Global-e Online Ltd. (NASDAQ:GLBE) Q3 2023 Earnings Call Transcript

Global-e Online Ltd. (NASDAQ:GLBE) Q3 2023 Earnings Call Transcript November 15, 2023

Global-e Online Ltd. beats earnings expectations. Reported EPS is $-0.2, expectations were $-0.24.

Operator: Welcome to the Global-e’s Third Quarter 2023 Earnings Call. This call is being simultaneously webcast on the company’s website in the Investors section under News and Events. For opening remarks and introductions, I will now turn the call over to Erica Mannion at Sapphire Investor Relations. Please go ahead.

Erica Mannion: Thank you, and good morning. With me today from Global-e are Amir Schlachet, Co-Founder and Chief Executive Officer; Ofer Koren, Chief Financial Officer; and Nir Debbi, Co-Founder and President. Amir will begin with a review of the business results for the third quarter of 2023. Ofer will then review the financial results for the third quarter of ’23, followed by the company’s outlook for the fourth quarter and full year of 2023. We will then open the call for questions. Certain statements we make today may constitute forward-looking statements and information within the meaning of Section 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 and our prospectus filed with the SEC on September 13, 2021, and other documents filed 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 these statements are made or to reflect the occurrence of unanticipated events. Please refer to our press release dated November 15, 2023, for additional information. In addition, certain metrics will be discussed 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. 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 November 15, 2023. 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 15, 2023.

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

Amir Schlachet: Thank you, Erica, and welcome, everyone, to our Q3 earnings call. We delivered a strong third quarter with 35% of growth in GMV and 76% growth in adjusted EBITDA on the back of improved profitability margins and strict cost control. In addition, during the quarter, we made major advances along all our strategic vectors. Despite the continued strong growth for a combination of macro-driven reasons, GMV and revenues for the quarter fell slightly short of our guidance range, which also leads us to a slight downward revision of our annual GMV and revenue forecast. But at the same time, our adjusted EBITDA came in above the guidance range, and we are also raising our adjusted EBITDA forecast for the year. A testament to the strength and durability of our business model as we continue on our path towards reaching our long-term adjusted EBITDA margin target while sustaining high and durable growth.

Before we dive in deeper into the results, I would first like to express my personal whole hearted thank you to the many of you who have reached out to us through various channels over the past few weeks. In the wake of the unimaginably barbaric attacks by Hamas terrorists on Israeli civilians that took place on October 7. Your compassion, support and generosity are hot warming and give us raise of light during these dark times. The atrocities of October 7 and the inevitable subsequent military conflict have impacted a lot of Israeli families. Ever since the attack took place, we have taken many actions to both ensure the safety of well-being of our team members and their families and to extend our support to the broad communities that have been impacted.

From a business operations perspective, while some of our Israeli colleagues have been called for active reserve duty, there has been no impact on our ongoing activities, and our business continues to operate as usual. As you know, and as our company name suggests, Global-e is truly a global organization, working natively in diverse teams spread across more than 20 locations around the world with only about half of the workforce located in Israel. Through the resilience of our incredible global team, the business continuity plans we have in place and the fact that all our infrastructure is cloud-based, we expect no impact on our business even as the world continues. In any case, I’m certain you will all join me in wishing for better and more peaceful times to come soon.

Switching to our quarterly business results and outlook and starting off with GMV. On the one hand, our business continued to fire on all cylinders during Q3 without any slowdown in the pace in which new merchants signed up and went live. But on the other hand, we did encounter a stronger-than-expected macroeconomic headwinds during September and part of October, which negatively impacted same-store sales growth, reversing the trend we have seen during Q1 and Q2. The main impact came in the form of softening consumer demand in European markets as well as overall weaker demand in the luxury fashion segment. In total, our GMV for the quarter amounted to $839 million, representing a high pace growth rate of 35% year-on-year. Total revenues for the quarter also came in below our guidance, totaling $133.6 million, up 27% year-on-year.

Apart from the GMV shortfall caused by the macroeconomic headwinds I just mentioned, revenue growth was further affected by a lower blended take rate in the quarter. Before I continue, I would like to mention that while we are still not in a position to provide concrete guidance for fiscal year 2024, starting late October and over the past few weeks, we have seen positive signs indicating a possible recovery in consumer spending towards the peak trading season with same-store sales figures bouncing back. We also have reason to believe that the overall take rate we are seeing in the second half of this year will remain relatively stable into next year. So while the short fall in GMV in Q3, combined with the prevailing macro-related uncertainty levels around consumer spending have forced us to revise our annual guidance slightly downwards.

We nevertheless believe that these early positive indications over the past few weeks, to together with the continued strength of our many growth engines and our new bookings will enable our growth rates to accelerate going forward and into 2024. Moving forward, further story down the P&L. Our non-GAAP gross profitability margin continued to expand, coming in at 44.4% versus 41.5% and in Q3 of 2022, driven in part by the favorable revenue mix as well as our continued efforts to drive efficiencies and optimizations thanks to our growing economies of scale. This, in conjunction with our continued tight cost control and best-in-class operational efficiency yielded an adjusted EBITDA margin of 16.5% for the quarter compared to 11.9% in the same quarter last year.

In dollar terms, adjusted EBITDA in the quarter amounted to $22.1 million, a staggering 76% growth year-on-year, beating the top of the forecasted range and representing the strength of our business model and its ability to sustainably generate durable, fast-paced and profitable growth. As you will see when Ofer provides our detailed full year guidance. In 2023, we expect to make a large stride towards achieving our long-term profitability, adjusted EBITDA target, as in the span of the year we moved from 11.9% in 2022 to over 16% forecasted for 2023. Given the immense market opportunity ahead of us, our clear market leadership position and the top notch execution abilities of our global teams, we firmly believe in our ability, to continue on this durable and profitable growth trajectory, well into the future.

Beyond the financial metrics, I would also like to give you a few updates on our strategic posture and main initiatives. As I mentioned earlier, during the third quarter, we continue to onboard many new merchants, across all different markets and verticals. In Europe, we launched with many new brands during Q3, including the iconic U.K. fashion brand, Ted Baker, the French fashion icon, Lacoste in its cooperation with UNDW3 as well as with the French racing watches brand, Depancel, eco-friendly clothing brand, Balzac Paris, the Spanish brand, Polin et Moi and the iconic Italian luxury brand, Paul & Shark and many more. In the U.S., we went live among others with the American Fashion house, Tory Burch, the jewelry brand, Moon Magic, the online watches store of Guess, the sustainable footwear and bags brand Rothy’s, the leading women-owned and women-led fashion brand, Frank and Eileen as well as the known California Denim brand AG Jeans.

We also continued our expansion to additional verticals such as consumer electronics, with the recent launch of the iconic audio brand, [Bang & Olufsen]. In terms of our expansion into APAC, Q3 so many advances as well. As we continue to strengthen our presence in this fast growth region. In Australia, we launched with many new brands this quarter, including Kotomi Swimwear, plus-size fashion brand, Taking Shape, emerging high-end fashion brand, Short-term St. Agni, kids clothing brand, Chloé and Amélie, and the popular Fast Fashion brand, Hello Moly. Japan saw some exciting new launches as well, including the world famous diary and stationery brand, Hobonichi, the innovative sneaker brands of One & Only and Grounds, lingerie Emervel and others.

Further in the region, we also launched with an additional Korean fashion brand called Bsrabbit as well as with the Hong Kong-based organic newborn clothing brand, The Wee Bean. During the quarter, we also continued to expand our activity with existing merchant groups as we went live with three new masons from the LVMH Group, jewelry brand Repossi and the fashion brand Emilio Pucci and Patou. We also went live with the U.K. luxury brand, Parody, which is part of the Richemont Group. These are just a few select examples. As we are once again headed towards a record year in terms of new bookings and with a growing pipeline of new opportunities across different verticals and dozens of geographies, we firmly believe that we are just at the beginning of capturing the massive and growing opportunity in cross-border e-commerce.

Moving on to additional elements of our strategic road map. We have continued to expand our strong partnership with Shopify across all domains. On the third-party side, our partnership agreement with Shopify has been renewed for another year, and we are nearing completion of the migration of all our Shopify based merchants into the new native solution. We have also launched the first phase of our integration into Shopify’s new state-of-the-art Checkout extensibility feature in close collaboration with Shopify engineering teams and expect to complete the rollout of this exciting new capability by the end of 2023. But the bigger news this quarter came on the first-party side or Shopify Markets Pro, which was successfully launched into general availability for U.S. merchants in September.

Markets Pro has been well received by the Shopify merchant community, and we believe it will be the primary driver for merchants who want to expand their reach to consumers worldwide. This innovative solution enables merchants to create a highly localized international consumer experience across all markets without worrying about the complexities of international, duties and taxes compliance, international payment fraud, international shipping and so on. This comprehensive offering is addressing a clear and business centric need for countless merchants. And as such, we expect it to continue growing rapidly over many years to come. Besides supporting the launch, our teams continue to work closely together with Shopify’s teams to further enhance the set of capabilities available, to these merchants and to enable Shopify markets grow, for merchants based in additional markets outside the U.S. next year.

In terms of our overall technology stack, as always, we continue to invest in building new features and extending the functionality and interoperability of our platform, for the benefit of both our existing and our prospect merchants. A few notable examples would be our new integration with the payment gateway, crypto.com, which will allow relevant merchants to accept crypto currencies as payment methods in the checkout. Other notable examples would be our improved support for long-term product preorders via payment card tokenization, and our recently added capability to support orders, which contain products that are shipped from multiple hubs located in different countries as part of a unified shopping basket, enabling global merchants to optimize the delivery experience based on their global inventory footprint.

In parallel, we continue to expand our addressable market via integrations to additional platforms. The latest outcome of this ongoing effort is our first pilot merchant on the Wix platform, which is now in live testing, onboarded by means of our newly developed easy-to-use plug-in for weeks-based merchants, ensuring a simple integration process into this popular platform. In light of all these developments and others, as well as many exciting opportunities we are eager to pursue. We continue to expand both our technological teams and our commercial teams around the globe. But as always, we remain committed to doing so in a durable and sustainable way, as is evident from our consistent cash generation and adjusted EBITDA hyper growth. And with that, I will now hand it over to Ofer to take you through the quarterly figures in more depth, as well as present our updated guidance.

Ofer Koren: Thank you, Amir, and thanks again, everyone, for joining us today for our quarterly earnings call. First, I would also like to thank many of you who have expressed support and empathy vis-a-vis the murderous attack on innocent civilians we experienced on October 7. As for our Q3 results, while our top line results came in slightly below our guidance range, driven mainly by softer consumer demand in September, our business model continues to demonstrate its robustness. As Amir stated, we believe that in the coming quarters, growth will accelerate, supported by the rapid growth of Shopify Markets Pro, the continued expansion of the globally enterprise business, and the improvement of consumer sentiment we’ve witnessed since late October.

In parallel, we have witnessed in Q3, a continued improvement in our bottom line results, with adjusted EBITDA coming in above the guidance range. I’d like to point out again that in addition to our GAAP results, I’ll also be discussing certain non-GAAP results. Our GAAP financial results, along with the reconciliation between GAAP and non-GAAP results can be found in our earnings release. As said, our rapid growth in GMV continued in Q3 with $839 million of GMV generated on our platform, an increase of 35% year-over-year. The growth pace was slightly lower than our guidance range, driven by a decrease in same-store sales starting early September due to weakness in luxury goods demand and softness in European consumer demand. In Q3, we generated total revenues of $133.6 million, up 27% year-over-year.

Service fee revenues were $62.4 million, up 31% year-over-year and fulfillment services revenue were up 23% to $71.2 million. While service fee take rate increased, compared to Q2, fulfillment take rate continued to decrease, mainly driven by the continued growth of our multi-local services, as well as some shift towards standard shipping, which inherently drives the lower fulfillment take rate, compared to express shipping. As I mentioned, we believe that in the coming quarters, growth will accelerate, driven by the rapid growth of Shopify Markets Pro, the continued expansion of the globally enterprise business and the improvement of consumer sentiment we have witnessed since late October, which resulted in improved same-store sales. Non-GAAP gross profit continues to outpace revenue growth driven by the higher share of service fees and improved efficiencies.

In Q3, non-GAAP gross profit was $59.3 million, up 36% year-over-year, representing a gross margin of 44.4% compared to 41.5% in the same period last year. GAAP gross profit was $56.5 million, representing a margin of 42.3%. Moving on to operational expenses. We continue to invest in our platform services and product capabilities. In Q3, we strengthened the effort around the Shopify markets pro white label solution, which went into general availability in the U.S. as of September. R&D expense in Q3, excluding stock-based compensation, was $18.2 million or 13.6% of revenue compared to $16.6 million or 15.7% in the same period last year. Total R&D spend in Q3 was $24.9 million. We also continue to invest in sales and marketing to support and expand our pipeline while maintaining efficiencies.

Sales and marketing expense, excluding Shopify-related amortization expenses, stock-based compensation and acquisition-related intangibles amortization was $12.9 million or 9.6% of revenue compared to $9 million or 8.5% of revenue in the same period last year. Shopify warrant related amortization expense was $37.4 million. Total sales and marketing expenses for the quarter was $53.6 million. General and administrative expenses, excluding stock-based compensation, acquisition-related expenses and acquisition-related contingent consideration was $6.7 million or 5% of revenue compared to $6.2 million or 5.9% of revenue in the same period last year. Total G&A spend in Q3 was $13.6 million. Our overall operational expenses, excluding stock-based compensation, Shopify-related amortization expenses, acquisition-related expenses and acquisition-related contingent consideration stood at 28% versus 30% in the same quarter last year, moving towards our long-term efficiency target of 25%.

Although our top line results are slightly under our guidance range, our business model continues to demonstrate its resilience. Adjusted EBITDA totaled $22.1 million, growing 76% year-over-year representing a 16.5% adjusted EBITDA margin compared to $12.5 million or 11.9% margin in the same period last year. Net loss was $33.1 million compared to a net loss of $64.6 million in the year ago period. Net loss is driven mainly by the amortization expenses related to the Shopify warrants and to the transaction-related intangibles. Switching gears and turning to the balance sheet and cash flow statement. We’ve ended Q3 2023 with $253 million in cash and cash equivalents, including short-term deposits and marketable securities. Our business model strength continues to translate into cash generation as cash flow generating by operating activities was $26.6 million compared to $0.5 million used a year ago.

Moving on to our financial outlook and guidance for Q4 2023 and our updated 2023 full year guidance. For Q4 2023, we’re expecting GMV to be in the range of $1.125 billion to $1.175 billion. At the midpoint of the range, this represents a growth rate of 37% versus Q4 of 2022. We expect Q4 revenue to be in the range of $178 million to $186 million. At the midpoint of the range, this represents a growth rate of 30% versus Q4 of 2022. For adjusted EBITDA, we are expecting a profit in the range of $31.5 million to $36.5 million. For the full year of 2023, we are updating our guidance. We anticipate GMV to be in the range of $3.49 billion to $3.54 billion, representing 44% annual growth at the midpoint of the range. Revenue is expected to be in the range of $563 million to $571 million, representing a growth rate of nearly 39% at the midpoint of the range.

For adjusted EBITDA, we are raising our guidance and expecting a profit of $89.1 million to $94.1 million, representing a hyper growth rate of 88% year-on-year at the midpoint of the range, which will in turn translate into a year of strong positive cash flow generation. In conclusion, we continue to enhance our offering and tap into the massive potential of the direct-to-consumer cross-border opportunity. We aim to continue our rapid growth while improving efficiencies and generating cash. And with that, Amir and I are happy to take any of your questions. Operator?

Operator: [Operator Instructions] Our first question comes from James Faucette with Morgan Stanley. Please proceed with your question.

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Q&A Session

Unidentified Analyst: Hi, everyone. It’s [Michael Fontaine] on for James. Thanks for taking our question. Given Shopify’s commentary and your commentary on Markets Pro, I’d be interested if you could unpack what you saw in the quarter from a same-store sales perspective and perhaps the magnitude of recovery you saw in late October and how that’s informing the 4Q outlook. Thanks.

Amir Schlachet: Thank you for the question. As we mentioned, during the call what we saw is the weakness in same-store sales growth that came mainly from consumer sentiment in Europe and also for the luxury segment, pretty much across the board. This is – this was also in addition to that, was also a shift in our own mix towards merchants that are using our multi-local offering, which is inherently has a lower fulfillment take rate. So these were kind of the main factors that impacted that figure. As we mentioned also, if we look forward towards Q4 and onwards, since late October, we did see some positive signs and reversal of these trends with an improvement in same-store sales. So we do believe that in the coming quarters, growth will accelerate. And that combined with the growth in Shopify markets Pro and our strong enterprise pipeline gives us the confidence in the dynamics going forward.

Unidentified Analyst: Got it. That’s helpful. And maybe just on the near-to medium-term outlook for net dollar retention. How are you thinking about the persistence of this 30% level over the medium term? The thing I’m thinking through is, is it more reasonable to assume that as new merchant GMV grows given the market’s Pro ramp will the mix of your revenue caused some NDR degradation? And if so, by how much?

Ofer Koren: Looking into this year to 2023, as we said, we did see some softness in September and then in the first part or most of October, and that is reflected in lower same-store sales. However, we still think that in 2023, we do expect our annual NDR to be close to 130 as we previously communicated. And looking forward, to be honest, we are currently working on our budget for 2024. However, we can already say that we do believe that our NDR will remain close to 130% next year as well. And as I said, this, along with our strong enterprise pipeline and the growth of markets flow gives us confidence in our ability to accelerate our growth in the coming quarters.

Unidentified Analyst: That’s great. Thank you, all.

Operator: Our next question comes from Samad Samana with Jefferies. Please proceed with your question.

Samad Samana: Great. Good morning. Thanks for taking my questions. Maybe first, just following up on Shopify Markets Pro. Can you help us understand maybe how you’re thinking about the GMV ramp in the fourth quarter? And I think Shopify has mentioned in the thousands in terms of initial customers? And maybe what kind of month-over-month momentum you’ve seen since the go live in September. And I know, we don’t want to get carried away, but just understanding maybe what the early momentum looks like and maybe what kind of GMV you’re assuming in, let’s call it, the first few quarters, just to think about trends. And I have one follow-up?

Nir Debbi: Hi Samad. Thank you for that. As Amir mentioned on the call, Shopify Markets Pro achieved a significant milestone in Q3 after almost two years of development for both our team and the Shopify team and is now generally available for merchants in the U.S. Since then, we have onboarded, as Harley mentioned, thousands of merchants who are now able to sell internationally in a simple and seamless way. Given the fact that Markets Pro became generally available only late this quarter, the contribution in Q3, is actually very, very limited. However, we do expect significant contribution to our growth next year and the coming years. But it’s still early days, and it will be reflected in our guidance for 2024.

Samad Samana: Great. And then maybe just as a follow-up, Wix is obviously another large platform with a lot of e-commerce stores. I’m curious maybe how we should think about the rents there. I know it’s just at the very first pilot customer. But any way you can maybe quantify what the size of that is? And is there — how should we think about that, the economic relationship there versus something like a Shopify, just to maybe help us frame the opportunity?

Amir Schlachet: Sure. Then we did, as you mentioned, launched a first pilot client, which is very, very early days in order to speak about expectation on commercial uplift to come out of it, but we did build a very robust integration in partnership with the Wix team. The relationship with Wix is quite close to what we have with most platforms such as Salesforce formula [ph] for hybrid or others in the method of partnership and work We do expect it to contribute towards growth in 2024. I think, we don’t expect it to be the same effect as we would expect from Shopify Markets Pro at the same scale, but we do expect it, to give us some incremental growth.

Samad Samana: Great. Thank you. And wishing you and the whole Global-e family well.

Amir Schlachet: Thank you very much, Samad.

Operator: Our next question comes from Scott Berg with Needham & Company. Please proceed with your question.

Scott Berg: Hi everyone. Thanks for taking my questions. And I certainly echo the sentiments and best of luck with the challenging situation there certainly. I guess a couple of questions here. Let’s start off with just the net new business. How should we think about net new logo kind of bookings, new customer wins here in the quarter and maybe year-to-date versus your expectations?