LightInTheBox Holding Co., Ltd.

Good morning, everyone, and welcome to the second quarter 2021 Earnings Conference call for Light in the Box holding call limited. Today's conference is being recorded. At this time, I would like to turn the call over to Mr. Rene and Westheim for opening remarks and introductions. Please go ahead, sir.

Thank you, Ray. Hello, everyone, and welcome to Light in the Box second quarter 2021 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 developments, followed by Ms. Wang Jun Ye, the company's Chief Financial Officer, who will go over the financial results. Together with them today is Min Wenyu Liu, the company's chief growth 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 Integration Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from all 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 20-F filed with the Securities and Exchange Commission on April 21st, 2021. 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.

Yeah, thanks, Renan. Thank you, everyone, for joining us today. Following a solid first quarter, we continued to achieve stable year-over-year growth in the second quarter. Total revenue reached $122.2 million, up 7.3% from the same period of 2020. Our gross profit margins in Q2 was 46.8%, higher than 43.5% in the same period of 2020, while adjusted in data grew by 59% year-over-year. Total revenues for the first half of this year were $234.2 million, representing a 41.6% increase from the first half of 2020. From the macro perspective, as vaccination rates around the world increase, people are engaging in more outdoor and social activities with family and friends, as well as offline shopping at retail stores and malls. It's a good phenomenon, and we are pleased to see this happen. In the long run, we believe that online and offline shopping can complement each other for a better shopping experience. Overall speaking, our sales in Q2 continued to sustain a healthy growth momentum. Product sales increased by 11% year-over-year. Notably, apparel sales increased by 149%, and is our top category, contributing 62% of the total product sales in Q2. compared with 28% in Q2 last year. For the first half of the year, apparel sales grew by 56% from the same period of last year. The solid performance is attributable to our enriched and select product portfolio and our continuous efforts in enhancing our customers' shopping experience. On the other hand, we believe that investing R&D is a critical element that fuels our solid position to stand out from the field competition. Our R&D expense increased by 52% year-over-year to $5.1 million in Q2 as we continued to strengthen our R&D capabilities. accelerated the shift towards online shopping, but at the same time, it has attracted more competition to the e-commerce space from new and established players. Right now, we are still facing economic uncertainties, partly due to the resurgence of the coronavirus in a number of countries. We will continue, as in the past quarters, to implement strategies to enhance our platform to be more responsive and user-friendly so that the customer will enjoy the comprehensive product selections and the convenience of online shopping even more on our websites and mobile app. I will now turn the call over to Yuanjun to go through the financial results.

Thank you Mr. He and thank you everyone for joining the call. I will now review our financial results for the second quarter. Please be reminded that all numbers quoted are in U.S. dollars. Total revenue was $122.2 million, up 7.3% year-over-year from $113.9 million. This was mainly driven by strong growth in product sales, which were $119.3 million versus $107.2 million in the same period in 2020. Revenues from services and others were 2.9 million, compared with 6.7 million. Included in product sales, revenues from apparel increased by 149% to 74 million in the second quarter of 2021, compared with 29.7 million in the same quarter of 2020. Gross profit was 57.1 million. compared with $49.6 million during the same period last year. Gross margin was 46.8%, up from 43.5% the same quarter of 2020, primarily due to our continued efforts to optimize client chain and product mix. Total operating expenses was $60.6 million, compared with $41.4 million during the same quarter of 2020. The increase was mainly due to an increase in selling and marketing expenses. Fulfillment expenses were $7.6 million compared with $7.4 million in the same quarter of 2020. As a percentage of total revenues, fulfillment expenses were 6.2% compared with 6.5% in the same quarter of 2020 and 6.5% in the first quarter of 2021. selling and marketing expenses were $43.5 million, compared with $26.5 million in the same quarter of 2020. As a percentage of total revenue, selling and marketing expenses were 35.6% compared with 23.3% in the same quarter of 2020, and 31.8% in the first quarter of 2021. The increase was due to the high expenses for online advertising from leading ad providers. G&A expenses were $9.5 million compared with $7.5 million in the same quarter of 2020. As a percentage of total revenue, G&A expenses were 7.8% compared with 6.6% in the same quarter of 2020 and 7.5% in the first quarter of 2021. Included in the G&A expenses, R&D expenses were $5.1 million compared with $3.3 million in the same quarter of 2020 and $4.9 million in the first quarter of 2021. Other income net in the second quarter of 2021 was $17.2 million compared with $0.3 million in the same quarter of 2020 included in other income. Net in the second quarter of 2021, 17.1 million was derived from change in fair value on our equity investment. The gain in fair value change on our equity investment after respective income tax of 4.2 million was 12.9 million. Net income was 9.5 million compared with 8.5 million in the same quarter of 2020. Net income per ADS was 8 cents compared with $0.08 in the same quarter of 2020. Adjusted EBITDA, which represents income from operations before share-based compensation expense, interest income, interest expense, income tax expense, depreciation and amortization expenses, were $14.5 million in the second quarter of 2021, compared with $9.1 million the same quarter of 2020. As of June 30, 2021, we had a cash and cash equivalents restricted cash of $58.2 million, compared with $65.5 million as of December 31, 2020. Our revenue growth and net income in the past quarters have validated our well-established growth strategy. As we continue to maintain business continuity in unprecedented times, over the next quarter, We expect to continue to face challenges in highly competitive markets, and we will continue to implement our long-term growth strategies to optimize user experience across our platform and mobile apps. The commitment of our experienced management team leading our operations and our R&D and technology innovation has given us the solid foundation we need to stay well positioned in the industry. However, it is unlikely to reasonably determine whether any business fluctuations in the midst of the current economic dynamics are likely to materially affect our operations. To focus on long-term goals and avoid overly underlying short-term objectives, we will not provide revenue guidance for the third quarter of 2021. This concludes our prepared remarks. At this point, we are ready to take some questions. Operator?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, please press star one on your telephone and wait for a name to be announced. To cancel a request, please press the pound or hash key. Once again, to ask a question, please press star one on your telephone. Thank you. The first question comes from the line of Matthew Larson from National. Please go ahead.

Okay, hi. Thanks for taking my call. Good evening to you all. Okay, it was nice to see the top line growth and bottom line. I guess the bottom line, a lot of it derived from A derivative revaluation, what does that emanate from?

It is the investment gain.

On what, I guess? What's the investment?

Hi, Mr. Matthew Lawson. This is an investment on a company, you know, that we invested several years ago whose business was on selling cosmetic products.

Okay, so it's a related business. It's retail. And do you maintain that business investment exposure? So that could impact hopefully positively in the future just as it did this quarter?

We are just a shareholder. We do not maintain the business in this investment equity.

Okay, right. But it's a shareholder of a retail type of business which you're familiar with. It's cosmetics. So... It's part of the assets on your balance sheet. Is that in addition to the cash, the $50-some-odd million you have in cash, you also have securities in this business as well? Is that accurate?

Okay. This investment gain is based on the company, you know, which raised capital and our initial investment, you know, gained this, you know, the book value was increased according to the new equity rates in this company.

Right, but the gain is quite nice and there's nothing, you know, it's always good to have investments in addition to cash, because you have plenty of cash on the balance sheet, but, uh, uh, the investment seems to be working quite well. So I'm trying to get a sense of, uh, what you have, uh, you know, assets on the balance sheet since you don't have any debt, you have cash, you have this investment in this, uh, uh, this company. And what is the total value of your investment? If you could, you know, gauge it, uh, uh, based on the, you know, at the end of the second quarter?

The total value of this company, I think it's not an available information that we could disclose. The long-term investment that you are seeing on our balance sheet was valued according to the U.S. GAAP with the relative methodology. it's not totally equivalent to the value of this investment company.

Okay, but it went up $12 to $13 million, so it must, in the aggregates, the value of the investment must be more than that. So it just allows me to get a better sense of, you know, the value of your company in addition to the operating value, you know, that we can place on you all because of your revenue-generating capabilities?

Yes, we are only a minor shareholder and we are in different markets. So the methodology behind is quite different. So it's really hard to explain, you know, or to compare the value of these investment companies.

But what you can see... Okay, please go ahead.

Well, I was just saying that if...

if we could get a sense of the value of your investments, you know, that you might've made a while ago, the current value based on, you know, a gap accounting, uh, we would be able to, uh, add that to, you know, your book value or just, you know, as an investor that I, I, I represent, uh, a number of investors that have a pretty good exposure to your company. And this is a plus. I didn't know you had other assets that could really help the overall value of Light in the Box in addition to the cash you have and the top line operating capabilities of your firm. And so this was a plus that obviously is working well for you. Okay, so... In addition, the guidance, you're not going to put it out. As you said, it's very competitive and things in the PRC are still being impacted like they are elsewhere with COVID and things like that. Retail is a very competitive business anyway. You all have done extremely well over the last year. You've had four quarters, I believe in a row where you've doubled your previous year's revenues. Uh, this year you did not because last year was a tough comparison, but you still did better, which was very nice. Um, on an operating basis, you had a small, you know, loss and the, uh, the breakout that I could see was at the SG&A, uh, went up to 43 and a half from 26 and a half. So obviously that's up quite a bit. Uh, Is that due to higher costs for sourcing because of shipping costs and other things like that that might abate so that the SG&A might be less of a percentage going forward?

Okay, thank you for the question. Yeah, hi. Okay, so for G&A expenses, the absolute value will remain most likely stable. So if the revenue continues to grow, in terms of G&A expenses percentage will definitely decrease.

Yeah, because the revenue grew 7%. which was great because last year it was up 100%, maybe. But last year you were able to achieve that with SG&A of $26.5 million. This quarter it was $43.5 million. So there was a big jump there. And, of course, that hurts your bottom line, but is the SG&A in the future expected to – you know, maybe be more contained relative to your revenue, your top line capabilities. So can we expect that to be, you know, less as a percentage of overall sales?

Yes, we can.

Okay, so, all right, so you... So, again, just so I'm very clear, these releases are pretty basic. The SG&A jumped $17 million from $26.5 to $43.5, which was up 60% or 70%. Sales were up 7%. So, is the jump in SG&A... for you know, what reasons I, I know here in the U S that, uh, there is bottlenecks and the costs of containers of ships coming from, uh, Asia, China to the U S carrying goods, you know, have jumped considerably in price. So, so costs have gone up, uh, uh, which, you know, it is for everybody. Is that the case with you? And if so, if the tightness for many things slows down, would your SG&A become less of a percentage of your overall sales so that your sales could fall to the bottom line and we could see greater profitability?

Okay, for the absolute value, as you have mentioned, there's a jump as compared to last year. There are two reasons. One was because last year we had some subsidies from the government due to COVID-19, but this year there's no more that kind of subsidies. The other reason was caused by R&D expenses as mentioned just now.

Okay. All right. That makes sense to me. The R&D went up fractionally and it's important that you continue to invest in your platform.

Yeah. This number will remain relatively stable.

This number what? I'm sorry?

This number will remain stable in future, at least for this year.

Okay.

Yeah.

Okay. Well, that's good to know. So if you can, you know, continue to grow, what I'm driving at is, Your company, after many years, after you went public, you know, kind of flatlined. But all of a sudden, your top line growth, your revenue has been excellent. And so you're benefiting from, you know, more and more people focusing on making purchases online versus elsewhere. Now, you did withhold guidance. Is it just because it's hard for you to figure it out or is you're just, is it slowing down or what, you know, what is the reason why, because in the past you've been able to give guidance and we're already almost at the end of the quarter.

Okay. For this quarter, honestly speaking, there's some uncertainties we are facing right now. As mentioned just now by our CFO, so it's unlikely we can provide accurate guidance right now.

Okay, and when you do have that ability, will you announce it prior to You can give guidance. You can pre-announce those types of things.

I think we are not planning to have another release, but we will try to have an early release for Q3 quarterly report.

Okay, and then maybe finally, do you expect to be profitable for the year or is that based also on the other investment that changes in value?

We can't predict the final profitability for the whole year. What we know now is the first two quarters result.

I see. So, okay, you only know what you've done so far, but you can't predict the rest of the year. And is that your company or is that you find with a lot of online retail, you know, companies like yourself in the PRC? Is that just what most of... your competitors are probably not able to do?

Maybe, okay, allow me to give you a few reasons. First of all, as mentioned just now, due to the microenvironment, the vaccination rate keeps increasing and people are more engaged in outdoor activities as a result. I believe online portion gets affected. In fact, other players also observe the similar trend. This is one reason. The second reason will be, yes, as you have mentioned, there are many new players joining cross-border e-commerce industry, which did impose some new challenges as well as the computation Besides, we are also facing some uncertainties in certain countries due to the impact of COVID-19. As a result, it's a bit hard for us to predict the guidance for Q3 as well as the whole year.

Okay, but you do expect to be profitable for the whole year.

No, we can't make this conclusion right now.

You can't make any predictions?

Yes, we can't.

Okay. Alright. Because, you know, your company is extremely undervalued relative to many other online merchants. You know, the value of your company is only about one quarter to one third of sales, which is very unusual. I mean, generally, companies with your business model trade at two or three times sales. And in addition, you have a very, very solid and robust, you know, an excellent balance sheet so that that is, you know, very comfortable for investors. So it's just a question of, you all being able to pull your top line sales to the bottom line because the value of your stock is so low. Let me ask a final question. I mean, is the principles of the firm, are you all happy with your stock price or do you want it to go up? Is that an interest of yours? Because it is down 70% or 80% from its high. even though your revenues continue to grow and you have a very clean balance sheet. Do you have any interest of trying to get the stock price higher through buybacks or other measures, acquisitions?

Okay, first of all, Matthew, I think we do appreciate that you have You have done a lot of analysis on this company as well as this market. We do appreciate that. And I do appreciate that you see the value in this company. But for the stock price, we don't have any comments right now. As for whether we want to drive up the stock price, I think it's another topic. Yeah, this is a good question. We will bring this to our board and initiate some discussion. At the same time, I think if you have any further questions, we can keep in touch after the call. You can send our email address from IIS website. We do appreciate whatever you have asked or whatever you have suggested.

Okay. I'll appreciate that. jump in here if there's people waiting. Thank you for your time. Good luck.

Thank you so much.

Thank you. Once again, ladies and gentlemen, if you wish to ask a question, please press start 1 on your telephone. Once again, to ask a question, please press start 1 on your telephone. Thank you. Thank you. I will now hand the call back to Mr. Rene Renderson for any closing remarks. So please go ahead.

Thank you, Ray. This concludes our call for today. Thank you for your participation and ongoing support of Light in the Box. We look forward to providing you with updates on our business in the weeks and months ahead. Have a good day.

Thank you. Bye-bye.

Thank you. That concludes our conference for today. Thank you for your participation. You may all disconnect your lines now.