Global-E Online Ltd (GLBE) 2024 Q2 法說會逐字稿

Welcome to the Global-E 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.

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 24A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995 that relate to our current expectations in 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 activity 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 to 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, 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.

Thank you, Erica, and welcome, everyone, to our second quarter financial results, all of which are 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 revenue.

Finally, our adjusted EBITDA for the quarter came in at $31 million, representing nearly 50% growth over the same period last year, at 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 also I 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 are about to go live, as well as the anticipated continued growth of managed markets on Shopify.

The strong expected growth is especially noteworthy as it come 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 of the year 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, we 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, pure IoT, curated apparel and formal brand, Tuckernuck, LA-based streetwear brand MNML, and luxury lifestyle publisher Assouline. In the UK, the iconic British country clothing brand Coadings, the renowned footwear brand Clarks, Jermyn street shirtmaker Hawes & Curtis and cosmetics, brand Revolution Beauty.

And fashion brand [AMI Paris] and [Isabel Marant]. 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 our renowned brands such as Closed and JOOP in Germany and Pinko in Italy. We also went live with the fast-growing Swedish brand (inaudible) that creates backpacks designed specifically for runners, and we have our first ever Polish brand, the online store, fully fashion designer marketable.

In addition, our growing presence in A-Pac received a big boost during the last quarter with many Japanese brands going live, including the Japanese pop-culture merge stores, keep check and the go-to market curated fashion side, fascinates cycle absence of widespread or in-store and much of the provider, much of that, right.

We also went live with Australian dress maker, Shona joy and fast fashion brand outcomes, clothing with Hong Kong-based consumer electronics brand Heavy, which creates headphones designed for heavy metal enthusiast and with the fast growing Korean sunglasses brand, Gentle Monster as part of our commitment to growth in A-Pac.

We continued to expand our local presence in our main regional offices in Tokyo and Melbourne, and established a new office in Korea, welcoming onboard three new colleagues in Brazil to support our growing business there.

We also completed an integration onto the single Korean-based e-commerce platform, Shopify with averaging GBP5, a long-standing UK merchant of ours being the first to launch on this newly supportive plan.

In terms of verticals, we continue to expand our portfolio of sports team, adding the famous Spanish soccer club, FC Barcelona, also known as Bolsa as well as the UK Premier League club, Newcastle United to the growing list of sports clubs, we've used 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 SEP.

By Sarah, Jessica Parker and house led by Lady Gaga being the latest to go live on the global platform. But the biggest news on the merchant front is undoubtedly the recent launch of Victoria's Secret. 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 under a brand in the world. We are excited to welcome Victoria's Secret onto globally, 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. It's part of our land-and-expand strategy in the US we launched with both Escada and Club Monaco, which are part of the MCO group that also includes La Senza and with Karl Lagerfeld, Paris and other brands from 23. One in the UK we launched with Phase Eight, 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 names for which they use globally, most notably, Michael Kors, Karl Lagerfeld, bungalow Olsen, InChord. 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 year 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 for the remaining merchants plan to migrate imminent.

In addition, during the quarter, we managed to achieve considerable progress in the process of transitioning our Shopify merchants on to check-up extensibility, more than 75% of our Shopify base 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 capabilities for a best-in-class international solution.

As the migration process, we are nearing completion, the team's focus has already shifted to working on additional functionality and new features, enhancing performance for 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 solutions effectiveness and reach, such as support for additional shipping services, the ability to include taxes and duties in the product price to align with local best practices and enhanced visibility for merchants into their catalog restrictions, which we entered 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 salary 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.

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 deliver 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(sic - press release, "$1,082 million") of GMV, an increase of 31% 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-GAPP gross profit continued 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 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 number 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 expense expenses and acquisition related contingent consideration was $9.4 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 warrant and by the transaction related intangibles.

Switching gears and turning to the balance sheet and cash flow statement. 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 of the Ted Baker to UK and Europe franchisee, which reserve went bankrupt and went off the air earlier in August that 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, which we supplied in addition to our standard services, also a high volume of demand generation services. However, this churn will have 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 revenue, coupled with the slight signs of potential softness in compute 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 include. 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, $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 (sic, see press release, Q3 2024). For the full year of 2024 we are updating our guidance and now anticipate GMV to be in the range of $4,605 million, $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 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 by large merchant launches, which are on track for anticipated elevated volume contribution from managed markets on Shopify, which is growing as expected and a lower impact on 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 the direct-to-consumer business, we focus on execution and believe we can continue to grow rapidly while further expanding cash generation in the coming years. And with that, Amir and I are happy to answer questions you may have. Operator.

Thank you. (Operator Instructions) Will Nance, Goldman Sachs.

Good morning. Appreciate you taking the question. I wanted to just make sure we understand the moving pieces in the guidance.

That was very helpful to quantify the churn merchant. So if I heard you correct, it's something like 3% of revenue from the churned merchants. 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. And second was AOVs coming in lower neutral to gross profit. It 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 you know, if we hadn't seen the churn merchant dynamics, like would we would the guidance be kind of relatively in the same place? I'm just trying to get a sense for how much your expectations for the underlying run rate of the business have actually changed.

So. Thnak you. Will for that. And I think that we've mentioned the drivers in sort of in the order according to the order of magnitude. So obviously losing a merchant like the Baker, which is something that it 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 are carry more weight in terms of the update of our guidance.

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 or 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 just wondering if maybe you can talk through what kind of momentum into next year and how pipelines are looking, if there's any way to kind of dimensionalize the new customer additions that you have been working on this year? Thanks.

Thanks for taking the question. It's Neil. Yes, we do see a very strong pipeline coming out of our enterprise business. We have as we as we have previously stated, a record year in signing new merchants. However, due to the significance of it, two more, let's say, 2.5, very large clients one of them that just launched Victoria's Secret because we do see some shift to the back end of the year with the with the launches. And Victoria is the first one live.

We expect it to others that are currently on track the already deep into the testing stage of the of the project. We still expect the books 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 mid-sized merchants on the enterprise platform. They're planning to go live freight because well, and this will give us a boost into the following quarter. They launched only most of the most of the ad on a spike that we see launched only in launching only late Q3, early Q4.

It will be it will be a net growth when you look at the coming quarters in 2025 for four for most of the year in parallel to it, we have and we see significant growth and coming out of the managed market business and we see a trajectory in line with what we expected for the year and even slightly above. But we're quite optimistic on the overall trajectory going forward. That allowed us to state that we believe that we have a visibility into a growth rate of over 30% in the coming quarters.

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

Samad Samana, Jefferies

Hi, good morning and thanks for taking my questions. I guess first, just as I think about, I think that you mentioned the macro part being maybe the lowest piece of the assumption change, but I wanted to dig into that or are you changing the back half and are our assumptions for?

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 at our are for the fourth quarter for the back half of the year, especially as you think about that steep ramp implied in the 4Q guidance.

Thank you for that Samad. We have changed 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, you know, 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 you know, as I mentioned and you mentioned that was only the third driver that impacts the top line in H2 2024.

Yes, I understand. And then I know that at near you mentioned that shaped by the Managed Markets product area, formerly markets Pro was coming in at expectations, maybe even slightly better, I think were the words you use. 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 are the same as you think about it heading toward the back half of the year? And then into 2025.

So then thank you for the questions Samad. And we do see a growth in the managed markets coming on slightly even above our plan and we when we see it a funnel building up and it's a rate of onboarding, and we do expect it to continue to the end of the year as we are expected to launch many more features into managed market 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. Thanks for taking my questions.

James Faucette, Morgan Stanley.

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

James, thank you for the question. In terms of churn, putting aside the 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, you know, once the Borderfree platform is shut off, we might see some turn of the last the Borderfree, our merchant remaining. However, we have been successful in migrating to the larger Borderfree merchants lately. So hopefully, we can get some more of those going forward.

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 and how you're thinking about further improvements in and the product?

Hi James. This is Amir. Thanks for the questions. So we mentioned some of the features already in the following periods. Remarks on these were a highly anticipated the features like additional standard shipping options that we've added, like the ability to include the duty into the product price, which is highly important for them 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 on platforms, and we recently added that to a managed markets and some of those two additional capabilities and visibility. The merchants now gets into a product restrictions, which was very important for a lot of our merchants. So it's a lot of future. There are more that were rolled out and more that are in the pipeline for us for the remainder of the year and for 2025. So it's hard to pinpoint exactly the effect of each such a feature, obviously.

But in general, as the product becomes more feature reach and more advanced, it obviously increases its or its appeal and its applicability to many more merchants. So we are we continue to be hard at work with our teams and Shopify's teams working in collaboration to continue along the planned road roadmap and continue releasing these features in the next few quarters.

Okay, great. Thank you.

Brian Peterson, Raymond James.

Thanks for taking the questions. Are over. I wanted to hit on fulfillment take rates a bit, but we've heard from others in the ecosystem that there's been more of a preference for slower, 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?

Sure. Thank you for that, Brian. We've seen in the beginning of the year, we've seen some 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 it also is driven. It's partially driven by optimization of both merchants and consumers. So basically, you are getting a higher yield because 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 rate. And we haven't seen a significant shift and from euro to standard from Express to standard in the last few weeks or two three months.

Again, as we think about modeling that, that figure going forward in any kind of guideposts are where we should look at from a from second quarter levels. Thank you.

Sorry, can you repeat that, Brian, please.

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

Previously, we expected the fulfillment, the take rate to increase in the back half of the year and due to more merchants join merchants that are onboarding that platform and using or utilizing our shipping services. And we do see that coming in part due to the fact that pay of the has increased significantly. We do see a decreased most of that of the change that you see in take rates in some 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. We which we provide the demand-generation services, and this will be reflected in the in the service fee take rate but most of the take rate reduction is on the fulfillment side.

Andrew Basch, Wells Fargo.

Hey, thanks for taking the question. Just wanted to speak to the range of outcomes here and the revenue guide still. It seems pretty wide from, I think, seven 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 what needs to happen in order for you to achieve the high end offsetting macro side?

Yes. I think that when you look into our guidance for the rest of the year, we took into account first and of course, the reduction in fulfillment acreage that we've seen due to the lower AOV due to some changes in mix between merchants and as well as as well as the higher basket in the second thing that we took into account and we need to account for the changes in consumer sentiment, we have witnessed. It also mentioned it and especially in the last six to eight weeks.

And so we did bake in some some of it into our guidance, allowing for a larger spread towards the end of the year. And so this is built in there as well. And in and if we see these changes and this is, of course, affected by macro than we might, we might use with it. But we do believe it's I said we took a conservative approach to kind of understand.

And then moving to Shopify, thinking about the three piece. I know you've highlighted the 75% of the base now on checkout extensibility, did that ramp to the 75% go according to your original plans? And maybe if you could help us understand the economic implications to your business model by those merchants being on checkout extensibility?

I am it's Amir. So yes, it did ramp up fairly quickly over the last couple of quarters. It's it's been unlike the proceeds from the previous migration or the initial migration from the original kind of classic integration. We had some onto the new native integration, which was, I would say, more work incentive I'm sorry, work intensive.

The migration to see one is from a I would say, from a process perspective, per merchant is easier on and our teams over the last couple of quarters have really mastered the ability to make these transitions. So so that happens fairly quickly and we anticipate that it's not going to take us up longer to complete the entire migration. In terms of the economics, 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 attack on both the Shopify and the globally side. So hopefully, over the next, our 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 any immediate change in economics or model.

Koji Ikeda, Bank of America.

Yes, hey, guys. Thanks for taking the questions. I wanted to ask about the Victoria's Secret launch. Congratulations on getting that live. I wanted to ask on the timing of that launch. Was it to plan? Was it a bit earlier or a bit later than anticipated? And then I think you mentioned in the prepared remarks, there's two more of these types or size of launches to come. How is the, but those are taking a little bit longer. And so the question there is what is the risk that those launches get pushed to after the 2024 holiday season?

Yes. Thanks for the question. So actually, it's the same. It's the same answer for all the these big launches that we're looking at. There are more or less on plan. You know how it works with these large projects. There are some sometimes some shifting in Schedule A week here or there. But generally speaking, the Victoria's Secret launch was as planned and on schedule.

And it's a it's also a gradual as many of our, I would say, large merchant launches, our it's it's a phased launch and we're advancing already very nicely through the phases. And that too is on schedule. So not just the initial kind of launch, but also the subsequent rollout of the additional markets that are actually done. Majority of them are already live at this point. And in terms of the additional larger launches. Again, as we mentioned there, they're currently on schedule.

We believe that there are, I would say, sufficient projects buffers there to ensure that they go live in time before before peak each with its respective launch day on. And we hope we hope that this will remain the case. Currently, we don't we don't have a any reason to believe that there will be a delayed and we expect them to go live early Q4. I would say in time for the peak season, as I think you mentioned, they are already in active testing now solid. So these are the very advanced phases of the launch project.

Scott Berg, Needham.

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

So, thank you for the call. It's Nir and we are very optimistic about the rollout into a Park Hill. We started the journey in a bucket around two years ago, and since then, we've seen very strong uptick coming out of sales, China, Hong Kong, Singapore, Japan, with the key market currently outbound, where we have what we established HQ in Australia in Japan.

And in Korea, we've seen a lot of interest coming from on the back of it, and we signed a few deals, and we've launched the first large merchants that I mentioned just a month ago and all in all a Korea, a call, Korea adds to an additional, I would say, a growth into the A-Pac region that in total came from virtually nothing in globally and sales into into hitting a two digits year to date and already is the percentage of, say, new bookings.

Excellent. Very helpful Amir. And then Ofer, wanted to get your thoughts maybe on intermediate or longer term margin structure in the business?

I think if you look at both gross margins and adjusted EBITDA margins, you had a record high this quarter, gross margins are approaching 50% and you discuss some of the dynamics and why that might be higher, at least in the short term here. But how do we think about that margin structure, maybe three to five years out versus your prior assumptions because I believe you're getting pretty close to at least what your prior communicated kind of intermediate term model look like?

Yeah. Thank you for that. So first of all, as you mentioned, we had some negative impact on our top line with the Baker turning a we are increasing. But at the same time, those drivers in which, in addition, two 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 the coming quarters for gross margins to remain high, maybe not as high as this quarter because we had some mix impact as well, but in the neighborhood of some 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 USD and higher adjusted EBITDA margin as well. And 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 any new long-term targets, but we are working on that and we hope that we can introduce long-term targets in the coming months.

Patrick Walravens, Citizens JMP

Great. Thank you. And I'd like to dig into Ted Baker, some more, if I can. I mean, Sameer, the bankruptcy filing was on and April 24. Right. So before you guys reported last quarter, since you have known?

Hi Patrick, its Amir, actually, this is not -- it's not the first time that a merchant fossil bankruptcy or administration as it's called the in the UK. It doesn't mean that they will start trading Act. As a matter of fact, we've had a number of cases in the past where it actually drove deep online business higher because in a lot of cases with brands that have physical physical stores. The intent of the administration is not to shut down the operation completely, but actually to streamline it.

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

Okay. And then if I may, two more quick follow-ups on that. How much money do they owe you and are you going after it?

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

Brent Bracelin, Piper Sandler

Thank you for taking the question here. I wanted to go back to the macro you did and 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 on that one, Paul?

Sure. Thank you for that brand. Nothing specific to call out in terms of verticals, it was a broad base or so. You know that I think that the main weakness for luxury brands was is in China currently, and we are not exposed to China. We don't trade into China that much. So and less the impact on us from from that angle, broad-based.

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

Thanks.

Hi, Brent. It's Nir. Thanks for the question. And we are in the process and continuing with the process of migrating merchants into the into the globally platform. However, I think we stated also in our Q1 discussion, a process is going slower than expected last year and this year I'm on, I would say, complex or difficult year for many of our merchants handling, I would say, restructuring in the physical stores, et cetera.

So well, and in order to let them some time to put in the replatform project into the infrastructure base we extended We extended the time line a bit as the cost of funding that platform by itself and we managed to control it and made it more efficient for the time being.

So we give we did give extensions into 2025. However, the overall volume remaining today on Borderfree platform is circa 2% of our business or where the majority is already off the Borderfree platform. And there are a few significant, a couple of significant merchants still on the platform that we do expect that would move. But this would only happen sometime in the first half of 2025 and following it and we expect to shut down the platform.

Mark Zgutowicz, The Benchmark Company

Thank you. I was just hoping to get some more clarity on the implied 4Q assumptions. If I look at the midpoint of your GMV and on take rate, you are looking at still declines in take rate. I'm just curious if that's all tied to Ted Baker or if there's some multi local further multi-local dilution built in there. Anything else?

And then just in terms of the your GMV assumptions for 4Q in the softer consumer and store sentiment just relative to 3Q, like what do you what are your implied assumptions in terms of the trajectory of that softer consumer and in-store segment? And then a quick follow-up.

And so in terms of the consumer sentiment, we have similar assumptions for Q3 and Q4. We expect same-store sales to be a bit lower than what we previously expected. But same for Q3 and Q4.

In terms of the take rate in Q4, as we've mentioned, it's a combination of higher average order value leading to a lower fulfillment take rate and also the impact of the Baker, which was a high our take rate on merchant. And in addition, we do have slight seasonality in terms of take rate in Q4 as we have this need, which is biased to towards Q4 very biased and is a multi-local merchant. So we do expect some more a multi-local GMV in Q4.

[Oliver electric, Oread].

Thank you for taking my question. And I just wanted to follow up on Victoria's Secret, which was named one of your main competitors, biggest merchants. Can you just give a little bit more detail on what specifically was that kind of momentum to switch out here? And you kind of mentioned that there will be a slow migration. And how long do you expect that to be until they're fully migrated off ASW? Thank you.

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

In terms of the launch plan, when we started the rollout with the initial market late late July, mid-July. And then we're already, I would say, over the half, and we expect to finish the entire rollout within within Q3. And so all in all, everything to date is moving according to the project plan. And the reason they selected the globally, I think, is evident also in globally being the market leader in anything related to global commerce for multi local capabilities we developed to cross border to other capabilities.

We developed our own local shipping returns, duty management, duty drawbacks and the data and demand-generation capabilities. A lot of the things we developed are unique for globally, and I think it's been appreciated in the market somewhere. So very proud and happy to have Victoria's Secret joining us.

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

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

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