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.
Erica Mannion at
Thank you, and good morning. With me today from GlobalE are Amir Swaket, co-founder and chief executive officer, Wilfred Corrine, chief financial officer, and Nir Devi, co-founder and president. Amir will begin with a review of the business results for the second quarter of 2024. OFRA 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 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. 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. 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 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. 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 Swaket
Thank you, Erica, and welcome, everyone.
Erica
Our second 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 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 re-acceleration of the business. As also we'll 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 UK 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 supply and growth levels of 30% and above, also beyond the second half of 2024. As usual, when I hand a call to offer, 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 continue 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, Pear Eyewear, curated apparel and former brand, Tucker Nook, LA-based streetwear brand, Minimum, and luxury lifestyle and art book publisher, Asselin. In the UK, the iconic British country clothing brand, Cording's, the renowned footwear brand, Clark's, Jermaine Street shirt maker, House and Curtis, cosmetics brand, Revolution Beauty, and fashion brand, Greedfish, 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 & Juke in Germany and Pinko in Italy. We also went live with a fast-growing Swedish brand, I Am Runball, that creates backpacks designed specifically for runners. And with our first-ever Polish brand, the online store of Polish fashion designer Magda Butz. 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 Geek Jack and Nagano Market, curated fashion site Fascinate, Psycho Epson's watch brand Orient Store, and matcha tea provider Matcha Direct. We also went live with Australian dressmaker Shona Joy and fast fashion brand Outkast 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 three new colleagues in Seoul to support our growing business there. We also completed an integration onto the Singaporean-based e-commerce platform Shopline, with Everything £5, a long-standing 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 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 Globally platform. But the biggest news on the merchant's 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 Globally's best-in-class global commerce platform. Besides launching new merchants, during the quarter, we also continue to expand the scope of our work with existing brands and brand groups as part of our land and expense 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 Angus of 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 Whistle. In addition, several of our merchants expanded the list of lanes for which they use globally, most notably Michael Kors, Karl Langefeld, Banga Dolson, and Code Guider. 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. 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 Globally 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&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 Globally's capability 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 one-peat 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 sell at a 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 excuse-free and the full year.
Ofer
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 1.8 billion 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 were $82.2 million, up 38%, and fulfillment services revenue were up 16% to $85.8 million. 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 $80.2 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 on to 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 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 $18.9 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 Fully 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 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. Besides the obvious loss of GMV, the main negative impact will be on our top line as Ted Baker 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 in 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 to $1.11 billion. At a 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 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 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 to 4.845 billion dollars, representing a 33% annual growth at the midpoint of the range. Revenue is now expected to be in the range of 710 to 750 million dollars, representing a growth rate of 28% at the midpoint of the range. For adjusted EBITDA, we're now expecting a profit of 127 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 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 border-free on-year comparison. As is evident from our updated guidance, we expect the lower topline estimation to be offset by a 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 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 session. Should you have a question, please press star, followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Please limit yourself to one question and one follow-up. One moment, please, for your first question. Your first question comes from Will Nance with Goldman Sachs. Your line is now open.
Amir Swaket
Good morning. I appreciate you taking the question.
AOV
I wanted to just make sure we understand the moving pieces in the guidance that was very helpful to quantify the churned merchants. So if I heard you correct, it's something like 3% of revenue from the churned merchants. And that explains a good chunk of the guide that came in at, I believe, low gross margin but high take rate. If I heard, I'd love to understand what kind of drives that. That's very helpful. Second was AOVs coming in lower, neutral to gross profit, but 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? And if we hadn't seen the churn merchant dynamics, 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.
Ofer
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 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. 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 the first two drivers carry more weight in terms of the update of our guidance.
AOV
Yeah, that's helpful. And then I just wanted to follow up with some of the comments and 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 30-plus trajectory beyond the second half of the year. So I Just wondering if maybe you could talk through kind of momentum into next year, you know, 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.
Amir Swaket
Thanks. Hey, Will.
Nir
Thanks for taking the question. It's new. Yes, we do see a very strong pipeline coming out of our enterprise business. We have, as we previously stated, a record deal in finding new merchants. However, due to the significance of two, almost, let's say, two and a half very large clients, one of them that just launched Victoria's Secret, we do see some shifts to the back end of the year with the launches. Victoria is the first one live. We expected two others that are currently on track. They're already deep into the testing stage of the project. We expect them 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 midsize merchants on the enterprise platform, planning to go live free pick 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 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 and we see significant growth coming out of the managed market business where we see trajectory in line with what we expected for the year and even slightly above. 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.
Amir Swaket
That's great. Appreciate all the detail this morning. Thanks for taking the questions. Thank you.
Operator
Your next question comes from Samad Samana with Jefferies. Your line is now open.
Samad Samana
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. Ophir, 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, for the back half of the year, especially as you think about that steep ramp implied in the 4Q guidance?
Ofer
Thank you for that, Samad. We have slightly changed our same-store sales assumptions for the back half of the year. As we 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 third driver that impacts the top line in H2 2024.
Samad Samana
Understood. And then I know that, Nir, you mentioned that Shopify, the managed markets product, formerly MarketsPro, 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, how the growth rate there looks like, and is your confidence more or less or the same as you think about heading toward the back half of the year and then into 2025?
Nir
Sure, then thank you for the question, Samad. We do see growth in the managed markets coming slightly even above our plans. And when we see the 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 onboarding of merchants and even larger size merchants to come on board. Yes, we do expect it to accelerate going into 2025 in dollar terms. Great.
Amir Swaket
Thanks for taking my questions.
Operator
Your next question comes from James Fawcett with Morgan Stanley. Your line is now open.
James Fawcett
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?
Ofer
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 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 two of the larger border-free merchants lately, so hopefully we can get some more of those going forward.
James Fawcett
Got it. And then on the Shopify relationship and kind of how well that's trending, can 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, et cetera, and how you're thinking about further improvements in the product?
Erica
Hi, James. This is Amir. Thanks for the question. So, we mentioned some of the features already in the prepared remarks. 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 for, I would say, being able for the merchants to be able to sell in a way that is very localized in many markets. This is a capability we've had for a long time, obviously, on all our platforms, and we've 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. So we continue to be hard at work, both our teams and Shopify's teams, working in collaboration to continue along the planned roadmap and continue releasing these features in the next few quarters.
Amir Swaket
Okay, great. Thank you.
Operator
Your next question comes from Brian Peterson with Raymond James. Your line is now open.
Brian Peterson
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?
Ofer
Thank you for that, Brian. 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 partially driven by optimization of both merchants and consumers. Basically, getting a higher ticket on the same cost of shipping. 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 express to standard in the last couple few weeks or two, three months.
Brian Peterson
As we think about modeling that figure going forward, any kind of guideposts or what we should look at from second quarter levels? Thanks, guys.
Ofer
Sorry, can you repeat that, Brian, please?
Brian Peterson
Yeah, 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.
Ofer
Well, previously we expected the fulfillment take rate to increase in the back half of the year due to more merchants, joint merchants that are onboarding 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 in take rates in our guidance is driven by fulfillment. Not all of it, because as we've mentioned, Ted Baker also was a high take rate merchant to which we provided 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.