Global-E Online Ltd

NASDAQ:GLBE

Earnings Call Transcript 2021-Q2

[Operator]

Greetings. And welcome to the Global-e Second Quarter 2021 Earnings Call. This call is being simultaneously webcast on the company’s website in the Investors section under News and Events.

For opening remarks and introductions, I’ll now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.

[Erica Mannion, Sapphire Investor Relations]

Thank you and good afternoon. With me today from Global-e are Amir Schlachet, Co-Founder and Chief Executive Officer; Ofer Koren, Chief Financial Officer; and Nir Debbi, Co-Founder and President.

Amir will begin with a brief review of the business results for the second quarter ended June 30, 2021 and an overview of Global-e. Ofer will then review the financial results for the second quarter, followed by the company’s outlook for the third quarter and full year of 2021. We will then open the call for questions.

Please note that this call will include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from management’s current expectations. We encourage you to review the Safe Harbor statements contained in the press release from today for more complete description.

Any forward looking statements that management will make on this call are based on assumptions as of today and the company undertakes no obligation to update these statements as a result of new information or future events. All material contains in a webcast is the sole property and copyright of Global-e with all rights reserved.

Please note this presentation describes certain non-GAAP measures including adjusted EBITDA and gross merchandise value, which are not measures prepared in accordance with U.S. GAAP. The non-GAAP measures are presented in this presentation as we believe that they provide investors with a means of evaluating and understanding how the company’s management evaluates the company’s operating performance.

These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP. A reconciliation of GAAP to non-GAAP measures is included in our earnings press release from today. Listeners who do not have a copy of the quarter ended June 30, 2021 press release may obtain a copy by visiting the Investor Relations section of the company’s website.

Now, I would like to turn the call over to Amir.

[Amir Schlachet, Co-Founder and CEO]

Thank you, Erica, and welcome everyone. Thank you all for joining us on our first earnings call as a public company. We are proud and excited to have listed publicly mid-May on NASDAQ under the ticker GLBE.

As such, I would like to start by thanking our incredible and growing team of employees already more than 400 around the globe, with dozens who have joined us just this quarter. This team’s hard work and unequivocal dedication has brought to where we are and will drive our continued growth and success going forward.

I would also like to thank our growing community of investors, both those who supported us in the past as a private company and those who have joined us more recently, at and post the IPO. We are honored by the trust you have put in us and are excited to deliver on our mission to make Global-e commerce border agnostic.

And last, but certainly not least, I would like to express our deep gratitude to our loyal merchant partners, already more than 500 of them across North America, the U.K., Europe and Asia, who has put their trust in us to handle their cross-border online sales and deliver a seamless, localized experience to their shoppers, regardless of where they are around the globe.

Turning to the results, I am pleased to report that Q2 was another record quarter for us. GMV grew to $326 million, representing 95% growth year-on-year. Revenue amounted to $57 million or 92% year-on-year growth.

Our gross profit grew even faster by 113% year-on-year to $20.6 million, driven by gross profitability margin expansion to 36% in Q2, up from 32.4% in the same quarter last year. Thanks to our growing economies of scale and increased efficiency. We continue to operate on the basis of a very efficient operating model, yielding an adjusted EBITDA for the quarter of $7.6 million, representing 145% growth year-on-year.

During today’s call, we will provide details on our Q2 results as well as Q3 and 2021 full year guidance. But given that this is our first earnings call post the IPO, we will begin by spending a bit more time than we were in the future earnings calls, covering the business, our strategy and the opportunities ahead for the benefit of many of you who may be new to the Global-e story.

Here at Global-e, we have purpose built a global end-to-end ecommerce platform and service that enables merchants to transact with shoppers from anywhere in the world, by localizing both merchants and shoppers experiences, and seamlessly overcoming the many barriers of cross-border trade, making global e-commerce border agnostic. We operate within a huge market opportunity presented by cross-border business-to-consumer or B2C e-commerce.

For the past decade, the retail world has experienced an accelerated shift toward e-commerce, with growth in online sales outpacing that of traditional retail. This shift has seen great acceleration during the recent COVID-19 pandemic, but the trend has been strong well before the pandemic hit.

Concurrently, the rise in social media, which is global by nature has dramatically changed the way consumers discover brands worldwide. Together, these two strong secular trends result in an ever increasing growth in the share of direct-to-consumer or D2C sales, as merchants put more and more strategic focus on this channel.

D2C enables merchants to strengthen their relationships with shoppers worldwide, enhance their brand, think valuable data and enjoy higher margin. As a result of a combination of these and other market factors, cross-border ecommerce transactions are expected to continue to grow outpacing the growth in domestic e-commerce by a factor of 2. Forster expects that by 2023, the cross-border e-commerce market will reach $736 billion.

This creates a huge opportunity for brands to sell Global-e, as we typically see around 30% of e-commerce traffic being international. But this is where the music stops for many of the merchants. When you look at their actual sales figures, typically no more than 5% to 10% come from international shoppers.

In other words, many merchants are not able to convert this enormous international traffic into actual sales, leaving a lot of money on the floor. This is because of the many structural barriers that stand between them and their international shoppers, who rightfully expect a seamless and localized shopping experience.

By localizing the -- but localizing the experience for even a single market is painful and difficult. A merchant needs to support the local language, present attractive prices in local currency, support the local payment methods that are prevalent in that market, offer a compelling shipping and delivery experience, guarantee a full landed costs including all relevant import duties and taxes and more.

Now multiply these challenges by 50 or 100 markets, it becomes nearly impossible to overcome. There is no one size fits all solution, as shoppers from each market have their own different expectations with regard to the localized shopping experience. Hence merchants of all sizes, find a do it yourself cross-border strategy to be complex, expensive, time insensitive, inflexible and highly difficult to scale and maintain.

This is where Global-e comes in. Our software seamlessly connects to any e-commerce platform the merchant is using, by a plug-in and client side scripts with build and maintain. Once integrated onto the merchant site, we add a deep and reach level of localization to the e-commerce store experience. For the shoppers, we localize all aspects of the shopping journey, right from the moment they enter the website.

We support localized marketing messaging in over 25 languages. We use a proprietary built localized pricing engine to present prices in more than 100 currencies and support different pricing structures based on the shoppers’ location, local market conventions and the merchants pricing strategy.

We enable shoppers to checkout in their native language and to choose their favorite means of payment out of over 150 payment methods we already support. We pre-calculate import duties and taxes, and can either embed them into product price or collect them at checkout, thereby simplifying the customs clearance process and allowing for a fully guaranteed landed cost goods for both the shopper and the merchant.

We hone an extensive network of more than 20 shipping carriers, including market specific methods, such as cash on delivery or delivery to drop-off points, offering multiple shipping modes at attractive rates. And we even provide local after sales support and returns management by a multilingual shopper services and multiple returns options, including prepaid and local returns in relevant markets.

For the merchant, we make selling internationally as seamless and effective as selling domestically. The greatly improved localized shopper experience increase the sales conversion, enabling merchants to better capitalize on their valuable international shopper traffic by generating a considerable uplift in international traffic conversion also exceeding 60% after they begin to use our platform.

We provide our merchants with the flexibility to rapidly and efficiently expand internationally and grow to new markets where and when they want to, with little to no upfront investment, using their existing storefronts and maintaining their own brand experience in direct relationship with their shoppers.

Furthermore, we enable our merchant to offload complexities and risks, which are otherwise presented by transacting cross-border, making the selling and fulfilling process for international orders as simple as that of domestic sales.

We provide all these capabilities by means of our comprehensive end-to-end cloud delivered technology platform, built on top of a highly scalable, multi-layer tech stack, integrated and coupled with a diverse ecosystem of technology and service partners via dozens of open APIs.

From leading ecommerce platforms such as Shopify, Salesforce, Magento, BigCommerce, and others through the payment providers like Radiant [ph], World Beat, Klarna, and others, through the shipping carriers such as DHL, broad management providers, such as Porter and many of our partners providing value-added services, such as translation, online marketing and more.

With several of these, including Facebook, Shopify and DHL, we have already struck broader strategic partnerships, including mutual client referrals, given the significant value we generate for all players in the ecosystem.

But this is only half of the story, which is made the whole by our unique data engine which generates specific, actionable and data driven recommendations for our merchants based on the deep, broad and rapidly growing data assets we have.

We refer to these recommendations as Smart Insights. Our Smart Insights are country, price points and vertical specific, and focused on shopper behavior. The value of our method and fast growing datasets is due its depth and breadth.

Based on this data and coupled with operational experience accumulated over the years, we enjoyed both economies of scale and economies of skill, which enable us to optimize merchants’ cross-border sales on a market-by-market basis. By leveraging our Smart Insights, merchants can provide optimized experiences for shoppers, resulting in better conversion and more revenue.

We win, thanks to several things we believe we do best. First, we offer merchants of all sizes, from small emerging brands to the world’s largest retailers, the most potent combination of an easy to integrate proprietary technology platform and a full end-to-end solution.

Second, we are diversified by vertical, merchant sector and destination markets. Our wide reaching scale enables us to provide a solution to merchants in any region in the world, as we are the only cross-border enabler with a truly global footprint.

Third, our highly differentiated and fast growing data assets serves as the basis for a powerful flywheel effect. The updates we generate for our merchants drives more sales, which in turn, creates more data and even smarter insights, which are fed back into our system in order to generate even more objects, attracting even more new merchants to the platform and so on.

Fourth, on top of our highly efficient sales and marketing teams, we enjoy our growing ecosystem of partners and merchants that act as a meaningful source of referral and lead generation.

Fifth, the mission critical nature of our platform, coupled with the results and value-added we are able to generate for our merchant partners, yield very high customer stickiness, providing a sound base for continued strong GMV expansion.

And finally, as a founder live business, we have built and maintain a very customer-centric culture throughout the ranks of the organization. We put our merchants first in everything we do.

Looking forward and in order to continue capturing the immense market opportunities that lie ahead, we are pursuing multiple key growth levers in Harlem. First, we continue to add more merchants onto the platform across our main geographies, namely, North America, U.K. and continental Europe, with a very strong pipeline to further support our growth. These includes both new merchants, and continued land and expand effort, win additional operated lanes for existing merchants, as one of them boarding additional merchants within existing brands.

As an example, during Q2, we launched Tag Heuer Sephora and Rimowa, which are all part of the LVMH group, of which we have already launched multiple brands in the past. Furthermore, in the month following the launch, Tag Heuer added many more destination markets to our platform.

Another example is the value lingerie brand La Perla, which went live with us at the beginning of the year, and during Q2 added many more destination markets, and also went live with La Perla Beauty, their sister brand, which specializes in beauty and personal care product.

Second, we are making progress on our expansion plans in new geographies, with emphasis on Asia-Pacific. During Q2, we launched our first APAC-based merchant, Theory Hong Kong, which is part of the best retailing group. Last quarter we also open a new office in Tokyo.

Third, we continue to build capabilities and broaden our range of value-added services, focusing on highly localized capabilities that further enhance our level of support for large merchants and new verticals, such as consumer electronics.

We believe some of these new capabilities could potentially be rolled out faster by buying versus building. And hence, we are gearing up our managerial infrastructure for supporting such future M&A opportunities.

As such, Nir, one of my Co-Founders, who is also with us today on this call, has recently transitioned to the role of President allowing him to devote much more supportive attention to corporate and business development efforts, which will be spearheaded by a new Corporate Development Department we are assembling. Nir still retains ultimate responsibility for global sales and customer success which are now seen by Ran Fridman, who recently joined us as our new Chief Revenue Officer.

Last but not least, we continue to focus on expanding our work with the various partners to take part of our large and growing ecosystem. With regard to that, it is worth mentioning that we are on track with the rollout of our newly established exclusive strategic partnership with Shopify.

We continue signing up and going live with Shopify base merchants on an ongoing basis. In parallel, the respective development and product teams from both companies are working together on a new and deeper integration of Global-e’s offering into the Shopify platform and checkout. This new integration is expected to be finalized later this year.

Once operational, this new integration should allow an even more effortless go-live process for new merchants and even more seamless referrals of Shopify based merchants from various channel partners.

In conclusion, we are thrilled to have joined the public market and strongly believe in the tremendous growth opportunity that this new phase of Global-e live presents us with. We will continue to serve our merchants and our shoppers, wherever they are around the globe and generate value for them, as well as for our large and growing ecosystem of partners, all the while pursuing our ultimate mission to make global e-commerce truly border agnostic.

And with that, I will hand it over to Ofer, our CFO to go over our financial results in more depth.

[Ofer Koren, Chief Financial Officer]

Thank you, Amir, and thanks, again, everybody for joining us today for our first earnings call as a public company. We are very pleased that our strong business momentum is continuing through Q2. Since this is our first earnings call, I’d like to start by providing a brief overview of our financial model and then I’ll go through our second quarter results in detail. Following that, I will move on to give guidance for the third quarter, as well as for the full year 2021.

I like to point out that in addition to our GAAP results, I’ll also be discussing certain non-GAAP results. Our GAAP financial results along with the reconciliation between GAAP and non-GAAP results can be found in our earnings release.

Global-e generates revenue from Service fees and Fulfillment services. Service fee revenue is generated as a percentage of the GMV that flows through our platform for the usage of our integrated platform solution that bundles several components, which we believe are essential to achieve improve sales conversion of our merchants international traffic.

Fulfillment services revenue is generated through our offering of shipping and handling, which are offered on an optional basis, but typically selected due to convenience and competitive pricing achieved based on our economies of scale.

Our rapid growth in GMV continued in Q2 as we generated $326 million of GMV, an increase of 95% year-over-year. Total revenue for the three months that ended on June 30, 2021 were $57.3 million, up 92% year-over-year.

Service fees revenues were $21.1 million, up 104%. Fulfillment services revenue were up 86% to $36.2 million. The higher growth in Service fees revenues relative to Fulfillment services revenue was driven in part by particularly strong growth in sales from the luxury brands we serve.

Luxury items are typically characterized by higher average order values, resulting in higher Service fees relative to Fulfillment revenues, which are far less impacted by the value of the goods. Thus, from a P&L perspective, a higher share of luxury sales result in a structurally lower take rates with a higher Service fee component and higher gross profit margin.

While we generated considerable growth all across the business, I would like to point out the continued accelerated growth of our U.S. outbound revenue, reflecting the deepening of our penetration into the market as we continue to witness high levels of satisfaction for merchants.

U.S. outbound revenue was up 131% year-over-year. We do not plan to disclose quarterly net dollar retention metrics, but I am happy to share that our NVR [ph] dynamic to the first half of 2021 continue to track well driven by the increasing focus and effort devoted by merchants to developing their D2C cross-border e-commerce businesses, coupled with conversion uplifts enabled by our continuously enhanced platform capabilities, as well as existing merchants launches of additional destination markets in our platform.

In the quarter, we were pleased to see significant contribution of GMV and revenue from some of the new logos we laid out in our Q1 results such as schemes from Kim Kardashian, as well as from regional expansion of existing merchants in Q1, such as Marks & Spencer, which added 47 new markets and Hugo Boss which launched 12 new markets with us.

Fulfillment revenue were positively affected by increased post-Brexit clearance fees. Due to the new rules related to cross border e-commerce VAT in the EU, which came into force on July 1st, we expect a decrease in both clearance fees revenues and costs, resulting in a slight reduction in take rate, but with an insignificant effect on gross profit going forward.

Now, let’s review the income statement in more detail. Gross profit continues to grow even faster than our topline as we continue to improve gross margins based on our economies of scale and improve efficiencies.

In Q2, gross profit was $20.6 million, up 113% year-over-year and representing a gross margin of 36%, compared to 32.4% in the same period last year. We believe that gross margin expansion to be structural and sustainable, as it results mainly from increased economies of scale, improved operational processes and pricing optimization.

R&D expense was up 59% year-over-year, totaling $5.7 million or 10% of revenue. The continued growth in R&D investment allows us to continue to scale and enhance our platform offering, adding additional features and capabilities, including the development of a new integration to Shopify, which Amir mentioned earlier, and our multi-local capabilities which allow us to access new merchant verticals and expand our total addressable market.

Sales and marketing expenses excluding the amortization expenses related to the Shopify warrants were $4.5 million or 7.9% of revenue, compared to $1.9 million or 6.5% of revenue in the same period last year. We continue to invest in sales and marketing, enhancing our sales teams and marketing efforts in current outbound markets, as well as new ones to support our accelerated growth, while still maintaining very high efficiency levels. Shopify warrants related amortization expense was $25.5 million, including these expenses and marketing expenses for the quarter totaled $30 million.

General and administrative expenses were $4.3 million or 7.6% of revenue, compared to $2.7 million or 9% of revenue in the year ago period. General and administrative expenses reflect additional expenses relating to being a public company, including our new D&O insurance policy costs since the IPO.

Adjusted EBITDA was $7.6 million, representing a 13.3% adjusted EBITDA margin, increasing from $3.1 million or 10.4% margin in the same period last year.

Net loss was $22.2 million, compared to a net loss of $0.4 million in the year ago period. A direct outcome of the amortization expense related to the Shopify warrants. Net profit excluding the amortization expense related to the Shopify warrant was $3.3 million.

Switching gears and turning to the balance sheet and cash flow statement, we ended Q2 with $488 million in cash and cash equivalents, including short-term deposits and marketable securities, a significant increase resulting from the IPO process. Operating cash flow in the quarter was $6.9 million, compared to $10.3 million a year ago, impacted by an increase in receivables.

Moving to our financial outlook, we are raising our Q3 and full year guidance significantly. In our guidance, we are taking into account the potential impact of the additional opening of physical stores and a gradual increase in traveling mainly during Q4 towards the holiday season.

For Q3, we are expecting GMV to be in the range of $328 million to $338 million. At the midpoint of the range, this represents a growth rate of 76% versus Q3 of 2020. We expect Q3 revenue to be in the range of $54.3 million to $56.3 million. This represents a growth rate of 66% at the midpoint of the range versus Q3 of 2020.

For adjusted EBITDA we are expecting a profit in the range of $2.million 8 to $3.8 million. For the full year of 2021, we are raising our guidance significantly. We anticipate GMV to be in the range of $1.35 billion to $1.37 billion, representing nearly 76% annual growth at the midpoint of the range.

Revenue is expected to be in the range of $227 million to $231 million, representing a growth rate of 68% at the midpoint of the range. For adjusted EBITDA, we’re expecting a profit of $22 million to $24 million.

Our outlook for the full year of 2021 reflects additional investments in personalized related costs, sales and marketing and product development, as well as incremental general and administrative costs associated with being a public company.

We manage our business for the long-term and do not plan to optimize for any single quarter. As our business grows, we intend to continue to invest as we pursue opportunities to expand our competitive mode. We plan to pursue growth opportunities in the transformation of B2C cross-border e-commerce, while also continuing to demonstrate scale and operational leverage over time.

And with that, Amir, Nir and I are happy to take any of your questions. Operator?

[Operator]

Thank you. [Operator Instructions] Our first question comes from the line of James Faucette with Morgan Stanley. Please proceed with your question.

[James Faucette, Morgan Stanley]

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

[Amir Schlachet, Co-Founder and CEO]

Sure. Thanks, James, it’s Amir. So generally speaking, we are seeing an uptick in additional brands joining the platform, which is reflected obviously in the -- both in the growth and the guidance -- the updated guidance that you’ve seen from us.

On top of course of additional growth from our existing brands. Now referring specifically to Shopify, we are seeing already an increase in the -- in our pipelines and the sign ups of especially on the SMB front, kind of the smaller size merchant.

We do expect, as we guided before that we will see more movement on the pipeline with larger brand probably towards next year, in the beginning of next year as we complete the new integration that we mentioned in our comments. In terms of financial impact, as such, we do expect, as we guided before the main impact to kick in only next year towards the second half of the year. So hopefully, that answers your question.

[James Faucette, Morgan Stanley]

Yes. That’s good color. And then I guess my other question is, as you mentioned that obviously there has been some organizational changes in that you -- there may be some opportunities to buy additional capabilities that would be quick -- relatively quicker to market than building them yourselves.

Can you give us a little more detail in terms of like the timing, should we expect acquisitions to contribute at least some inorganic growth or they likely to be purely technology? Just trying to get a little bit of color of kind of what you’re thinking in terms of investment potential and impact? Thanks.

[Amir Schlachet, Co-Founder and CEO]

Sure. So we’re actually looking at both types of acquisition both growth in activity as well as additional capabilities and as you said, we are definitely gearing up for that in the -- looking at the potential space. I would say in terms of timing, you should hopefully, expect to see us do, I would say at least one or maybe two transactions this side of Christmas.

[James Faucette, Morgan Stanley]

That’s really helpful. Thank you very much.

[Amir Schlachet, Co-Founder and CEO]

Thank you, James. Well appreciate it.

[Operator]

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

[Samad Samana, Jefferies]

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

[Nir Debbi, Co-Founder and President]

Hi Samad, it’s Nir. Thank you for your question. A lot of our guidance is based on clients already integrated in live on our platform, so most of the contribution for the second part of the year is already from live clients.

There will be some contribution and a growing contribution towards late Q3 of more merchants going live on the platform that are already signed in and to use our services and currently in integration, but we expect most of the effect of the growing pipeline is to sign clients to affect our Q1 and Q2 results next year and even more so in the second part of 2022.

[Samad Samana, Jefferies]

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

[Nir Debbi, Co-Founder and President]

In terms of the outbound, we’ve seen also tremendous increase in Continental Europe, which has grown over 200% year on year for us, so quite a lot of traction supporting European brands going worldwide.

In terms of inbound and we’ve seen even in markets where there were signs of COVID relief such as Israel with the vaccinations, I would say widespread around the market and some other markets that seen positive trend for certain period of time such as Australia and not much of an effect in terms of the willingness of shoppers to buy.

So we didn’t see any much fluctuation in terms of the inbound into the market of personal imports. So so far, we don’t see, I would say significant signs of COVID relief.

[Samad Samana, Jefferies]

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

I am just curious if going public has helped the brand in attracting more newer types of customers into the pipeline?

[Amir Schlachet, Co-Founder and CEO]

Thanks Samad. This is Amir. Yes. We’ve quite clearly seen it as a matter of fact, we’ve seen very positive traction building up after our IPO. We sense that we get even higher exposure now to key decision makers and much higher confidence, I would say as they go about to take their decision especially because we are now the only cross border platform that is publicly traded and kind of regulated and audited as such, so it gives a lot, I would say more confidence when it takes to brands taking their decision who to work with.

[Samad Samana, Jefferies]

Great. Congrats on the strong results.

[Amir Schlachet, Co-Founder and CEO]

Thank you very much, Samad.

[Operator]

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

[Brent Bracelin, Piper Sandler]

Thank you and good afternoon. Couple of questions from me if I could, I’ll start with Amir, first. GMV in the quarter on an absolute basis was actually up more in Q2 than in Q2 a year ago when you had the COVID tailwind. So just trying to drill down a little bit, what drove the outside strength in GMV, is it largely on boarding new merchants, was it just a broad set of merchants -- existing merchants going -- expanding to countries, any color there would be super helpful just given the momentum and outsized strength we saw there this quarter.

[Ofer Koren, Chief Financial Officer]

Hi Brent, it’s Ofer. I think there were, I would say a couple of reasons for that, the first one is that we had very successful launches of new merchants in Q1 that contributed significantly to our GMV growth in Q2. I think, the second major factor is the fact that many brands have identified the D2C opportunity and put a lot of strategic emphasis on this channel.

And when you couple that with the uplift in conversion that we are able to support that generates a lot of GMV and as we said, we do not disclose the NDR numbers on a quarterly basis, but they’re tracking really well. So let’s say those are the main drivers behind the growth.

[Brent Bracelin, Piper Sandler]

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

[Nir Debbi, Co-Founder and President]

Hi, Brent. It’s Nir. The vast majority of the merchant did deploy globally throughout their international market. So I wouldn’t say if it’s 80% or 90% but vast majority did. However, the large merchants, specifically the super large merchants are the ones that are deploying batches of markets with us and we then, basically there is a significant opportunity still ahead of us. They are only a 10% or 20% of the brands, but they hold a significant portion of our GMV and the growth opportunity with them is huge.

We’ve seen that this year with Hugo Boss giving us 12 more market, we’ve seen it with Versace giving us additional market this year. We’ve seen it with Marks & Spencer that added 47 more markets, which is the sixth consecutive years which we open more markets with them, so with the large ones, we do see quite a lot of opportunities still ahead of us.

[Brent Bracelin, Piper Sandler]

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

[Amir Schlachet, Co-Founder and CEO]

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

[Brent Bracelin, Piper Sandler]

Great to hear. Thank you.

[Amir Schlachet, Co-Founder and CEO]

Thanks, Brent.

[Operator]

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

[Pat Walravens, JMP Securities]

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

[Amir Schlachet, Co-Founder and CEO]

Yeah. So I would -- I wouldn’t like to bore everyone with the technical details. That the main things about the integration are technical, but I would say generally speaking, it’s making our services, kind of the same services that you know are just built in straight into the Shopify checkout itself.

So making it a seamless transition, I would say for the merchants as they switch globally on, it will just become part of their existing Shopify checkout as well as a deeper integration into the Shopify system or back-end as well, which should enable once the -- although it’s a multi-phase project, so once the final phases are in, it will enable an even seamless -- an even more seamless integration and kind of going live process for these merchants and hopefully making it almost as easy as flipping a switch.

So that is the intent, I would say on the things that we still need to get done on the technical integration front. In terms of the impact as we guided, this is what we’re seeing, we’re on track. We are seeing already initial kind of traction, now additional traction in our pipeline is growing, including more and more SMB merchants, Shopify based merchants that are going live with us, so we already see an increase in that, but I would say financially, we’ll probably see more of the impact towards kind of the first and second quarters of next year and certainly onwards on the second half of next year, once we have done the new integration kind of laid this year, which would enable us to bring also it to the bigger size, kind of enterprise size merchants that are on Shopify. Hopefully that answers your…

[Pat Walravens, JMP Securities]

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

[Ofer Koren, Chief Financial Officer]

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

[Pat Walravens, JMP Securities]

Okay. Great. Thank you.

[Operator]

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

[Josh Beck, KeyBanc Capital Markets]

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

Is it just simply going to be less impacted by reopenings. Any qualitative commentary there would be great.

[Nir Debbi, Co-Founder and President]

Hi Josh. Thank you for your question. It’s Nir. I think one of the main differentiator allowing us I would say to see higher growth into Q3 is our diversification in terms of inbound markets worldwide. Our approaches and our reach is truly global. We are not -- we don’t have a single market that is a two-digit market with us in terms of inbound and this diversity allows us to enjoy, I would say, the growth of global e-commerce.

So despite signs of relief in certain markets here and there, other markets do not see it and we see balancing in between and even in the markets that did experience some relief, we didn’t see a lot of changes in the way shoppers are buying online. So all in all, we are very positive in the growth trend going forward and I think, we’re a bit differentiated here by our true global footprint.

[Josh Beck, KeyBanc Capital Markets]

Very helpful. And then just wanted to follow up on the first APAC merchant, when obviously that’s an exciting development. I am curious when you look at the APAC offering, do you feel like the platform and the partnership ecosystem is fairly mature and maybe up to par with other markets.

And so the emphasis now is much more about really stepping on the go-to-market or is it a little bit of both of you had probably some critical mass of partnerships and platform in place, but there is more work to do there before you really start to get, perhaps more aggressive on the go to market. Just help us think about that balance. Please.

[Nir Debbi, Co-Founder and President]

I think, it’s a combination of both -- of both what you mentioned. Yes, we do see great opportunity in APAC and we do intend to invest much more. But as you stated, we do plan to enhance our partnership and channel partners in order to support it. Yes, we do have channel partners that are global in nature, that would be the life of the DHL or Facebook or a partnership with Shopify. But we are building also APAC specific partnership.

This is in process and we are hoping, we will have good news within Q3 or Q4 to announce about the partnership to support that growth as well. And on the back of it, we expect much more contribution coming out of APAC into our pipeline and into our numbers and I would say from the second quarter and third quarter of 2022.

[Josh Beck, KeyBanc Capital Markets]

Very helpful. Congrats team.

[Amir Schlachet, Co-Founder and CEO]

Thanks Josh.

[Operator]

[Operator Instructions] Our next question comes from the line of Brian Peterson with Raymond James. Please proceed with your question.

[Brian Peterson, Raymond James]

Hi. Thanks for taking the question and congrats on a really strong results. So first question for me, just kind of high level. We don’t typically see 90% plus revenue growth and GMV growth of this scale, if we’re thinking longer term, what are kind of key swing factors on growth and how do we think about the sales and marketing investments -- is that right level of sales and marketing investments to drive that?

[Ofer Koren, Chief Financial Officer]

Yes. I think to answer the first part of your question. We’re very effective in our sales and marketing approach. Over the years, historically we’ve been less than 10% spend on sales and marketing out of our revenue and the reason we were able to do it is because we had historically, on the one hand huge NDR with over 140% quite stable that supported our growth with existing merchants that continue to grow and enjoy the benefits our platform, it brings to merchants wanting to scale up international.

And in parallel to that and we have really good win ratio on merchants stepping into a tailwind of a very aggressively growing market with merchants trying to scale cross border. So it’s a combination of both together with the fact that we basically have a pool with no leaks in it.

Our GDR numbers are sub 2% historically here on an annual average, so we don’t actually lose business we have, we win, much more business coming in and we grow the business that we already have in and the combination of it allows us to grow very fast even at the scale, we already have.

We do expect to continue this high growth rates going forward. And so where high two-digit numbers is something we expect to continue with us going into the foreseeable future as we do have quite a lot of levers, we continue to push. In terms of sales and marketing, we do spend a lot.

You can see in our Q2 numbers, we grew more than 100% in reinvestment, in sales and marketing, still doing it very, very efficiently as a percent based out of our revenue, but we do scale up. We scale up in the current markets where we are already present across the Continental Europe, across North America as well in new regions, we established our operations in Japan with the first two employees in Japan.

We are intending to roll out additional markets in APAC late Q3 and early Q4. So, we do intend to invest much more within sales and marketing in different aspect, as well as building our channel partners to continue to do it efficiently and at scale.

[Brian Peterson, Raymond James]

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

[Ofer Koren, Chief Financial Officer]

Usually we just enhance the basic store that the merchant has. And we treat it -- we look at it as a greenfield. There is not much of competition we replace, most of it is uncharted territory, as a merchant are sub-optimal in the international journey and what we bring to the table is our platform to enhance the equivalent shop whether it would be on a Salesforce Commerce, big commerce or Shopify.

So on that aspect, we just get them to do better within the current operations. The reason for the growth in U.S. outbound that is -- that reflected in our numbers is basically that there was quite a good traction for U.S. brands, a lot of digital first brands coming out of the U.S.

And now with the social networks and global influencers, we have seen tremendous growth of those digital first brands. I think that the Skims of Kim Kardashian that launch with us in Q1 is a great example, that we have seen tremendous track record and performance through Q2 and with the merchant growing and we have several of those that launched with us over the last few quarters and we’ve seen great traction with them.

As well as many new SMB brands that are coming in and growing and now fueled further by the Shopify partnership.

[Brian Peterson, Raymond James]

Great to hear. Thank you.

[Amir Schlachet, Co-Founder and CEO]

Thanks, Brian.

[Amir Schlachet, Co-Founder and CEO]

Thank you, ladies and gentlemen, that concludes our question-and-answer session. I’ll turn the floor back to Mr. Schlachet for any final comments.

[Amir Schlachet, Co-Founder and CEO]

Thanks a lot. And I would say on behalf of Ofer, Nir and myself and the entire Global-e team, I’d like to thank you all for joining today and for your interest in Global-e and for the thoughtful question. We very much look forward to seeing you again on our future earnings calls. So goodbye to everyone and take care.

[Operator]

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