Global-E Online Ltd. Q2 FY2021 Earnings Call

Greetings. And welcome to the Global-e Second Quarter 2021 Earnings Call. This call is being simultaneously webcast on the company’s website in the Investors section under News and Events. For opening remarks and introductions, I’ll now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.

Thank you and good afternoon. With me today from Global-e are Amir Schlachet, Co-Founder and Chief Executive Officer; Ofer Koren, Chief Financial Officer; and Nir Debbi, Co-Founder and President. Amir will begin with a brief review of the business results for the second quarter ended June 30, 2021, and an overview of Global-e. Ofer will then review the financial results for the second quarter, followed by the company’s outlook for the third quarter and full year of 2021. We will then open the call for questions. Please note that this call will include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from management’s current expectations. We encourage you to review the Safe Harbor statements contained in the press release from today for a more complete description. Any forward-looking statements that management will make on this call are based on assumptions as of today and the company undertakes no obligation to update these statements as a result of new information or future events. All material contained in a webcast is the sole property and copyright of Global-e with all rights reserved. Please note this presentation describes certain non-GAAP measures including adjusted EBITDA and gross merchandise value, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented in this presentation as we believe that they provide investors with a means of evaluating and understanding how the company’s management evaluates the company’s operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP. A reconciliation of GAAP to non-GAAP measures is included in our earnings press release from today. Listeners who do not have a copy of the quarter ended June 30, 2021 press release may obtain a copy by visiting the Investor Relations section of the company’s website. Now, I would like to turn the call over to Amir.

Thank you, Erica, and welcome everyone. Thank you all for joining us on our first earnings call as a public company. We are proud and excited to have listed publicly mid-May on NASDAQ under the ticker GLBE. As such, I would like to start by thanking our incredible and growing team of employees, already more than 400 around the globe, with dozens who have joined us just this quarter. This team’s hard work and unequivocal dedication has brought us to where we are and will drive our continued growth and success going forward. I would also like to thank our growing community of investors, both those who supported us in the past as a private company and those who have joined us more recently, at and post the IPO. We are honored by the trust you have put in us and are excited to deliver on our mission to make Global-e commerce border agnostic. And last, but certainly not least, I would like to express our deep gratitude to our loyal merchant partners, already more than 500 of them across North America, the U.K., Europe, and Asia, who have put their trust in us to handle their cross-border online sales and deliver a seamless, localized experience to their shoppers, regardless of where they are around the globe. Turning to the results, I am pleased to report that Q2 was another record quarter for us. GMV grew to $326 million, representing 95% growth year-on-year. Revenue amounted to $57 million or 92% year-on-year growth. Our gross profit grew even faster by 113% year-on-year to $20.6 million, driven by gross profitability margin expansion to 36% in Q2, up from 32.4% in the same quarter last year, thanks to our growing economies of scale and increased efficiency. We continue to operate on the basis of a very efficient operating model, yielding an adjusted EBITDA for the quarter of $7.6 million, representing 145% growth year-on-year. During today’s call, we will provide details on our Q2 results as well as Q3 and 2021 full year guidance. But given that this is our first earnings call post the IPO, we will begin by spending a bit more time than we would in future earnings calls, covering the business, our strategy, and the opportunities ahead for the benefit of many of you who may be new to the Global-e story. Here at Global-e, we have purpose-built a global end-to-end ecommerce platform and service that enables merchants to transact with shoppers from anywhere in the world, by localizing both merchants and shoppers' experiences, and seamlessly overcoming the many barriers of cross-border trade, making global e-commerce border agnostic. We operate within a huge market opportunity presented by cross-border business-to-consumer or B2C e-commerce. For the past decade, the retail world has experienced an accelerated shift toward e-commerce, with growth in online sales outpacing that of traditional retail. This shift has seen great acceleration during the recent COVID-19 pandemic, but the trend has been strong well before the pandemic hit. Concurrently, the rise in social media, which is global by nature has dramatically changed the way consumers discover brands worldwide. Together, these two strong secular trends result in an ever-increasing growth in the share of direct-to-consumer or D2C sales, as merchants put more and more strategic focus on this channel. D2C enables merchants to strengthen their relationships with shoppers worldwide, enhance their brand, gain valuable data and enjoy higher margins. As a result of a combination of these and other market factors, cross-border ecommerce transactions are expected to continue to grow outpacing the growth in domestic e-commerce by a factor of two. Research expects that by 2023, the cross-border e-commerce market will reach $736 billion. This creates a huge opportunity for brands to sell globally, as we typically see around 30% of e-commerce traffic being international. But this is where the music stops for many of the merchants. When you look at their actual sales figures, typically no more than 5% to 10% come from international shoppers. In other words, many merchants are not able to convert this enormous international traffic into actual sales, leaving a lot of money on the table. This is because of the many structural barriers that stand between them and their international shoppers, who rightfully expect a seamless and localized shopping experience. Localizing the experience for even a single market is painful and difficult. A merchant needs to support the local language, present attractive prices in local currency, support the local payment methods that are prevalent in that market, offer a compelling shipping and delivery experience, guarantee a full landed cost including all relevant import duties and taxes and more. Now multiply these challenges by 50 or 100 markets, it becomes nearly impossible to overcome. There is no one-size-fits-all solution, as shoppers from each market have their own different expectations with regard to the localized shopping experience. Hence merchants of all sizes find a DIY cross-border strategy to be complex, expensive, time-consuming, inflexible, and highly difficult to scale and maintain. This is where Global-e comes in. Our software seamlessly connects to any e-commerce platform the merchant is using, through a plug-in and client-side scripts we build and maintain. Once integrated onto the merchant site, we add a deep and rich level of localization to the e-commerce store experience. For the shoppers, we localize all aspects of the shopping journey right from the moment they enter the website. We support localized marketing messaging in over 25 languages. We use a proprietary-built localized pricing engine to present prices in more than 100 currencies and support different pricing structures based on the shoppers’ location, local market conventions, and the merchants' pricing strategy. We enable shoppers to checkout in their native languages and to choose their favorite means of payment out of over 150 payment methods we already support. We pre-calculate import duties and taxes, and can either embed them into the product price or collect them at checkout, thereby simplifying the customs clearance process and allowing for a fully guaranteed landed cost of goods for both the shopper and the merchant. We have an extensive network of more than 20 shipping carriers, including market-specific methods, such as cash on delivery or delivery to drop-off points, offering multiple shipping modes at attractive rates. And we even provide local after-sales support and returns management through multilingual shopper services and multiple returns options, including prepaid and local returns in relevant markets. For the merchant, we make selling internationally as seamless and effective as selling domestically. The greatly improved localized shopper experience increases sales conversion, enabling merchants to better capitalize on their valuable international shopper traffic by generating a considerable uplift in international traffic conversion, also exceeding 60% after they begin to use our platform. We provide our merchants with the flexibility to rapidly and efficiently expand internationally and grow to new markets where and when they want to, with little to no upfront investment, using their existing storefronts and maintaining their own brand experience in direct relationship with their shoppers. Furthermore, we enable our merchants to offload complexities and risks that are otherwise presented by transacting cross-border, making the selling and fulfilling process for international orders as simple as that of domestic sales. We provide all these capabilities through our comprehensive end-to-end cloud-delivered technology platform, built on top of a highly scalable, multi-layer tech stack, integrated and coupled with a diverse ecosystem of technology and service partners via dozens of open APIs. From leading ecommerce platforms such as Shopify, Salesforce, Magento, BigCommerce, and others to payment providers like Radiant, World Beat, Klarna, and others, to shipping carriers including DHL, and management providers such as Porter and many of our partners providing value-added services such as translation, online marketing and more. With several of these, including Facebook, Shopify, and DHL, we have already struck broader strategic partnerships, including mutual client referrals, given the significant value we generate for all players in the ecosystem. But this is only half of the story, which is made whole by our unique data engine which generates specific, actionable, and data-driven recommendations for our merchants based on the deep, broad, and rapidly growing data assets we have. We refer to these recommendations as Smart Insights. Our Smart Insights are country, price points, and vertical-specific, and focused on shopper behavior. The value of our method and fast-growing datasets is due to its depth and breadth. Based on this data and coupled with operational experience accumulated over the years, we enjoy both economies of scale and economies of skill, which enable us to optimize merchants’ cross-border sales on a market-by-market basis. By leveraging our Smart Insights, merchants can provide optimized experiences for shoppers, resulting in better conversion and more revenue. We win, thanks to several things we believe we do best. First, we offer merchants of all sizes, from small emerging brands to the world’s largest retailers, the most potent combination of an easy-to-integrate proprietary technology platform and a full end-to-end solution. Second, we are diversified by vertical, merchant sector, and destination markets. Our wide-reaching scale enables us to provide a solution to merchants in any region in the world, as we are the only cross-border enabler with a truly global footprint. Third, our highly differentiated and fast-growing data assets serve as a basis for a powerful flywheel effect. The updates we generate for our merchants drive more sales, which in turn create more data and even smarter insights, which are fed back into our system in order to generate even more objects, attracting even more new merchants to the platform, and so on. Fourth, on top of our highly efficient sales and marketing teams, we enjoy our growing ecosystem of partners and merchants that act as a meaningful source of referral and lead generation. Fifth, the mission-critical nature of our platform, coupled with the results and value-added we are able to generate for our merchant partners, yields very high customer stickiness, providing a sound base for continued strong GMV expansion. Finally, as a founder-led business, we have built and maintained a very customer-centric culture throughout the ranks of the organization. We put our merchants first in everything we do. Looking forward, and in order to continue capturing the immense market opportunities that lie ahead, we are pursuing multiple key growth levers in Harlem. First, we continue to add more merchants onto the platform across our main geographies, namely, North America, U.K. and continental Europe, with a very strong pipeline to further support our growth. These include both new merchants, and continued land and expand efforts, winning additional operated lanes for existing merchants, as one of them boarding additional merchants within existing brands. As an example, during Q2, we launched Tag Heuer, Sephora and Rimowa, which are all part of the LVMH group, of which we have already launched multiple brands in the past. Furthermore, in the month following the launch, Tag Heuer added many more destination markets to our platform. Another example is the value lingerie brand La Perla, which went live with us at the beginning of the year, and during Q2 added many more destination markets, and also went live with La Perla Beauty, their sister brand, which specializes in beauty and personal care products. Second, we are making progress on our expansion plans in new geographies, with emphasis on Asia-Pacific. During Q2, we launched our first APAC-based merchant, Theory Hong Kong, which is part of the best retailing group. Last quarter, we also opened a new office in Tokyo. Third, we continue to build capabilities and broaden our range of value-added services, focusing on highly localized capabilities that further enhance our level of support for large merchants and new verticals, such as consumer electronics. We believe some of these new capabilities could potentially be rolled out faster by buying versus building. Hence, we are gearing up our managerial infrastructure for supporting such future M&A opportunities. As such, Nir, one of my co-founders, who is also with us today on this call, has recently transitioned to the role of President allowing him to devote much more supportive attention to corporate and business development efforts, which will be spearheaded by a new Corporate Development Department we are assembling. Nir still retains ultimate responsibility for global sales and customer success which are now seen by Ran Fridman, who recently joined us as our new Chief Revenue Officer. Lastly, we continue to focus on expanding our work with the various partners to take part in our large and growing ecosystem. In regard to that, it is worth mentioning that we are on track with the rollout of our newly established exclusive strategic partnership with Shopify. We continue signing up and going live with Shopify-based merchants on an ongoing basis. In parallel, the respective development and product teams from both companies are working together on a new and deeper integration of Global-e’s offering into the Shopify platform and checkout. This new integration is expected to be finalized later this year. Once operational, this new integration should allow for an even more effortless go-live process for new merchants and even more seamless referrals of Shopify-based merchants from various channel partners. In conclusion, we are thrilled to have joined the public market and strongly believe in the tremendous growth opportunity that this new phase of Global-e live presents us with. We will continue to serve our merchants and our shoppers, wherever they are around the globe, and generate value for them, as well as for our large and growing ecosystem of partners, all while pursuing our ultimate mission to make global e-commerce truly border agnostic. And with that, I will hand it over to Ofer, our CFO to go over our financial results in more depth.

Thank you, Amir, and thanks again everybody for joining us today for our first earnings call as a public company. We are very pleased that our strong business momentum is continuing through Q2. Since this is our first earnings call, I’d like to start by providing a brief overview of our financial model and then I’ll go through our second quarter results in detail. Following that, I will move on to give guidance for the third quarter, as well as for the full year 2021. I would like to point out 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. Global-e generates revenue from service fees and fulfillment services. Service fee revenue is generated as a percentage of the GMV that flows through our platform for the usage of our integrated platform solution that bundles several components, which we believe are essential to improving sales conversion of our merchants' international traffic. Fulfillment services revenue is generated through our offering of shipping and handling, which are offered on an optional basis, but typically selected due to convenience and competitive pricing achieved based on our economies of scale. Our rapid growth in GMV continued in Q2 as we generated $326 million of GMV, an increase of 95% year-over-year. Total revenue for the three months that ended on June 30, 2021, was $57.3 million, up 92% year-over-year. Service fees revenues were $21.1 million, up 104%. Fulfillment services revenue was up 86% to $36.2 million. The higher growth in service fees revenues relative to fulfillment services revenue was driven in part by particularly strong growth in sales from the luxury brands we serve. Luxury items are typically characterized by higher average order values, resulting in higher service fees relative to fulfillment revenues, which are far less impacted by the value of the goods. Thus, from a P&L perspective, a higher share of luxury sales results in a structurally lower take rate with a higher service fee component and higher gross profit margin. While we generated considerable growth all across the business, I would like to point out the continued accelerated growth of our U.S. outbound revenue, reflecting the deepening of our penetration into the market as we continue to witness high levels of satisfaction for merchants. U.S. outbound revenue was up 131% year-over-year. We do not plan to disclose quarterly net dollar retention metrics, but I am happy to share that our NDR dynamic for the first half of 2021 continues to track well driven by the increasing focus and effort devoted by merchants to developing their D2C cross-border e-commerce businesses, coupled with conversion uplifts enabled by our continuously enhanced platform capabilities, as well as existing merchants launching additional destination markets in our platform. In the quarter, we were pleased to see significant contribution of GMV and revenue from some of the new logos we laid out in our Q1 results such as schemes from Kim Kardashian, as well as from regional expansion of existing merchants in Q1, such as Marks & Spencer, which added 47 new markets and Hugo Boss which launched 12 new markets with us. Fulfillment revenues were positively affected by increased post-Brexit clearance fees. Due to the new rules related to cross-border e-commerce VAT in the EU, which came into force on July 1st, we expect a decrease in both clearance fees revenues and costs, resulting in a slight reduction in take rate, but with an insignificant effect on gross profit going forward. Now, let’s review the income statement in more detail. Gross profit continues to grow even faster than our top line as we continue to improve gross margins based on our economies of scale and improve efficiencies. In Q2, gross profit was $20.6 million, up 113% year-over-year and representing a gross margin of 36%, compared to 32.4% in the same period last year. We believe that gross margin expansion to be structural and sustainable, as it results mainly from increased economies of scale, improved operational processes, and pricing optimization. R&D expense was up 59% year-over-year, totaling $5.7 million or 10% of revenue. The continued growth in R&D investment allows us to continue to scale and enhance our platform offering, adding additional features and capabilities, including the development of a new integration to Shopify, which Amir mentioned earlier, and our multi-local capabilities which allow us to access new merchant verticals and expand our total addressable market. Sales and marketing expenses excluding the amortization expenses related to the Shopify warrants were $4.5 million or 7.9% of revenue, compared to $1.9 million or 6.5% of revenue in the same period last year. We continue to invest in sales and marketing, enhancing our sales teams and marketing efforts in current outbound markets, as well as new ones to support our accelerated growth, while still maintaining very high efficiency levels. Shopify warrants related amortization expense was $25.5 million, including these expenses and marketing expenses for the quarter totaled $30 million. General and administrative expenses were $4.3 million or 7.6% of revenue, compared to $2.7 million or 9% of revenue in the year-ago period. General and administrative expenses reflect additional expenses relating to being a public company, including our new D&O insurance policy costs since the IPO. Adjusted EBITDA was $7.6 million, representing a 13.3% adjusted EBITDA margin, increasing from $3.1 million or 10.4% margin in the same period last year. Net loss was $22.2 million, compared to a net loss of $0.4 million in the year ago period. A direct outcome of the amortization expense related to the Shopify warrants. Net profit excluding the amortization expense related to the Shopify warrant was $3.3 million. Switching gears and turning to the balance sheet and cash flow statement, we ended Q2 with $488 million in cash and cash equivalents, including short-term deposits and marketable securities, a significant increase resulting from the IPO process. Operating cash flow in the quarter was $6.9 million, compared to $10.3 million a year ago, impacted by an increase in receivables. Moving to our financial outlook, we are raising our Q3 and full year guidance significantly. In our guidance, we are taking into account the potential impact of the additional opening of physical stores and a gradual increase in traveling, mainly during Q4 towards the holiday season. For Q3, we are expecting GMV to be in the range of $328 million to $338 million. At the midpoint of the range, this represents a growth rate of 76% versus Q3 of 2020. We expect Q3 revenue to be in the range of $54.3 million to $56.3 million, which represents a growth rate of 66% at the midpoint of the range versus Q3 of 2020. For adjusted EBITDA, we are expecting a profit in the range of $2.8 million to $3.8 million. For the full year of 2021, we are raising our guidance significantly. We anticipate GMV to be in the range of $1.35 billion to $1.37 billion, representing nearly 76% annual growth at the midpoint of the range. Revenue is expected to be in the range of $227 million to $231 million, representing a growth rate of 68% at the midpoint of the range. For adjusted EBITDA, we’re expecting a profit of $22 million to $24 million. Our outlook for the full year of 2021 reflects additional investments in personalized related costs, sales and marketing and product development, as well as incremental general and administrative costs associated with being a public company. We manage our business for the long-term and do not plan to optimize for any single quarter. As our business grows, we intend to continue to invest as we pursue opportunities to expand our competitive mode. We plan to pursue growth opportunities in the transformation of B2C cross-border e-commerce, while also continuing to demonstrate scale and operational leverage over time.

Thank you. Our first question comes from James Faucette with Morgan Stanley. Please proceed with your question.

Thank you very much and I really appreciate all the details and color that you guys have walked through. I am wondering if you can talk a little bit about how you’re thinking about new brands and geographies beginning to ramp? And if you can give us any color on, particularly the Shopify relationship, how much that contributed here in the June quarter versus what you’re expecting going forward? And then I have one follow-up question.

Sure. We are seeing an increase in new brands joining the platform, which is evident in our growth and the updated guidance. Additionally, we are experiencing growth from our existing brands. Specifically regarding Shopify, we are noticing a rise in our pipelines and sign-ups, especially among smaller merchants. We anticipate more activity with larger brands likely at the beginning of next year as we finalize the new integration we previously mentioned. In terms of financial impact, we expect the main effects to materialize next year, particularly in the second half. I hope that addresses your question.

Yes, that’s helpful. My other question is regarding the recent organizational changes. You mentioned there might be opportunities to acquire additional capabilities that could be brought to market faster than developing them in-house. Can you provide more details about the timing? Should we anticipate that acquisitions will contribute to some level of inorganic growth, or will they primarily focus on technology? I'm looking for more insight into your thoughts on investment potential and impact. Thank you.

Sure. We are considering both types of acquisitions: expanding our activity and acquiring additional capabilities. We are definitely preparing for this in the potential market. In terms of timing, you can expect at least one or possibly two transactions before Christmas.

That’s really helpful. Thank you very much.

Thank you. Our next question comes from the line of Samad Samana with Jefferies. Please proceed with your question.

Hi, good afternoon. Thanks for taking my questions. Congrats on the first public call. Great to see the very strong results. Maybe if I think about, I know a new brands, you just discussed that but when I think about the pipeline of deals and Ofer, I want to ask you in the context, this is your first sort of guidance on the call, I am just curious how much embedded in the guidance relies on new brands ramping or how much of that’s based on the existing portfolio? And then I have a follow-up question.

Hi Samad, it’s Nir. Thank you for your question. A lot of our guidance is based on clients already integrated and live on our platform, so most of the contribution for the second part of the year is already from live clients. There will be some contribution and a growing contribution towards late Q3 of more merchants going live on the platform that are already signed in and using our services and currently in integration, but we expect most of the effect of the growing pipeline is to sign clients to affect our Q1 and Q2 results next year and even more so in the second part of 2022.

Great and then maybe as a follow-up, I know you mentioned the robust trends on outbound to U.S. But I am just curious if there is any other color on other geographies and maybe how they’re trending, especially given that the world is kind of reopening at an uneven cadence. Just any other notable pockets of strength beyond outbound into the U.S.?

In terms of the outbound, we’ve seen also a tremendous increase in Continental Europe, which has grown over 200% year on year for us, so quite a lot of traction supporting European brands going worldwide. In terms of inbound, we’ve seen even in markets where there were signs of COVID relief such as Israel with the vaccinations, I would say widespread around the market and some other markets that have seen a positive trend for certain periods of time such as Australia and not much of an effect in terms of the willingness of shoppers to buy. So we didn’t see any significant fluctuations in terms of the inbound into the market of personal imports. So so far, we don’t see, I would say significant signs of COVID relief.

Okay maybe I just squeeze one more and if you’ll indulge me, I am just curious, you’ve now been in public for about four months, and I know it’s still only, it’s not been a long amount of time, but have you seen a benefit to the brand in terms of engaging with either larger merchants or bringing merchants that may not have heard of Global-e before? I am just curious if going public has helped the brand in attracting more newer types of customers into the pipeline?

Thanks, Samad. This is Amir. Yes, we've clearly observed positive momentum building after our IPO. We believe we now have greater visibility with key decision-makers and an increased level of confidence from them. This is particularly true as we are now the only publicly traded cross-border platform that is regulated and audited, which enhances the trust brands have in deciding whom to partner with.

Great. Congrats on the strong results.

Thank you. Our next question comes from the line of Brent Bracelin with Piper Sandler. Please proceed with your question.

Thank you and good afternoon. I have a couple of questions. First, I would like to inquire about GMV. The absolute GMV for the quarter increased more in Q2 compared to Q2 last year, even with the COVID tailwind. Can you provide some insight into what contributed to the significant strength in GMV? Was it primarily due to onboarding new merchants, or did it involve a wide range of existing merchants expanding into new countries? Any details would be greatly appreciated, especially in light of the momentum and exceptional strength we observed this quarter.

Hi Brent, it’s Ofer. I think there were, I would say a couple of reasons for that, the first one is that we had very successful launches of new merchants in Q1 that contributed significantly to our GMV growth in Q2. I think, the second major factor is the fact that many brands have identified the D2C opportunity and put a lot of strategic emphasis on this channel. And when you couple that with the uplift in conversion that we are able to support, that generates a lot of GMV and as we said, we do not disclose the NDR numbers on a quarterly basis, but they’re tracking really well. So let’s say those are the main drivers behind the growth.

Helpful color there. I guess as a follow-up, Ofer, you’re now what 500 plus merchants. Is there any way to quantify how many of those merchants or what portion of those merchants have rolled out globally to all 200 countries? Just trying to assess how much expansion potential there is at just within the existing customer footprint?

Hi, Brent. It’s Nir. The vast majority of the merchants did deploy globally throughout their international market. So I wouldn’t say if it’s 80% or 90% but the vast majority did. However, the large merchants, specifically the super large merchants are the ones that are deploying batches of markets with us and we then, basically there is a significant opportunity still ahead of us. They make up only 10% or 20% of the brands, but they hold a significant portion of our GMV, and the growth opportunities with them are huge. We’ve seen that this year with Hugo Boss giving us 12 more markets. We’ve seen it with Versace giving us additional markets this year. We’ve seen it with Marks & Spencer that added 47 more markets, which is the sixth consecutive year that we have opened more markets with them, so with the large ones, we do see quite a lot of opportunities still ahead of us.

Very encouraging. Last question from me, Amir, strong pipeline of new merchants you talked about looking into the second half of the year. Would you say the bulk of those continue to be luxury retail or are you seeing a diversification of new merchants coming to Global-e now? Thanks.

No. I would say, Brent these are obviously some luxury brands in that as well, but it’s actually all across the field that we see, including even some new verticals that we are starting to see traction on where we haven’t been active before. So I would definitely say more diversification in terms of verticals is the trend.

Thank you. Our next question comes from the line of Pat Walravens with JMP Securities. Please proceed with your question.

Great. Thank you and let me add my congratulations. So I guess, Amir, maybe if you could just sort of specify for us what the top two or three things that you need to get done with Shopify R in terms of the integrations. I think that would be helpful. And then secondly, just how much of the potential benefit from that partnership have you seen so far?

I don’t want to overwhelm everyone with technical details, but the key points about the integration involve making our services part of the Shopify checkout. This transition will be seamless for merchants as they switch to the new global system, integrating more deeply with the Shopify backend. Although this is a multi-phase project, once the final phases are complete, it should greatly simplify the process for merchants, making it feel almost automatic. Regarding our progress, we are on track and seeing initial traction, with an increasing number of Shopify-based small and medium-sized businesses going live with us. However, we expect the financial impact to be more noticeable in the first and second quarters of next year, particularly in the latter half, once we’ve completed the new integration, which will also allow us to reach larger enterprise-scale merchants on Shopify. I hope that covers your questions.

Okay. Yeah. No. That’s great. And then, Ofer, if I could sneak one in for you. So a nice bump up in the gross margin. I am looking at it right 36% this quarter from 33% last quarter. How should we think about Q3? And then just how should we think about the expansion over time, but Q3 first.

So the increased share of service fee revenues contributed to the gross margin expansion, as well as the continued leveraging of our economies of scale and price optimization. We believe that the gross margin expansion is structural and basically we expect the same trend to continue into the future, not in every quarter will we increase the gross profit as much as we did this quarter, but we certainly expect the trend to continue in the current quarters.

Thank you. Our next question comes from the line of Josh Beck with KeyBanc Capital Markets. Please proceed with your question.

Thank you all for taking the question. And my congratulations as well on new life as a public company at least. I wanted to ask about structural growth in the cross-border market. I realize it’s a challenging one to answer because it’s a little bit nuanced, but just when I look at your GMV growth projections for Q3, it is much higher than all of the other GMV-oriented models that probably have a lot lower cross-border exposure. So structurally, do you think there was maybe a greater emphasis to start selling in a cross-border fashion? Is it just simply going to be less impacted by reopenings? Any qualitative commentary there would be great.

Hi Josh. Thank you for your question. It’s Nir. I think one of the main differentiators allowing us, I would say, to see higher growth into Q3 is our diversification in terms of inbound markets worldwide. Our approaches and our reach are truly global. We do not have a single market that is a two-digit market with us in terms of inbound, and this diversity allows us to enjoy, I would say, the growth of global e-commerce. So despite signs of relief in certain markets here and there, other markets do not see it and we see balancing in between and even in the markets that did experience some relief, we didn’t see a lot of changes in the way shoppers are buying online. So all in all, we are very positive in the growth trend going forward, and I think we’re a bit differentiated here by our true global footprint.

Very helpful. And then just wanted to follow up on the first APAC merchant, when obviously that’s an exciting development. I am curious when you look at the APAC offering, do you feel like the platform and the partnership ecosystem is fairly mature and maybe up to par with other markets? And so the emphasis now is much more about really stepping on the go-to-market or is it a little bit of both? Do you have probably some critical mass of partnerships and platform in place, but there is more work to do there before you really start to get, perhaps more aggressive on the go-to-market? Just help us think about that balance. Please.

I believe it’s a mix of both points you raised. We definitely see significant opportunities in the APAC region and plan to invest more. As you mentioned, we aim to strengthen our relationships with our partners and channel partners to facilitate this. We already have global channel partners like DHL, Facebook, and Shopify, but we are also establishing partnerships specific to APAC. This is currently underway, and we anticipate having positive updates to share about these partnerships in Q3 or Q4 to further drive that growth. Additionally, we expect to see a greater contribution from APAC reflected in our pipeline and numbers starting from the second and third quarters of 2022.

Very helpful. Congrats team.

Thanks Josh.

Our next question comes from Brian Peterson with Raymond James. Please proceed with your question.

Hi, thanks for addressing my question and congratulations on the impressive results. My first question is more general. It's uncommon to see revenue growth exceeding 90% and significant GMV growth like this. Looking ahead, what are the main factors that could influence growth, and how should we consider our investments in sales and marketing? Are we allocating the appropriate resources in these areas to support that growth?

Yes. I think to answer the first part of your question. We’re very effective in our sales and marketing approach. Over the years, historically we’ve been less than 10% spend on sales and marketing out of our revenue and the reason we were able to do it is because we had historically, on the one hand huge NDR with over 140% quite stable that supported our growth with existing merchants that continue to grow and enjoy the benefits our platform brings to merchants wanting to scale up international. And in parallel to that, we have really good win ratios on merchants stepping into a tailwind of a very aggressively growing market with merchants trying to scale cross-border. So it’s a combination of both together with the fact that we basically have a pool with no leaks in it. Our GDR numbers are sub 2% historically here on an annual average, so we don’t actually lose business we have; we win much more business coming in and we grow the business that we already have in and the combination of it allows us to grow very fast even at the scale we already have. We do expect to continue this high growth rate going forward. And so where high two-digit numbers is something we expect to continue with us going into the foreseeable future as we do have quite a lot of levers we continue to push. In terms of sales and marketing, we do spend a lot. You can see in our Q2 numbers, we grew more than 100% in reinvestment in sales and marketing, still doing it very, very efficiently as a percent based out of our revenue, but we do scale up. We scale up in the current markets where we are already present across Continental Europe, across North America as well in new regions, where we established our operations in Japan with the first two employees in Japan. We are intending to roll out additional markets in APAC late Q3 and early Q4. So, we do intend to invest much more within sales and marketing in different aspects, as well as building our channel partners to continue to do it efficiently and at scale.

That’s great perspective and maybe just a follow-up that the U.S. outbound strength that grew over 130% year-over-year this quarter. I am curious if you can kind of shed any more light on what drove that? And what are you typically displacing when you pick up a new merchant? I know you kind of mentioned SMB even Shopify by partnership, but I am curious, what kind of functionality somebody might have in place. Particularly you’re looking at the U.S. outbound merchants? Thank you.

We typically enhance the basic store that a merchant has, treating it as a new opportunity. There isn't much competition to displace, as most of it is unexplored territory; merchants are often not optimized for international growth. Our platform improves their existing shop, be it on Salesforce Commerce, BigCommerce, or Shopify, allowing them to perform better in their current operations. The growth in U.S. outbound, reflected in our numbers, is largely due to strong demand for U.S. brands, particularly from many digital-first brands. With the influence of social networks and global influencers, we've witnessed significant growth in these brands. A prime example is the launch of Skims, associated with Kim Kardashian, which has shown impressive performance since its launch with us in Q1 and continued to thrive through Q2. We have partnered with several similar brands in recent quarters that have also gained great traction, along with new SMB brands entering the market and benefiting from our Shopify partnership.

Thanks, Brian. Thank you, ladies and gentlemen, that concludes our question-and-answer session. I’ll turn the floor back to Mr. Schlachet for any final comments. Thanks a lot. And I would say on behalf of Ofer, Nir and myself and the entire Global-e team, I’d like to thank you all for joining today and for your interest in Global-e and for the thoughtful questions. We very much look forward to seeing you again on our future earnings calls. So goodbye to everyone and take care.

Thank you, this concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.