GigaCloud Technology Inc

Ladies and gentlemen, thank you for standing by. Welcome to the GigaKide Technologies first quarter 2023 earnings conference call. During today's call, all participants will be in a listen-only mode. Joining us today from GigaKide Technology are the company's founder, chairman of the board, and chief executive officer, Larry Wu, the company's chief financial officer, David Lau, and the company's president, Dr. Iman Shrock. On today's call, Larry will give an overview of the company's performance, Iran will provide details of the company's operational results, and David will share the company's financial results. After that, we will conduct a question and answer session. As a reminder, this conference call contains statements about future events and expectations which are forward looking in nature. Statements on this call may be deemed as forward looking and actual results may differ materially. Today's call and webcast will include non-GAAP financial measures within the meaning of SEC Regulation G. When required, reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAP can be found in today's press release, as well as the company website. With that, I will now turn the call over to Larry, the company's founder, chairman of the board, and chief executive officer. Larry, please go ahead.

Thank you, operator, and thanks to everyone for joining GigaCloud's first quarter of 2023 earnings conference call today. First and foremost, I want to express my pride in the entire Giga Club family for another remarkable quarter where we continued to revolutionize the industry with our innovative business model and state of art technology. We achieved our most profitable quarter ever with $15.9 million in net income, a 27.8% quarter over quarter increase and an impressive 236% increase year over year. And the $19.8 million in adjusted EBITDA, which represent a 30.7 quarter over quarter increase above our fourth quarter result last year. We also witnessed encouraging revenue growth that exceeded upper end of our projected outlook, which came in at the $127.8 million for Q1. versus an outlook range of $123 to $127 million for the quarter. We're confident of outcomes from our ongoing improvements further strengthening our position as a market leader. I would like to thank the entire Google Cloud team for their tireless work, as well as the stakeholders for their continued support for the company. Now I would like to turn the call over to Iman to go over some of the operational highlights from this quarter.

Thank you, Larry, and good morning, everyone. As Larry mentioned, we are pleased with our start to the year, including our record quarterly profit, which was driven largely by a widespread decline in ocean shipping rates and a corresponding increase in gross profits. Our gross margin was 23.1% for the first quarter, up a full 54% year over year. We believe that this moderation in ocean shipping rates should remain in place for at least the foreseeable future and expect our second quarter results to also benefit from this tailwind. Now, let's walk through some of the operational results. In the first quarter ended March 31st, Our Giga Cloud Marketplace GMB grew 26.3% year-over-year to $553.5 million. The platform saw a 46.8% year-over-year increase in active 3P sellers, ending the quarter at 602%. And as Larry just mentioned, we saw a 12.5% year-over-year rise in active buyers to end the quarter at $4,255, with spend per active buyer also increasing by 12.3% year-over-year to $130,083 in the 12 months ended March 31, 2023. Further, three-piece seller GigaCloud Marketplace GMB Group 62.2% year-over-year to $285.2 million, representing 51.5% of the total GigaCloud Marketplace GMV for the 12 months ended March 31st. As I mentioned on our last call, in the fourth quarter, our GigaCloud 3P seller GMV surpassed our 1P GMV as a percentage of total marketplace GMV. And that trend continued into the first quarter. While our 1P approach remains an integral part of our business strategy, ultimately, we believe that the growth of our 3P GMV will be very important to the scaling of our business. And we see positive momentum in our 3P growth rate continuing to drive a larger and more productive marketplace. We remain focused on building the best B2B marketplace in the world for buyers and sellers to come together and grow their respective businesses by improving our effectiveness and increasing the efficiency of our ecosystem. The success of our customers is ultimately the success of our own business. And we believe that we are well positioned to capitalize on this growing opportunity going forward. Our first quarter results are very encouraging and evidence that our ongoing investments into the platform should continue to provide positive, profitable results from our balanced growth strategy. Now, I would like to turn the call over to our CFO, David, for a closer look at our financial results.

Thank you, Larry and Iman, and good morning, everybody. I'm pleased to share our outstanding financial results for the first quarter of 2023. The company generated 127.8 million in revenue in first quarter 2023, which represents a 13.7% growth from 112.4 million in the year prior. And as Larry mentioned, it was above the high end of our outlook range for the quarter, which was between 123 and 127 million. Our gross profit was $29.6 million, an increase of 75.3% year over year, and resulting in gross margin of 23.1% for the first quarter, compared to gross margin in the year prior of 15%. This improvement was largely the result of improved ocean shipping rates, which contribute to increased 3P seller activity, as well as improving our overall margin for our 1P business. Our supplier-fulfilled retailing model provides end-to-end logistics services to our customers, and as ocean shipping rates had declined steadily over the last year, our revenue generated from ocean shipping accounts for a smaller percentage of total revenue in first quarter 2023, and led to a substantial margin expansion opportunity in the quarter. On the bottom line, we generated $15.9 million in net income in the first quarter, representing an increase of 236.4% from 4.7 million in the year prior. Adjusted EBITDA was 19.8 million in the first quarter, representing an increase of 186.5% from 6.9 million in the first quarter of 2022. We're also incredibly pleased to announce that this was our most profitable quarter in the history of GigaCloud so far. More importantly, we generated 20.3 million in operating cash flow in the first quarter of 2023. compared to $14.5 million in net cash outflow in our operating activities in the first quarter of 2022. This results in a $164.2 million in cash balance at the end of the first quarter, further enhancing our balance sheet and positioning the company well for additional investments into our platform or any potential M&A activity that may align with our business strategy. Additionally, we have a $50 million revolving credit facility with Wells Fargo Bank that can be drawn upon should we need to fund any additional expansion or investment. As Iman alluded, our GigaCloud marketplace is rapidly shifting to become a 3P seller-dominated platform, which we believe is the result of the investment into the platform for our buyers and sellers, as well as the continued adoption of our supplier-fulfilled retailing model. Our operating expenses rose slightly on both a dollar and on a percentage of total revenue basis, which finished the quarter at 11.7 million or 9.2% of total revenue versus 9.4 million or 8.4% of total revenue the year prior. The increase was due to a higher research and development expense as we continued to invest in our platform, which was slightly offset by lower sales marketing and general and admin expenses. Finally, for the second quarter of 2023, we expect the company to generate between $140 and $145 million in revenue. And with that, operator, I would like to open the line for any questions. Thank you.

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again.

we would take our first question and the question comes from the line of oscar tracy who is a private investor please go ahead your line is open thank you for your presentation and congratulations on your outstanding performance in the first quarter i have two questions to follow up on first of all um it is really impressive to see that your revenue your growth profit net income And adjusted EBITDA also really significant increase in the first quarter. So what are, what were the main drivers and do you expect this trend to continue in the upcoming quarters? Thank you.

Yeah, thank you very much. Very good question. You know, overall ocean shipping rate is starting to normalize to pre-pandemic level. When ocean shipping rate is at the current level, our 3P seller is more active in sending products or warehouse, which in turn drives more activity on our platform that leads to overall growth in user count, user spend, and GMV. So, on the other hand, in a declining ocean shipping rate environment will naturally present a margin expansion opportunity for our 1P business because the ocean shipping rate itself is a part of our product cost. I think more importantly is, aside from ocean shipping rates, our supplier-fulfilled retailing is offering a very unique solution to traditional retailers to reduce costs and help them to effectively and efficiently manage the entire supply chain from the manufacturing source all the way to the end consumer. So I think this is a very strong testament of the value that we offer to the market, and I think the market is starting to realize the unique opportunity that's presented on the table here.

Thank you. And I have my second question is that I would also like to know what the key components of the cloud business plan for the remaining 2023. Are there any specific initiatives or strategies the company would focus on to drive the growth in the value? Thank you.

Iman, you want to take that one?

Yes, but I'm not sure I understood the question. Could you please recite that question one more time?

Sure. I would like to know, like, what will be any specific initiatives or strategies for the company to conduct for the remaining 2023 to drive the growth and the values?

Sure. So our ecosystem is currently connecting thousands and thousands of participants on a recurring daily business through a multifaceted software that is giving visibility, as David mentioned, to their entire supply chain, end-to-end logistics, inventory management, and also acting as a payment gateway. Going forward, we do have a few R&D projects in the mix. that is going to help us make this system even more efficient. And also we're exploring the possibility of a potential M&A to help us improve those capabilities, to expand our service offerings to the marketplace participants. But without a doubt, a huge focus will also be placed on recruiting new sellers and expanding the availability of existing products through 1P on the marketplace. so that it can supplement the recruitment of buyers so we can maintain and continue the growth.

Thank you. Thank you. We will take our next question. Your next question comes from the line of Ava Moore, who is a private investor. Please go ahead. Your line is open.

Hi, good morning, management. I have two questions today. The first one is a company had over 160 million cash off March 31st, 2023. What are your plans for utilizing this capital in the next 12 months? Thank you.

Sure. We're always evaluating projects and alternatives where we're going to deploy cash to increase value for our customers and shareholders. We're obviously constantly opportunistically evaluating potential inorganic growth targets that aligns with our business strategy. So we have a very healthy balance sheet position today. That's going to allow us to grow and expand multiple areas to capture market opportunities. So as long as we find a project that makes sense, that's going to add value to us. We're always ready to deploy our cash to make it work.

Thank you. And the second one is we saw an operational highlight and the significant growth in some GMV active 3P sellers, active buyers, and spend more per active buyer. How do you plan to maintain this growth and continue attracting more sellers and buyers to your platform? Thank you.

So as far as recruiting sellers and buyers, that focus remains the same. Our focus will always remain on inviting more and more sellers into the platform, allowing them to take advantage of the software and hardware that we're just enabling them with to make trades and in turn, make the product more available for participants on the other end which would be the buyers transacting and as i alluded to earlier in answering the previous question um increasing and the recruitment of 3p sellers will remain a huge focus for us so will increasing the sku density using our 1p to make product availability more and you know that in return would result in us recruiting more active buyers In addition, we want to continue to educate the market about the benefits of our very unique yet super effective business model, what we call supplier fulfilled retailing that helps improve the efficiency across the board, lower the risk for the entire system and make the process more transparent and less prone to damages and waste of resources. And in addition to all of those, There is a huge focus within our organization on IT and engineering and improving algorithms and machine learning. And that is going to continue because that is the path forward as we're revolutionizing the wholesale end of the big and bulky market.

Thank you. Thank you. We will take our next question. Your next question comes from the line of Romo Dionisio from Aegis Capital. Please go ahead. Your line is open.

Thank you and good morning. You know, I know service revenue from 3P has definitely been a focus area for your growth. You know, you had strong last mile delivery growth, service revenue, strong growth in warehouse services, but I noticed there was a drop in ocean transportation services, about 78%. Now, I know obviously you've Ocean freight costs have come down and prices have come down, but it just seems like a big drop. Was there something else unusual happening there? I just wanted to clarify that. Thank you.

Yeah, no problem, Rommel. No, I think you hit the nail on the head. It's because the ocean shipping rates have come down drastically from where it was from a year ago. We provide end-to-end logistics for our customers So when ocean shipping rates are high, we recognize that as part of revenue. When it normalizes that part of the revenue, the percentage of our total revenue becomes much smaller. So it's because of macro cost factor that caused our revenue mix shift quite drastically from where it was from a year ago. So your understanding is absolutely correct.

Okay. And just a quick follow-up, if I could, you've seen some strong growth in your three-piece seller relationships. I wonder if you could just clarify, has the loyalty, the retention rate still been, have you managed to maintain that very high rate, close to 85%, 90% that you've had historically? Thank you.

Yeah. Um, so we don't typically disclose this, uh, but yes, it's remained very high for us. Um, so that's, uh, because of the unique solution that we offer is to, you know, suppliers, uh, you know, in, in Asia where we provide kind of the, uh, end to end logistics, uh, payment gateway, um, you know, multiple, uh, distribution channels, uh, all through, you know, one easy to use platform.

Okay, great. Congratulations with the quarter. Great quarter. Thank you. Thank you.

Thank you. Once again, if you wish to ask a question, please press star 1 and 1 on your telephone. We will take our next question. The question comes from the line of Irene Martin, who is a private investor. Please go ahead. Your line is open. Thank you.

My question is, could you please provide updates for investors you know, your technological upgrades on your platform and how they contribute to the long-term success of your platform. Thank you.

Sure. I'll take this question, David. So, a lot of the technological investments this year will be centered around optimizing the buyer and the seller data exchange to streamline the overall efficiency of the marketplace um we're in the b2b sector so there are recurring transactions and data and machine learning can improve that process and make it more efficient and with that being said uh machine learning and the algorithm our algorithms are a huge huge part of what we do because um unlike any other company we optimize the process from end to end and uh With that, you know, I alluded to this as well earlier, over a quarter of our entire workforce is dedicated to IT and engineering, and they're all dedicated, you know, their daily activities into making this process as efficient and as effective as possible in our quest to make the cross-border B2B even better.

Thank you for your answer. And I also thought of one more question. So about your business outlook, you mentioned that there's a revenue range for the second quarter of 2023. So what factors or market conditions are influencing this forecast? And what key initiatives or strategies will you implement to achieve these revenue targets?

Yeah, we took into account count a number of factors in arriving our current outlook for Q2. I think under the current economic environment, we see a lot of traditional retailers are struggling from overvalued inventory that caused by a surge in ocean shipping rates during the pandemic. I think as more and more of our customers are paying closer attention to efficiently managed supply chain and inventory management, This presented us with a very unique opportunity given our business model can effectively remove some of the inventory risk and associated costs from carrying inventory directly. And then also, as Iman alluded, we got a lot of tailwind, you know, through the normalization of ocean shipping rates. So that's how we arrived in our outlook for second quarter of 2023. Okay, thank you very much.

There seems to be no further questions at this time, so we'll hand back for closing remarks.

Thank you very much for joining this conference call. If you have any further questions, please contact us through email, and we'll 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.

This concludes today's conference call. Thank you for participating. You may now disconnect.