News Column

BORDERFREE, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 9, 2014

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our final prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, with the Securities and Exchange Commission on March 21, 2014.



Forward-looking Statements and Risk Factors

The following discussion and analysis is intended to provide greater details of our results of operations and financial condition and should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this document. Certain statements in this Quarterly Report constitute "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995, and as such, involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include any expectation of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; factors that may affect our operating results; statements related to adding employees; statements related to future capital expenditures; statements related to future economic conditions or performance; statements as to industry trends and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. These statements are often identified by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may" or "will," and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed in the section titled "Risk Factors" included in Item 1A of Part II of this Quarterly Report on Form 10-Q, and the risks discussed in our other SEC filings. We urge you to consider these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report on Form 10-Q. These statements are based on the beliefs and assumptions of our management based on information currently available to management. The forward-looking statements included in this Quarterly Report are made only as of the date of this Quarterly Report. All subsequent written or oral forward-looking statements attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.



Business Overview

We are a market leader in international cross-border ecommerce, operating a proprietary technology and services platform to enable U.S. retailers to transact with consumers in more than 100 countries and territories worldwide. Our customers, the retailers and brands that integrate our solution, use our highly scalable Borderfree platform to develop a seamless global ecommerce business across web, mobile and in-store channels to transact with international shoppers, who we refer to as consumers. Borderfree manages all aspects of the international shopping experience, including site localization, multi-currency pricing, payment processing, fraud management, landed cost calculation, customs clearance and brokerage, and global logistics services while maintaining the integrity of our customers' brands and the consumer experience. Our integrated cross-border solution enables retailers to begin selling internationally typically within 90 days without the need to invest in expensive infrastructure, software, in-house compliance expertise or international vendor relationships. In addition, as a result of our scale and experience in international ecommerce, we have amassed a substantial amount of data that enables us to provide actionable marketing and merchandising insights to our customers to help grow their global sales. We generate revenue from the provision of ecommerce and fulfillment services which are directly attributable to the gross merchandise volume, or GMV, processed through our platform. We derive ecommerce revenue from fees paid to us by our customers based on a percentage of their total gross international sales, which represents the portion of GMV related to retail product volume processed through our technology and services platform. At March 31, 2014, substantially all of our customers were U.S.-based retailers engaged in international cross-border ecommerce. Our customer contracts typically have multi-year initial terms ranging from one to four years, followed by one-year renewal periods. We generate additional ecommerce revenue from foreign exchange services and other transaction based fees from consumers who visit our customers' websites and make a purchase. We also derive, from the consumer, fulfillment services revenue from international shipping, handling, and other global logistics services resulting from the ecommerce transactions processed through our platform. 19 --------------------------------------------------------------------------------



Initial Public Offering

In March 2014, we closed our IPO, of 5,750,000 shares of common stock, which included 750,000 shares sold pursuant to the underwriters' option to purchase additional shares, at an offering price of $16.00 per share. All outstanding shares of our convertible preferred stock converted to 20,872,628 shares of common stock at the closing of the IPO. Our shares are traded on NASDAQ. We received proceeds from the IPO of $85.6 million, net of underwriting discounts and commissions but before offering expenses of $3.1 million. Offering expenses at December 31, 2013 of $1.8 million were recorded as current assets. These offering expenses, and additional expenses incurred from January 1, 2014 through the closing of the IPO of approximately $1.3 million, have been recorded as additional paid-in capital. Overview Key Metrics Three Months Ended March 31, 2014 2013 (Dollars in thousands) Gross merchandise volume $ 112,947$ 92,375 Number of customers 93 88 Number of customer ecommerce sites 161



141

Adjusted EBITDA $ 738 $



912

Adjusted EBITDA as a percentage of revenue 2.8 %



3.5 %

We monitor and analyze a number of key metrics to measure our operating performance, evaluate growth trends, establish budgets and financial projections, and formulate strategic plans.

Gross Merchandise Volume

For the three months ended March 31, 2014 we processed $112.9 million of GMV on our platform, representing an increase of 22.3% as compared to the three months ended March 31, 2013. We define GMV as the total dollar value of consumer orders processed through our platform, and shipped from our processing centers, net of returns, inclusive of product value, shipping and handling, and duty and value added taxes. Since our revenue and cost of revenue are directly attributable to the level of GMV processed through our platform we believe that GMV is an indicator of the growth and scale of our business, customer acquisition and retention, existing customer sales growth, the value of executing our strategic initiatives and our ability to project future operating results.



Number of Customers

Our customers are U.S.-based brands, such as large department stores, established and emerging consumer brands, specialty retailers and online only retailers. We believe that our ability to increase our customer base is an indicator of our market penetration and growth of our business as we continue to expand our sales force and invest in marketing efforts. We define our number of customers at the end of a particular period as the number of customers that are under contract with us, and processing international cross-border sales volumes on our platform during such period. As of March 31, 2014 we had 93 customers operating on our platform.



Number of Customer Ecommerce Sites

Many of our customers operate multiple ecommerce sites. Since we derive a portion of our global ecommerce services revenue from fees paid to us by our customers based on a percentage of their sales generated through our platform we believe the total number of customer ecommerce sites operating on our platform in a particular period is an indicator of the growth of our business and the diversification of our customer and revenue base. As of March 31, 2014, our platform was powering the global expansion of 161 ecommerce sites for our 93 customers. 20

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Adjusted EBITDA

We present and evaluate Adjusted EBITDA because we believe it is a useful measure to assess the operating performance of our business without the effect of depreciation and amortization, interest expense, provision for income taxes, stock-based compensation expense, loss on change in fair value of warrants, forgiveness of notes receivable from stockholders and other income related to GSS. Our use of Adjusted EBITDA as a key metric permits a comparative assessment of our operating performance, relative to our performance based on GAAP results, while isolating the effects of certain items that vary from period to period without any correlation to our operating performance.



Non-GAAP Financial Measures

We present and evaluate non-GAAP financial measures of Adjusted EBITDA and non-GAAP net income (loss) because we believe they are useful measures to assess the operating performance of our business. Our use of non-GAAP net income (loss) and Adjusted EBITDA permits a comparative assessment of our operating performance, relative to our performance based on GAAP results, while isolating the effects of certain items that vary from period to period without any correlation to our operating performance. Non-GAAP net income (loss) and Adjusted EBITDA as presented may not be comparable to other similarly-titled measures of other companies, and our presentation of non-GAAP net income (loss) and Adjusted EBITDA should not be construed as an inference that our future operating results will be unaffected by excluded or unusual items.



The following table presents a reconciliation of net income (loss) to non-GAAP net income (loss) for each of the periods indicated:

Three Months Ended March 31, Reconciliation of Net Income (Loss) to Non-GAAP Net Income (Loss) 2014 2013 (In thousands) Net income (loss) $ (2,041 ) $ 361 Stock-based compensation expense 562 108 Forgiveness of notes receivable from stockholders 629 - Loss on change in fair value of warrants 964 215 Other income-GSS (179 ) (358 ) Non-GAAP net income (loss) $ (65 ) $ 326



The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for each of the periods indicated:

Three Months Ended March 31, Reconciliation of Net Income (Loss) to Adjusted EBITDA 2014 2013 (In thousands) Net income (loss) $ (2,041 ) $ 361 Depreciation and amortization 710 566 Interest expense (income) 40 (20 ) Provision for income taxes 53 40 Stock-based compensation expense 562 108 Forgiveness of notes receivable from stockholders 629 - Loss on change in fair value of warrants 964 215 Other income-GSS (179 ) (358 ) Adjusted EBITDA $ 738 $ 912 21

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Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. We consider the assumptions and estimates associated with revenue recognition, trade receivables and allowance for doubtful accounts, goodwill, intangibles and long-lived assets, accounting for income taxes and stock-based compensation to be our critical accounting policies and estimates. There have been no material changes to our critical accounting policies since December 31, 2013. For further information on our critical and other significant accounting policies, see the notes to the consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q and our final prospectus filed pursuant to Rule 424(b) under the Securities Act with the SEC on March 21, 2014.



Recent Accounting Pronouncements

In July 2012, the FASB issued accounting guidance on the testing of indefinite-lived intangible assets for impairment. The guidance allows entities to first perform a qualitative assessment to determine the likelihood of impairment for an indefinite-lived intangible asset and whether it is necessary to perform the quantitative impairment assessment currently required. The new accounting rules were effective for us on January 1, 2013 and did not have a material effect on our financial condition or results of operations. In February 2013, the FASB issued accounting guidance on the reporting of reclassifications out of accumulated other comprehensive income. The guidance requires an entity to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income if the amount is reclassified to net income in its entirety in the same reporting period. For other amounts not required to be reclassified in their entirety to net income in the same reporting period, a cross reference to other disclosures that provide additional detail about the reclassification amount is required. The new accounting rules were effective for us on January 1, 2013 and did not have a material effect on our financial condition or results of operations. In July 2013, the FASB issued accounting guidance requiring an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss or tax credit carryforward, except for instances when the carryforward is not available to settle any additional income taxes and an entity does not intend to use the deferred tax benefit for these purposes. In these circumstances, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The new accounting rules became effective for us on January 1, 2014 and did not have a material impact on our financial condition or results of operations. In April 2014, the FASB issued accounting guidance which changes the criteria for determining which disposal transactions can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results. The guidance states that a strategic shift could include a disposal of (i) a major geographical area of operations, (ii) a major line of business, (iii) a major equity method investment, or (iv) other major parts of an entity. Although major is not defined, the guidance provides examples of when a disposal qualifies as a discontinued operation. A business activity that upon acquisition qualifies as held for sale will also be a discontinued operation. The guidance no longer precludes presentation as a discontinued operation if (i) there are operations and cash flows of the component that have not been eliminated from the reporting entity's ongoing operations, or (ii) there is significant continuing involvement with a component after its disposal. The guidance also introduces new disclosure requirements. The new accounting rules will be effective for the Company on January 1, 2015 and are not expected to have a material effect on the Company's financial condition or results of operations unless there is a future disposal transaction within the scope of the guidance. We have implemented all new accounting pronouncements that are in effect and that may impact our consolidated financial statements and do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations. 22 --------------------------------------------------------------------------------



Results of Operations

The following table sets forth our consolidated statements of operations data for each of the periods indicated as a percentage of revenue. The period-to-period comparison of financial results is not necessarily indicative of future results. Three Months Ended March 31, Three Months Ended March 31, 2014 2013 2014 2013 (In thousands) Revenue: Global ecommerce services 50.8 % 43.8 % $ 13,456$ 11,293 Fulfillment services 49.2 56.2 13,058 14,479 Revenue 100.0 100.0 26,514 25,772 Operating Expenses: Cost of revenue 64.8 66.9 17,187 17,239 Technology and operations 10.4 8.5 2,765 2,182 Research and development 6.7 4.8 1,789 1,247 Sales and marketing 9.7 10.1 2,577 2,598 General and administrative 12.7 8.8 3,358 2,268 Total operating expenses 104.4 99.1 27,676 25,534 Income (loss) from operations (4.4 ) 0.9 (1,162 ) 238 Interest and other income, net 0.5 1.5 138 378 Loss on change in fair value of warrants (3.6 ) (0.8 ) (964 ) (215 ) Income (loss) before income taxes (7.5 ) 1.6 (1,988 ) 401 Provision for income taxes 0.2 0.2 53 40 Net income (loss) (7.7 )% 1.4 % $ (2,041 ) $ 361 23

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Comparison of Three Months Ended March 31, 2014 and 2013

Revenue for the three months ended March 31, 2014 and 2013 was $26.5 million and $25.8 million, respectively. Net loss was $2.0 million, or $0.27 per diluted share, for the three months ended March 31, 2014 compared to net income of $0.4 million, or $0.01 per diluted share, for the three months ended March 31, 2013. Revenue Three Months Ended March 31, Change 2014 2013 $ % (Dollars in thousands) Global ecommerce services $ 13,456$ 11,293$ 2,163 19.2 % Percentage of revenue 50.8 % 43.8 % Fulfillment services $ 13,058$ 14,479$ (1,421 ) (9.8 ) Percentage of revenue 49.2 % 56.2 % Revenue $ 26,514$ 25,772$ 742 2.9 % The increase in global ecommerce services revenue is primarily attributable to the increase in GMV from $92.4 million for the three months ended March 31, 2013 to $112.9 million for the three months ended March 31, 2014, an increase of 22.3%. Of this increase, $12.7 million was attributable to GMV derived from new customers and $7.9 million was attributable to GMV derived from existing customers. The decrease in fulfillment services revenue was due to a reduction in average fulfillment services revenue per order as we have negotiated more favorable rates with our shipping carriers and added shipping options resulting in reduced costs to the consumer. Fulfillment services revenue per order is expected to continue to decrease in subsequent periods as we optimize logistics and pass on our savings to the consumer. Additionally, we had 93 customers and 161 ecommerce sites operating on our ecommerce platform as of March 31, 2014, an increase from 88 customers and 141 ecommerce sites as of March 31, 2013. Operating Expenses Cost of Revenue Three Months Ended March 31, Change 2014 2013 $ % (Dollars in thousands) Cost of revenue $ 17,187$ 17,239$ (52 ) (0.3 )% Percentage of revenue 64.8 % 66.9 % The decrease in cost of revenue and cost of revenue as a percentage of revenue was primarily attributable to a $0.5 million decrease of fulfillment costs as we continue to optimize logistics and further execute other cost reduction initiatives. This decrease was offset by $0.2 million of increased payment processing costs and other consumer service costs as a result of increased sales volumes and $0.2 million of increased personnel and related expenses to support our growth. Total headcount within cost of revenue increased from 17 at March 31, 2013 to 24 at March 31, 2014. 24 --------------------------------------------------------------------------------

Technology and Operations Three Months Ended March 31, Change 2014 2013 $ % (Dollars in thousands) Technology and operations $ 2,765$ 2,182$ 583 26.7 % Percentage of revenue 10.4 % 8.5 % The increase in technology and operations was primarily attributable to $0.4 million of increased personnel and related expenses for information technology, platform integration and logistics management personnel, and $0.1 million of amortization of capitalized software. Stock-based compensation expense increased $0.1 million. Total headcount within technology and operations increased from 39 at March 31, 2013 to 44 at March 31, 2014.



Research and Development

Three Months Ended March 31, Change 2014 2013 $ % (Dollars in thousands) Research and development $ 1,789$ 1,247$ 542 43.5 % Percentage of revenue 6.7 % 4.8 % The increase in research and development expense was attributable to $0.4 million of increased personnel and related expenses to improve our platform, including feature innovation and platform extension. Stock-based compensation expense also increased $0.1 million. Total headcount within research and development increased from 44 at March 31, 2013 to 54 at March 31, 2014. 25 --------------------------------------------------------------------------------

Sales and Marketing Three Months Ended March 31, Change 2014 2013 $ % (Dollars in thousands) Sales and marketing $ 2,577$ 2,598$ (21 ) (0.8 )% Percentage of revenue 9.7 % 10.1 % Sales and marketing expenses remained relatively flat as compared to the prior year quarter. Increases in salaries of $0.4 million were attributable to increased personnel for our customer account management and consumer research and analytics staff and stock-based compensation expense increases of $0.1 million offset by a decrease of approximately $0.5 million in consulting expenses as our internal sales and marketing efforts were supplemented with third-party consultants in the prior year quarter. Total headcount within sales and marketing increased from 37 at March 31, 2013 to 43 at March 31, 2014.



General and Administrative

Three Months Ended March 31, Change 2014 2013 $ % (Dollars in thousands)



General and administrative $ 3,358$ 2,268$ 1,090 48.1 % Percentage of revenue

12.7 % 8.8 % The increase in general and administrative expense was driven primarily by increased personnel related expenses to support our transition to a public company and non-recurring compensation related expenses. Salaries expense increased approximately $0.4 million as a result of increased headcount. During the three months ended March 31, 2014, we also incurred a one-time, non-recurring charge of approximately $0.6 million related to the forgiveness of notes receivable from stockholders and the payment of certain taxes related to the forgiveness. Stock-based compensation also increased approximately $0.1 million. The overall increase was partially offset by a $0.2 million decrease in professional fees and consulting services. Total headcount within general and administrative increased from 26 at March 31, 2013 to 33 at March 31, 2014.



Interest and Other Income, Net

Three Months Ended March 31, Change 2014 2013 $ % (Dollars in thousands)



Interest and other income, net $ 138$ 378$ (240 ) (63.5 )% Percentage of revenue

0.5 % 1.5 %



The decrease in interest and other income, net was driven primarily by a decrease in market based royalties and outsourcing servicing fees earned as a result of our sale of the GSS business.

26 --------------------------------------------------------------------------------

Provision for Income Taxes Three Months Ended March 31, Change 2014 2013 $ % (Dollars in thousands) Provision for income taxes $ 53 $ 40 $ 13 32.5 % Percentage of revenue 0.2 % 0.2 %



The difference between our U.S. federal statutory income tax rate and our effective tax rate is primarily related to tax rate differential of our foreign operations.

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Liquidity and Capital Resources

Working Capital

The following table summarizes our cash and cash equivalents, trade receivables and working capital:

At March 31, At December 31, 2014 2013 Consolidated Balance Sheet Data: (In thousands) Cash and cash equivalents $ 121,371 $ 43,599 Trade receivables, net 9,475 13,785 Working capital 103,286 19,276 As of March 31, 2014, we had $121.4 million of cash and cash equivalents, of which $3.1 million was held in foreign bank accounts. The majority of cash and cash equivalents held in domestic and foreign bank accounts are in excess of government deposit insurance. As a result of the initial public offering, we received net cash proceeds in March 2014 of approximately $85.6 million. Our cash and cash equivalents at March 31, 2014 were held for working capital purposes. We believe we have sufficient working capital and liquidity to support our operations, growth strategies and the associated capital investments needed to expand our operations for at least the next 12 months, excluding the pursuit of certain strategic acquisitions. If we decide in the future to pursue strategic acquisitions, we may use a portion of the net proceeds from the offering to fund those types of investments.



Sources of Liquidity

On April 18, 2013, we entered into an amended and restated loan and security agreement, or the credit facility, with Silicon Valley Bank, or SVB. Pursuant to the credit facility we can incur revolver borrowings up to the lesser of $12.0 million and a borrowing base equal to 80% of eligible merchant receivables plus 75% of eligible credit card receivables. We have an incremental $6.0 million of non-formula based availability during the fourth quarter retail holiday season. The credit facility also provides for letters of credit. Any outstanding borrowings must be repaid at the May 30, 2014 maturity date. Interest accrues at a floating rate equal to SVB's prime rate plus 1.0% and is payable monthly. There were no revolver borrowings and there was $1.6 million of letters of credit outstanding as of March 31, 2014. As of March 31, 2014, we were in compliance with the terms and covenants of the credit facility. Financial covenants include maintenance of an adjusted quick ratio, defined as the ratio of current assets to current liabilities, inclusive of outstanding letters of credit, and minus the current portion of deferred revenue, of at least 1.25 to 1.00 and a minimum net income. On October 29, 2013, we modified the terms of the credit facility with SVB to adjust the financial covenant requirements for future quarters to levels that are aligned with our operating and financial targets. Our obligations under the credit facility are secured by substantially all of our assets. The credit facility contains customary conditions to borrowings, events of default and negative covenants, including covenants that restrict our ability to dispose of assets, merge with or acquire other entities, incur indebtedness, incur encumbrances on our assets, make distributions to holders of our capital stock, make investments or engage in transactions with our affiliates. We are also required to maintain certain financial covenants including an adjusted quick ratio and a minimum net income. Our obligations under the credit facility are secured by substantially all of our assets. 28 --------------------------------------------------------------------------------

Historical Cash Flows Three Months Ended March 31, 2014 2013 (In thousands) Net cash used in operating activities $ (5,533 )$ (2,892 ) Net cash used in investing activities (1,636 ) (377 ) Net cash provided by financing activities 84,941 2



Net increase (decrease) in cash and cash equivalents $ 77,772

$ (3,267 )

Net Cash Used in Operating Activities

Cash flows used in operating activities consist primarily of net income adjusted for certain non-cash items, including stock-based compensation, depreciation and amortization and other non-cash charges, net. Our cash flows from operations are largely dependent on increased GMV generated from our customers' ecommerce sites. We believe we have the ability to conserve liquidity when economic conditions become less favorable through any number of initiatives including curtailment of expansion and cutting discretionary spending. Cash flows used in operating activities during the three months ended March 31, 2014 were $5.5 million, consisting of net loss of $2.0 million and non-cash items which included a change in the fair value of warrants of $1.0 million, stock-based compensation of $0.6 million, forgiveness of notes receivable from stockholders of $0.4 million and depreciation and amortization of $0.7 million. The increase in net cash used in operating activities when compared to the same prior year period is the result of increased sales volumes and growth of our business. Working capital sources of cash during the three months ended March 31, 2014 included a $4.3 million decrease in trade receivables due to customer collections from prior quarter seasonality. The sources of cash were offset by (1) an $8.2 million decrease in trade payables, (2) a $0.7 million increase in prepaid expenses and other, and (3) a $1.5 million decrease in accrued expenses and other liabilities primarily attributable to payments made for fulfillment related logistics costs predominantly incurred during the three months ended December 31, 2013 which is our peak holiday selling season. Cash flows used in operating activities during the three months ended March 31, 2013 were $2.9 million, consisting of net income of $0.4 million offset by non-cash items including depreciation and amortization of $0.6 million and stock-based compensation of $0.1 million. Working capital uses of cash during the three months ended March 31, 2013 included (1) a decrease in accounts payable, accrued expenses and other liabilities of $6.6 million primarily attributable to payments for fulfillment related logistics costs predominantly incurred during the three months ended December 31, 2012 which is our peak holiday selling season, and (2) a $0.1 million decrease in Israeli employee obligations offset by (3) a $1.6 million decrease in trade receivables primarily driven by customer collections from prior quarter seasonality, and (4) a $1.1 million decrease in prepaid expenses and other primarily attributable to our reduced seasonal funding requirements with payment processors facilitating merchandise payment from our consumers to our customers.



Net Cash Provided by (Used in) Investing Activities

Cash flows used in investing activities consist primarily of capital expenditures for information technology infrastructure and capitalized software development. Cash flows provided by investing activities consist primarily of proceeds from the sale of the GSS business. Cash flows used in investing activities during the three months ended March 31, 2014 were $1.6 million, consisting of $1.8 million of capitalized software development and equipment costs partially offset by $0.2 million of payments related to the receivable from the sale of the GSS business. Cash flows used in investing activities during the three months ended March 31, 2013 were $0.4 million, consisting of $0.7 million of capitalized software development and equipment costs offset by $0.2 million of payments related to the receivable from the sale of the GSS business and $0.1 million of Israeli employee obligations. 29

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Net Cash Provided by Financing Activities

Cash flows provided by financing activities consist primarily of the net proceeds from the IPO issuance and proceeds from the exercises of options and warrants. Cash flows used for financing activities consist primarily of repayment of long-term debt.

Cash flows provided by financing activities during the three months ended March 31, 2014 were $84.9 million, consisting of $85.6 million of proceeds from the IPO, net of underwriting discounts and commissions offset by $0.6 million of cash payments made during the three months ended March 31, 2014 related to offering costs for accounting, legal and printing expenses.



There were no significant financing activities during the three months ended March 31, 2013.

Seasonality and Quarterly Fluctuations

Our businesses can experience fluctuations in quarterly performance. Our business is seasonal in nature and, as a result, operating expenses and working capital requirements fluctuate from quarter to quarter. Our fourth quarter is a significant period for our results of operations due to higher GMV during the holiday season and corresponding higher global ecommerce and fulfillment services revenue. As a result, revenue and operating income generally decline in the first quarter sequentially from the fourth quarter of the previous year.



Off-Balance Sheet Arrangements

During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. 30



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