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Global-e Online Ltd. (NASDAQ:GLBE)
Q2 2021 Earnings Call
Aug 16, 2021, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


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 investor 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 -- Investor Relations

Thank you, and good afternoon. With me today from Global-e are Ami Luckett, 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 risk and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statements contained in the press release from today. For a more complete description, any forward-looking statements that management will make on this call are based on assumptions as of today and the company undertakes no obligation to update these statements as a result of new information or future events.

All material contained in the 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 Chief Executive Officer

Thank you, Erika, 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 lifted publicly mid-May on NASDAQ under the ticker GLBE. As such, I would like to start by thanking our incredible and growing team of employees, already more than 400 around the globe with dozens who have joined us just this quarter.

This team's hard work and unequivocal dedication has brought us to where we are and will drive our continued growth and success going forward. I would also like to thank our growing community of investors, both those who supported us in the past as a private company and those who have joined us more recently at and post the IPO. We are honored by the trust you have put in us and are excited to deliver on our mission to make global e-commerce border agnostic. And last but certainly not least, I would like to express our deep gratitude to our loyal merchant partners, already more than 500 of them across North America, the U.K., Europe, and Asia, who have put their trust enough 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. Revenues 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 efficiencies. 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 will 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 e-commerce 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, policies. For the past decades, 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 of shoppers worldwide, enhance their brands, attain valuable data, and enjoy higher margins. As a result of a combination of these and other market factors, cross-border e-commerce transactions are expected to continue to grow, outpacing the growth in domestic e-commerce by a factor of two.

Forrester expects that by 2023, the cross-border e-commerce markets will reach $736 billion. This creates a huge opportunity for brands to sell globally, as they 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. 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 currencies, support the local payment methods that are prevalent in that market, offer a compelling shipping and delivery experience, guarantee a full landed cost, including all relevant import duties and taxes, and more.

Now multiply these challenges by 50 or 100 markets, it becomes nearly impossible to overcome. There is no one-size-fits-all solution as shoppers from each market have their own different expectations with regard to their localized shopping experience. Hence, merchants of all sizes find the do-it-yourself cross-border strategy to be complex, expensive, time-intensive, 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 via plugins and client-side scripts with built and maintain. Once integrated onto the merchant site, we add a deep and rich level of localization to the e-commerce store experience. For the shoppers, we localize all aspects of the shopping journey right from the moment they enter the website. We support localized marketing messaging in over 25 languages.

We use our proprietary-built localized pricing engine to present pricing in more than 100 currencies and support different pricing structures based on the shopper's location, local market convention, and the merchant's pricing strategy. We enable shoppers to check out 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 in the product price or collect them at checkout, thereby simplifying the customs clearance process and allowing for a fully guaranteed land of cost growth 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 via multilingual shopper services and multiple returns options, including prepaid and local returns in relevant markets. For the merchants, we made selling internationally as seamless and effective as selling domestically. The greatly improved localized shopper experience increases sales conversion, enabling merchants to better capitalize on their valuable international shopper traffic by generating a considerable uplift in international traffic conversion, often 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 storefront and maintaining their own brand experience and direct relationship with their shoppers.

Furthermore, we enable our merchants to offload complexities and risks, which are otherwise presented by transacting cross-border, making the selling and fulfillment process for international orders as simple as that of domestic sales. We provide all of these capabilities by means of our comprehensive end-to-end cloud delivery technology platform, built on top of a highly scalable multilayered tech stack, integrated and coupled with a diverse ecosystem of technology and service partners via dozens of open APIs. From leading e-commerce platforms, such as Shopify, Salesforce, Magento, BigCommerce, and others, through the payment providers like Adyen, Worldpay, Klarna, and others, through the shipping carriers such as DHL, fraud management providers such as Forter, and many other partners providing value-added services, such as translations, online marketing, and more, with several of these, including Facebook, Shopify and DHL, we have already struck broader strategic partnerships including mutual client referrals, given the significant value we generate for all players in the ecosystem. But this is only half of the story which is made whole by our unique data engine which generates specific, actionable, and data-driven recommendations for our merchants based on the deep, broad, and rapidly growing datasets we have.

We refer to these recommendations as smart insights. Our smart insights are country, price point, and vertical-specific, and focused on shopper behavior. The value of our massive and fast-growing dataset is due to its depth and breadth. Based on this data, and coupled with all operational experience accumulated over the years, we enjoy both economies of scale and economies of skills, which enable us to optimize merchant 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.

A wide-reaching scale enables us to provide a solution to merchants in any region in the world, as we are the only cross-border enabler with a truly global footprint. Third, our highly differentiated and fast-growing data assets serve as the basis for a powerful flywheel effect. The optics we generate for our merchants drive 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 uplift, 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 referrals and lead regeneration.

Fifth, the mission-critical nature of our platform, a coupled with the results and value adds, we are able to generate for our merchant partners, yield very high customer stickiness, providing a sound base for continued strong GMV expansions. And finally, as a founder-led business, we 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 parts.

First, we continue to add more merchants onto the platform across our main geography, namely North America, U.K., and continental Europe. We have a very strong pipeline to further support our growth. This includes both new merchants and continued land-and-expand efforts, winning additional operating lanes for existing merchants, as well as onboarding additional merchants within existing brand groups. 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 months following their launch, Tag Heuer added many more destination markets to our platform. Another example is the value lingerie brand, La Perla, which went live with us at the beginning of the year, and during Q2, added many more destination markets and also went live with La Perla Beauty, their sister brand, which specializes in beauty and personal care products. Second, we are making progress on our expansion plans in new geographies with an emphasis on Asia-Pacific. During Q2, we launched our APAC-based merchant Theory Hong Kong, which is part of the Fast Retailing group.

Last quarter, we also opened a new office in Tokyo. Third, we continue to build capabilities and broaden our range of value-added services, focusing on highly localized capabilities that further enhanced 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 of his 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 overseen 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 that take part of our large and growing ecosystem. With regards to that, it is worth mentioning that we are on track with the rollout of our newly established exclusive strategic partnership with Shopify.

We continue signing up and going live with Shopify-based merchants on an ongoing basis. In parallel, the respective development and product teams from both companies are working together on a new and deeper integration of Global-e's offering into the Shopify platform and checkout. This new integration is expected to be finalized later this year. Once operational, this new integration should allow 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's life presents us with. We will continue to serve our merchants and their 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'll 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'll move on to give guidance for the third quarter, as well as for the full-year 2021.

I'd 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 improved sales conversion of our merchants' international traffic.

Fulfillment services revenue 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 rate with a higher service fee component and a 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 from merchants. U.S. outbound revenue was up 131% year over year.

We do not plan to disclose quarterly net dollar retention metrics, but I'm happy to share that our NDR dynamic through the first half of 2021 continued 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 on 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 SKIMS from Kim Kardashian, as well as regional expansion of existing merchants in Q1, such as Marks and 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 forth on July 1st, we expect a decrease in book 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 continued to grow even faster than our top line, as we continue to improve gross margin based on our economies of scale and improved 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% in revenue. The continued growth in our R&D investments 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 warrant, $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 D&O insurance policy cost 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 warrants 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 proceeds.

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 toward the holiday season. For Q3, we're 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 $2.8 million to $3.8 million.

For the full year of 2021, we are raising our guidance significantly. We anticipate GMV to be in the range of $1.35 billion to $1.37 billion, representing nearly 76% annual growth at the midpoint of the range. Revenue is expected to be in the range of $227 million to $231 million, representing a growth rate of 68% at the midpoint of the range. For adjusted EBITDA, we are expecting a profit of $22 million to $24 million.

Our outlook for the full year of 2021 reflects additional investments in personnel-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 modes. We plan to pursue growth opportunities in the transformation of B2C cross-border e-commerce while also continuing to demonstrate the scale and operational leverage over time.

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

Questions & Answers:


Operator

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

James Faucette -- Morgan Stanley -- Analyst

Thank you very much, and really appreciate all the details and color that you guys have walked through. I'm 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 of 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 Chief Executive Officer

Sure. Thanks, James. It's Amir. So generally speaking, we are seeing an uptick in additional brands joining the platform, which is reflected obviously 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 our pipelines and the signups, especially on the SMB front, kind of the smaller size merchants. We do expect as we guided before that we will see more movement on the pipeline with larger brand probably toward next year and 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 on the next year toward the second half of the year. So hopefully, that answers your question.

James Faucette -- Morgan Stanley -- Analyst

Yeah. That's good color. And then, I guess my other question is you mentioned that you know, obviously, there's been some organizational changes and that there may be some opportunities to buy additional capabilities, that would be a lot to be quicker to market than building them yourselves. Can you give us a little more detail in terms of the timing? Should we expect acquisitions to contribute at least some inorganic growth, or are 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 Chief Executive Officer

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 and 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 Christmas.

James Faucette -- Morgan Stanley -- Analyst

That's really helpful. Thank you very much.

Amir Schlachet -- Co-Founder and Chief Executive Officer

Thank you, James. Well appreciated.

Operator

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

Samad Samana -- Jefferies -- Analyst

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, new brands, you just discussed that. But when I think about the pipeline of deals -- and Ofer, I want to ask in the context, this is your first sort of guidance on the call. I'm just curious how much embedded in the guidance relies on new brands ramping, or how much of that is 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 and live on our platform, so most of the contribution for the second part of the year is already from live clients.

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

Samad Samana -- Jefferies -- Analyst

Great. And then maybe as a follow-up, I know you mentioned the robust trends on outbound to U.S., but I'm just curious if there's 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 in supporting European brands going worldwide. In terms of inbound, we've seen even in markets where the world has signs of COVID relief, such as Israel with the vaccinations, I would say, widespread around the market and some other markets that have seen positive trends for a certain period of time such as Australia, in not much of an effect in terms of the willingness of shoppers to buy. So we didn't see any much of fluctuation in terms of the inbound into the market of personal imports.

So far, we don't see, I would say, significant signs of COVID relief.

Samad Samana -- Jefferies -- Analyst

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

Amir Schlachet -- Co-Founder and Chief Executive Officer

Thanks, Samad. This is Amir. Yes. We've quite clearly seen -- 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 in 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 of the more confidence when he takes two brands, taking the decision who to work with.

Samad Samana -- Jefferies -- Analyst

Great. Congrats on the strong results.

Amir Schlachet -- Co-Founder and Chief Executive Officer

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 -- Analyst

Thank you and good afternoon. Couple of questions for me if I could. I'll start with Amir first. GMV in the quarter and 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 onboarding new merchants? Was it just a broad set of existing merchants expanding to countries? Any color there would be super helpful, just given the momentum and outside 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 that 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 those are the main drivers behind the growth.

Brent Bracelin -- Piper Sandler -- Analyst

Helpful color there. I guess as a follow-up, Ofer, you're now at 500-plus merchants. Is there any way to quantify how many of those merchants or what portion of those merchants have rolled out Global-e 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 merchants did deploy Global-e throughout their international markets. So I wouldn't say if it's 80% or 90%, but the vast majority did.

However, the large merchants, specifically the super large merchants, are the ones that are deploying batches of markets with us. And with them, basically, there is a significant opportunity and still ahead of us. They are only 10% or 20% of the brand but they hold a significant portion of our GMV, and the growth opportunity with them is huge. We've seen that this year with the Hugo Boss giving us 12 more markets.

We've seen it with Versace giving us additional markets this year. We've seen it with Marks and Spencer that added 47 more markets, which is the sixth consecutive year which we opened 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 -- Analyst

Very encouraging. Last question from me. Amir, strong pipeline of new merchants, you talked about looking 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 Chief Executive Officer

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 -- Analyst

Great to hear. Thank you.

Amir Schlachet -- Co-Founder and Chief Executive Officer

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 -- Analyst

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 are 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 Chief Executive Officer

Yes. I wouldn't like to bore everyone with the technical details. 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 just built in straight into the Shopify checkout itself.

So making it a seamless transition, I would say, for the merchants. As they switch Global-e on, it will just become part of their existing Shopify checkout, as well as a deeper integration into the Shopify system or backend as well, which should enable once the order -- it's a multi-phase project. So once the final phases are in, it will enable 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 an already initial kind of traction, additional traction in our pipeline as it's growing, including more and more SMB 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 toward kind of the first and second quarters of next year, and certainly onwards in the second half of next year once we have done the new integration kind of late this year, which would enable us to bring also it to the bigger enterprise-size merchants that are on Shopify. Hopefully that answers it.

Pat Walravens -- JMP Securities -- Analyst

Oh 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'm looking at it right at 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 -- well, as the continued leveraging of our economies of scale and price optimization, we believe that the gross margin expansion is structural. Basically, we expect the same trend to continue into the future. Not in every quarter we will increase the gross profit as much as we did this quarter, but we certainly expect that trend to continue in the coming quarters.

Pat Walravens -- JMP Securities -- Analyst

OK. Great. Thank you.

Amir Schlachet -- Co-Founder and Chief Executive Officer

Thanks, Pat.

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 -- Analyst

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 of a nuance. But when I look at you are 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's maybe a greater emphasis to start selling in a cross-border fashion? Is it just simply going to be less impacted by reopening? 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 differentiators allowing us, I would say, to see higher growth in Q3 is our diversification in terms of inbound markets worldwide.

Our approach and our reach is truly global. We are not a -- 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 e-commerce. And 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 experienced 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 through global footprint.

Josh Beck -- KeyBanc Capital Markets -- Analyst

Very helpful. And then just wanted to follow up on the first APAC merchant win. Obviously, that's an exciting development. I'm 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's 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 that 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 likes of DHL, or Facebook, or 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 and 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, I would say, from the second quarter and third quarter of 2022.

Josh Beck -- KeyBanc Capital Markets -- Analyst

Very helpful. Congrats, team.

Amir Schlachet -- Co-Founder and Chief Executive Officer

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 -- Analyst

Hi. Thanks for taking the question and congrats on the 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 at 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 as the right level of sales and marketing investments to drive that?

Ofer Koren -- Chief Financial Officer

Yeah, I think to answer the first part of your question, we are very effective in our sales and marketing approach. And over the hill 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 continued to grow and enjoy the benefits all platform, it brings to merchants wanting to scale up international. And in parallel to that, 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 on an annual average. So we don't actually lose the businesses 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. And we do expect to continue this high growth rates going forward. So higher two-digit numbers is something we expect to continue without going into the foreseeable future as we do have a quite a lot of levers that 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 the investment in sales and marketing. Still doing it very, very efficiently as a percentage out of our revenue. But we do scale up. We scale up in the current markets where we are already present across continental Europe, across North America, as well as 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. And so we do intend to invest much more within sales and marketing in different aspects, as well as building our channel partners to continue to do it efficiently and at scale.

Brian Peterson -- Raymond James -- Analyst

That's great perspective. And maybe just a follow-up. The U.S. outbound strength grew over 130% year over year this quarter.

I'm curious if you can kind of shed any more light on what drove that. And what are you typically displacing when you pick up a new merchant? I know you kind of mentioned SMB, shopper by partnership. But I'm curious what kind of functionality somebody might have in place, particularly looking at the U.S. outbound margins.

Thank you.

Ofer Koren -- Chief Financial Officer

Usually, we just enhance the basic stores that the merchant has. We look at it as a green field. There's not much competition were in place. Most of it is uncharted territory as the merchant is sub-optimal in the international journey.

And what we bring to the table is our platform to enhance the current shop, whether it would be on the Salesforce Commerce, BigCommerce, or Shopify. So on that aspect, we just we just get them to do better within the current operations. The reason for the growth in U.S. outbound that is reflected in our numbers is basically there's 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've 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.

We've seen tremendous track record and performance through Q2 with the merchant growing. And we have several of those that launch 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, now fueled further by the Shopify partnership.

Brian Peterson -- Raymond James -- Analyst

Great to hear. Thank you.

Amir Schlachet -- Co-Founder and Chief Executive Officer

Thanks, Brian.

Operator

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 Chief Executive Officer

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

Operator

[Operator signoff]

Duration: 60 minutes

Call participants:

Erica Mannion -- Investor Relations

Amir Schlachet -- Co-Founder and Chief Executive Officer

Ofer Koren -- Chief Financial Officer

James Faucette -- Morgan Stanley -- Analyst

Samad Samana -- Jefferies -- Analyst

Nir Debbi -- Co-Founder and President

Brent Bracelin -- Piper Sandler -- Analyst

Pat Walravens -- JMP Securities -- Analyst

Josh Beck -- KeyBanc Capital Markets -- Analyst

Brian Peterson -- Raymond James -- Analyst

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