GigaCloud Technology Inc

Ladies and gentlemen, thank you for standing by. Welcome to Giga Cloud Technology's second quarter 2022 earnings conference call. During today's call, all participants will be in the listen-only mode. This conference is being recorded today, Friday, September 30th, 2022. Joining us today from Giga Cloud Technology, the company's founder, Chairman of the Board of Director and Chief Executive Officer, Mr. Larry Lei Wu. The company's Chief Financial Officer, Mr. David Lau. On our call today, Mr. Wu will give you an overview of the company's performance. Mr. Lau will share the details of the company's operational and financial results. After that, we will conduct a question and answer session to take your questions. Before we continue, I'd like to remind you that some information discussed on this call will contain certain fault-looking statements. These fault-looking statements involve known and unknown risks and uncertainties. Although the company believes that expectations expressed in these fault-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct. and the company cautions investors that actual results may differ materially from the anticipated results, and encourages investors to review other factors that may affect future results in the company's registration statement and other filings with the SEC. This call includes discussion of certain non-GAAP financial measures, such as adjusted EBITDA, Please refer to our earnings press release for more information on the non-GAAP financial measures. With that, I'll now turn the call over to Mr. Wu, the company's founder, chairman of the board of directors, and chief executive officer. Mr. Wu, please go ahead.

Thank you, operator, and everyone for joining GigaCloud's second quarter of 2022 earnings conference call today. We are pleased to deliver a robust financial and operational result in our first quarterly earning release as a public company. Our NASDAQ listing in August represented a key milestone for our company and years of hard work, commitment, and dedication from our shareholders, management team, and employees. Despite the macroeconomic challenges that we face, we continued to deliver a solid year-over-year revenue and GMV growth. We are proactively adjusting our operations to adapt to these challenges and continue to focus on our long-term strategy by strengthening our capability to create value for our customers. By leveraging our data-driven technology and our logistics solutions, we are well positioned to increase our overall market share in the B2B large parcel market. Thank you for your continued support to the company. Next, I will turn the call over to our Chief Financial Officer, Mr. Lau, for a closer review of our operational and financial results. Mr. Lau, please go ahead.

Thank you, Larry, and good morning, everybody. Now I'll go over our operational and financial results. Our Giga Cloud Marketplace GMV was 458.8 million in the 12 months ended June 30, 2022. And that's up 43.8% year over year. We had 452 active three-piece sellers in the 12 months ended June 30, 2022. And that's up 67.4% year over year. We have 4,061 active buyers in 12 months ended June 30, 2022, up 58.9% year over year. Spend per active buyer was $112,987 in the 12 months ended June 30, 2022, and that's down 9.5% year-over-year. Our 3P seller, Giga Cloud Marketplace, GMB, was $196.7 million in the 12 months ended June 30, 2022, and that's up 71.1% year-over-year. Now let's look at our financial results for the second quarter of 2022. Total revenues were 124 million for the second quarter of 22, and that's up 11% year over year. That's mainly due to increase in our service revenue from Giga Cloud 3P and product revenue from our Giga Cloud 1P, but partially offset by the decrease in product revenue from our off-platform e-commerce channel. Service revenue from Giga Cloud 3P was 32.8 million in the second quarter of 22, up 39.4% year over year. That's primarily due to an increase in revenues from our last mile delivery fees and fulfillment fees for other freight services, such as delivery of products via our ocean transportation services. Product revenue from Giga Cloud 1P was $60.7 million in the second quarter of 22, and that's up 15.4% year over year, mainly due to an increase in the number of active buyers and better selection of products catering to buyers' preferences. Product revenue from off-platform e-commerce was $30.5 million in the second quarter of 2022, and that's down 14.4% year-over-year, primarily due to an overall decrease in sales on certain third-party off-platform e-commerce as consumer demand slowed down on such platform. Cost of revenues was $107 million in the second quarter of 2022, up 29.1% year-over-year, primarily due to an increase in ocean freight costs compared to the second quarter of 2021, and such increase is expected to stabilize in the rest of 2022. Gross profit was $17 million in the second quarter of 22, down 41.1% year over year. Gross margin was 13.7% in the second quarter of 22, compared to 25.9% in the second quarter of 21. Total offering expenses were $8.8 million in the second quarter of 22, down 28.3% year over year. Selling and marketing expenses were $5.5 million in the second quarter of 22, down 20.2% year over year, primarily due to a decrease in staff costs as the sales commission decreased. General and admin expenses were 3.3 million in the second quarter of 22, down 38.6% year over year, primarily due to a decrease in our professional services fees. Operating income was 8.2 million in the second quarter of 22, down 50.5% year over year. Net income was 6.1 million, with a basic and dilute earnings per share of $0.15 in the second quarter of 2022 compared to a net income of $13.6 million with a basic and diluted earnings per share of $0.43 in the second quarter of 2021. Adjusted EBITDA was $7.8 million in the second quarter of 2022 compared to $16.6 million in the second quarter of 2021. So now let's look at the financials on a six-month ended basis. Total revenues were $236.5 million in the six months ended June 30, 2022, up 14.6% year-over-year, primarily due to an increase in service revenues from our GigaCloud 3P and product revenues from our GigaCloud 1P, but partially offset by the decrease in product revenue from our off-platform e-commerce. Service revenue from GigaCloud 3P was $64 million in the six months ended June 30, 2022, up 45.7% year-over-year, primarily due to an increase in revenues from our last mile delivery fees and fulfillment fees for other freight services, such as delivery of products via ocean transportation. Product revenue from Giga Cloud 1P was $115 million in the six months ended June 30, 2022, up 21.2% year over year, primarily due to an increase in the number of active buyers and our better selection of products catering to buyers' preferences. Product revenue from off-platform e-commerce was 57.4 million in the six months ended June 30, 2022, down 14.9% year-over-year, primarily due to an overall decrease in sales on certain third-party off-platform e-commerce as consumer demand slowed down on such platform. Cost of revenues was 202.6 million in the six months ended June 30, 2022, up 29.4% year-over-year, primarily due to an increase in ocean freight costs compared to the six months ended June 30, 2021, and such increase is expected to stabilize in the rest of 2022. Gross profit was $33.9 million in the six months ended June 30, 2022, down 31.9% year-over-year. Gross margin was 14.3% in the six months ended June 30, 2022, compared to 24.1% in the same period of 21. Total operating expenses were $18.2 million in the six months ended June 30, 2022, down 19.4% year-over-year. Selling and marketing expenses were $11 million in the six months ended June 2022, down 22.4% year-over-year, primarily due to a decrease in staff costs as the sales commission decreased. General and admin expenses were $7.2 million in the six months ended June 2022, down 14.4% year-over-year, primarily due to a decrease in our professional services fees. Operating income was $15.7 million in the six months ended June 2022, down 42.3% year-over-year. Net income was $10.8 million, with a basic undiluted earnings per share of $0.28 in the six months ended June 3, 2022, compared to a net income of $21.6 million, with a basic undiluted earnings per share of $0.67 in the same period of 21. Adjusted EBITDA was $14.7 million in the six months ended June 30, 2022, compared to $26.7 million in the same period of 21. As of June 30, 2022, the company had cash of 49.2 million with a restricted cash of 1.5 million. Net cash used in our operating activities was 10.3 million in the six months ended June 30, 2022, compared to 11.7 million in the six months ended June 30, 2021. Net cash used in investing activities was 0.1 million in the six months ended June 30, 2022, compared to 0.6 million in the six months ended June 30, 2021. Net cash used in financing activities was $0.6 million in the six months ended June 3, 2022, compared to $0.9 million in the six months ended June 30, 2021. We remain confident in our business and our potential to grow, and we expect our total revenues to be between $122 million and $127 million for the next quarter. Now I'd like to turn the call over to the operator for questions and answer sessions, please. Thank you.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you need to press star 1, 1 on your telephone keypad. Please stand by while we compile the question and answer roster. Once again, to ask a question, please press star 1, 1 on your telephone. Our first question comes from the line of Rommel Dignonte. Vinicio from Edges Capital. Please go ahead, Ramul.

Good morning and thanks for taking my question. Just a question on, you know, just the overall consumer spending environment, consumer demand for the furniture and home furnishings industry in these last several months. You know, there's a lot of talk about the housing market softening, obviously inflationary concerns, which you do discuss in the prepared comments. But I wonder if you could just give us a little more color in terms of, you on the home furnishings market should the housing market slow down? Thank you.

Yeah, I think we're seeing the consumer spending is softening, especially for home furnishing products because of the housing markets is cooling down. We expect that environment to continue, but our focus is on main mainly focused on introducing more products for our 1P business as well as more market participants for our 3P business to overcome that strong headwinds. And by doing that, we are confident we will continue to gain market share despite the very strong macroeconomic headwinds that still give reasonably strong growth for our performance.

Great. Okay. And maybe just one follow-up. You talk about in the third quarter expecting to incur share-based compensation expense that will be recognized in the third quarter related to share awards. Is it possible to quantify approximately what that amount might be at this point?

Yeah, so we actually, so this is David. So we actually did disclose that. Hey, we disclosed that in our perspectives. If I recall that number correctly, it's somewhere in the neighborhood of around $9 million. So I think that's probably a good benchmark.

Okay, perfect. Thanks very much. Congratulations on the quarter.

Thank you. Thanks for joining us.

Thank you for your question. Our next question comes from the line of Joseph Lee.

Please ask your question, Joseph. Thanks for taking the questions.

I have two questions today. We are seeing the company's GMV increase over 40%. Buy-in and seller base both increased over 50%. Can you share the story behind this trend growth? And my second question is, Can you talk about a little bit more about the strategies for maintaining and growing your buyer and seller base for the remainder of 2022? Thanks.

Sure. Sorry, can I just make sure I got your question correctly? So did you say, do we expect our GMV to continue to grow at the same rate that we're experiencing today? I just want to make sure I caught your question correctly.

Okay. I can repeat my first question. It's about your GMV increased over 40%. So the buyer and seller base is both over 50%. And my question is, can you share the story behind this strong growth?

Yeah, I think right now, and I'll give it a go, Larry, see if you want to add to that. I think right now we started the business with the platform in 2019. We've ran this close to getting into our fourth year now. And when we start building up this platform, we're basically trying to revolutionize how to transact on a cross-border basis without the hassle of seller have to worry about kind of the logistic part of that trade. And I think when we start building that story, people are starting to appreciate that. And when users are getting that experience and that really scaled up our business, so we picked up a lot of this momentum when users starting to appreciate the services that we offer. And that same goes to the user base, the number of active users that you pointed out. I think that's also a testament of the services offering that we provided, the seamless logistic services, the warehousing that we provide, and the cloud storage offering solutions that we provide. all helped us to build that proposition to all the active users that is enjoying the business that they're using from us.

Yeah, I think David is right. I think what you can see is we have a pretty strong growth of marketplace participants. Although actually the average spending of the buyers, you know, slowing down a little bit, which is a result of the macro challenge I just talked about. It tells you that, you know, on average, every item being sold on marketplace is generating less revenue because of, you know, consumer just spending less. But the bright side of the story is, you know, the whole idea of having the bigger model is trying to improve the efficiency of the supply chain, which is getting more attention when people are facing this, you know, macroeconomic headwind. So that's just benefiting our business model, you know, by, you know, giving us a result of the both, buyer and seller growth is pretty strong.

Thank you. Thank you so much.

Thank you. Our next question comes from the line of Ashley Miller from the Aira. Please ask your question.

Ashley, your line is open. Please ask your question.

Hi, good morning, and thank you for taking my questions. I have two questions today. I know giga cost revenue growth is very solid this year. So my first question is, can you share a little bit more about the outlook for the second half year? And my second question is about your extension. Do you plan to further expand your business in the U.S., or if there are any potential countries you are interested in? Thank you.

Sure. We expect the revenue growth for the second half of the year to remain at the current momentum that we're experiencing, just like what Larry had talked about in some of the things that I pointed out. I think we're seeing a lot of momentum, particularly on the 3P side as we continue to scale. If you look at what we disclosed from an operational point of view, you see that our 3P business is continuing to grow at a very high speed and a very strong growth. So we expect this to continue to grow at least with the current momentum for the second half of the year. In terms of expansion, obviously right now U.S. continues to be our core market, but we do have businesses in other parts outside of the U.S., so we do see there are expansion areas that we could improve on, and I think U.S. will continue to be an area where we're going to continue to focus our investment on.

Yeah, the main reason I think, yeah, I'm not sure everyone noticed that for the market, we have operation outside the US, including Japan and the UK and Germany. Actually, the currency depreciated more than 30% in the past 12 months. Obviously, it's not the most favorable time to expanding those markets. So although we have multinational footprint enable us to expand globally, but right now, I think the more focus is on, you know, U.S. market, you know, and we'll be waiting for a better time to initiate more aggressive expansion in the market out of the U.S. when the macroeconomic environment improves.

Thank you. Thank you. All right. Thank you.

As a reminder, to ask a question, please press star 11 on your telephone. It's star 11 for questions. All right, Daniel, for the question, now let me turn the call back to Mr. Lau for closing remarks.

Sure. And thanks, everybody, for joining this conference call. If you have any questions, please contact us through emails, and our management team will respond to your question as soon as possible. We appreciate your interest in supporting GigaCloud, and we look forward to speaking with you again next time. Thank you very much.

Thank you again for attending GigaCloud's second quarter of 2022 earnings conference call. This concludes our call today, and we thank you all for listening in. Goodbye.