GigaCloud Technology Inc

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.

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.

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.