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spk05: Ladies and gentlemen, thank you for standing by. Welcome to GigaCloud Technologies' third quarter 2022 earnings conference call. During today's call, all participants will be in a listen-only mode. This conference is being recorded today, Wednesday, November 30th, 2022. Joining us today from GigaCloud Technology is the company's founder, chairman of the board of directors, and chief executive officer, Mr. Larry Wu, and 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, and 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 would like to remind you that some information discussed on this call will contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties. Although the company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct. The company cautions investors that actual results may differ materially from the anticipated results and encourages investors to review other factors that may affect its future results in the company's registration statement and other filings with the SEC. This call includes discussing specific 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 will 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.
spk03: Thank you, operator, and everyone for joining GigaCall's third quarter of the 2022 earning conference call. We are very pleased to deliver another quarter for healthy growth despite a challenging macroeconomic backdrop. We leverage our technology and e-commerce platform to reach continuing growth in our revenue, GMV, and positive operating cash flows. During the third quarter, our 3B GMV continued to increase as a percentage of our total DevaClub Marketplace GMV. demonstrating an increase in the economy's scale and user base achieved through our current marketplace model. Coupled with our successful IPO and improvement in operating cash flows in the third quarter, our liquidity and capital resources also saw an increase, providing sufficient capital for us to pursue our business objectives. The results demonstrate our strong capability of navigating our business strategy in today's challenging market. Facing the dynamic business environment, we strive to provide the best possible service to customers while simultaneously delivering steady business growth. We're committed to provide the best possible user experience and to helping users to feel assured when they shop on our marketplace. Moreover, we continue our effort to grow our buyer and seller base, improve our giga cloud marketplace features, and increase our presence in the global market. We have opened our first Malaysian office in November which reflects our strategic initiative for optimizing regional supplier screenings and increasing our presence in Southeast Asia. Going forward, we will continue to leverage our data-driven solutions, technological capability, and resources to expand and optimize our marketplace. gain market share, and better serve our global customers with a stable and efficient B2B e-commerce platform. Thank you for your continued support of the company. Next, I will turn the call over to our Chief Financial Officer, Mr. Lau, for closer review of our operational and financial results. Mr. Lau, please go ahead.
spk02: Thank you, Larry, and good morning, everybody. Now I'll go over our operational and financial results and details. I'm very pleased to share that we delivered another record quarter despite the uncertain macroeconomics environment. Our Giga Cloud Marketplace GMB was $486.3 million in the 12 months ended September 30, 2022, up 31.7% year over year. We had 517 active 3P sellers in the 12 months ended September 30, 2022. up 57.1% year over year, and 4,198 active buyers in the 12 months ended September 30, 2022, up 36.2% year over year. Spend per active buyer was $115,834 in the 12 months that ended September 30, 2022, down slightly to 3.3% year over year. Our 3P seller Giga Cloud Marketplace GMB was $221.3 million in the 12 months ended September 30, 2022, up 59.2% year-over-year. Now let's move to our financial results for the third quarter of 2022. Total revenues were $128 million for the third quarter of 2022, up 23.4% year-over-year. And that's mainly due to increased service revenue from our Giga Cloud 3P and product revenue from our Giga Cloud 1P. partially offset by the decrease in product revenue from our off-platform e-commerce. Service revenue from Giga Cloud 3P was $40.5 million in the third quarter of 22, up 45.9% year-over-year, primarily due to increased transactions in our Giga Cloud marketplace, as our marketplace continued to gain scale and the provision of third-party logistics service to specific existing customers. Product revenue from Giga Cloud 1P was $58.2 million in the third quarter of 2022, up 30.5% year-over-year. And that's mainly due to an increase in the number of active buyers and a better selection of products catering to buyers' preferences. Product revenue from off-platform e-commerce was $29.3 million in the third quarter of 2022, down 6.4% year-over-year, and that's primarily due to an overall decrease in sales on certain third-party off-platform e-commerce as consumer demand slowed down in such platforms. The cost of revenues was $105.4 million in the third quarter of 2022, up 26.3% year-over-year, and that's primarily due to the overall increase in our revenue as well as an increase in staff costs and warehouse costs. Gross profit was $22.5 million in the third quarter of 2022, up 11.6% year over year. Gross margin was 17.6% in the third quarter of 2022. Total operating expenses were $18.3 million in the third quarter of 2022, down 5.6% year over year. Selling and marketing expenses were $6.8 million in the third quarter of 2022, up 30.7% year over year. and that's primarily due to increased sales commission to personnel engaged in selling and marketing activities. General and administrative expenses were $11.5 million in the third quarter of 2022, down 18.8% year-over-year, and that's primarily due to share-based compensations attributable to employees involved in the general corporate functions and a decrease in professional service expenses. Operating income was $4.2 million in the third quarter of 2022, up 423.2% year-over-year. Net income was $0.7 million and basic and diluted earnings per share of $0.01 in the third quarter of 2022, compared to net loss of $1.6 million and basic and diluted loss per share of $0.19. Adjusted EBITDA was $11.9 million in the third quarter of 2022, compared to $10 million in the third quarter last year. Adjusted EBITDA means net income excluding interest, income taxes, and depreciation. further adjusted to exclude share-based compensation expense. Our share-based compensation expense was $8.9 million in the third quarter of 2022 due to consummation of the IPO in August, compared to $9.6 million in the third quarter of last year. Net cash provided by operating activities was $23.3 million in the nine months ended September 30, 2022, compared to net cash used in operating activities of $15.3 million in the same period of last year. Net cash used in investing activities was $0.6 million in the nine months ended September 30, 2022, compared to $1.5 million in the same period of last year. Net cash provided by financing activities was $33.8 million in the nine months ended September 30, 2022, compared to net cash used in financing activities of $1.8 million in the same period of last year. As of September 30, 2022, the company had cash of $106.2 million and restricted cash of $1.5 million. In July 2022, we entered into a two-year credit facility agreement with Wells Fargo Bank, under which the company can borrow up to $50 million during the term of the facility, demonstrating confidence and support from financial institutions. We believe we're well-positioned to expand our business globally on a sustainable path with ample cash reserves and the positive cash generated in this quarter. We anticipated that our ocean freight fees per container will remain at the current level during fourth quarter of 22, which might result in a slight decrease in the freight service fee for delivery of products via ocean transportation. We expect our total revenues to be between $117 million and $122 million for the next quarter. We also expect our cost of revenues will be decreased due to the lower ocean freight costs. Therefore, we expect an improvement in our overall profitability for next quarter. We believe the ocean freight fees per container will stabilize in 2023. Now I'd like to turn the call over back to the operator for a question and answer session. Thank you very much.
spk05: Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you are on a speakerphone, please pick up the handset to ask your question. And our first question today will come from David Wong with Black Seal Capital. Please go ahead.
spk00: Hi, everyone. Thanks for taking my question. When talking about your headwinds such as economic uncertainty, COVID-19 pandemic, and supply chain issues, How much do you think these sectors can affect the giga cloud's probability and operations? And what kind of measures the company will take to ease such influences? Thank you.
spk07: Larry, do you want to go?
spk03: Yeah, I think in general, I think that we have under the impact of the COVID for a pretty long time. We definitely under the pressure of the supply chain challenge and also the ocean shipping price that went through roof during the past 12 months. But we definitely are seeing the situation improving given the supply chain challenge have been pretty much relaxed. expect the situation will gradually improve in the coming 12 months, on condition that we don't see the measures taken by the Chinese government going any further. We will be on the path of normalizing our operations.
spk07: Okay, go. Thank you.
spk04: Our next question will come from Nicole Zhang, a private investor. Please go ahead.
spk08: Hi, thank you. I'm wondering if you could provide us about the latest update about the product category trend on your GitHub Cloud Marketplace, and what is the company's future plans for the product offering extension? Thank you.
spk02: Yeah, thanks, Nicole. It's David here. So that's something that we are always spending time to optimize and improve our product category. One of the reasons why we wanted to expand and open an office in Malaysia is exactly for that reason. We see a lot of activity in the Southeast Asian region and having a presence there could help us diversify and expand our product category. and that's one of the key drivers for the growth in our business.
spk07: Our next question will come from Lawrence Wong, a private investor.
spk05: Please go ahead.
spk01: Good morning, management and everyone. Thanks for taking my question today. We can see the company's key operational metrics increased significantly this quarter, including GMV, active sellers, and buyers. Could you please share the story behind it? And also, do you think such growth will continue in the long run? Thank you.
spk07: Sure. Thank you.
spk02: I think... Sorry, Larry. No, you go ahead. Yeah. Okay, sorry. I think, well, definitely is a very impressive quarter for us. And we're very confident that, you know, because of the value proposition that we're offering, we will continue to believe that we're going to capture the growth. One of the kind of key reasons why we're, you know, kind of with the supply chain constraint and, you know, with the ocean shipping rates that we're all experiencing, that hinders some of the growth. But as we can see that the supply chain constraints are slowly relaxing and the ocean shipping rate is starting to stabilize and returning to the pre-pandemic level, we continue to believe that given all these macroeconomic factors starting to normalize, we believe the long-term growth of the company will be very positive from here.
spk07: Okay, thank you very much.
spk05: Our next question will come from Ava Johnson, a private investor. Please go ahead.
spk08: Good morning, managers. Noted that GigaCall opened the first office in Malaysia. Could you please elaborate the big picture of your company plans in Southeast Asia?
spk03: Yeah, because we're seeing that the supply chain the global supply chain has been diversified, pretty much shifting from China to other parts of Southeast Asia. So that's the reason we opened our first sourcing office outside of Asia in 2018. And we are seeing the trend is going further, so we're following what is going on and try to follow where the supply chain is moving. to better serving our customer and also to improve our coverage. So we definitely will continue looking at where the supply chains are moving to and follow those manufacturing capacities and to better serve our customer in the market we cover.
spk07: Okay, great. Thank you.
spk04: Our next question will come from Rommel Dionzio with Aegis Capital.
spk05: Please go ahead.
spk06: Yeah, good morning. Thanks for taking my question. I wonder if, Larry and Dave, if you could just give us some of your insights in terms of, has the business changed since being public? What have the implications been in these first few months since being a publicly traded company? And the second question is just a brief one, is the tax rate. I noticed there was a mention of share-based compensation expenses affecting the tax rate. I wonder if you could just give a little insight, David, on that going forward. Thank you.
spk07: What was the second question?
spk06: Oh, just on the tax rate, there was a mention in the comments about the effect of tax rate being higher because of share-based comp since the IPO. And I just wondered, is that going to be true going forward as well? Or was it just unusual in the third quarter? Thank you.
spk02: Okay. Yeah. So maybe Larry, let me take that one. So the reason why there is a exceptionally higher tax rate for the quarter was because of our IPO that took place in August, which was a third quarter event for the, Because, I mean, obviously the SBCs are issued to the employees who've been working for the company for all over the years. And because of the company, we have a global presence. A lot of these employees are based and located in different parts of the world. And because of SBC, obviously there's an expense that will be tax deductible. So some of these tax expenses will get deducted in the fourth quarter. so rather in the third. So I guess to address your question earlier, this will likely be a one-off event going forward. We don't see this will be a recurring type of phenomenon in the company's books.
spk07: All right.
spk03: I think for the first question, I would talk about that a little bit. I think the primary purpose of being listed publicly for our company is not really try to raise funds because you guys are seeing we have pretty strong operating cash flow. The reason we're doing that, the first one would be we're trying to be transparent to all the business partners we're working with because the fundamental business model we're doing here is trying to use the technology to make the global supply chain to function more efficiently than before. But given that we're operating across the globe right now, we have operation in seven different countries and using our technology to connect them to transact on the marketplace. So how to build that trust to provide the necessary trusting the operator of the marketplace is critical to the marketplace participant. So that's why we chose to be listed publicly and try to provide everyone the confidence that doing business with us because it's really hard to do the branding efficiently in so many countries that we have operation in. We realized that to be listed as a public company would be the good way to do so. So we're already seeing that kind of benefit when we communicate with the customer and also when we try to recruit the talents. and we realized that the impact is pretty much in line as we expected and it helped us to build that necessary trust more efficient than before.
spk07: Great, thank you.
spk04: And that concludes the question and answer session. Let me turn the call over to Mr. Lau for closing remarks.
spk02: Thank you, everybody, for joining. We're very excited that you guys could continue to support and join the session. If you have any questions, please get in touch with us through email, and management 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.
spk05: Thank you for attending GigaCloud's third quarter of 2022 earnings conference call. This concludes our call today, and we thank you all for listening. Goodbye.
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