LightInTheBox Holding Co., Ltd.

Good morning, everyone, and welcome to the fourth quarter and full year 2021 earnings conference call for Light in the Bloods Holding Company Limited. Today's conference is being recorded. At this time, I'll turn the call over to Mr. Rene Vangesten for opening remarks and introductions. Please go ahead, sir.

Thank you, Amber. Thank you, Amber. Hello everyone and welcome to Light in the Box fourth quarter and full year 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. Yuan Jun, the company's Chief Financial Officer, who will go over financial results. They will be available for Q&A at the end. 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 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, filed with the U.S. 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. He. Mr. He, please go ahead.

Thanks, Juliana, and thank you everyone for joining us today. Let me start by acknowledging and thanking all the team for all their efforts and the dedication to the company. 2021 was an eventful year for us and for the overall cross-border online retail sector. We faced various unprecedented challenges and pressures, including very competitive environments stemmed by decelerating economic growth, high inflation concerns, and foreign exchange fluctuations, increasing marketing spend and shipping costs. New laws in Europe related to VAT and regulations on electronic products. Despite the unprecedented economic environments, we achieved 12% top-line growth year-over-year, from $398 million in 2020 to $446 million in 2021, and remained stable in our bottom line. Behind these numbers, our growth strategies have been fueled by our strong mission to fulfill our customers' needs and improve their shopping experience. Some of our highlight achievements in 2021 include we continued to increase the volume of apparel sales within our product mix as customers shop for clothes online. based on our customer reviews, competitive price matching, wide selections to choose from, and the time-saving benefits of sorting everything they need through one global platform. By the end of the fourth quarter of 2021, our apparel category reached over 70% of our total product sales, with the increase in apparel sales Our growth margin increased to 47.2% in the first quarter of 2021. We continued to build a resilient supply chain to drive production agility and visibility and to provide our customers with the best value for money and globally sourced products. And the investment in R&D in 2021 increased by 34% year-over-year, from $15 million to $20 million, which we believe will give us the edge in retail e-commerce to stay ahead of trends and capture industry insights for our suppliers and designers. Our ability to successfully navigate the challenge of 2021 is a testament to the effectiveness of our proven growth strategies. After years of building a solid foundation, serving over 140 countries, the fundamentals of our business are healthy and sustainable. Looking ahead, although there are still uncertainties and violent factors that may impact our business, we have proven that we have the know-how to stay in the middle of these challenges. We will continue to improve on operational efficiency and value-added services for our customers. This is the easing of travel restrictions around the world and many countries resuming economically. We are well-positioned to capture more growth opportunities with our deep expertise in cross-border e-commerce. I believe we will achieve sustainable growth and better serve the fast-growing and evolving needs of our customers in 2022. I 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'll now review our financial results for the fourth quarter. Please be reminded that all numbers quoted are in U.S. dollars. Total revenues was 113.2 million, down 14.8% year-over-year from 132.7 million. Product sales were 110.5 million versus 129.5 million in the same period of 2020. Revenue from services and others was 2.7 million, compared with 3.2 million a year ago. Included in product sales, revenue from apparel increased 25.2% to $77.9 million in the fourth quarter of 2021, compared with $62.2 million in the same quarter of 2020. Revenue from apparel as a percentage of total product sales improved to 70.5% from 48.1% in the same quarter of 2020. Gross profit was $53.4 million compared with $59.6 million during the same period of 2020. Gross margin was 47.2%, up from 44.9% a year ago, primarily due to our continued efforts to optimize our product mix. Total operating expenses were $60.9 million compared with $62.3 million during the same quarter of 2020. Fulfillment expenses were $7.5 million compared with $8.8 million the same quarter of 2020. As a percentage of total revenue, fulfillment expenses were 6.7% compared with the same 6.7% in the same quarter of 2020 and 7.3% in the third quarter of 2021. Selling and marketing expenses were $41.1 million compared with $44 million in the same quarter of 2020. As a percentage of total revenue, selling and marketing expenses were 36.3% compared with 33.1% in the same quarter of 2020 and 34.4% in the same quarter of 2021. G&A expenses were $12.5 million compared with $10.5 million in the same quarter of 2020. As a percentage of total revenues, G&A expenses were 11.1% compared with 7.9% in the same quarter of 2020 and 9.4% in the third quarter of 2021. Included in the G&A expenses, R&D expenses were 4.9 million compared with 4.8 million in the same quarter of 2020, and 5.5 million in the third quarter of 2021. Adjusted EBITDA, which represent income, loss, firm operations before share base, compensation expense, interest income, interest expense, income tax expense, and depreciation and amortization expenses were income of $16.2 million in the fourth quarter of 2021 compared with the loss of $0.5 million in the same quarter of 2020. Net income was $8.7 million compared with net loss of $3.2 million in the same quarter of 2020. Net income per ADS was $0.08 compared with net loss per ADS of 3 cents in the same quarter of 2020. As of December 31, 2021, we had cash and cash equivalents and restricted cash of $59.6 million compared with $65.5 million as of December 31, 2020. Now let me walk you through our 2021 four-year financial results very briefly. Total revenues increased by 12% year-over-year to $446.1 million. Revenues generated from product sales were $435.2 million compared with $382.1 million in 2020. Revenues from services and others were $10.9 million compared with $16.1 million in 2020. Included in product sales Revenues from apparel increased by 73.6% to $274.2 million for 2021 compared with $157.9 million in 2020. Revenues from apparel represented 63% of total profit sales for 2021 compared with 41.3% in 2020. Gross profit for the full year was for the full year of 2021 was $206.7 million compared with $176.2 million in 2020. Growth margin was 46.3 percent for 2021 compared with 44.2 percent in 2020. Adjusted EBITDA was $27.9 million for 2021 compared with $22.8 million in 2020. Net income was $13.5 million compared with $13.3 million in 2020. Net income per ADS was $0.12 for both 2021 and 2020. 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. 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 withdraw your request, please press the pound or hash key. Please stand by while we compile the question and answer roster. Once again, the star 1 for questions. Our first question comes from the line of Matthew Lawson from National Securities. Please ask your question.

Okay, good evening. Thanks for taking my call. Listen, the questions I have are similar to the previous ones. I've been probably the only person on the conference call. You're a company that gets $446 million in revenues. Your market value is only $126 million. So it's very unusual for an online company merchandise like yourself to trade at almost a quarter of the revenues, particularly when half your market cap, just about $59 million out of $126 million, is in cash. And one of the problems is you guys, even though you've doubled your revenues and done very well since the COVID crisis and you've changed your merchandise makeup and what have you and put more apparel, it sounds like, you still lose money on an operating basis. So you've doubled your revenues and you still haven't paid any money. Now you do have this equity investments, which, uh, depending on how that's valued swings, you do either a profit or loss. And so, uh, I have two questions. What is this equity investment? If you could tell me, uh, because it is a pretty substantial part of your market cap is it's, uh, the 36 million, that it's swung up or down really with the difference between you all making seven cents and losing money in previous quarters. Can you answer that for me, please?

Thank you for the question, Matthew. I think for the equity investment, you really can't comment that much for the moment. You know, the stock price, It's quite volatile and really out of control. But our mission for the management is always to bring the long-term value for the company. And we are very much focused on the fundamentals on our business. And you have seen for the past, as Mr. He mentioned in his script, 2021 was quite an eventful year. We have been through a lot of difficulties, you know, in the markets, you know, including, you know, the higher marketing spending and very high shipping delivery costs and new regulations in VAT and new regulations in the electronic products, you know. At the same time, you know, the U.S. dollars, depreciate quite a lot. And this has a lot of pressures on the company's operations. And even though that we have been, you know, gaining some significant progress, you have seen that our margin continues to, you know, to increase since the apparel takes, you know, larger portions of the whole product mix. And I think we, you know, it's always, you know, our focus to to drive the sustainable strategy for the company. But on the other side, the stock market side, it's quite, you know, we can't really do anything on that part. I don't know if I answered your question.

Not really. I mean, again, why can you not identify what the equity investment is? Is it, I mean, is it... Is it investing in stocks in the exchange market? Is it an investment with – I have no idea. I mean, that is such an important part of your business and is a percentage of your market value. Why can't that be identified? Because an investor can't very well make a confident investment in your firm unless – they would know something about that? You know, is it off balance sheet or, I mean, I don't really understand it. I mean, why can't you identify it?

Well, we heard your advice and I, you know, for this equity investment part, I think we will convey this message to the board and we will seriously consider your suggestion.

All right, we'll move on. I mean, that just doesn't work. Here's the thing. Your company's been public probably almost 10 years. I remember when it came public, it was a popular, almost a hot issue. And I think it was about $10 or $15, and you're at $1, okay, 10 years later. So even though your revenues have, you know, climbed very sharply, you're gaining scale. You're in 120 countries, you claim, and you did 440. Your stock's a dollar. I mean, for the board members and the founder, I mean, how does that feel to, like, be worth, like, one, you know, one-tenth, 10% of what one was worth 10 years ago? I just don't understand it. This company would never be able to exist if it was a U.S. company because you would have private equity come in there and make an offer for it because with all the cash on your balance sheet, you could use that to buy the company. But since there's majority ownership because of the structure... you know, that's very difficult because the insiders own so much stock. So how are you going to get your stock higher? I mean, you've grown revenues. You have a ton of cash, a lot of cash. You're in the right space, which is online sales. particularly with some lockdowns going on, uh, you know, around the world periodically, people are at home and they tend to buy things, you know, because they're sitting at home on their computers, uh, versus going out to the store. Uh, and yet you still lose money, um, except for this mysterious, uh, uh, you know, equity investments. I'm glad you have something because without it, uh, I mean, if we could identify it, I could add that to this $50 or $9 million in cash and get a better sense of how to value your company as a special situation. So I'll just close with this because you're being opaque, meaning you're not very clear. No wonder your stock is $1. nobody will trust what's going on. And we could wake up one day and that equity investment gets cut in half, and then your stock gets cut in half. And then finally, with all your cash, have you ever thought about a share buyback? I mean, if you were to buy back 5 million shares, I mean, it wouldn't put a dent in your cash holdings. You know, 5 million shares would put a nice bid in the market. Or why don't you just take the company private? I mean, a lot of your – I've had many Chinese companies that I've owned go private at significant premiums. You could take this stock – I mean, why trade in the U.S.? You know, why not bring it home or just take it private? I mean, it has very little value here. $1 a share, $1.20 or whatever it's trading at. So I'll close with that. Are you guys ever interested in getting your share price higher to grow your wealth? I mean, is that an interest for you? And it's just I'm a frustrated investor. I lost a lot of money on the stock after making some. And it's just it is an enigma, okay, which is a term here in the ICH which is a puzzle. I mean, one can't figure it out. What are your intentions? to just run a company for, you know, and never make any significant wealth? I'll leave it there. I mean, can you comment on that?

Mr. Mitchell, really, really, you know, management team, we really cannot comment, you know, on the, you know, we cannot act or speak for the board, you know, regarding the share buyback or the other activities. financing that you were just mentioning. I think we would really seriously drop down your advices and we would really seriously take this advice to the board and see what they would do. For the management team that we are here, our mission is always to build a strong foundation and a strong business for the company and for the shareholders. Yes. I hope you're not too disappointed.

Well, of course I'm disappointed. The stock's at $1, all right? And 10 years after you went public, it's at $1. And you're in the right space at the right time, which is online, you know, merchandise sales. And your stock is at $1, all right? And if you call that building wealth for shareholders, that's just not true. So I'll leave it there. Listen, I mean, you're not the only company domiciled in the PRC that is trading at a dollar or two. People just have thrown in the towel here in the United States because they'd rather buy stocks domestically that they can get better transparency. So that's just my advice. If you ever want to grow your wealth, just either take it private and, you know, get something low and take it off the floor here. But I just don't understand it. I cannot understand why you all would be satisfied with a $1 stock when it's a fraction of your gross, your revenue. So I'll leave it there. Just my advice. If you want, it'll be unlikely your stock will go up. If you have this opaque, again, that's another term here, opaque, which is a non-transparent mission, and your balance sheet is obscure with this equity investment. Okay, thanks for your time. I appreciate it. I'll follow you, but it's tough to get conviction to put a lot of money into it. when there's these questions. So thanks for your time. Good luck. Nice quarter.

Thank you.

Thank you. Just a reminder, if you wish to ask a question, please press dial 1 on your telephone and wait for your name to be announced. As there are no further questions, I'll turn the call back to Mr. Rene Van Gessen for closing remarks. Please continue.

Thank you, Amber. This concludes our earnings call. Thank you for your participation and ongoing support through Outline in the Box. We look forward to providing you with updates of our business in the coming weeks and months ahead. Have a good day.

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