly to their loyal fans all around the world. We also added several merchants to our growing list of celebrity brands with SVP by Sarah Jessica Parker and House Labs by Lady Gaga being the latest to go live on the Global Eat platform. But the biggest news on the merchant front is undoubtedly the recent launch of Victoria's Secret, the first of the large enterprise merchants we are expecting to launch during the second half of twenty twenty four.

Speaker 2

Being one of the most iconic and recognizable under air brands in the world, we are excited to welcome Victoria's Secret onto Globally's best in class global commerce platform. Besides launching new merchants, during the quarter, we also continued to expand the scope of our work with existing brands and brand groups as part of our land and expand strategy. In the U. S, we launched with both Escada and Club Monaco, which are part of the MCO group that also includes La Senza and with Carl Unger Total Paris, another brand from the G3 Group. While in the U.

Speaker 2

K, we launched with Phase VIII, which is part of the TPG Group of brands that also includes Hobbs and Whistles. In addition, several of our merchants expanded the list of lanes for which they use globally, most notably Michael Kors, Karl Langefel, Langen Ulfsen and Kurt Geiger. As I already mentioned earlier, the business is firing on all cylinders signing up a record volume of new GMV year to date. As such, given our clear market leadership position and with the immense market opportunity that continues to lie ahead of us, we are confident in our ability to continue our strong momentum of growth in both the volume and the variety of brands using the Globally platform in the coming years. Now before handing the call over to Ofer, I would just like to update you regarding the various components of our strategic partnership with Shopify.

Speaker 2

On the 3P or direct integration side, the migration of our historical merchant base onto the new native integration is practically complete, with the remaining merchants planned to migrate imminently. In addition, during the quarter, we managed to achieve considerable progress in the process of transitioning our Shopify merchants onto checkout extensibility. More than 75% of our Shopify based merchants are now using Globalea over checkout extensibility, with the majority of the remaining ones already in process of transitioning. Once done, this will conclude a monumental migration undertaking by our R and D and professional services teams over the last few quarters, aimed at ensuring that our Shopify based merchants enjoy the best possible combination of Shopify's and GlobalEase capabilities for a best in class international solution. As the migration processes are nearing completion, the team's focus has already shifted to working on additional functionality and new features, enhancing performance for our merchants.

Speaker 2

On the 1P or managed market side, merchants continue to sign up and go live on this innovative solution and join quick and effortless onboarding and growth in international conversion rates and sales. In parallel, the teams on both sides continue to work on developing and integrating additional capabilities to further enhance the solutions effectiveness and reach, such as support for additional shipping services, the ability to include taxes and duties in the product price to align with local best practices and enhance visibility for merchants into their catalog restrictions, which manage market supplies automatically to help merchants trade internationally in a compliant manner. Given the large market potential on the Shopify platform and the adoption of this innovative managed market solution continues to steadily rise, we continue to believe in our ability in close partnership with Shopify to capture a meaningful part of this massive market opportunity over the coming years. I will now hand it over to Ofer, our CFO, to take you through the quarterly numbers in more depth as well as present our updated guidance for SKUs 3 and the full year.

Speaker 3

Thank you, Amir, and thanks everyone for joining us today on our earnings call. Q2 was another quarter of strong growth and expanding margins as we continue to address the market opportunity in front of us and remain committed to delivering value to merchants in their international growth. 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, GMV continued to grow quickly in Q2 as we generated EUR 10.1 €800,000,000 of GMV, an increase of 31% year over year, 3 point 5% over the midpoint of our guidance for Q2.

Speaker 3

In Q2, we generated total revenue of $2,200,000 up 38 percent and fulfillment services revenue were up 16% to 85,800,000 dollars The higher growth of service fees revenue compared to fulfillment fees revenue was mainly driven by an increase in average order value, which results in lower fulfillment volumes for a given GMV. It is worth noting that we continue to see higher average order values, which are expected to have a negative impact on our fulfillment take rates also in H2, but at the same time have a positive impact on our gross margins and overall limited impact on our adjusted EBITDA. Non GAAP gross profit continues to outpace revenue growth. In Q2, non GAAP gross profit was $80,200,000 up 39% year over year, representing a record non GAAP gross margin 47.8% compared to 43.3% in the same period last year, driven by the higher share of service fee revenue, operational efficiencies and a favorable mix. GAAP gross profit was $77,400,000 representing a margin of 46.1%.

Speaker 3

Moving on to operational expenses. We continue to invest in the enhancement of our platforms. R and D expense in Q2, excluding stock based compensation, was $21,200,000 or 12.6 percent of revenue, compared to $18,000,000 or 13.5 percent in the same period last year. Total R and D spend in Q2 was $26,700,000 We also continue to invest in sales and marketing, and we currently see our strongest ever pipeline in front of us. Sales and marketing expense, excluding Shopify related amortization expenses, stock based compensation and acquisition related intangibles amortization was $18,900,000 or 11.3 percent of revenue, compared to $12,000,000 or 9% of revenue in the same period last year.

Speaker 3

Shopify warrant related amortization expense was $37,400,000 Total sales and marketing expenses for the quarter were $60,100,000 General and administrative expenses, excluding stock based compensation, acquisition related expenses and acquisition related contingent consideration was $9,400,000 or $5,600,000 of revenue, compared to $7,300,000 or 5.5 percent of revenue in the same period last year. Total G and A spend in Q2 was $13,500,000 Adjusted EBITDA continued to grow rapidly and totaled $31,300,000 representing an 18.7% adjusted EBITDA margin and increasing by 49% from $21,000,000 or 15.7% margin in the same period last year. Net loss was $22,400,000 compared to a net loss of $35,500,000 in the year ago period, driven mainly by the amortization expenses related to the Shopify warrants and by the transaction related intangibles. Switching gears and turning to the balance sheet and cash flow statements. We ended the quarter with $341,000,000 in cash and cash equivalents, including short term deposits and marketable securities.

Speaker 3

Very strong cash flow generated by operating activities $64,100,000 compared to $17,600,000 a year ago. Moving on to our financial outlook and guidance for Q3 and our updated 2024 full year guidance. I would first like to explain the underlying dynamics we are seeing as we look towards the end of the fiscal year. As recently experienced an out of the ordinary churn as the Ted Baker's UK and Europe franchisees, which we serve, went bankrupt and went off the air earlier in August. Ted Baker represented over 3% of our revenue and the loss of its business will impact our H2 results.

Speaker 3

Besides the obvious loss of GMV, the main negative impact will be on our top line. Studebaker was a high take rate merchant to which we supplied in addition to our standard services, also a high volume of demand generation services. However, this churn will have a positive impact on our gross margin and overall limited impact on our bottom line. Besides the out of the ordinary churn of Ted Baker, additional factors that are expected to negatively impact our top line in H2 and the full year are the significant rise in average order values negatively impacting our fulfillment revenues, coupled with the slight signs of potential softness in consumer sentiment we have seen over the last few weeks. At the same time, gross margins are positively affected and expected to be significantly higher than previously projected.

Speaker 3

In conclusion, the above factors are leading us to cautiously lower our full year top line guidance, but nevertheless, the higher gross margin profile in addition to strong control of operational expenses is leading us to raise our full year adjusted EBITDA guidance. As for the guidance itself, for Q3 2024, we are expecting GMV to be in the range of 1 point $7,000,000,000 to $1,111,000,000 At the midpoint of the range, this represents a growth rate of 30% versus Q3 of 2023. We expect Q3 revenue to be in the range of $165,700,000 to $171,700,000 At the midpoint of the range, this represents a growth rate of 26% versus Q3 of 2023. For adjusted EBITDA, we're expecting a profit in the range of $27,000,000 to $31,000,000 For the full year of 2024, we are updating our guidance and now anticipate GMV to be in the range of $4,605,000,000 to $4,845,000,000 representing a 33 percent annual growth at the midpoint of the range. Revenue is now expected to be in the range of $710,000,000 to $750,000,000 representing a growth rate of 28% at the midpoint of the range.

Speaker 3

For adjusted EBITDA, we're now expecting a profit of $127,000,000 to $143,000,000 above our previous guidance. Despite the negative impact expected on H2 revenues we've mentioned, we continue to believe growth will accelerate going into Q4 and that the pace of growth will continue into 2025, driven by the large by large merchant launches, which are on track, anticipated elevated volume contribution from managed markets on Shopify, which is growing as expected and a lower impact from Borderfree on a year on year comparison. As is evident from our updated guidance, we expect the lower top line estimation to be offset by significantly higher gross margin and result in minimal impact on gross profit, while we believe our adjusted EBITDA and cash flow generation will be higher compared to our previous expectations. 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.

Speaker 3

And with that, Amir and I are happy to answer questions you might have. Operator?

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question comes from Will Nance with Goldman Sachs. Your line is now open.

Speaker 4

Good morning. I appreciate you taking the question. I wanted to just make sure we understand the moving pieces in the guidance that was very helpful to quantify the churn merchant. So if I heard you correct, it's something like 3% of revenue from the churned merchants. That explains a good chunk of the guide that came in at I believe, low gross margin, but high take rate.

Speaker 4

If I heard I'd love to understand what kind of drives that. That's very helpful. 2nd was AOVs coming in lower, neutral to gross profit that brings down the fulfillment take rate on GMV. And then the third one, you're kind of attributing to macro. I guess, maybe excluding the first two, how big was the macro impact relative to your prior expectations?

Speaker 4

And if we hadn't seen the churn merchant dynamics, like would we would the guidance be kind of relatively in the same place? I'm just trying to get a sense for how much your expectations for the underlying run rate of the business have actually changed?

Speaker 3

Yes. So thank you, Will for that. I think that we've mentioned the drivers in sort of in the order according to the order of magnitude. So obviously, losing a merchant like Tate Baker, which is something that never happened to us before and unfortunately they went bankrupt, has a lot of impact in the short term in terms of top line. And the rising AOV translates to lower fulfillment activity and that also has significant impact.

Speaker 3

In terms of the macro conditions, we have seen mixed signals out of the market and we have seen some softness in the last few weeks. But I think that the first two drivers are carrying more weight in terms of the update of our guidance.

Speaker 4

Yes, that's helpful. And then I just wanted to follow-up on some of the comments in the prepared remarks. I think you commented you've got, I think, record pipelines this year. You went live with 1 of the 2 large merchants. I think you said the other one is launching kind of shortly or something along those lines.

Speaker 4

And then I thought I heard something about feeling good about the business remaining on kind of like 30 plus trajectory beyond the second half of the year. So just wondering if maybe you could talk through kind of momentum into next year, how pipelines are looking, if there's any way to kind of dimensionalize the new customer additions that you have been working on this year? Thanks.

Speaker 5

Hey, Will. Thanks for taking the question. It's Neil. Yes, we do see a very strong pipeline coming out of our enterprise business. We have, as we previously stated, a record deal in signing new merchants.

Speaker 5

However, due to the significance of 2 almost, let's say, 2.5 very large clients, one of them that just launched Victoria's Secret. We do see some shift to the back end of the year with the launches. Victoria is the first one live. We expected 2 others that are currently on track. They're already tip into the testing stage of the project.

Speaker 5

We expect them both both to be live early Q4. And on the back of it, we will get a push coming into Q4. On the back of it, we have multiple midsized merchants on the enterprise platform planning to go live for APIC as well. And this will give us a boost into the following quarter that they launched only most of the add on spikes that we see launched only in and launching only late Q3, early Q4, it will be a net growth when you look at the coming quarters in 2025 for most of the year. In parallel to it, we have expected for the year and even slightly above.

Speaker 5

So we're quite optimistic on the overall trajectory going forward that allowed us to state that we believe that we have visibility into a growth rate of over 30% in the coming quarters.

Speaker 4

That's great. Appreciate all the detail this morning. Thanks for taking the questions.

Speaker 2

Thank you. Thanks, Will.

Operator

Your next question comes from Samad Samana with Jefferies. Your line is now open.

Speaker 6

Hi, good morning and thanks for taking my questions. I guess, first, just as I think about as I think about you mentioned the macro part being maybe the lowest piece of the assumption change, But I want to dig into that, Ofer, are you changing the back half NRR assumptions? Or is that more you just letting us know that that's something we should think about, but have you changed any of your underlying assumptions in the guidance and how are you thinking about NRR for the 4th quarter, for the back half of the year, especially as you think about that steep ramp implied in the 4Q guidance?

Speaker 3

Thank you for that, Samad. We have changed slightly changed our same store sales assumptions for the back half of the year. As we've mentioned, we've seen mixed signals, but more, I would say, towards softness, more signals towards some softness and we've seen slower same store sales in the last few weeks. So we did slightly adjust our assumptions. But as I mentioned and you mentioned, that was only the 3rd driver that impacts the top line in H2 2024.

Speaker 6

Understood. And then, I know that Nir, you mentioned that Shopify, the managed markets product, formerly markets pro, was coming in at expectations, maybe even slightly better, I think were the words you used. Can you maybe just help us understand what that means in numerical terms, like how the growth rates there looks like? And is your confidence more or less or the same as you think about heading towards the back half of the year and then into 2025?

Speaker 5

Sure. Then you for the questions, Fahad. We do see growth in the managed markets coming slightly even above our plans. And we when we see it's a funnel building up and at the rate of onboarding, we do expect it to continue to the end of the year. As we are expected to launch many more features into managed markets in the coming quarters, we do expect the continuous on boarding of merchants and even larger size merchants to come on board.

Speaker 5

So yes, we do expect it to accelerate going into 2025 in dollar terms.

Speaker 6

Great. Thanks for taking my questions.

Operator

Your next question comes from James Faucette with Morgan Stanley. Your line is now open.

Speaker 7

Great. Thank you very much. And just a couple of follow ups there. Can you give us a sense as to what your churn has been maybe ex Ted Baker and if you had any sense of what that could be or has been both voluntary and involuntary? And if you're making any other churn related assumption changes for the second half of this year and into next year beyond just the highlighted tid Baker?

Speaker 3

Yes. James, thank you for the question. In terms of churn, putting aside Ted Baker, which is really out of the ordinary, we have seen similar rates to the previous year. So no significant change there. We're not expecting anything different in the next few months.

Speaker 3

As we previously mentioned, once the border free platform is shut off, we might see some turn of the last border free merchant remaining. However, we have been successful in migrating 2 of the larger Borderfree merchants lately. So hopefully we can get some more of those going forward.

Speaker 7

Got it. And then on the Shopify relationship and kind of how well that's trending, you give us an update on operationally some of the functions that you had intended to launch during the course of this year? Have those launched? How much of an impact is that having on engagement with merchants, etcetera? And how you're thinking about further improvements in the product?

Speaker 2

Hi, James. This is Amir. Thanks for the question. So we mentioned some of the features already in the prepared remarks. And these were highly anticipated features like additional standard shipping options that we've added like the ability to include the duties into the product price, which is highly important for, I would say, being able for the merchants to be able to sell in a way that is very localized in many markets.

Speaker 2

This is a capability we've had for a long time, obviously, on all our platforms and we recently added that to managed markets. And there were also additional capabilities and visibility that the merchants now get into product restrictions, which was very important for a lot of our merchants. So it's a lot of features. There are more that were rolled out and more that are in the pipeline for the remainder of the year and for 2025. So it's hard to pinpoint exactly the effect of each such feature obviously, but in general, as the product becomes more feature reach and more advanced, it obviously increases its appeal and its applicability to many more merchants.

Speaker 2

So we are we continue to be hard at work, both our teams and Shopify's continue releasing these features in the next few quarters. And continue releasing these features in the next few quarters.

Speaker 7

Okay, great. Thank you.

Operator

Your next question comes from Brian Peterson with Raymond James. Your line is now open.

Speaker 8

Hi, thanks for taking the question. So, Oprah, I wanted to hit on fulfillment take rates a bit. We've heard from others in the ecosystem that there's been more of a preference for slower or less expensive shipping rates. Can you comment on how that mix may have been versus your expectations? And any help on how we should be modeling the fulfillment take rates in the back half of the year?

Speaker 3

Sure. Thank you for that, Brian. We've seen in the beginning of the year, we've seen some shift to standard, but in the last few months, it has been pretty stable. The main change that we have seen is higher order value, which also is driven it's partially driven by optimization of both merchants and consumers. So basically, getting a higher ticket on the same cost of shipping.

Speaker 3

So we have seen a trend of that growing the average order value over the last few months, specifically in Q2 and that has a significant impact on our fulfillment take rates. We haven't seen a significant shift from to standard from Express to standard in the last few weeks or 2, 3 months.

Speaker 8

As we think about modeling that figure going forward, any kind of guidepost or where we should look at from second quarter levels? Thanks, guys.

Speaker 3

Sorry, can you repeat that, Brian, please?

Speaker 8

Yes. I'm just looking to kind of understand how we should be modeling the fulfillment take rate in the back half of the year and going forward?

Speaker 3

Yes. So previously, we expected the fulfillment take rate to increase in the back half of the year due to more merchants joint merchants that are on boarding the platform and using or utilizing our shipping services. And we do see that coming in. But due to the fact that AOV has increased significantly, We do see a decrease. Most of the change that you see, intake rates in our guidance is driven by fulfillment.

Speaker 3

Not all of it because as we've mentioned, Ted Baker also was a high take rate merchant to which we provide the demand generation services and this will be reflected in the service fee take rate. But most of the take rate reduction is on the fulfillment side.

Operator

Your next question comes from Andrew Bach with Wells Fargo. Your line is now open.

Speaker 4

Hey, thanks for taking the question. Just wanted to speak to the range of outcomes here in the revenue guide. Still it seems pretty wide from I think 7 points from the low end to

Speaker 3

the high

Speaker 4

end. Just now that we're halfway through the year, maybe if you can help us understand what gets you to the low end versus what needs to happen in order for you to achieve the high end setting macro aside?

Speaker 5

Yes. I think that when you look into our guidance for the rest of the year, we took into account first, of course, the reduction in fulfillment takers that we've seen due to the lower AOV, due to some changes in mix between merchants as well as the higher basket. The second thing that we took into account and we need to account for is the changes in consumer sentiment. We have witnessed it, also mentioned it, especially in the last 6 to 8 weeks. So we did bake in some of it into our guidance, allowing for a larger spread towards the end of the year.

Speaker 5

And so this is built in there as well. And if this changes and this is, of course, affected by macro, then we might shift with that, but we do believe it's we took a conservative approach here.

Speaker 4

Got it. Understand. And then moving to Shopify, thinking about the 3P side, you highlighted the 75% of the base now on checkout extensibility. Did that ramp to the 75% go according to your original plans? And maybe if you could help us understand the economic implications to your business model by those merchants being on checkout extensibility?

Speaker 2

Hi, it's Amir. So yes, it did ramp up fairly quickly over the last couple of quarters. It's been unlike the, I would say, the previous migration or the initial migration from the original kind of classic integration we had on to the new native integration, which was, I would say, more work incentive I'm sorry, work intensive. The migration to SeaOne is from a, I would say, from a process perspective per merchant is easier. And our teams over the last couple of quarters have really mastered the ability to make these transitions.

Speaker 2

So that happens fairly quickly, and we anticipate that it's not going to take us too long to complete the entire migration. In terms of the economic, there is no direct economic impact expected. It's more of a, I would say, a general impact from the merchants being able to use the kind of latest and greatest features and tech on both the Shopify and the Global East side. So hopefully over the next quarters years, this will provide our merchants and therefore us with performance benefits. But I would say for the time being, it's more of a kind of technological transition rather than any immediate change in economics or model.

Operator

Your next question comes from Koji Ikeda with Bank of America. Your line is now open.

Speaker 4

Yes. Hey guys, thanks for taking the questions. I wanted to ask about the the Victoria's Secret launch. Congratulations on getting that live. I wanted to ask on the timing of that launch.

Speaker 4

Was it to plan? Was it a bit earlier or a bit later than

Speaker 9

but those are

Speaker 4

taking a little bit longer. And so the question there is, what is the but those are taking a little bit longer. And so the question there is, what is the risk that those launches get pushed to after the 2024 holiday season?

Speaker 2

Hi, Koji. Thanks for the question. So actually it's the same answer for all of these big launches that we're looking at. They're more or less than planned. You know how it works with these large projects.

Speaker 2

There are sometimes some shifts in schedule a week here or there. But generally speaking, the Victoria's Secret launch was as planned and on schedule, and it's also gradual as many of our, I would say, large merchant launches are. It's a phased launch, and we're advancing already very nicely through the phases in our and it's that too is on schedule. So not just the initial kind of launch, but also the subsequent rollout of the additional markets. Actually, the majority of them are already live at this point.

Speaker 2

And in terms of the additional large launches, again, as we mentioned, they're currently on schedule. We believe that there are, I would say, sufficient project buffers there to ensure that they go live in time before peak, each of its respective launch date. And we hope that this will remain the case. Currently, we don't have any reason to believe that they will be delayed and we expect them to go live early Q4, I would say, in time for the peak season. As I think Nir mentioned, they're already in active testing now.

Speaker 2

So it's these are the very advanced phases of the launch project.

Operator

Your next question comes from Scott Berg with Needham. Your line is now open.

Speaker 10

Hi, everyone. Nice quarter. Thanks for taking my questions. I guess I got a couple. Amir, you had made some comments about opening a new office in Korea.

Speaker 10

Just wanted to get some comments maybe on your business, your business activities in Asia Pac because it's typically not a region that you all tend to highlight.

Speaker 5

Sure. Thank you for the call, it's Neil. We are very optimistic about the rollout into APAC. We started the journey in APAC around 2 years ago. And since then, we've seen a very strong uptick coming out of Australia, Hong Kong, Singapore, Japan with the key markets currently outbound where we have where we established HQs, in Australia and Japan.

Speaker 5

In Korea, we've seen a lot of interest coming from on the back of it. We signed a few deals and we even launched the 1st large merchant that Amir mentioned, Gentle Monster. All in all, Korea adds to an additional, I would say, growth into the APAC region that in total came from virtually nothing in globally Sales into hitting 2 digits year to date already as a percentage of new bookings.

Speaker 10

Excellent. Very helpful, Nir. And then Ofer, wanted to get your thoughts maybe on intermediate or a longer term margin structure in the business. I think if you look at both gross margins and adjusted EBITDA margins, you had a record high this quarter. Gross margins are approaching 50%.

Speaker 10

And you discussed some of the dynamics on why that might be higher, at least in the short term here. But how do we think about that margin structure maybe 3 to 5 years out versus your prior assumptions? Because I believe you're getting pretty close to at least what your prior communicated intermediate term model looked like?

Speaker 3

Yes. Thank you for that. So first of all, as you mentioned, we had some negative impact on our top line with the Baker churning, AOV increasing. But at the same time, those drivers in addition to larger efficiencies we've been able to achieve, enable us to get to much higher gross margins than we initially expected this year. And we do expect at least for the next coming quarters for gross margins to remain high, maybe not as high as this quarter because we had some mix impact as well, but in the neighborhood of what you have seen this quarter.

Speaker 3

And in addition to that, as we have tight cost control, it translates into slightly higher adjusted EBITDA in U. S. Dollars and higher adjusted EBITDA margin as well. So we expect to see that continuing in the next few quarters. Regarding the longer term, I think it's a great question.

Speaker 3

We haven't working on that and we hope that we can introduce long term targets in the coming months.

Operator

Your next question comes from Patrick Walravens with Citizens JMP. Your line is now open.

Speaker 6

Great. Thank you. I'd like to dig into Ted Baker some more if I can. I mean, Amir, the bankruptcy filing was on April 24, right? So before you guys reported last quarter, shouldn't you have known?

Speaker 2

Actually, hi, Pat. It's Samir. Actually, no, because this is not it's not the first time that a merchant's filed for bankruptcy or administration as it's called in the UK. It doesn't mean that they will start trading. As a matter of fact, we've had a number of cases in the past where it actually drove the online business higher because in a lot of cases with brands that have physical stores, the intent of the administration is not to shut down the operation completely, but actually to streamline it.

Speaker 2

And typically, the outcome is that the physical assets or the stores are reduced and the focus goes into the online business. So we've even had cases in the past where the bankruptcy or administration did good for our business from our perspective. So there were the filing was done a long time ago, but it's we didn't have any signals or we couldn't have anticipated the fact that in this case, unexpectedly, it would actually result in them stopping all online trading. That was I would say, took us by surprise.

Speaker 6

Okay. And if I may, 2 more quick follow ups on that. How much money do they owe you? And are you going to have to write that off?

Speaker 3

They don't owe us any money at this point in time. So no write off expected.

Operator

Your next question comes from Brent Bracelin with Piper Sandler. Your line is now open.

Speaker 4

Thank you for taking the question here. I wanted to go back to the macro. You did I know the 3rd factor contributing to the guide here, but you did talk about some weakness in the last 6 to 8 weeks. Was that isolated to luxury, more broad based? Any additional color on maybe where you're seeing a little softness would be helpful.

Speaker 4

And I have one follow-up.

Speaker 3

Sure. Thank you for that, Brent. Nothing specific to call out in terms of verticals. It was broad based. So I think that the main weakness for Luxury brands was is in China less impact on us from that angle, broad based.

Speaker 4

Helpful color there. And then just double clicking into BorderFree, you did talk about shutting down the legacy platform. What's the timing there of turning that legacy platform off? And then if you could just maybe frame the volume that you still have on the legacy platform, that would be helpful just as we try to assess the risk there of when the shutdown occurs and potentially what volume would potentially be at risk? Thanks.

Speaker 5

Hi, Brent. It's Nir. Thanks for the question. We are in the process and continuing with the process of migrating merchants into the Global E platform. However, and I think we stated it also in our Q1 discussion, process is going slower than expected as The last year and this year are, I would say, complex or difficult years for many of our merchants handling, I would say, restructuring in the physical stores, etcetera.

Speaker 5

So in order to let them some time to put in the replatform project into their base, we extended the timeline a bit. The cost of running the platform by itself, we managed to control it and made it more efficient for the time being. So we give we did give extensions into 2025. However, the overall volume remaining today on Borderfree platform is circa 2% of our business. So the majority is already off the border free platform.

Speaker 5

And there are a few significant a couple of significant merchants still on the platform that we do expect that would move, but this would only happen sometime in the first half of twenty twenty five and following it, we expect to shut down the platform.

Operator

Your next question comes from Mark Gutowicz with Benchmark Company. Your line is now open.

Speaker 11

Thank you. I was just hoping to get some more clarity on the implied 4Q assumptions. If I look at the midpoint of your GMV and take rate, we're looking at still declines in take rate. I'm just curious if that's all tied to Ted Baker or if there's some multi local further multi local dilution built in there or anything else? And then just in terms of your GMV assumptions for 4Q in the softer consumer and store sentiment just relative to 3Q like what are your implied assumptions in terms of the trajectory of that softer consumer and store segment?

Speaker 11

And then I had a quick follow-up.

Speaker 3

Yes. So in terms of the consumer sentiment, we have similar assumptions for Q3 and Q4. We expect same store sales to be a bit lower than what we previously expected, but same for Q3 and Q4. In terms of the take rate in Q4, as we've mentioned, it's a combination of higher average order value leading to a lower fulfillment take rate. Also the impact of Ted Baker, which was a high take rate merchant.

Speaker 3

And in addition, we do have slight seasonality in terms of take rate in Q4 as we have Disney, which is biased towards Q4, very biased and is a multi local merchant. So we do expect some more multi local GMV in Q4.

Operator

Your next question comes from Oliver Lechter with REIT. Your line is now open.

Speaker 9

Hi, thank you for taking my question. I just want to follow-up on Victoria's Secret, which is one of your main competitors' biggest merchants. Can you just give a little bit more detail on what specifically it was that kind of led them to switch to you? And you kind of mentioned that there would be a slow migration. How long do you expect it to be until they're fully migrated off ESW?

Speaker 9

Thank you.

Speaker 5

Yes. And thank you very much for the question. It's Neil. We are very happy that Victoria Secret decided to switch to the Global Eat platform and partner with us. We're very proud of it, and we expect to grow continue growing our partnership with Victoria's Secret in the coming years.

Speaker 5

In terms of the launch plan, we started the rollout with the initial market late July, mid July. And we're already, I would say, over the half, and we expect to finish the entire rollout within Q3. So all in all, everything to date is moving according to the project plan. The reason they selected Globally, I think is evident also in Global Ea being the market leader in anything related to global commerce. For multi local capabilities, we developed across border to other capabilities we developed around local shipping, returns, duty management, duty drawbacks and the data and demand generation capabilities.

Speaker 5

A lot of the things we developed are unique for globally, and I think it's been appreciated in the market. So we're very proud and happy to have Victoria Sika joining us.

Operator

There are no further questions at this time. I will now turn the call over to Amir for closing remarks.

Speaker 2

Thanks a lot, and thank you everyone for joining us on this call today. We appreciate your ongoing support and very much look forward to updating you again on our future earnings calls. So until next time, goodbye to you all and take care.

Operator

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

Powered by Quartr
Earnings Conference Call
Global-E Online Q2 2024
00:00 / 00:00