Earnings Call Transcript - GLBE Q2 2024

Operator, Operator

Welcome to Global-E’s 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.

Erica Mannion, Investor Relations

Thank you, and good morning. 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 review of the business results for the second quarter of 2024. Ofer will then review the financial results for the second quarter of 2024, followed by the company's outlook for the third quarter and full year of 2024. We will then open the call for questions. 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, 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. 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 and 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. 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 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 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. 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.

Amir Schlachet, CEO

Thank you, Erica, and welcome, everyone. Our second quarter financial results, all of which are at the top end or above our guidance range, demonstrated a continuation of our strong business momentum and growth trajectory, as well as our execution towards our long-term strategic targets. In terms of GMV, Q2 marked yet another historical landmark for us, representing our first ever non-peak quarter above $1 billion, with quarterly GMV accounting to $1.08 billion, representing 31% year-on-year growth. Our revenues grew by 26%, reaching $168 million 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. Finally, our adjusted EBITDA for the quarter came in at $31 million, 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 2024, 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 and early August, as well as the unfortunate and unexpected churn of one of our largest merchants, Ted Baker's U.K. and Europe franchisees, 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 2024. 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 third quarter 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. In North America, we went live with the innovative customizable glasses brand, Pair Eyewear; curated apparel and homeware brand, Tuckernuck; LA-based streetwear brand, MNML; and luxury lifestyle and art book publisher, Assouline. In the UK, the iconic British country clothing brand, Cordings; the renowned footwear brand, Clarks; Jermyn Street shirtmaker Hawes & Curtis; cosmetics brand Revolution Beauty; and fashion brand, Weird Fish, all went live on our platform. In France, we launched several high street fashion brands, including AMI Paris and Isabel Marant. But across other parts of Continental Europe, we went live with other renowned brands, such as Closed and JOOP! in Germany and Pinko in Italy. We also went live with the fast-growing Swedish brand, IAMRUNBOX, which creates backpacks designed specifically for runners, and with our first ever Polish brand, the online store of Polish fashion designer, Magda Butrym. 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, Seiko-Epson’s watch brand Orient Star, and matcha tea provider, Matcha Direct. We also went live with Australian dressmaker, Shona Joy, and fast fashion brand Outcast Clothing, along with Hong Kong-based consumer electronics brand HEAVYS, 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 established a new office in Korea, welcoming three new colleagues in Seoul to support our growing business there. We also completed an integration onto the Singapore-based e-commerce platform SHOPLINE with Everything 5 Pounds, a longstanding UK 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 Barca, as well as the UK Premier League Club, Newcastle United, to the growing list of sports clubs that use Global-E to sell their brand and merchandise directly to their loyal fans around the world. We also added several merchants to our growing list of celebrity brands with SJP by Sarah Jessica Parker and Haus Labs by Lady Gaga being the latest to go-live on the Global-E 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 were expecting to launch during the second half of 2024. Being one of the most iconic and recognizable lingerie brands in the world, we are excited to welcome Victoria's Secret onto Global-E’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 Karl Lagerfeld, Paris, another brand from the G3 Group. While in the U.K., we launched with Phase 8, 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 Global-E, most notably Michael Kors, Karl Lagerfeld, Bang & Olufsen, 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 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 variety of brands using the Global-E 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. 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 planning 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 Global-E over checkout extensibility, with the majority of the remaining ones already in process of transitioning. Once done, this will conclude a monumental migration undertaken by our R&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 Global-E's 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. On the 1P or Managed Market side, merchants continue to sign up and go live on this innovative solution, enjoying 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 solution's 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 Q3 and the full year.

Ofer Koren, CFO

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 $1,081 million of GMV, an increase of 31% year-over-year, 3.5% over the midpoint of our guidance for Q2. In Q2, we generated total revenue of $168 million, up 26% year-over-year. Service fee revenue was $82.2 million, up 38%, and fulfillment services revenue was up 16% to $85.8 million. The higher growth of service fee 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 $80.2 million, up 39% year-over-year, representing a record non-GAAP gross margin of 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 $77.4 million, representing a margin of 46.1%. Moving onto operational expenses. We continue to invest in the enhancement of our platforms. R&D expense in Q2, excluding stock-based compensation, was $21.2 million or 12.6% of revenue compared to $18 million or 13.5% in the same period last year. Total R&D spend in Q2 was $26.7 million. We also continued 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 $18.9 million or 11.3% of revenue compared to $12 million or 9% of revenue in the same period last year. Shopify warrant-related amortization expense was $37.4 million. Total sales and marketing expenses for the quarter were $60.1 million. General and administrative expenses, excluding stock-based compensation, acquisition-related expenses, and acquisition-related contingent consideration, was $9.4 million or 5.6% of revenue compared to $7.3 million or 5.5% of revenue in the same period last year. Total G&A spend in Q2 was $13.5 million. Adjusted EBITDA continued to grow rapidly and totaled $31.3 million, representing an 18.7% adjusted EBITDA margin and increasing by 49% from $21 million or 15.7% margin in the same period last year. Net loss was $22.4 million compared to a net loss of $35.5 million 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 million in cash and cash equivalents, including short-term deposits and marketable securities. Very strong cash flow generated by operating activities of $64.1 million compared to $17.6 million 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 Amir already mentioned, we recently experienced an out-of-the-ordinary churn as Ted Baker's U.K. and Europe franchisee, 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. Besides the obvious loss of GMV, the main negative impact will be on our top line. Ted Baker was a high take rate merchant, 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. 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 $1.07 billion to $1.11 billion. 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 $165.7 million to $171.7 million. 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 million to $31 million. For the full year of 2024, we are updating our guidance and now anticipate GMV to be in the range of $4.605 billion to $4.845 billion, representing a 33% annual growth at the midpoint of the range. Revenue is now expected to be in the range of $710 million to $750 million, representing a growth rate of 28% at the midpoint of the range. For adjusted EBITDA, we're now expecting a profit of $127 million to $143 million 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 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. And with that, Amir, Nir, and I are happy to answer questions you may have.

Will Nance, Analyst

Good morning. Thank you for taking my question. I want to ensure I understand the factors in the guidance, particularly quantifying the churned merchants. If I heard correctly, it seems that about 3% of revenue comes from the churned merchants, which explains a significant portion of the guidance that reflects low gross margin but high take rate. If I'm correct, I would like to know what drives that. Additionally, AOVs are coming in lower and neutral to gross profit, which affects the fulfillment take rate on GMV. Lastly, you're attributing some of this to macro factors. Excluding the first two points, how significant was the macro impact compared to your prior expectations? If the churned merchant dynamics had not occurred, would the guidance still be about the same? I'm trying to gauge how much your underlying expectations for the business's run rate have changed.

Amir Schlachet, CEO

Yes. So thank you, Will, for that. I think that we've mentioned the drivers in the order according to the order of magnitude. So obviously, losing a merchant like Ted 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 the top line. And the rising AOV translates to lower fulfillment activity and that also has a significant impact. 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 carry more weight in terms of the update of our guidance.

Will Nance, Analyst

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 one of the two large merchants. I think you said the other one is launching kind of shortly or something along those lines. And then I thought I heard something about feeling good about the business remaining on kind of like a 30-plus trajectory beyond the second half of the year. So just wondering if maybe you can talk through kind of momentum into next year, how pipelines are looking, is there any way to kind of dimensionalize the new customer additions that you have been working on this year? Thanks.

Nir Debbi, President

Hey, Will. Thanks for taking the question. It's Nir. We see a very strong pipeline from our enterprise business, and as previously mentioned, we are having a record year in acquiring new merchants. However, because of the importance of two very large clients, one of which just launched Victoria's Secret, we anticipate some delays in launches toward the end of the year. Victoria's Secret is the first on live, and we expect two other clients, currently in the testing phase, to go live early in Q4. This will contribute to a boost in Q4. Additionally, we have several midsized merchants on the enterprise platform that are planning to launch quickly as well. This will enhance our growth into the following quarters, despite most of the new additions launching in late Q3 or early Q4, which will reflect net growth in 2025 for most of the year. Simultaneously, we are experiencing significant growth in our managed market business, which aligns with our expectations and is even slightly exceeding them. Therefore, we remain optimistic about our overall trajectory, and we believe we have a clear outlook on achieving a growth rate of over 30% in the upcoming quarters.

Samad Samana, Analyst

Hi. Good morning, and thanks for taking my questions. I guess first just 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 that 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 fourth quarter, or for the back half of the year, especially as you think about that steep ramp implied in the 4Q guidance?

Ofer Koren, CFO

Thank you for that, Samad. We have slightly modified our same-store sales assumptions for the latter half of the year. As we indicated, we've observed mixed signals, with a tendency towards softness, and we've experienced slower same-store sales in recent weeks. Therefore, we made a minor adjustment to our assumptions. However, as I mentioned, this was only the third factor affecting the top line in the second half of 2024.

Nir Debbi, President

Thank you for the questions, Samad. We are seeing growth in the managed markets that slightly exceeds our expectations. There is a strong pipeline developing, and based on our current onboarding rate, we anticipate this trend to continue through the end of the year. With the upcoming launch of additional features in managed markets over the next few quarters, we expect ongoing onboarding of merchants, including larger ones. Therefore, we do foresee acceleration in dollar terms as we move into 2025.

James Faucette, Analyst

Great. Thank you very much. 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 have 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 Ted Baker?

Nir Debbi, President

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

Amir Schlachet, CEO

Hi, James. This is Amir. Thanks for your question. We highlighted some of the features in our prepared remarks. These include highly anticipated additions like extra standard shipping options and the ability to incorporate duties into the product price, which is crucial for merchants selling in a localized manner across various markets. We have had this capability on all our platforms for a long time, and we recently introduced it to managed markets. Additionally, we provided merchants with more visibility regarding product restrictions, which has been very important for many of them. There are numerous features that have been rolled out, with more planned for the rest of the year and into 2025. It's challenging to pinpoint the impact of each feature individually, but generally speaking, as the product becomes richer in features and more advanced, it broadens its appeal and utility to a larger number of merchants. Our teams, along with Shopify's teams, are diligently working together to follow our planned roadmap and continue launching these features in the upcoming quarters.

Brian Peterson, Analyst

Hi. Thanks for taking the question. So, Ofer, 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?

Ofer Koren, CFO

Thank you, Brian. At the start of the year, we observed a shift towards standard shipping, but it has stabilized in recent months. The notable change has been an increase in order value, which is partly due to optimization efforts by both merchants and consumers, leading to higher ticket sales with the same shipping costs. Over the last few months, particularly in Q2, we've noticed a growing trend in average order value, which significantly affects our fulfillment take rates. Additionally, we haven't experienced a considerable shift from Express to standard shipping in the last few weeks or the past couple of months.

Andrew Bauch, Analyst

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 the high 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?

Nir Debbi, President

I believe that when we look at our guidance for the remainder of the year, we considered a couple of factors. First, we acknowledged the decrease in fulfillment takers due to the lower average order value resulting from changes in the mix between merchants, along with the higher basket amounts. Second, we took into account shifts in consumer sentiment, which we've observed and discussed, particularly in the past six to eight weeks. We integrated some of these factors into our guidance, allowing for a wider range towards the end of the year. If there are changes that arise, particularly influenced by macro conditions, we may adjust accordingly. However, we have approached this with a conservative mindset.

Amir Schlachet, CEO

Hi, it's Amir. So yes, it did ramp up fairly quickly over the last couple of quarters. It's been unlike the, let's say, the previous migration or the initial migration from the original kind of classic integration we had onto the new native integration, which was, I would say, more work-intensive. The migration to see one is from, 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. 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-E side. So hopefully, over the next quarters and 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.

Koji Ikeda, Analyst

Yes, thank you for taking my questions. I wanted to ask about the Victoria's Secret launch. Congratulations on successfully launching that. Could you clarify whether the timing of that launch was as planned, or was it a little earlier or later than expected? Also, I believe you mentioned in the prepared remarks that there are two more launches of similar scale scheduled. However, those appear to be taking a bit longer. My question is, what is the risk that those launches will be delayed until after the 2024 holiday season?

Amir Schlachet, CEO

Hi, Koji. Thanks for the question. The response is the same for all the major launches we're considering. There may be slight timing adjustments here or there, but generally speaking, the Victoria's Secret launch went according to plan and is on schedule. It's a phased launch, and we are progressing nicely through the phases, with the majority of additional markets already live. As for the other major launches, they are also on track. We believe we have enough project buffers to ensure they go live on time before peak season, each meeting its respective launch date. We have no reason to think there will be delays, and we expect them to go live early in Q4, in time for the peak season. As mentioned, these are currently in active testing and are in the advanced phases of the launch projects.

Scott Berg, Analyst

Hi, everyone. Nice quarter. Thanks for taking my questions. I guess I had a couple. Nir, you had made some comments about opening a new office in Korea. Just wanted to get some comments maybe on your business – new business activities in Asia-Pac because it's typically not a region that you all tend to highlight.

Nir Debbi, President

Thank you for the call. It's Nir. We are very optimistic about our expansion into the APAC region. We began this journey around two years ago, and since then, we've experienced significant growth from countries like Australia, Hong Kong, Singapore, and Japan, where we have established headquarters. We have also seen considerable interest from Korea. As a result, we have signed several deals, including launching our first major merchant, Gentle Monster. Overall, Korea contributes to additional growth in the APAC region, which has transitioned from virtually no Global-E sales to double-digit growth year-to-date in terms of new bookings.

Ofer Koren, CFO

Yeah. Thank you for that. So first of all, as you mentioned, we had some negative impact on our top line with Ted 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 neighbourhood of what you have seen this quarter. 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. We haven't disclosed any long-term targets yet, but we are working on that and we hope that we can introduce long-term targets in the coming month.

Patrick Walravens, Analyst

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

Amir Schlachet, CEO

Actually, hi, Pat. It's Amir. Actually, no, because this is not the first time that a merchant was also in bankruptcy or administration, as it's called, in the UK. It doesn't mean that they will stop 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. 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 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.

Ofer Koren, CFO

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

Brent Bracelin, Analyst

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

Ofer Koren, CFO

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 in China currently, and we're not exposed to China. We don't trade into China that much, so less impact on us from that angle broad-based.

Nir Debbi, President

Hi, Brent. It's Nir. Thanks for your question. We are currently migrating merchants to the Global-E platform. However, this process is taking longer than we anticipated. Last year and this year have been quite challenging for many of our merchants due to restructuring in their physical stores. To give them more time to implement the re-platforming project, we have extended the timeline slightly. We have managed to control the costs of running the platform and have made it more efficient for now. We have granted extensions into 2025. Currently, about 2% of our business is still on the Borderfree platform, with most already transitioned off. There are still a couple of significant merchants on the platform that we expect to move, but this will likely occur in the first half of 2025, after which we plan to shut down the platform.

Mark Zgutowicz, Analyst

Thank you. I was hoping to gain more clarity on the implied assumptions for the fourth quarter. When looking at the midpoint of your GMV and take rate, it appears there will still be declines in the take rate. I'm curious if this is solely related to Ted Baker or if there is additional multi-local dilution included or other factors at play. Additionally, regarding your GMV assumptions for the fourth quarter in light of the softer consumer and store sentiment, how do these assumptions compare to the third quarter? I have a quick follow-up as well.

Ofer Koren, CFO

Yeah. 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 the same for Q3 and Q4. In terms of the take rate, in Q4, as we 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. 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 multilocal merchant. So we do expect some more multi-local GMV in Q4.

Oliver Lester, Analyst

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?

Nir Debbi, President

Yes. And thank you very much for the question. It's Nir. We are very happy that Victoria Secret decided to switch to the Global-E platform and partner with us. We're very proud of it, and we expect to grow and continue growing our partnership with Victoria's Secret in the coming years. In terms of the launch plan, we started the rollout with the initial markets 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 Global-E, I think, is evident also in Global-E being the market leader in anything related to global commerce. For multi-local capabilities we developed across borders to other capabilities. We developed around local shipping, returns, duty management, duty drawbacks, and the data and demand generation capabilities. A lot of the things we developed are unique so globally, and I think it's been appreciated in the market. So we're proud and happy to have Victoria’s Secret joining us.

Amir Schlachet, CEO

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

Operator, Operator

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