Global-E(GLBE) - 2021 Q4 - Annual Report

PART I Key Information This section outlines the principal risks and uncertainties affecting the company's business, operations, and financial condition, categorized into business and industry, general operations, ordinary shares, and factors related to its Israeli incorporation Risk Factors The company faces numerous risks including sustaining rapid growth, retaining merchants, integrating acquisitions, managing international operations, navigating complex regulations, and mitigating financial and operational risks from third-party reliance, cybersecurity, and geopolitical instability - The company has experienced rapid growth, with revenue increasing by 107.1% in 2020 and 79.9% in 2021, and GMV growing by 103% and 87% in the same periods, though future performance may not reflect these rates[55] - A significant risk is the ability to retain existing merchants, as the largest merchant accounted for 10% of total GMV and 13% of total revenues in 2021, with contracts typically allowing termination with 30 to 180 days' notice[57] - The business is susceptible to risks associated with international operations, including compliance with local laws, tariffs, customs, data privacy regimes, and foreign exchange fluctuations across over 200 destination markets[93][95] - The company relies on third-party services for critical functions, including shipping partners (like DHL, which handled 58% of parcels in 2021), payment processors, and a single third-party provider for cloud infrastructure, creating dependency risks[96][120][124] - The company is subject to a complex and evolving global regulatory landscape concerning data privacy (GDPR, CCPA, PIPL), export controls, sanctions, and taxation, which could increase costs and liabilities[108][136][195] - The military conflict in Ukraine poses a risk, as some of the company's R&D team members are located there, potentially affecting development and support capacities, and has led to the suspension of services in Ukraine and Russia[149][151] - There is a risk of being classified as a Passive Foreign Investment Company (PFIC), which could result in adverse U.S federal income tax consequences for U.S shareholders, though the company believes it was not a PFIC for 2021, this is an annual determination[222][624] Information on the Company This section provides a comprehensive overview of Global-e's business, detailing its history, platform, competitive advantages, growth strategy, end-to-end D2C cross-border e-commerce solution, organizational structure, and physical properties History and Development of the Company Global-E Online Ltd was incorporated in Israel in 2013, completed its IPO in May 2021, and acquired Flow Commerce Inc for up to approximately $500 million in January 2022 to expand its addressable market to smaller brands - The company was incorporated in Israel on February 21, 2013, and completed its initial public offering in the United States in May 2021[250][251] - On January 3, 2022, the company closed its acquisition of Flow Commerce Inc for an aggregate purchase price of up to approximately $500 million in cash and shares, intended to expand offerings to small and emerging brands[253] Business Overview Global-e provides a leading platform for direct-to-consumer (D2C) cross-border e-commerce, designed to localize the online shopping experience and remove complexities for merchants, supporting over 30 languages, 100 currencies, and 150 payment methods, leading to significant international sales conversion uplift for its 650+ merchants, with a business model aligned with merchant success, reflected in a Net Dollar Retention Rate of 152% and Gross Dollar Retention over 98% in 2021, and key growth strategies including expanding with existing merchants, acquiring new ones, entering new geographies like APAC, and continuous platform innovation - The company's platform is designed to enable and accelerate global D2C cross-border e-commerce by localizing the shopper experience, which has been shown to increase merchants' international traffic conversion by over 60%[254][259] Key Business Metrics (2019-2021) | Metric | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | GMV | $382M | $774M | $1,449M | | Revenues | $65.9M | $136.4M | $245.3M | | Gross Profit | $18.7M | $43.5M | $91.4M | | Gross Margin | 28.3% | 31.9% | 37.3% | | Adjusted EBITDA | $(4.6)M | $12.6M | $32.4M | - The company demonstrates strong customer loyalty and growth, with a Gross Dollar Retention Rate consistently over 98% since 2018 and a Net Dollar Retention Rate of 152% in 2021[262] - The company's growth strategy focuses on four key pillars: growing with its existing merchant portfolio, acquiring new merchants, expanding into new geographies (e.g, APAC) and brand segments, and driving continuous platform innovation[288][289][291][295] - The competitive landscape includes in-house D2C solutions, other end-to-end platforms, legacy local distributors, and non-D2C online channels like marketplaces, with Global-e believing its holistic, data-driven solution provides a competitive advantage[318][322][323] Organizational Structure Global-E Online Ltd is the parent company with numerous wholly-owned subsidiaries across the globe, including key entities in the USA, UK, Singapore, Japan, France, and several other countries, reflecting its international operational footprint, with Flow Commerce Inc and its subsidiaries also part of this structure following its acquisition - The company operates through a network of wholly-owned subsidiaries located in key markets including the US, UK, Singapore, Japan, France, Canada, Australia, and China, supporting its global business[335][336][341] Property, Plants and Equipment The company does not own any real property, with its headquarters located in leased office space in Petah-Tikva, Israel, and plans to relocate to a larger facility in the same city in 2022, also leasing additional office space in Israel, the UK, and the U.S, and having arrangements for office use in France and Japan - The company is headquartered in a leased office space of approximately 17,425 sq ft in Petah-Tikva, Israel, and has entered into a new lease for a 73,948 sq ft facility in the same city, with an expected move-in during 2022[337] Operating and Financial Review and Prospects This section provides management's discussion and analysis of the company's financial condition and results of operations, detailing the business model, key performance indicators like GMV and Net Dollar Retention Rate, and factors affecting performance, including a comparative analysis of operating results for the fiscal years 2019, 2020, and 2021, a review of liquidity and capital resources, and a discussion on critical accounting estimates Key Performance Indicators (2019-2021) | ($ in millions) | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Gross Merchandise Value (GMV) | $382 | $774 | $1,449 | | Net Dollar Retention Rate | 134% | 172% | 152% | | Revenue | $65.9 | $136.4 | $245.3 | | Gross Profit | $18.7 | $43.5 | $91.4 | | Gross Margin | 28.3% | 31.9% | 37.3% | | Adjusted EBITDA | $(4.6) | $12.6 | $32.4 | - The business model is volume-based, with revenues derived from service fees (a percentage of GMV) and optional fulfillment services, aligning the company's success with its merchants' growth[349][350] - Key factors affecting performance include the continued growth in cross-border e-commerce, merchant retention and expansion, new merchant acquisition, geographic expansion, and investments in the platform[369] - The business experiences seasonality, with the fourth quarter historically being the strongest due to holiday shopping, accounting for approximately 35% of total GMV in 2021[83][370] Operating Results In fiscal year 2021, revenue grew 79.9% to $245.3 million driven by GMV, with gross profit margin improving to 37.3%, but the company reported an operating loss of $65.7 million and a net loss of $74.9 million primarily due to increased sales and marketing expenses including Shopify warrant amortization, contrasting with a net profit in 2020 Consolidated Statements of Operations Summary (in thousands) | | 2020 | 2021 | | :--- | :--- | :--- | | Revenue | $136,375 | $245,274 | | Gross Profit | $43,473 | $91,433 | | Total Operating Expenses | $35,060 | $157,091 | | Sales and marketing | $9,838 | $104,687 | | Operating Profit (Loss) | $8,413 | $(65,658) | | Net Profit (Loss) | $3,914 | $(74,933) | - Revenue for FY2021 increased by $108.9 million (79.9%) year-over-year, driven by GMV growth from both existing merchants ($399 million increase) and new merchants ($277 million)[385][386] - Sales and marketing expenses surged by 964% to $104.7 million in 2021, primarily due to an $84.3 million amortization expense related to the Shopify warrants[390] - Adjusted EBITDA, a non-GAAP measure, grew from $12.6 million in 2020 to $32.4 million in 2021, driven by revenue growth and operating leverage, excluding items like stock-based compensation and the Shopify warrant amortization[365][384] Liquidity and Capital Resources The company's liquidity was significantly strengthened by its May 2021 IPO, providing $401.1 million in net proceeds, resulting in $509 million in cash and equivalents as of December 31, 2021, and is deemed sufficient for future business needs despite a decrease in operating cash flow - The company completed its IPO on May 14, 2021, raising approximately $401.1 million in net proceeds[401] Summary Consolidated Cash Flow (in thousands) | | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $7,028 | $29,350 | $15,748 | | Net cash used in investing activities | $(452) | $(24,046) | $(40,489) | | Net cash provided by financing activities | $147 | $59,360 | $398,607 | - As of December 31, 2021, the company had $509 million in cash, cash equivalents, short-term deposits, and marketable securities, prior to the closing of the Flow acquisition[401] Research and Development, Patents and Licenses, Etc. Research and development activities, primarily in Israel, incurred $29.8 million in expenses in 2021 (12.1% of revenue), with absolute costs expected to rise but decrease as a percentage of revenue over time R&D Expenses as a Percentage of Revenue | Year | R&D Expense (% of Revenue) | | :--- | :--- | | 2019 | 18.3% | | 2020 | 11.3% | | 2021 | 12.1% | Trend Information Key industry trends include the structural shift to online retail, rapid cross-border e-commerce growth, and increased D2C emphasis, accelerated by COVID-19, though current macroeconomic factors like inflation and geopolitical conflict may negatively impact consumer spending - Key industry tailwinds include the shift to online retail, the rise of cross-border e-commerce, and the strategic importance of D2C sales for brands[418] - The COVID-19 pandemic accelerated the adoption of e-commerce, a trend expected to continue long-term despite potential short-term normalization as physical stores reopen[370][418] - Current global macroeconomic headwinds, including inflation, rising interest rates, and the situation in Ukraine, may negatively impact consumer sentiment and spending[418] Critical Accounting Estimates Management identifies critical accounting estimates in revenue recognition, share-based compensation, income taxes, and the valuation and amortization of the commercial agreement asset related to Shopify warrants - Key areas requiring significant management estimates include revenue recognition, share-based compensation, income taxes, and the valuation of the commercial agreement asset from the Shopify deal[421][422] - The commercial agreement asset, recognized from the Shopify warrant issuance, represents a probable future economic benefit valued at the fair value of vested warrants and is amortized over a four-year period[433][434] Directors, Senior Management and Employees This section details the company's leadership, board composition, compensation practices, and employee base, outlining key executive roles, board structure, and executive compensation framework under Israeli law, with 473 employees worldwide as of year-end 2021 Directors and Senior Management The company is led by co-founders Amir Schlachet (CEO), Shahar Tamari (COO), and Nir Debbi (President), who also serve on the board alongside other executives and non-executive directors with diverse industry experience - The leadership team includes co-founders Amir Schlachet (CEO), Shahar Tamari (COO), and Nir Debbi (President), who are all members of the board of directors[437][438][439][441] Compensation Executive and director compensation, governed by Israeli law and requiring multiple approvals, totaled approximately $8.9 million in 2021, supplemented by the 2021 Share Incentive Plan and Employee Share Purchase Plan for equity-based incentives - Aggregate compensation for executive officers and directors for the year ended December 31, 2021, was approximately $8.9 million[455] 2021 Compensation for Top 5 Covered Executives (in thousands) | Name and Principal Position | Base Salary ($) | Benefits ($) | Variable Comp ($) | Equity-Based Comp ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Amir Schlachet, CEO | 341 | 49 | 129 | 1,402 | 1,921 | | Shahar Tamari, COO | 340 | 79 | 129 | 1,402 | 1,950 | | Nir Debbi, President | 339 | 69 | 129 | 1,402 | 1,939 | | Ofer Koren, CFO | 340 | 88 | 129 | 1,105 | 1,662 | | Ran Fridman, CRO | 173 | 47 | 79 | 204 | 503 | - The company has adopted the 2021 Share Incentive Plan and the 2021 Employee Share Purchase Plan (ESPP) for granting equity awards, with 13,324,236 ordinary shares available for future grant under the 2021 Plan as of Dec 31, 2021[464][470][476] Board Practices As a foreign private issuer, Global-e follows Israeli corporate governance practices, opting out of external director requirements in favor of Nasdaq compliance, with a staggered board and established Audit, Compensation, and Nominating, Governance and Sustainability Committees - The company is a foreign private issuer and has elected to opt out of the Israeli Companies Law requirement to appoint external directors, instead complying with Nasdaq's director independence and committee composition rules[477][489] - The board of directors is divided into three classes with staggered three-year terms, with Class I directors' terms expiring in 2022, Class II in 2023, and Class III in 2024[482][483] - The board has established an Audit Committee, a Compensation Committee, and a Nominating, Governance and Sustainability Committee, with charters and compositions that align with Nasdaq and SEC requirements[490] Employees As of December 31, 2021, Global-e had 473 employees worldwide, with 260 in R&D and a global distribution of 282 in Israel and 191 internationally, reporting satisfactory labor relations without work stoppages Employee Headcount as of Dec 31, 2021 | Category | Number of Employees | | :--- | :--- | | Total Employees | 473 | | Research and Development | 260 | | Located in Israel | 282 | | Located Internationally | 191 | Share Ownership This section refers to Item 7.A for details on the share ownership of directors and officers and to Item 6.B for information on the company's equity incentive plans Major Shareholders and Related Party Transactions This section details the company's major shareholders, including Deutsche Post (DHL), Cross Ship (Vitruvian), Shopify, and Red Dot Capital as of March 2022, and significant related party transactions such as commercial agreements with DHL and Shopify, involving a warrant issuance Major Shareholders As of March 21, 2022, the company's major shareholders (over 5%) include Cross Ship S.à r.l (Vitruvian) with 14.03%, Deutsche Post Beteiligungen Holding GmbH (DHL) with 13.76%, Red Dot Capital Partners L.P with 9.47%, Shopify Inc with 9.28%, FMR LLC with 5.59%, and Abdiel Qualified Master Fund, LP with 5.50%, with executive officers and directors as a group beneficially owning 11.6% of outstanding shares Principal Shareholders (as of March 21, 2022) | Name of Beneficial Owner | Percentage of Outstanding Shares | | :--- | :--- | | Cross Ship S.à r.l. (Vitruvian) | 14.03% | | Deutsche Post Beteiligungen Holding GmbH (DHL) | 13.76% | | Red Dot Capital Partners L.P. | 9.47% | | Shopify Inc. and its affiliates | 9.28% | | FMR LLC and its affiliate | 5.59% | | Abdiel Qualified Master Fund, LP and its affiliates | 5.50% | | All executive officers and directors as a group | 11.6% | Related Party Transactions The company has several significant related party transactions, including a commercial agreement with DHL International, a major shareholder, for exclusive express shipping services, and a strategic partnership with Shopify, another major shareholder, making Global-e an exclusive third-party provider of end-to-end cross-border solutions on its platform, which involved the issuance of warrants to Shopify to purchase up to 19.6 million ordinary shares and was expanded in January 2022 in conjunction with the Flow acquisition - The company has a commercial agreement with DHL International GmbH, an affiliate of a major shareholder, for the exclusive provision of express shipping services[561] - A strategic partnership agreement with Shopify makes Global-e an exclusive third-party provider of end-to-end cross-border solutions for Shopify merchants, in connection with which Global-e issued warrants to Shopify to purchase up to 19,604,239 ordinary shares[564][567] - Concurrently with the acquisition of Flow, the company expanded its partnership with Shopify, making Flow the exclusive provider of certain natively integrated cross-border solutions for Shopify's small and emerging brands, and issued additional warrants to Shopify[569][571] Financial Information This section confirms the absence of material legal proceedings and outlines the dividend policy, stating the company has never paid dividends and intends to retain future earnings for operations and expansion - The company is not currently a party to any material litigation or regulatory proceedings[578] - The company has never declared or paid dividends and does not anticipate paying any in the foreseeable future, intending to retain earnings for growth[579] Additional Information This section covers supplementary corporate information, including material contracts, exchange controls, and a detailed overview of Israeli and U.S tax considerations relevant to the company and its shareholders Taxation This subsection details material Israeli and U.S federal income tax considerations, including Israel's 23% corporate tax rate, dividend withholding taxes for non-residents, potential capital gains exemptions, and the risk of Passive Foreign Investment Company (PFIC) classification for U.S Holders - The corporate tax rate for Israeli companies is 23%[595] - Dividends paid to non-Israeli residents are generally subject to a 25% withholding tax, which may be reduced by an applicable tax treaty, with the rate increasing to 30% for a "substantial shareholder"[605] - Non-Israeli residents are generally exempt from Israeli capital gains tax on the sale of shares listed on a foreign stock exchange, provided the shares are not held through a permanent establishment in Israel and other conditions are met[601] - The company believes it was not a Passive Foreign Investment Company (PFIC) for U.S tax purposes in 2021, but this is a factual determination made annually and no assurance can be given for future years[624] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is foreign currency exchange risk from multi-currency transactions, benefiting from a natural hedge but exposed to fluctuations, with no hedging in 2021, while interest rate risk is insignificant due to a lack of significant long-term loans - The company's main market risk is foreign currency exchange risk due to transactions in multiple currencies, benefiting from a natural hedge but remaining exposed to fluctuations[638] - Interest rate risk is considered insignificant as the company does not have significant long-term loans[637] - The company did not engage in hedging for its foreign currency exchange risk during the year ended December 31, 2021[640] PART II Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of December 31, 2021, with no management report or auditor attestation on internal control over financial reporting required yet as a newly public and emerging growth company - Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2021[647] - The annual report does not include a management assessment or auditor attestation on internal control over financial reporting, as permitted for newly public companies under SEC rules[648][649] Other Information This section covers various governance and compliance topics, confirming the presence of an audit committee financial expert, the adoption of a code of ethics, details of principal accounting fees, and the company's status and practices as a foreign private issuer Audit Committee Financial Expert The board of directors has determined that Ms Tzvia Broida qualifies as an audit committee financial expert as defined by SEC rules and possesses the requisite financial experience under Nasdaq corporate governance rules - The board has identified Ms Tzvia Broida as the audit committee financial expert[651] Code of Ethics The company has adopted a Code of Business Conduct applicable to all employees, officers, and directors, available on its investor relations website, with no waivers granted in 2021 - A Code of Business Conduct has been adopted and applies to all directors, officers, and employees[653] Principal Accounting Fees and Services This subsection details fees paid to the independent registered public accounting firm, Kost, Forer, Gabbay & Kasierer, which significantly increased from $315,000 in 2020 to $1,840,000 in 2021, primarily due to audit and audit-related fees for the IPO and secondary offering Principal Accountant Fees (in thousands) | Fee Category | 2020 | 2021 | | :--- | :--- | :--- | | Audit Fees | $303 | $1,300 | | Audit Related Fees | - | $510 | | Tax Fees | $12 | $30 | | All Other Fees | - | - | | Total | $315 | $1,840 | Corporate Governance As a foreign private issuer, Global-e complies with Israeli corporate governance practices but opts out of certain Israeli requirements, like external directors, to align with Nasdaq rules for U.S domestic issuers, utilizing the foreign private issuer exemption for a 25% shareholder meeting quorum - The company relies on the "foreign private issuer exemption" for the shareholder meeting quorum requirement, setting it at 25% of total voting power, lower than the Nasdaq standard of 33 1/3%[670] PART III Financial Statements This section contains the company's audited consolidated financial statements for the fiscal years ended December 31, 2019, 2020, and 2021, prepared in accordance with U.S GAAP, including the independent auditor's report, consolidated balance sheets, statements of operations, comprehensive income, changes in shareholders' equity, and cash flows, along with detailed notes to the financial statements Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2020 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $153,098 | $622,460 | | Cash and cash equivalents | $68,637 | $448,623 | | Total Assets | $161,295 | $846,127 | | Total Liabilities | $93,252 | $150,377 | | Total Shareholders' Equity (Deficit) | $(44,510) | $695,750 | Consolidated Statement of Operations Highlights (in thousands) | | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Revenue | $65,852 | $136,375 | $245,274 | | Gross Profit | $18,664 | $43,473 | $91,433 | | Operating Profit (Loss) | $(4,951) | $8,413 | $(65,658) | | Net Profit (Loss) | $(7,544) | $3,914 | $(74,933) | | Net Earnings (Loss) per Share, Diluted | $(0.38) | $0.03 | $(0.74) | Consolidated Statement of Cash Flows Highlights (in thousands) | | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $7,028 | $29,350 | $15,748 | | Net cash used in investing activities | $(452) | $(24,046) | $(40,489) | | Net cash provided by financing activities | $147 | $59,360 | $398,607 | - A significant subsequent event was the closing of the Flow Commerce Inc acquisition on January 3, 2022, for a total value of up to approximately $500 million in cash and shares[855][856]