LightInTheBox Holding Co., Ltd.

Good morning, everyone, and welcome to the first quarter 2020 earnings conference call for Light in the Box Holding Company Limited. Today's conference is being recorded. At this time, I would like to turn the call over to Mr. Christian Arnault for opening remarks and introductions. Please go ahead, sir.

Thank you. Hello, everyone, and welcome to Light in the Box's first quarter 2020 earnings conference call. The company's results were released earlier today and are available on the IR website. as well as through PR Newswire. Today, you will hear from Light in the Box's CEO, Mr. Jin He, who will give you an overview of the company's strategy and recent developments, followed by Ms. Wenyu Liu, the company's Acting Chief Financial Officer, who will go over financial results in more detail. Before we proceed, I'd like to remind you of our Safe Harbor Statement. Please note that the discussion today may contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. To understand the factors that could cause results to materially differ from those in the forward-looking statements, please refer to our Form 20F, Files of the Securities and Exchange Commission, on May 1, 2020. We do not assume any obligation to update any forward-looking statement except as required under applicable law. At this point, I'd now like to turn over the call to Mr. Hood. Please go ahead.

Thanks, Christian, and thank you everyone for joining us today. The first quarter presented unprecedented challenges for our business, in terms of overall consumer demand and fulfillment constriction due to the impact of the coronavirus. Thus, it created an opportunity to further test our current strategy for driving great operational efficiency and forced us to make strategical adjustments. throughout the quarter to weather the economic disruption. I'm proud to say that all of our efforts to ensure the health and safety of our employees, maintain business activity, plan for the resumption of normal operations, and safeguard partnerships for fulfillment capacity resulted in our third consecutive quarter of GIAP profitability since 2014. Our strategic adjustments in the first quarter also deepened our relationships with the suppliers, expanded our customer base, and further optimized our cost structure, all of which has helped to improve our market position and ability to scale business going forward. Despite the significant reduction in business activities globally, revenues still increased to 51.5 million. during the quarter, up 1.3% year-over-year. Growth margin extended significantly to 46.4% from 34.8% during the same quarter last year. Once again, driven by our continuous efforts to grow revenues from categories with higher margins, it's part of our efforts to improve the optimization of our product mix. This was also underpinned by our ability to quickly negotiate with suppliers to secure fast-moving products in the PPE category, and realized cost savings through a disciplined approach to inventory management. Adjustability data also improved significantly, increasing to 1.4 million, compared with the loss of 7.9 million in the same quarter of 2019. As I mentioned earlier, we delivered our third straight quarter of GLAP profitability, while our cash and cash equivalents position remains healthy, and $35.6 million, which we are continuing to provide us with the resources and flexibility needed to drive growth going forward. We began to see the impact of coronavirus on duties and activities as early as late January, We couldn't deliver goods from our warehouse for almost a month. Employers were severely restricted from coming to work, and we anticipated that operating environments could get worse. It did get worse. As countries started to put more global travel restrictions in place, and customs service became more constrained, our focus had to shift quickly to safeguarding our employees But apparently as important, ensuring that our customers will continue to receive packages on time. In rapid response to the challenge, our management team quickly implemented and removed 14 protocols. We had a serious strategy conversation with the suppliers. And we made adjustments to our innovative logistic infrastructure. by securing fast-moving and high-demand PPE products. This helped to mitigate the overall impact in our business. But we also took it a step further by stepping up our commitment to greater corporate social responsibility and helping many of our global customers in the fighting against the pandemic. During the quarter, we shipped over 1.5 million masks to customers, in the United States, Europe, and Southeast Asia. The unintended effect of our efforts resulted in even larger customer footprint, expansion of our supplier's relationships, and an overall improvement in net-in-the-box demand and visibility. The allowed sales volume picked up across all the countries we covered. And as though it's premature to use DashFix, we can confidently say that our repeat customer purchase rates are trending higher. We expect revenue in Q2 2020 to grow on a year-over-year basis. We resume the production at full capacity towards the end of the first quarter of 2020, and have been seeing a substantial increase in selected categories at home garden Over the last two to three weeks, we have also started to see a rebound in more traditional categories, such as fashion as a customer's trend for gradual reopening. In respect of the resulting operating environments throughout the rest of the year, we are confident the over-balanced category mix enhanced the efficiency, extended the customer base, and the factory relationships. Innovative logistical infrastructure and increasing worldwide adoption of the online shopping all position us there to drive profitability going forward and deliver our other targets for margin expansion. Our performance disorder reflects our ability to rapidly adapt to advice operating conditions showcased the tremendous commitments of our employees and the management team. And then we must tell you how well the strategies we laid out last year. Achieving long-term sustainable value for shareholders despite the challenges. I'm extremely proud of our performance during the quarter, and I'm already very encouraged by the research and activity we have been seeing in the second quarter so far. I'm looking forward to further progress throughout the rest of 2020, and I'm confident that we are well-positioned to scale business further, improve profitability, and drive for blind growth as the recovery continues. I'd now turn the call over to Renyu to go through the financials for the quarter.

Thank you, Mr. He, and thank you, everyone, for joining the call. As we now review our financial results, let me remind that all numbers quoted are in US dollars. As Mr. Ho mentioned, we are very encouraged by the continued growth in our top and bottom lines, overall profitability, and stronger balance sheet strength despite the significant adverse conditions due to COVID-19. We are confident that our current operations and growth trajectory will yield further increase in profitability than taking seasonality into account. Total revenue was $51.5 million, up 1.3% year-over-year from $50.9 million in the first quarter of 2019. This was mainly driven by stable product sales, which were $49.9 million versus $49.8 million in the same period in 2019, and growth in service sales, which were 1.6 million, up 45.5% year-over-year. We will continue to prioritize high-quality growth, leverage the expansion and strength of our relationships with factories as we cater to the needs of our growing user base and improve operational efficiencies in the long run. We will also continue to look for unique opportunities to optimize our category mix towards products. That's still well with the overall focus remaining rarely on margin expansion and sustainable profitability. Gross profit was 23.9 million compared with 17.7 million during the same period last year. Gross margin improved to 46.2% compared with 34.8% in the same quarter of 2019. primarily due to our continued efforts to drive revenue growth from the categories with higher growth margins. Total operating expenses in the first quarter was $27.1 million, a marginal increase from $26.5 million during the same quarter of 2019. The increase was primarily due to an increase in salient marketing expenses. Taking a closer look at the results this quarter, fulfillment expenses were $5.0 million compared with $5.2 million in the same quarter of 2019. The decrease was primarily due to the increased efficiency across our innovative logistics infrastructure. As a percentage of total revenues, fulfillment expenses were 9.8% compared with 10.2% in the same quarter of 2019 and 10.7% in the fourth quarter of 2019. The number of orders for product sales during the first quarter was 1.0 million compared with 1.2 million during the same period last year. Selling and marketing expenses were 14.8 million compared with 9.3 million in the same quarter of 2019. As a percentage of total revenues, selling and marketing expenses were 28.7% compared with 18.3% in the same quarter of 2019. and 23.9% in the first quarter of 2019. Our focus on growth throughout 2020 will likely result in higher marketing expenses, but we will continue to exercise cost discipline in order to maintain profitability and healthy margins. G&A expenses were 7.3 million compared with 12.0 million in the same quarter of 2019. As a percentage of total revenues, G&A expenses were 14.1% compared with 23.6% in the same quarter of 2019 and 11.8% in the first quarter of 2019. Included in G&A expenses, R&D expenses were 3.5 million compared with 4.2 million in the same quarter of 2019. Technology will continue to be a part of our DNA, but the slight scaleback in R&D investments reflected our ability to leverage technological enhancements that we made throughout 2019 while preserving cash during the COVID-19 outbreak, which caused a slowdown in our operations. We intended to gradually increase our investments in R&D going forward, and we further enhanced the user experience and improve future operating margins. Throughout the first quarter of 2020, repeated purchase rates were impacted by longer delivery times due to COVID-19, including logistic constraints. However, in the last two or three weeks, as the operating environment continues to rebound, we have been seeing a significant improvement in repeated purchase rates alongside increasing customer engagement from an extended customer base. But adjusted EBITDA, which represents a gain or loss from operations before shared base compensation expense, changing fair value of convertible promissory notes, interest income, interest expenses, income tax expense and depreciation and amortization expenses was 1.4 million in the first quarter of 2020 compared with a loss of 7.9 million in the same quarter of 2019. Net income was 0.7 million compared with a net loss of 14.1 million in the same quarter of 2019. Net income per ADS was one cent compared with a net loss per ADS of 21 cents in the same quarter of 2019. As of 31st March 2020, we had cash and cash equivalents and restricted cash of 35.6 million compared with 40.4 million as of December 31st, 2019. We believe this level of liquidity is sufficient to navigate an extended period of uncertainty. For the second quarter of 2020, based on current information available and business seasonality, We expect net revenue to be between 105 million and 120 million. This concludes our prepared remarks. At this point, we are ready to take some questions. Operator.

Thank you. Ladies and gentlemen, we'll now begin the question and answer session. And for your questions, please press star and the number one on your telephone keypads and wait for your name to be announced. To cancel the request, it is to pound the hash key. Once again, it's a star one to ask a question. No question as of this time. I'd like to have a call back to Mr. Christian Arnault. Please go ahead.

Thank you very much, everyone, for joining today's call. If you have any questions or further comments, please don't hesitate to reach out to the Line the Box IR team. This concludes the call.

Have a good night. Thank you. Ladies and gentlemen, this concludes the conference call for today, and thank you for participating.