LightInTheBox Holding Co., Ltd.

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

Thank you, Rachel. Hello, everyone, and welcome to Lighting the Box. Second Quarter 2020 Earnings Conference Call. The company's earnings results were released earlier today and are available on the company's IR website as well as through PR Newswire. Today you will hear from Light in the Box CEO, Mr. Jian He, who will give an overview of the company's strategies and recent development, followed by Ms. Yuan Jun Ye, the company's chief financial officer, who will go over the financial results. Together with them today is Ms. Wenyu Liu, the company's chief crowd officer. All will be available for the Q&A after the prepared remarks. Before we proceed, I would like to remind you of our safe harbor statement. Please note that the discussion today may contain certain forward-looking statements made under the safe harbor provisions of the US 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 filed with the Securities and Exchange Commission on May 1, 2020. We do not assume any obligation to update any forward-looking statements except as required under applicable law. At this point, I'd like to turn the call over to Mr. Herc. Mr. He, please go ahead.

Mr. Thanks, Shireen, and thank you everyone for joining us today. Despite the continued macroeconomic uncertainty, we are proud of achieving a significant milestone in the second quarter in relation to our operational and financial performance. Total revenue were $113.9 million in the second quarter, nearly doubling the second quarter in 2019, driven by the increase in new customers and more orders from existing customers across our co-operating regions like North America, Europe, and certain Asian countries. Product margins also improved year over year as a result of our ability to optimize our product mix and leverage the depth of our relationships. At the same time, we achieved a net income of $8.5 million. In comparison, the net income of $0.7 million in the preceding quarter and the net loss of $7.3 million in the same period of last year. Mainly due to our economies of scale and the disciplined management of costs, this results reflected the success of our revised strategy, which is to focus on optimizing product and category needs, enhancing supplier chain management, and driving customer engagement. In the past few quarters, we made significant progress in implementing our growth strategy by not only responding to the immediate needs of our customers, but also consistently improving our operations. To ensure that our strategy can be successfully executed, we focused on a number of key areas. First, we utilized our underlying technology-driven infrastructure to optimize our supply chain management. Although we have always benefited from longstanding relationships with suppliers, we have worked timeless to strengthen those partnerships during the second quarter. It was our ability to use our expertise to identify suitable suppliers for each merchandise category and our use of real-time data to inform suppliers of changes in demand that proved critical. As a result, we were able to leverage this capability to place large volume orders with better unit economics which strengthened the relationships with our premium suppliers, improved growth margins, and created a better value for money options for our end customers. Second, we optimized overall product mix with the strategic goal of improving margins and increasing order value. Among many changes made to the algorithms, the power of online stores We paid particular attention to our cross-sell efficiency and capabilities. As we continue to better understand the needs and the purchasing habits of our customers, we offered the user relevant and related products that complemented their existing orders. Our ability to successfully execute this strategy had a direct impact on the perceived value of our platform and was a driver of higher order values and greater user growth. Third, Bethesda integrated our customer-first mindset across every part of our business, which allowed us to satisfy the real needs of customers, and as a result, cultivated a more loyal customer base and an overall higher retention rate. Keying attention to our customers' needs during this crisis enabled us to uncover opportunities in real time across the regions. People continue to spend more time at home. The change in construction habits and the reliance on online shopping channels, that enabled us to mobilize our supply chain resources and keep up with demand in a timely and cost-effective manner. I'm confident that our current strategy places us on the right path to sustainable and profitable growth, and I'm excited about our achievements as we navigate the crisis and our further opportunities as we emerge from it. Our solid performance this quarter shows that our rapid response to the adverse floating conditions caused by the coronavirus pandemic has been a success and is an encouraging sign that the revamp of the strategies we laid out last year is, in fact, getting strong results as we focus on driving long-term sustainable value for shareholders. Our ability to drive great operating leverage, expand our user base, and generate more order flow from existing users is the product of our team's tremendous commitment focus and hard work. And I'm very proud of their work so far in 2020. As we look ahead to more progress in the third quarter, I'm confident that we are positioned to scale the business further, improve profitability to drive top-line growth in years to come. I will now turn the call over to Yuanjun to go through the financials for the quarter.

Thank you, Mr. Herr, and thank you everyone for joining the call. I will now review our financial results of the second quarter. Let me remind you that all numbers quoted are in U.S. dollars. As Mr. Herr mentioned, we continue to implement our strategies and demonstrated strong execution, which led to significantly improved top and bottom line performance. Not only are our strategic decisions enabling us navigate the adverse impact of COVID-19, but they are positioning us well for sustainable growth beyond the crisis. We are confident that our current operations and growth trajectory will yield further increase in profitability when taking seasonality into account. Now, let me walk you through the key financial results for the second quarter. Total revenue was $113.9 million, up 95.9% year-over-year from $58.1 million in the same quarter of 2019. This was mainly driven by strong growth of product sales, which were $107.2 million versus $57.1 million the same period in 2019, and growth in services and others. which was 6.7 million, increased more than five times year over year. Gross profit was 49.6 million, compared with 24.4 million during the same period last year. Gross margin was 43.5 percent, compared with 41.9 percent in the same quarter of 2019, primarily due to our continued efforts to drive revenue growth from categories with higher gross margins. Total operating expenses in the second quarter was 41.4 million, compared with 26.9 million during the same quarter of 2019. The increase was primarily due to an increase in selling and marketing expenses. Of operating expenses, fulfillment expenses were 7.4 million, compared with $4.9 million in the same quarter of 2019. As a percentage of total revenues, fulfillment expenses were 6.5 percent compared with 8.4 percent in the same quarter of 2019 and 9.8 percent in the first quarter of 2020. Selling and marketing expenses were $26.5 million compared with $11.5 million in the same quarter of 2019. As a percentage of total revenues, selling and marketing expenses were 23.3%, compared with 19.8% in the same quarter of 2019 and 28.7% in the first quarter of 2020. Our focus on growth throughout 2020 will result in higher marketing expenses, but we will continue to exercise cost discipline so that selling and marketing expenses as a percentage of total revenues will remain relatively stable. G&A expenses were $7.5 million compared with $10.5 million in the same quarter of 2019. As a percentage of total revenues, G&A expenses were 6.6 percent compared with 18.1 percent in the same quarter of 2019. and 14.1% in the first quarter of 2020. Included in the G&A expenses, R&D expenses were 3.3 million, compared with 4.1 million in the same quarter of 2019. Adjusted EBITDA, which represents a gain or loss for operations before share-based compensation expense, change in sale value of convertible promissory notes, interest income, interest expense, income tax expense, and depreciation and amortization expenses were 9.1 million in the second quarter of 2020 compared with 0.9 million in the same quarter of 2019. Net income was 8.5 million compared with a net loss of 7.3 million in the same quarter of 2019. Net income per ADS was $0.08, compared with net loss per ADS of $0.11 in the same quarter of 2019. As of June 30, 2020, we had cash and cash equivalents and restricted cash of $55 million, compared with $35.6 million as of March 31, 2020. The increase in the company's cash position for the second quarter is attributed to the cash inflow generated from its operating activities. For the third quarter of 2020, based on current information available and business seasonality, the company expects net revenues to be between $95 million and $110 million. representing a growth rate between 59% and 83% compared with the third quarter of 2019. This concludes our prepared remarks. At this point, we are ready to take some questions. Operator.

Ladies and gentlemen, we will now begin the question and answer session. 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 the pound or hash key. Once again, if you wish to ask a question, you may press star and the number one on your telephone keypad. To ask a question, it's star and the number one on your telephone. There are no questions at this time. I would now like to hand the conference back to Mr. Rene van Gisteyn for the question and answer.

Thank you, Rachel. This concludes our second quarter 2020 earnings conference call. Thank you all for your participation and ongoing support of Light in the Box. We look forward to providing you with updates of our business in the weeks and months ahead. Have a good day or good night. Thank you all.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.