GigaCloud Technology Inc

Good day, and welcome to the GigaCloud Technology third quarter 2025 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I'll now like to turn the conference over to Mr. Larry Wu, CEO. Please go ahead.

Thank you, operator, and welcome, everybody, to today's call. This quarter's performance is a strong testament to Geek Academy's resilience and adaptability. Despite the challenges brought by global trade uncertainties, a cooling housing market, and the wavering consumer confidence, we delivered a robust 10% year-over-year growth, returning to two-digit increase and setting new records of $333 million in quarterly revenue and $0.99 in quarterly EPS. These results reflect our ability to move fast, stay lean, and execute with precision, even in the face of macroeconomic headwinds. We're navigating today's environment with confidence, guided by the disciplined execution to our long-term strategy, staying agile, continuing to diversify for resiliency. Our noble house optimization is delivering fantastic results, strategically adding new products and phasing out underperformers. has fueled our first year-over-year revenue growth since we completed the acquisition. We are excited for the future value that we expect this portfolio to unlock as we continue our optimization effort. As we have discussed many times before, we view M&A as a part of our long-term growth strategy. Noble House is a powerful validation of the strategy by combining product, channel, vendor resources from Noble House with operational efficiency and the transformative marketplace of the Giga Cloud. We have not only been able to turn a bankrupt company losing nearly $40 million in 2023 to a profitable growing assets in less than two years, but also expanded our product line and the channel outreach. This result is exactly why we view M&A as a cornerstone of our long-term growth. As we look forward, this successful playbook gives us tremendous confidence in our strategy to continue unlocking new value for the future. With that said, I'm very excited to share our plan to acquire new classic home furnishing scheduled to close on January 1, 2026. As a traditional brick-and-mortar focused wholesaler, New Classic is the perfect strategic fit for Giga Cloud to further diversify our business and reach beyond e-commerce. As many of you know, Giga Cloud ecosystem has historically been more concentrated towards e-commerce and big and bold This acquisition represents our strategic move to recalibrate our focus, making brick and mortar wholesale a more significant and complementary part to our ecosystem, an area we see tremendous opportunities in. We have already proven the viability of our marketplace. The next step of evolution, naturally, is to bridge the digital and the physical world. For Truly Channel, agnostic ecosystem that empower buyers and sellers to trade seamlessly with the unparalleled reach and flexibility. Executing this next phase evolution in the current economic climate is a deliberate choice. While no company is immune to macro pressures or focus Our focus execution, strong balance sheet, and use of diversification as a hedging strategy allows us to navigate this turbulence more effectively than most, securing competitive advantages today that will fuel our next chapter of growth. To that end, I will now turn the call over to Iman, who will provide more detailed update on the progress we'll continue to make against our key operational goals.

Thank you, Larry. Hello, everybody. Our marketplace continues to gain momentum, delivering another strong quarter of growth. For the trailing 12 months ending September 30, 2025, marketplace GMV rose approximately 21%, reaching nearly $1.5 billion, underscoring the scalability and resilience of our platform. Our active 3P seller base continues to expand, up 17% year-over-year to 1,232, with GMV for this cohort climbing more than 24% on a trailing 12-month basis to over $790 million. Buyer growth also accelerated, increasing 34% to 11,419 as more businesses looked for new efficiencies and risk optimization in a challenging environment. Our global revenues increased by 10% in the third quarter on a year-over-year basis, While the domestic US markets faced headwinds, our international markets acted as a powerful hedge, driving growth and offsetting domestic softness. Diversification and having a balanced portfolio is a core tenet of our strategy, ensuring we're not overly reliant on any single market. Europe continues to be a powerful growth engine, with year-over-year revenues of 70% to a record $100 million, making a major milestone in our global expansion. Our diversification efforts, however, is not limited to geographical expansion. We're also looking to create a more dynamic marketplace supported by a broader range of product offering and distribution channels. To accelerate this strategy, we leverage M&A to acquire key capabilities. Our playbook has a two-pronged approach, deepening our core capabilities through acquisitions and leveraging our ecosystem to make acquired asset more efficient competitive and profitable our 2023 acquisition of noble house is a prime example it's not just an addition but a strategic integration that deepens our product catalog and capabilities we have made substantial progress with our noble house portfolio optimization since last quarter we have introduced another 2,300 new SKUs, and retired 1,100 underperforming SKUs, shaping a more streamlined, high-performing portfolio built to scale. As shared earlier this year, our SKU rationalization efforts have successfully returned the portfolio to profitability, while temporarily impacting our top line. I am pleased to report that in Q3, this disciplined approach has paid off. with the portfolio not only maintaining its profitability, but also returning to growth. We have effectively reset our foundation and are now reigniting growth from a much healthier foundation. Looking ahead, we plan to build on this momentum. Our strong balance sheet positions us to be highly active and disciplined in pursuing inorganic opportunities that align with our long-term strategic goals. And our pending acquisition of New Classic is a great example of the type of value-creating asset we are looking for. New Classic is a well-respected, long-standing US wholesaler with deep roots in the brick-and-mortar furniture space. The company has over 1,000 primarily brick-and-mortar retail relationships, over 2,000 active SKUs, a high-performing team, and a wide network of vendors that specialize in products tailored for this specific channel. The acquisition is strategically targeted to dramatically widen our distribution and channel reach. By pairing New Classics Network with GigaCloud's marketplace ecosystem and logistics capabilities, we can accelerate growth and unlock new efficiencies. We expect to close the transaction early in the first quarter of 2026, and expect four to six quarters of strategic initiatives to be reflected in our financial performance. Now I'll turn things over to Erica for a discussion of third quarter financials.

Thank you, Aman, and hello, everybody. A quick note before we get into our results. All figures I covered today are rounded, and unless otherwise noted, comparisons are against the same period last year. Now let's take a look at this quarter's results. We delivered a great quarter, including double-digit growth revenue of 10% to $333 million, a new quarterly high. Now let's break this down by revenue streams. Our service revenues declined 2% year-over-year, primarily driven by reduced U.S. ocean shipping and drayage revenues. The uncertainty seen in recent months has resulted in significant declines in the demand for ocean shipping services to the US for many industries. Lower demand has suppressed ocean spot rates, which translates to lowered ocean service revenues for us. US revenue pressures were partially offset by strong year-over-year growth in similar services delivered to our European market sellers. Service margin came in at 9.1%, down 2.3% sequentially, primarily driven by higher last mile delivery costs in the U.S., following pricing adjustments implemented by some of our ground transportation fulfillment partners. In response, we are actively recalibrating client pricing to reflect these updated cost structures. Total product revenue grew 16% year over year, driven by our strong performance of 69% growth in Europe. Growth was partially offset by a 5% decline in the U.S., which is reflective of the challenging macroeconomic pressures in the region, but more importantly, it is a direct outcome of our disciplined strategy. As communicated last quarter, we have implemented targeted price increases to address rising tariff costs. Our strategy is to prioritize margin integrity over pure volume, ensuring the growth we deliver is sustainable and valuable. Our commitment to margin integrity was put to the test this quarter and proved effective. We faced a significant margin headwind from the sale of products sourced in Q2 under tariffs exceeding 100%, which we successfully navigated with strategic price increases. protecting our baseline profitability. Beyond this mitigation, we delivered a sequential product margin expansion of 70 basis points to 29.9% as we grew our higher product margin channels and benefited from lowered ocean shipping costs. For GigaCloud as a whole, gross margin was 23.2% for the third quarter, a 70 basis point sequential decline from the second quarter of 2025. Operating expenses declined 1.7% sequentially to 11%, primarily driven by lowered G&A expenses. This is a reflection of lower stock-based compensation this quarter, as most stock-based comp is granted and vested in the second quarter of each year. Selling and marketing expenses remain flat sequentially at 8% of sales. This brings net income to 37 million or 11.2% of revenue, an expansion of 50 basis points sequentially. I'm also pleased to report a new record for quarterly EPS of 99 cents per share, driven by our team's focused execution and amplified by our ongoing share repurchase efforts. For the third quarter, We generated operating cash flows of $78 million, ending the quarter with total liquidity, which includes cash, cash equivalents, restricted cash, and short-term investments, of $367 million. We remain debt-free and continue to execute on our capital allocation strategy of pursuing strategic acquisitions, such as New Classic, while simultaneously returning capital to shareholders through buybacks. Since the announcement of our 111 million share buyback plan in August, we have executed approximately 16 million in buybacks to date, or 15% of our latest plan limit. This brings our cumulative buyback total to 87 million as of date since our IPO in 2022, and we plan on continuing to execute opportunistically using buybacks as a flexible tool to return value to our shareholders. Finishing with our fourth quarter outlook, revenue is expected to be between $328 million and $344 million.

Operator, we are now ready to begin the Q&A session.

We will now begin the question and answer session. To ask a question, you must press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Your first question today comes from Tom Forte from Maxim Group. Please go ahead.

Great, thanks. Congratulations on the quarter. One question, one follow-up. So you talked about a new M&A program acquisition, can you talk about your thoughts on additional M&A acquisitions? Recently, you've talked about looking for opportunities to expand in Europe and then also looking for opportunities, I think, to add technology, perhaps on the software side, things of that nature. That's my first question.

Yeah, we're, uh, keep looking, um, you know, different opportunity by focusing on, you know, any opportunity can bring us, you know, more product, uh, or the fulfillment of capability. Uh, but right now I think we're more focusing on, um, you know, um, concluding the, the, the closing of a new classic. Uh, but our team is definitely concurrent. We're looking for a new opportunity, but, uh, it's likely that this can happen in the coming few months because we'll be focusing on new classes at this moment.

Okay, and then for my second question, and thank you, Larry, for the answer on that one. The good news for the housing market is that the site has now had multiple rate cuts. I recognize that the housing market is still very challenged. Do you think any of these rate cuts are starting to translate into greater interest in home merchandise and then the possibility for some sort of sales catalyst over the next 12 months.

Yeah, that's obviously the delivery. We were hopeful about the bouncing back of the housing market, but we're trying to keep ourselves more focused on the execution on micro level because we do have the toolbox of more diversified revenue avenue that we can really enjoy the flexibility to avoid any kind of reliance on any of the the macro positive of the factor to happen to really provide the opportunity to grow, that we're trying to deliver the growth regardless of what the macroeconomic is doing.

Thank you, Larry.

Thanks for taking my questions.

Thank you. Thank you. Once again, if you have a question, please press star, then 1. Your next question comes from Joseph Gonzalez from Roth Capital Partners. Please go ahead.

Hi, guys. Thank you for taking my question. It's great to see you guys kind of transform Noble House, and I want to see if you guys can unpack that here a little bit. Is there any chance you can just give us a cadence of how the quarter went and kind of the drivers for that growth there in 3Q?

Hey, thanks, Joseph. Um, yeah, Q3, I think overall went really well.

The main drivers here are, uh, noble house outperforming in the U S and also Europe.

Uh, it's nothing new continuing to perform very strongly.

Got it.

And as a potential, your core business X like excluding noble house, uh, any drivers there you'd like to unpack for us as, um, you come out, you know, with, uh, about double-digit growth in the fourth quarter through your guidance? Just kind of what you guys are seeing in your early innings of 4Q and the confidence there.

I think...

As of today, we're seeing kind of Q4 going well, kind of as expected, and this is reflected in the guidance that we gave just now. And this is, of course, inclusive of the expectation of Europe, which is mostly, it is entirely organic, continuing to perform strongly, Noble House, and then, of course, our original non-acquired parts of the business, all three combined.

Got it. It's good to hear you guys are able to navigate during a dynamic environment. We'll go ahead and leave it there. Thank you, guys.

Thank you. Thank you.

There are no further questions at this time. And with that, that does conclude our question and answer session. This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.