Global-e Online Ltd. (NASDAQ:GLBE) Q3 2022 Earnings Call Transcript

Global-e Online Ltd. (NASDAQ:GLBE) Q3 2022 Earnings Call Transcript November 16, 2022

Global-e Online Ltd. misses on earnings expectations. Reported EPS is $-0.41 EPS, expectations were $-0.3.

Company Representatives: Amir Schlachet - Co-Founder, Chief Executive Officer Ofer Koren - Chief Financial Officer Nir Debbi - Co-Founder, President Erica Mannion - Sapphire Investor Relations

Operator: Greetings! And welcome to the Global-e Third Quarter 2022 Earnings Call. This call is being simultaneously webcast on the company's website in the Investors section under News & 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: Thank you and good day. 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 third quarter ended September 30, 2022. Ofer will then review the financial results for the third quarter ended September 30, 2022, followed by the company's outlook for the fourth quarter and full year of 2022. We'll then open the call for questions. Certain statements we make today may constitute forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, Sections 21E of the Securities Exchange Act of 1934, and the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 that relate to our current expectations and views of future events.

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These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including those set forth in the section titled Risk Factors in our prospectus filed with the SEC on September 13, 2021, and other documents filed with or furnished to the SEC. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this call. You should not put undue reliance on any forward looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance, and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by applicable law, we make no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. Please refer to our press release dated November 16, 2022 for additional information. In addition, certain metrics we will discuss today are non-GAAP metrics. The presentation of this final financial information is not intended to be considered in isolation or as a substitute for or superior to the financial information prepared and presented in accordance with GAAP.

We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. We believe that these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. For more information on the non-GAAP financial measures, please see the reconciliation tables provided in our press release dated November 16, 2022. Throughout this call we provide a number of key performance indicators used by our management and often used by competitors in our industry. These and other key performance indicators are discussed in more detail in our press release dated November 16, 2022.

I will now turn the call over to Amir, Co-Founder and CEO.

Amir Schlachet: Thank you, Erica, and welcome everyone. We report to you today our results for the third quarter of 2022, which represents another very strong quarter for Global-e. Despite various headwinds in the form of prevailing and complex macroeconomic conditions in the market and the ongoing war in Ukraine, Global-e continues its high pace of growth across all business parameters. We delivered revenues of $105.6 million in Q3, representing 79% growth year-on-year, and our GMV for Q3 totaled $621 million, growing 77% year-on-year. Both GMV and revenues came in over our forecasted range, beating the midpoint of the range by 2.3% and 4.5% respectively. Our adjusted gross profit for the quarter was $43.8 million, representing a very strong growth of 92% year-on-year, outpacing our revenue growth, as we continue to pursue economies of scale benefits and realize COG synergies with Flow.

Our adjusted gross profitability was 41.5%, up from 38.6% in Q3 of 2021. As Ofer will elaborate on later in this call, it is important to note that this is the first quarter in which we include in our results, the figures from the Borderfree which we acquired in July of this year. In terms of our operational expenses, we continue to reinvest in growing the business across all business lines and departments, but at the same time continue to maintain strict cost control over all discretionary spending to ensure our ability to continue delivering strong profitable growth. As such, our adjusted EBITDA came in at $12.5 million, compared to $7.7 million in Q3 of last year. Adjusted EBITDA margin for the quarter was 11.9%. Moving on from the financial results, I would like to give you some updates regarding the many exciting developments in our business during the last quarter.

On the merchant activity front, demand for our services continues to remain strong as more and more brands around the world put direct-to-consumer and cross-border sales at the crosshairs of their growth strategy. During the third quarter we continued to launch with many new brands, among which were the U.S. based toy brand Mattel Creations, part of the Mattel group of brands, the fast-growing t-shirt brand True Classic, the online store of the prominent fashion designer Karl Lagerfeld, the classic high-end London based brand Drakes, as well as the merchandize store of the famous Italian Football Club Inter Milan, further expanding our reach into the football clubs vertical. We also went live during Q3 with the innovative sportswear brand SquatWolf, our first ever merchant based in the United Arab Emirates.

We continued our extension in the luxury segment as well, from the high end shoes by Spanish designer Manolo Blahnik, to Buccellati of the Richemont group, to three additional LVMH maisons, KVD, Ole Henriksen and Stella by Stella McCartney, all going live during the third quarter. In addition, during the quarter several brands expanded the list of their lanes operated by Global-e, including Suunto which once again added lanes and Anine Bing which opened up its European site, Hugo Boss and others. While we continue to grow our business and our bookings pipeline across our existing product lines and geographies, I'm also happy to share that we are continuing to make significant progress in several of our business development initiatives, which we have shared with you in the past.

For example, the leading consumer electronics brand Jabra, expanded its suite of services with Global-e, launching its presence on Amazon Japan, through Global-e's marketplace connectivity offering which is in a pilot phase. Another example is Global-e's demand generation offering which is already serving over 40 merchants. Over the next few quarters, we expect these initiatives to gradually expand to more merchants and geographies, as well as others to start and take shape. Turning to our indirect go-to-market channels, our ecosystem of partners around the globe continues to support our robust bookings in the markets we are already established in, as well as our international expansion efforts. We continuously strive to expand this ecosystem with Google being the latest partner with whom we signed a Referral Partnership Agreement.

Our strategic partnership with Shopify also remains very much on track, with great product advancements and high engagement between the respective teams on all levels. On the direct side, the stream of merchants going live using our new native integration is continuing to accelerate as this is now the default integration for any new Shopify-based merchant. On the white-label solution front, alpha trials were successfully were successfully completed, with Shopify recently granted early access to a solution, Shopify Markets Pro, for a small subset of relevant merchants. We continue hand-in-hand with Shopify down the planned road towards general availability next year. We remain highly optimistic regarding the long term potential of our strategic partnership with Shopify.

With regards to our corporate development efforts, with the Flow post-merger integration all but done, our team's attention is focused primarily on integrating Borderfree into the organization. By now all of Borderfree's teams have been integrated into the relevant teams with aim Global-e. Work is currently on its way to realize many possible COG synergies, to gradually migrate Borderfree's merchant onto the Global-e platform and to put in to use several models, assets and capabilities that had been built by Borderfree as part of our future platform development. We expect this integration work to continue over the next several quarters with synergies gradually realized along the way. In parallel, we are working on building our road map for the growth of the marketing and demand generation capabilities we acquired as part of the transaction, as well as the extended partnership with Pitney Bowes for its advanced logistics solutions and joint approach to merchants.

In summary, and taking all of the above into account, we are very pleased with how the first three quarters of 2022 have unfolded. We believe this strong performance, in spite of the unusually volatile conditions in the market is a true testament to the robustness of our model, our clear market leadership position and our execution capabilities. Moreover, as we look towards next year and beyond, we remain extremely enthusiastic regarding the global ecommerce markets long term growth potential, compounded by the growing adoption of direct-to-consumer as a key channel for brands on a global scale. However, and in order to err on the side of caution, we have decided to slightly lower our GMV and revenue forecast to 2022 by 2.5% and 2% at the midpoint of the range respectively in order to take into account two extraordinary factors which we anticipate will have an unusually large adverse effect on our Q4 results.

First, is the effect of the unusually large foreign exchange swings, which worsened through the third quarter and into November, especially those of the U.S. dollar, via-a-vis other major currencies. The other factor is the go-live of a very large merchant which was originally planned for Q4, but at the last minute was postponed to Q1 of 2023. At the same time though, we have decided to update our full year adjusted EBITDA guidance upwards by 3.4% as we have managed to progress more than we initially expected on cost optimizations, including a move to reduce workforce headcount as parts of synergy realizations post the Borderfree acquisition. At the midpoint of the range, our 2022 annual revenue forecast represents a massive 66% growth year-on-year.

We believe that such fast growth, well above the growth rates of the e-commerce market itself, represents the immense Greenfield opportunity which lies ahead of us for years to come, as more and more merchants around the globe put the cross-border, direct-to-consumer channel front and center in their future strategic plans. And with that, I will hand it over to Ofer, our CFO, to dive deeper into our quarterly financial results and provide some additional details regarding our outlook for the full year of 2022.

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Ofer Koren: Thank you, Amir, and good afternoon everyone. This has been another strong quarter on all fronts as we continue to demonstrate fast growth, coupled with healthy margins, amid a macro environment which continues to be challenging and volatile. Despite the macro headwinds, the fundamentals of our business model remains strong and durable, and we continue to see a clear path of rapid profitable growth. Before moving to the numbers, please note again that this is the first quarter in which we incorporate Borderfree into our financial statements. As Amir already mentioned, our fast growth in GMV continued in Q3 as we generated $621 million of GMV, an increase of 77% year-over-year. While the overall e-commerce market growth has slowed down in 2022, our cross-border opportunity remains massive as merchants are continuing to put direct-to-consumer in the front and center of their strategy, which results in cross border direct-to-consumer continuously gaining share over other channels and growing.

In Q3 we generated total revenues of $105.6 million, up 79% year-over-year. Service fees revenues were $47.8 million, up 108%, and fulfillment services revenue were up 60% to $57.8 million. Service fee revenues continued to grow faster compared to fulfillment services revenue, driven by growth of our multi-local offering and the revenue mix of Borderfree, which is characterized by a higher share of service fees. U.S. outbound revenue continued to grow rapidly. In Q3, U.S. outbound revenue was up 184% year-over-year, driven by strong growth of the Global-e platform U.S. outbound business, coupled with the high share of U.S. outbound on the Borderfree platform. Our penetration efforts into new markets are continuing to show positive signs. APAC and the Middle East outbound revenue, which are 3% of the total revenue have grown 496% year-over-year.

Our non-GAAP gross profit growth continued to outpace top line growth. In Q3, non-GAAP gross profit was $43.8 million, up 92% year-over-year, representing a margin of 41.5% compared to 38.6% in the same period last year despite Borderfree's lower margin. This was primarily driven by the positive impact of higher share of service fee revenues, the realization of Flow and Borderfree cost of goods sold synergies and continuous optimization efforts. GAAP gross profit was $40.8 million. Moving on to operational expenses, we continue to invest in the development of the Global-e enterprise and SMB platforms, with emphasis on the new white label offering to power Shopify markets growth. R&D expense in Q3, excluding stock based compensation was $16.6 million or 15.7% of revenue compared to $6.4 million or 10.8% in the same period last year.

Total R&D spend in Q3 was $22.2 million. The increase of R&D expense as a percentage of revenue is primarily driven by the consolidation of Flow and Borderfree. We continue to invest in sales and marketing, enabling us to generate a robust and diversified pipeline, while maintaining efficiencies. Sales and marketing expense, excluding Shopify warrants related amortization expenses, amortization of acquired intangibles and stock-based compensation was $9 million or 8.5% of revenue compared to $5.2 million or 8.8% of revenue in the same period last year. Shopify warrants related amortization expense was $37.4 million. Total sales and marketing expense for the quarter, including Shopify warrants and related amortization expenses were $52.9 million.

General and administrative expenses, excluding stock-based compensation, acquisition related expenses and acquisition related contingent consideration was $6.2 million or 5.9% of revenue, compared to $3.6 million or 6.1% of revenue in the same period last year. Total G&A spend in Q3 was $18.9 million. Adjusted EBITDA continued to be well on track. Adjusted EBITDA totaled $12.5 million, representing a 11.9% adjusted EBITDA margin, increasing from $7.7 million in the same period last year, despite the continued reinvestment into the business. We continue to focus on optimization and synergies realization to further support adjusted EBITDA growth. Turning to the balance sheet and cash flow statements, we ended the quarter with $191 million in cash and cash equivalents, including short-term deposits and marketable securities.

Net operating cash flow used in Q3 was $4.2 million compared to generated cash flow of $5.5 million in the same quarter a year ago. Net operating cash flow in the quarter was negatively impacted by one-off Borderfree transaction related expenses of $7.2 million and out of the ordinary financial expenses of $10.9 million, mainly due to the impact of USD revaluation on non-USD balances held as part of our day-to-day cash management. Moving to our financial outlook and guidance for the full year 2022. As Amir mentioned, due to the unusually high FX headwinds, as well as a very large merchant postponing its go-live by quarter, we have updated our full year GMV and revenue outlook by 2.5% and 2%, respectively. We now expect 2022 GMV to be in the range of $2,419 million to $2,459 million, at the midpoint of the range, this represents a growth rate of 68% versus 2021.

Of this, Borderfree is expected to contribute $125 million to $135 million of GMV for the full year. We expect 2022 revenue to be in the range of $404.7 million to $410.7 million. At the midpoint of the range, this represents a growth rate of 66% versus 2021. Meanwhile, we are updating our adjusted EBITDA outlook upwards by almost 3.5% at the midpoint, and it is now expected to be in the range of $43.5 million to $46.5 million for 2022. This is driven by the continued realization of cost synergies with Borderfree, which includes some workforce rightsizing activities. In conclusion, we continue to focus on strong execution and profitable growth in our journey to enable and accelerate global direct-to-consumer cross-border e-commerce. We will continue to further enhance our offering and add value to merchants to support their direct-to-consumer growth.

We believe this will enable us to tap into the massive and growing opportunity in front of us. And with that, Amir, Nir and I are happy to take any of your questions. Operator.

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