Q4 2022 Global-E Online Ltd Earnings Call

Speaker 1: So that proation that.

Speaker 1: The.

Speaker 2: Greetings and welcome to the Global E4th Quarter and Year-End 2022 Earnings Conference Call. This call is being simultaneously webcast on the company's website in the investors section under News and Events. For opening remarks and introduction, I will now turn the call over to Erica Mannian at Sapphire Investor Relations. Please go ahead.

Speaker 3: Thank you and good morning. With me today from Global E are Amir Shlokat, Co-Founder and Chief Executive Officer, Ofar Corin, Chief Financial Officer, and Nir Debi, Co-Founder and President. Amir will begin with a review of the business results for the fourth quarter and year ended December 31, 2022. Ofar will then review the financial results for the fourth quarter and year ended December 31, 2022, followed by the company's outlook for the first quarter and full year of 2023. We will then open the call for questions.

Speaker 3: Certain statements we make today may constitute forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 that relate to our current expectations and views of future events. These forward-looking statements are subject to risks, uncertainties, and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual outcomes may differ materially from the information contained in the forward-looking statements as a result of a number of factors including those set forth in the section titled Risk Factors in our Perspectives filed with the SEC on September 13, 2021, and other documents filed or furnished to the SEC.

Speaker 3: 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.

Speaker 3: performance, and events and circumstances reflected in our 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 these statements are made, or to reflect the occurrence of unanticipated events. Please refer to our press release dated February 22, 2023 for additional information.

Speaker 3: In addition, certain metrics we will discuss today are non-GAAP metrics. The presentation of this financial information is not intended to be considered in isolation or as a substitute for or superior to 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.

Speaker 3: We believe that these measures provide useful information about operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operating decision making. For more information on the non- GAAP financial measures, please see the Reconciliation tables provided in our press release dated February 22, 2023. Throughout this call, we provide a number of key performance indicators used by our management and often used by competitors in our industry.

Speaker 4: These and other key performance indicators are discussed in more detail in our press release dated February 22, 2023. I will now turn the call over to Amir, co-founder and CEO . Thank you, Erica, and welcome everyone. Today's learning school is an extra special one for us. Yesterday, on February 21, we celebrated exactly 10 years since near-sh off-hand myself started globally.

Speaker 4: border agnostic. Moving forward to our earnings, we are extremely proud to report that the final quarter of 2022, the result of which we are reporting to you today, was our strongest quarter ever and a fantastic finish to the fiscal year, bringing in a record $839 million in GMV, up 66% year-on-year, and generating revenues of close to $140 million, up 69% year-on-year. Both GMV and revenues came in close to the top of the forecasted range, representing our continued strong growth momentum and impeccable execution throughout the business, despite the prevailing, elevated levels of macro headwinds and economic uncertainty in the market. The adjusted gross profit margin for Q4 remains stable at 41.3%. Up 180 basis points from the 39.5%

Speaker 4: in the same quarter of last year. On the operational side, we continue to exert strict cost control. Ensuring our fast growth is also a sustainable one. Adjusted sales and marketing expenses for the quarter totaled only $8 million or 5.7% of revenues. And adjusted general and administrative expenses were only $8.9 million or 6.4% of revenues. This, coupled with our continued efforts to realize operational cost synergies with flow and border free, resulted in an adjusted EBITDA margin of 15.6% or 21.8 million dollars in Q4, well over the top of the outlook range, and up from 14.3% or 11.8 million dollars in the same quarter of last year. As we be evident later in the call, when the offer presents our guidance for Q1 and for 2023 as a whole, we remain committed to continuing this path

Speaker 4: of strong yet profitable growth into the future. Looking at the full year of 2022, G&V was $2.45 billion, an increase of 69% year on year. And revenue for the full year came in at $400 and $9 million, an increase of 67% year on year. Annual adjusted gross profit increased even faster, growing by 84% from 2021, and reaching 167.9% million dollars. This represents an adjusted gross profit margin of 41.1% for the full year, a steep increase of 380 basis points from 2021. Finally, adjusted EBITDA for the full year was $48.7 million.

Speaker 4: compared to 32.4 million last year. Significantly over the top range of our outlook and representative of our ability to generate profitable growth with strong free cash flows. Now before I hand it over to offer to discuss our financial results in more detail, I would like to spend a few minutes to review some of the noteworthy developments across our business that took place during Q4 last year. First, we continued our strong momentum in adding new brands across the various markets we are active in. As well as in the new territories, we have only recently entered. As Director Consumer continues to gain share as a strategic priority for consumer brands worldwide. Examples of such merchant launches are the leading UK-based luxury fashion brand, Olsaint's, French brand, Bash, the celebrity-led footwear brand of the singer-cady pair. And the fast growing US appeal brands.

Speaker 4: those killed and cuts clothing among others. We went live with our first ever Greek merchant called ancient Greek sandals and continued our expansion in the APEC region with pure hair and H2HUB going live in Australia and Singapore respectively. We also went live with three new LVMH mezones during the quarter. Bulgaria, Shomei and Moyna with several additional mezones already signed up during Q4 and inactive integration. Last but not least, I'm happy to report that we recently went live with Disney EU after its launch was unfortunately delayed from Q4, representing a major expansion of our relationship with Disney. Our booking spy plan continues to be extremely strong driven by a combination of our outbound sales teams, growing inbound interest and close collaboration with our ever growing ecosystem of regional and global partners. A notable example is our long-term global strategic partnership agreement with DHL, which was recently renewed for another period of three years. A testament to the great synergetic value it creates for both companies. Another is our second joint client summit in Japan.

Speaker 4: in partnership with Transcosmos, which near attended just last week in Tokyo, as well as an initial roll-up of our newly formed logistics partnership with PITNI-BOS, which was forged as part of the Border Free Acquisition. Another one of IT's strategic partnership is the one with Shopify, which also remains well on track. On the direct integration side, in parallel to work on completing the build for the native integration and adding support for Shopify's new checkout one, we continue adding many new sign and live merchants, which turn to us as the exclusive end-to-end merchant on record cross-border e-commerce provider on Shopify.

Speaker 4: On the white label solution front, our joint work with Shopify continues, gearing up towards general availability of the Shopify markets pro solution in the first market, the US, which is planned for Q2 this year. Additional geographies are already on our joint roadmap, which down the line will allow Shopify-based SMB merchants based outside of the US to also benefit from seamless global sales. In the meantime, we continue to gain highly valuable insights from the growing adoption among those US-based merchants, which were granted early access to markets pro. We've close to 75 live SMB merchants in Q4, and we've promising results in terms of the international conversion uplift. When our other major, corporate development effort, debt of enhancing our demand generation capabilities and offering, we continue to make good progress as well. We've devoted the board of free post-mergering integration in advanced stages. Our efforts are mainly concentrated now on making the necessary adaptations to boardafree.com and the other parts of our technological platform in order to enable the extension of this offering to a broader list of merchants. In parallel, we are continuing both commercial and technological work.

Speaker 4: on creating several additional demand generation capabilities, aimed at offering our merchants a complete and well-rounded suite of unique cross-border demand generation services. As is evident from the great advancements we have made during the past year on all our business fronts, we are extremely pleased with our results for 2022, which we managed to obtain in the face of several distinct macroeconomic headwinds. We managed to do so thanks to the trust and loyalty of more than a thousand merchants which are already live on our platform, combined with the relentless efforts of our highly capable and super dedicated team of globally professionals, which is already more than 750 people strong spread across 17 main locations around the globe. I would like to take this opportunity and send our sincere and deep gratitude to both our clients and our team members. And share with you how excited we are as we look towards the many business opportunities that await us in 2023 and beyond.

Speaker 4: for any merchant, anywhere. We continue to see a large and mostly greenfield opportunity ahead of us. Both in the territories we are already establishing and in new markets, which we intend to expand to over the course of the next few quarters. Couple with our growing suite of value-added services. As offer will elaborate on in just a few minutes' time, our guidance for 2023 represents this continued strong growth momentum. We've roughly 40% annual growth expected in both GMV and revenues, well above the growth rate of the e-commerce market itself. So circling back to what I opened with, this is not one exciting decade down and many more exciting decades to come. We really are just getting started. And with that, I will hand it over to offer our CFO to dive deeper into our quarterly financial results and provide some additional color regarding our outlook for Q1 and for the full year of 2023. Thank you, Amir and thanks again, everyone, for joining us today for a quarterly earnings call.

Speaker 4: We are very pleased with our Q4 and fully resolved. Q4 with another strong quarter of fast growth and strong cash generation as we continue to execute well on our front. I'd like to point out again that in addition to our gap results, I'll also be discussing certain non-GAP results. Our GAAP financial results along with the reconciliation between gap and non-GAP results can be found in our earning release. As Amir mentioned, a rapid growth in GMV continued in Q4 as we generated $839 million of GMV, an increase of 66% year-over year. While growth of overall e-commerce market slowed down in 2022, we continue to benefit from the large and fast growing direct-to-consumer global e-commerce opportunity coupled with our strong market position. In Q4, we generated total revenue of $139.9 million up 69% year-over year.

Speaker 4: Service-feed revenues were $62.8 million up 77% and fulfillment services revenue were up 63% to $77 million. The higher growth in service-feed revenues compared to fulfillment services revenues were driven by the continued growth of a multi-local service.

Speaker 4: and the GMV mix generated on our platform in Q4. Throughout 2022, our existing merchant base continue to stay and to grow with us, as reflected in our annual NDR rate of 130%, and GDR rate of over 98%.

Speaker 4: At the same time, we have experienced record signings of new merchants that have launched with us during 2022 and will launch in 2023. We have continued to experience higher-paced growth in our U.S. outbound revenue as a strong momentum in the U.S. continued, driven also by the U.S. bias of the flow and border free portfolio.

Speaker 4: In 2022, US album revenue was up 163% year-over-year. As Amir mentioned, non-gap growth profit continues to outpace revenue growth, as we continue to improve growth margins, leveraging our scale and improving efficiencies. In Q4, non-gap growth profit was $57.8 million, up 77% year-over-year, representing a growth margin of 41.3% compared to 39.5% in the same period last year.

Speaker 4: driven by the higher share of service-free revenues, and the continued efforts to leverage our scale to further improve our efficiencies. GAPROS profit was $55.8 million, representing a margin of 39.9%. Moving on to operational expenses, we continue to invest in the development and enhancement of our platform to further strengthen our offering.

Speaker 4: R&D expense in Q4, excluding stock-based compensation, was $17.8 million or 12.8% of revenue compared to $8.4 million or 10.2% in the same period last year. Total R&D spend in Q4 was $23.7 million. The increases in R&D expenses as a percentage of revenue was partially driven by the consolidation of flow and border free. We also continue to invest in sales and marketing to build our pipeline while maintaining efficiencies. Sales and marketing expense, excluding Shopify-related or mortization expenses, start-based compensation and acquisition related intangible some mortization.

Speaker 4: with $8 million or 5.7% of revenue compared to $6.7 million or 8.1% of revenue in the same period last year. Shopify weren't related amortization expense with $37.4 million, total sales and marketing expenses for the quarter was $52.6 million. General and administrative expenses, excluding stock-based compensation, acquisition related expenses and acquisition related continued, continued consideration was $8.9 million or 6.4% of revenues compared to $5.8 million or 7% of revenue in the same period last year. Total GNA spending Q4 was $14.7 million. Adjusted EBida for the quarter total $21.8 million representing a 15.6 adjusted EBida margin.

Speaker 4: increasing from $11.8 million or 14.3% margin in the same period last year. Net loss was $28.5 million compared to a net loss of $22.5 million in the year ago period, driven mainly by the amortization expenses related to the Shopify warrants and to the transaction related in tangible. Switching gears and turning to the balance sheet and cash flow statements, we ended 2022 with 228 million in cash and cash equivalents, including short-term deposits and marketable securities. Cash generation has accelerated with operating cash flow in the quarter at $60.7 million compared to an operating cash flow of $24 million here ago, driven mainly by adjusted EBITDA growth and working capital dynamics. Moving to our financial outlook and guidance for 2023, as you will see, the guidance reflects the strength and the continued momentum of the business.

Speaker 4: For Q1 2023, we're expecting GMV to be in the range of $645 to $675 million. At the midpoint of the range, this represents a growth rate of 45.1% versus Q1 of 2022. We expect Q1 revenue to be in the range of $108 to $114 million. At the midpoint of the range, this represents a growth rate of 45.4% versus Q1 of 2022. For adjusted EBIDA, we're expecting a profit in the range of $9.5 to $12.5 million. For the full year of 2023, we anticipate GMV to be in the range of $3.36 to $3.52 billion, representing slightly over 40% of the average annual growth at the midpoint of the range. Revenue is expected to be in the range of $557 to $584 million.

Speaker 4: representing a growth rate of nearly 40% at the midpoint of the range. For adjusted EBIDA, we are expecting a profit of 66 to 74 million dollars. In conclusion, we believe that the opportunity ahead is immense and that we are well positioned to capture it. We will continue to drive strong top line growth while leveraging economies of scale and generating cash.

Speaker 2: We strive to continue creating value to the merchant and further strengthen our positioning. And with that, Amir, Nire and I are happy to take any of your questions. Operator? Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Thank you very much.

Speaker 2: If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pause for questions. We have a first question from the line of Will and Anne's with Goldman Sachs. Please go ahead.

Speaker 4: Hey guys, good morning. Next results. I wanted to have a question on the guidance. I know there's a lot of uncertainty around there, particularly in the e-commerce market. I think you guys referenced it. You know, the NRR's last year ended up being very strong, despite a fairly weak e-commerce backdrop. When you look out into 2023, relative to that 130% NRR you had in 2022, how are you thinking about that metric as you go forward into next year and maybe you could talk about the degree of conservatism you guys are embedding in the guide? Hi, Will. It's offered. Thank you for the question. Going into 2023 and looking forward, as we previously mentioned, we expect NDR rates to be around 130% plus. And this coupled with our strong pipeline of new bookings into 2023 and our ability to maintain a very high GDR over 98% will enable us to grow.

Speaker 4: We are embedding a certain degree of conservatism into our top line and a higher degree of conservatism into our adjusted EBITDA. It is very sensitive to any top line fluctuation. And with the current macro environment, we think this would be the best way to go. Got it. That makes sense. Very helpful. And then just a question on the US outbound. I know you mentioned that border-free and flow were contributors to that really strong growth. I'm wondering if there's also maybe a component coming from the acceleration and Shopify that you guys mentioned. Is that also contributing to US outbound and just higher level do you kind of expect US outbound to be different remain one of your higher growth channels? Hi, William. It's Neil. Yes, we continue to see the strong growth of US outbound. We've seen it over the last few years since we started to invest in developing outbound of the US. And this was indeed, as you mentioned, accelerated with our partnership with Shopify. Shopify is a parallel to...

Speaker 4: client base, shipping outbound US, and this of course supports our growth as their exclusive partner for MOR globally. So all in all, this indeed continued to fuel our growth. We expect this to continue going forward with US growing quite fast, also given the rollout of the new solution of the White Label SMB that is expected to go into general availability on Shopify later in the year. Thank you. We take an next question from the line of James Fawcett with Morgan Stanley . Please go ahead.

Speaker 5: Great. Thank you very much. I wanted to follow up on the Shopify questionnaire. Just wondering what is controlling the pace of penetration on boarding with Shopify merchants, particularly via the exclusiveity? And how should we think about it? It should be a pretty big GMB opportunity. But is that something where you can press accelerator or is it more of an organic cadence? And how should we think about any change in trajectory with those merchants in 23? Hi James. So yes, we are very excited about the continuous potential of growth in partnership with Shopify. Our joint teams continue to work hand in hand. And to deliver a best in class solution of GLBE within the Shopify native checkout and also to support checkout one.

Speaker 4: A lot of the work is still under process, especially now with the role out of Check out one as a February on the Shopify platform. In parallel, we do have ongoing development of our SMBO-free as part of the Shopify markets pro. And once this goes into a general availability, we expect much more growth coming out of that as well. So we will see both growth that is coming out of very large Shopify merchants using our direct and native integration as well as smaller merchants that are going to use solution to market pro once it goes into a general availability.

Speaker 4: is still under process, especially now with the role out of Check out one as a February on the Shopify platform. In parallel, we do have ongoing development for SMBO-free as part of the Shopify markets, pro, and once this goes into a general availability, we expect much more growth coming out of that as well. So we will see both growth that is coming out of very large Shopify merchants using our direct and native integration as well as smaller merchants that are going to use solution to markets, pro, once it goes into a general availability. So a lot of fraud in the head.

Speaker 4: Got it. And then wanted to follow up on your comment just now on EbitDun and EbitDunMarge. And it sounds like you're being a little bit more conservative in the way that you're forecasting that for 23. First, can you talk about why that is and more importantly, perhaps, what your levers are that you can pull and as you go through the year. And we typically, we're beautifully been able to find leverage in the business. And how are you thinking about moving that in 23? Thank you, James. Yes, we are being, to be honest, we've been always a bit more conservative with adjusted. EbitDunMarge, as you go to the bottom line, it's much more sensitive to any top line change. And we have been consistent with that this year as well, especially due to the macro uncertainty. We see the fluctuations in 2022. And to be honest, we haven't seen any change in the macro environment. It remains challenging. And it remains a flange to any, it continues to flange. So we've been a bit more cautious on the adjusted EbitDunMarge side. We do have quite a few levers to pull that we have been pulling and we will continue to pull in 2023.

Speaker 4: We are leveraging economies of scale to improve our growth margins, so we do not expect the same level of improvement that we had in 2022, but we do have some room to maneuver there. And we are very cautious and disciplined with managing the expense side, the op-ex side. So we do, and that coupled with the mix of the business that might change a bit to the positive side, creates potential for additional upside on adjusted EBITDA. Great, appreciate that, over. Thank you. We take an next question from the line up. Kogi Ikera with Bank of America. Please go ahead.

Speaker 6: Hey, Mayor Hale, thanks for taking the questions. Congrats on your 10-year milestone. Just a couple of questions from me. I wanted to go back to that Shopify partnership that you have. Just really kind of thinking about the Direct3P versus the white label 1P. I want to understand the nuances between those two offerings a little bit better from what is offered within those products and from the modernization perspective. And then just to really kind of clarify here, you know, when we listen to Shopify talk about markets and market pro, are those just fully globally powered? I mean, is there anything else within those that we should be thinking about?

Speaker 7: Yeah, so I would start with the first question. It's near, thank you for the question. Related to a 3P or a direct integration, this is our current offering that has been running with us for the last 10 years, that complements larger enterprise brands. It has an ability to customize, it has customer services related to it, dedicated team behind it of specialized success managers that are trained on international to support our client growth. For this solution, we also customize elements of the solution according to a specific client requirements. The 1P is actually an out-of-the-box solution that is being sold directly by Shopify, not by us. It has all the basic functionalities to support merchant on record services with all the...

Speaker 7: with all the capabilities of duty guarantee, as well as supporting local currencies, and attractive shipping offering. However, it is not customized for the specific needs of the clients, and the actual setting of it is driven by Shopify itself. So this would be the main differences. In terms of the second question, I do believe that we have a long runway on both products within Shopify. So once we complete bills on the one side and going to general availability on the SMB, one piece solution, there is a great runway with small emergence that today do not have an alternative solution to use. And on the 3P, I think that once we are deployed, in full, into checkout one, as well, we will be able to utilize additionally out which would Shopify to give a better solution to those clients as well. So quite a lot of runway ahead. And so if I may stand here. Yeah, I'll just complete maybe Kodjian on the second part as well, just to make sure that there is...

Speaker 4: There's no confusion. So Shopify Markets Pro is essentially the solution that is powered behind the scenes by globally based on the technology that we acquired when we acquired flow commerce. Shopify Markets is a separate offering that Shopify have on their own, which is unrelated to globally, but that's a non-merchant of record solutions. It's only a set of capabilities that Shopify provide for merchants that they can manage set up in control by themselves, but it's not a mercenaries record solution and it's not a full end-to-end solution like Shopify Markets Pro. Hopefully that makes sense.

Speaker 7: global brands towards partners with us to support the global expansion journey. However, in parallel to it, we do see many direct to consumer brands coming out of Shopify, growing very fast, that are joining us as part of our exclusivity with Shopify. So overall, we do see a slight increase in the average size of the client. However, it's not a complete change. I think it's kind of balancing each other, the growth we see within, I would say, mid-sized clients as well as some of the world's largest brands that are moving towards the D2C model with us. That's great perspective. Maybe to follow up, I know it would flow in Shopify and order free, there's a lot of synergies that are potentially coming. How do we think about the ramp of those in 2023, even on a qualitative basis or those maybe having a bigger impact in 2024 beyond it? I'd love to understand your confidence level in those synergies. Thanks, guys. So going into 2023, we are not breaking down the guidance with different segments. However, we can't say that we do expect, we hope and expect that the SMB...

Speaker 8: the likes of PayPal and sales force that Europe is expected to be a little bit weaker this year, just how you're contemplating and just kind of how trends there are expected to shape up.

Speaker 4: Yes, Josh. So, yes, demand is in Europe has been a bit weaker throughout 2022 and we expect that to continue into 2023 as well. Our ever, we didn't see any decrease.

Speaker 4: in the last few months, so it's more or less stabilized in the last few months. And as we said, we have embedded in our guidance also the democroons certainty. So, you know, we need to wait and see which direction it goes. But yes, it's a bit lower than it has been previously.

Speaker 8: Okay. Very helpful. And then just to follow up on Gross margins. From what I remember, border free was supposed to be a bit of a governor for the 6th, 12 month period post acquisition. Obviously we're through about half of that now I believe. You still have quite good expansion on a year of a year basis.

Speaker 8: It looked at the gross margin line. So as we look into 23, how should we be contemplating the gross margin trends?

A peak in terms of our investment as we hope to and expect to launch it in the next few months and also in our.

Enterprise.

<unk> and the integration of border free into globally.

Hi.

Really helpful. Thank you and then just last one.

Apologies, if I missed it but could you provide any level of detail just in terms of say like.

Helping us get to the organic constant currency kind of like revenue growth profile of your firm in terms of this quarter.

Expectations for 2023, just like any details in terms of inorganic contribution on what you're assuming for FX would be helpful.

We had the slide.

Positive effects from currency rates in Q4.

But it wasn't very significant.

And as.

As we said going forward.

We expect the N D are to be at.

138, plus and I think this this reflects the pace of organic growth.

That we have or that is build out of same store sales, but also expansion.

Two new geographies of existing merchant.

Yeah.

Thank you.

Thank you.

We have reached the end of the question and answer session, ladies and gentlemen, and I'd now like to turn the floor back over to Amish Lockheed for closing comments.

How about yourself.

Thanks, and thank you everyone for joining us today for your interest and your questions.

Your continued support as we embark on our second decade, we could not be more excited with the tremendous opportunities that lie ahead of us and which are ours to take in 2023 and beyond as.

As such we very much look forward to seeing you all again on our future earnings call until then goodbye and take care.

Yeah.

Thank you.

Ladies and gentlemen. This concludes today's teleconference. You may disconnect your lines at this time thank.

Thank you for your participation.

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