Q2 2022 GigaCloud Technology Inc Earnings Call

The conference will begin shortly. To raise your hand during K.

Ladies and gentlemen, thank you for standing by. Welcome to Giga Cloud Technology second quarter 2022 earnings conference call.

During today's call, all participants will be in the listen-only mode.

This conference is being recorded today, Friday, September 30th, 2022.

Joining us today from Giga Cloud Technology are the company's founder, chairman of the board of director and chief executive officer Mr. Larry Lei Wu.

The company's Chief Financial Officer, Mr. David Lau.

On our call today, Mr Wu will give you an overview of the company's performance. Mr Lau will share the details of the company's operational and financial results.

After that, we will conduct the question and answer session to take your questions.

Before we continue, I'd like to remind you that some information discussed on this call will contain certain fault-licking statements. These fault-licking statements involve known and unknown risks and uncertainties.

Although the company believes that expectations expressed in these full-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct. And the company cautions investors that actual results may differ materially from the anticipated results and encourages investors to review other factors that may affect future results in the company's registration statement and other filings with the SEC.

This call includes discussion of certain non-GAAP financial measures such as adjusted EBITDA. Please refer to our earnings press release for more information on the non-GAAP financial measures.

With that, I'll now turn the call over to Mr. Wu, the company's founder, chairman of the board of director, and chief executive officer. Mr. Wu, please go ahead.

Thank you, operator and everyone for joining the GigaCloud's second quarter of 2022 earning conference call today.

We are pleased to deliver a robust financial and operational result in our first quarterly earning release as a public company.

Our NASDAQ listing in August represented a key milestone for our company and years of hard work, commitment, and dedication from our shareholders, management team, and employees.

Despite the macroeconomic challenges that we face, we continued to deliver a solid year-over-year revenue and GMV growth.

We are proactively adjusting our operations to adapt to these challenges and continue to focus on our long-term strategy by strengthening our capability to create value for our customers.

leveraging our data-driven technology and our logistics solutions.

we are well positioned to increase our overall market share in the B2B large parcel market.

Thank you for your continued support to the company. Next, I will turn the call over to our Chief Financial Officer, Mr. Lau, for a closer review of our operational and financial results. Mr. Lau, please go ahead.

Thank you, Larry, and good morning, everybody. Now I'll go over our operational and financial results.

Our Giga Cloud Marketplace GMV was 458.8 million in the 12 months ended June 30, 22. And that's up 43.8% year over year. We had 452 active three piece sellers in the 12 months ended June 30, 22. And that's up 67.4% year over year. We have 4,061 active buyers in 12 months ended June 30, 22. Up 58.9% year over year.

Spend per active buyer was $112,987, and the 12 months ended June 30, 22. And that's down 9.5% year over year. Our 3P seller GigaCloud Marketplace GMB was 196.7 million, and the 12 months ended June 30, 22, and that's up 71.1% year over year.

Now let's look at our financial results for the second quarter of 2022.

Total revenues were 124 million for the second quarter of 22, and that's up 11 percent year over year. That's mainly due to increase in our service revenue from GigaCloud 3P and product revenue from our GigaCloud 1P, but partially offset by the decrease in product revenue from our off-platform e-commerce channel.

Service revenue from GigaCloud 3P was 32.8 million in the second quarter of 2022, up 39.4% year-over-year. That's primarily due to an increase in revenues from our last-mile delivery fees and fulfillment fees for other freight services such as delivery of products via our ocean transportation services.

Product revenue from GigaCloud 1P was $60.7 million in the second quarter of 2022, and that's up 15.4% year-over-year, mainly due to an increase in the number of active buyers and better selection of products catering to buyers' preferences.

Product revenue from off-platform e-commerce was 30.5 million in the second quarter of 2022, and that's down 14.4% year-over-year, primarily due to an overall decrease in sales on certain third-party off-platform e-commerce as consumer demand slowed down on such platform.

Cost of revenues was $107 million in the second quarter of 2022, up 29.1% year-over-year, primarily due to an increase in ocean freight costs compared to the second quarter of 2021, and such increase is expected to stabilize in the rest of 2022.

Gross profit was 17 million in the second quarter of 22, down 41.1% year over year. Gross margin was 13.7% in the second quarter of 22, compared to 25.9% in the second quarter of 21.

Total operating expenses were $8.8 million in the second quarter of 2022, down 28.3% year over year.

Selling and marketing expenses were $5.5 million in the second quarter of 2022, down 20.2% over year, primarily due to a decrease in staff costs as the sales commission decreased.

General and admin expenses were $3.3 million in the second quarter of 2022, down 38.6% year over year, primarily due to a decrease in our professional services fees.

Operating income was $8.2 million in the second quarter of 2022, down 50.5% year over year.

Net income was $6.1 million with a basic and dilute earnings per share of $0.15 in the second quarter of 2022, compared to a net income of $13.6 million with a basic and diluted earnings per share of $0.43 in the second quarter of 2021.

Just the EBITDA was 7.8 million in the second quarter of 22 compared to 16.6 million in the second quarter of 21.

So now let's look at the financials on a six month ended basis.

Total revenues were 236.5 million in the six months ended June 30, 2022, up 14.6% year over year, primarily due to an increase in service revenues from our Giga Cloud 3P and product revenues from our Giga Cloud 1P, but partially offset by the decrease in product revenue from our off-platform e-commerce.

Service revenue from GigaCloud 3P was $64 million in the six months ended June 30, 2022, up 45.7% year-over-year, primarily due to an increase in revenues from our last-mile delivery fees and fulfillment fees for other freight services such as delivery of products via ocean transportation.

Product revenue from GigaCloud 1P was $115 million in the six months ended June 30, 2022, up 21.2% year-over-year, primarily due to an increase in the number of active buyers and our better selection of products catering to buyers' preferences.

Product revenue from off-platform e-commerce was $57.4 million in the six months ended June 30, 2022.

down 14.9% Euro over year, primarily due to an overall decrease in sales on certain third-party off-platform e-commerce as consumer demand slowed down on such platform.

Cost of revenues was $202.6 million and the six months ended June 30, 2022, up 29.4% year over year, primarily due to an increase in ocean freight costs compared to the six months ended June 30, 2021. And such increase is expected to stabilize in the rest of 2022.

Gross profit was $33.9 million in the six months ended June 30, 2022, down 31.9% year-over-year.

Gross margin was 14.3% in the six months ended June 30, 2022 compared to 24.1% in the same period of 2021.

Total operating expenses were $18.2 million in the six months ended June 30, 2022, down 19.4% year over year.

Selling and marketing expenses were 11 million in the six months ended June 30, 22, down 22.4% year over year, and primarily due to a decrease in staff costs as the sales commission decreased.

General and admin expenses were $7.2 million in the six months ended June 30-22, down 14.4% year-over-year, primarily due to a decrease in our professional services fees.

Operating income was $15.7 million in the six months ended June 30, 2022, down 42.3% year over year.

Net income was 10.8 million with a basic and diluted earnings per share of 28 cents in the six months ended June 3rd to 22. Compared to a net income of 21.6 million with a basic and diluted earning per share of 67 cents in the same period of 21.

Adjesedah Ibadah was 14.7 million in the six months ended June 30, 2022, compared to 26.7 million in the same period of 21.

As of June 30, 2022, the company had cash of 49.2 million with a restricted cash of 1.5 million.

The cash used in our operating activities was $10.3 million in the six months ended June 3022 compared to $11.7 million in the six months ended June 3021.

Then cash used in investing activities was 0.1 million in the six months ended June 30, 2022, compared to 0.6 million in the six months ended June 30, 2021.

Net cash used in financing activities was $0.6 million in six months ended June 30, 2021, compared to $0.9 million in the six months ended June 30, 2021.

We remain confident in our business and our potential to grow, and we expect our total revenues to be between 122 million and 127 million for the next quarter. Now I'd like to turn the call over to the operator for questions and answer session, please. Thank you.

Thank you. Ladies and gentlemen, we will now begin the question and answer session.

To ask a question, you need to press star 11 on your telephone keypad. Please stand by while we compile the question and answer roster. Once again, to ask a question, please press star 11 on your telephone.

Alpha's question comes from the line of Rommel, Dignion,

Benicio Thury from Edges Capital. Please go ahead, Rommel.

Good morning, and thanks for taking my question. Just a question on just the overall consumer spending environment, consumer demand for the furniture and home furnishing industry in these last several months. You know, there's a lot of talk about the housing market softening, obviously inflationary concerns, which you do discuss in the prepared comments. But I wonder if you could just give us a little more color in terms of, is there another leg down potentially on the home furnishing market should the housing markets slow down? Thank you.

Yeah, I think we're seeing the consumer spending is softening, especially for home furnishing products because of the housing markets is cooling down. We expect that that environment will continue, but our focus is mainly focused on introducing more products out so far.

Great. Okay. And maybe just one follow up.

You talk about in the third quarter expecting to incur share-based compensation expense that will be recognized in the third quarter related to share awards. Is it possible to quantify approximately what that amount might be?

at this point. Yeah, so we actually, so this is David, so we actually did disclose that, hey, we disclosed that in our perspectives. If I recall that number correctly, it's somewhere in the neighborhood of around nine million dollars. So I think that's probably a good benchmark.

Okay, perfect. Thanks very much. Congratulations on the quarter.

Thank you. Thanks for joining us.

Thank you for your question. Our next question comes from the line of Joseph Lee. Please ask your question, Joseph.

Thanks for taking my questions. I have two questions today. We are seeing the company's GMV increased over 40%, buyer and seller base both increased over 50%. Can you share the story behind this strong growth? And my second question is, can you talk about a little bit more about the strategies for maintaining and growing your buyer and seller base for the remainder of 2022? Thanks.

Can I just make sure I got your question correctly? So did you say, do we expect RGMV to continue to grow at the same rate that we're experiencing today? I just want to make sure I caught your question correctly.

Okay, I can repeat my first question. It's about the word GMV increased to 40%. So, the buyer and seller base both over 50%. And my question is, can you share the story behind this strong growth? ?

Yeah, I think right now, and I'll give it a go Larry, see if you want to add to that. I think right now, we started the business with the platform in 2019. We've ran this close to getting into our fourth year now. And when we start building up this platform, we're basically trying to revolutionize how to transact on a cross-border basis without the hassle of...

you know, seller have to worry about kind of delicious thick part of that trade. And I think when we start building that story, people starting to appreciate that. And when users are getting that experience and that really scaled up our business. So we picked up a lot of this momentum when a user starting to appreciate the services that we offer. And that same goes to the user base.

the number of active users that you pointed out, I think that's also a testament of the services offering that we provided, the seamless logistic services, the warehousing that we provide, and the cloud storage offering solutions that we provide all helped us to build that propositions to all the active users that is enjoying the business that they're using from us.

Yeah, I think that.

Yeah, I think David is right. I think what you can see is we have a pretty strong growth of our marketplace participants. Although actually the average spending of the buyers slowing down a little bit, which is a result of the macroeconomic challenge I just talked about, it tells you that on average every item being sold on the marketplace is generating less.

benefiting our business model by giving us a result of both buyer and seller growth as a previous run.

Thank you.

Thank you so much.

Thank you.

Our next question comes from the line of Ashley Miller from the Iowa. Please ask your question.

Ashley, your line is open. Please ask your question.

Hi, good morning and thank you for taking my questions. I have two questions today. I know giga cost revenue growth is very solid this year. So my first question is, can you share a little bit more about the outlook for the second half year?

And my second question is about your expansion. Do you plan to further expand your business in the US or if there are any potential countries you are interested in? Thank you.

Sure, we expect the revenue growth for the second half of the year to remain at the current momentum that we're experiencing.

Just like what Larry had talked about and some of the things that I pointed out, I think we're seeing a lot of momentum, particularly on the 3P side as we continue to scale. If you look at what we disclosed from an operational point of view, you see that our 3P business is continued to growing at a very high speed and a very strong growth. So we expect this continues to.

to grow at least with the current momentum for the second half of the year. In terms of expansion, obviously right now, U.S. continues to be our core market, but we do have businesses in other parts outside of the U.S. So we do see there are expansion areas that we could improve on. And I think U.S. will continue to be an area where we're gonna continue to focus our investment on.

Yeah, the main reason I think, I'm not sure everyone noticed that for the market, we have operation outside the US, including Japan and UK and Germany, actually the currency depreciated more than 30% in the past of 12 months. Actually it's not the most favorable time to...

expanding those markets. So although we have a multinational footprint enable us to expand globally, but right now I think the more focus is on US market, and we'll be waiting for a better time to initiate more aggressive expansion in the market out of the US when the macroeconomic environment improves. Thank you.

Thank you.

All right, thank you. As a reminder to ask a question, please press star 1-1 on your telephone.

Let's dial 1-1 for questions.

All right, Daniel, for the question. Now let me turn the call back to Mr. Lau for closing remarks. Once again for following the meeting to face yourisl landing meeting, be remains not here,

Sure, and thanks everybody for joining this conference call. If you have any questions, please contact us through emails and our management team will respond to your question as soon as possible. We appreciate your interest in supporting Giga Cloud and we look forward to speaking with you again next time. Thank you very much.

Thank you again for attending GigaCloud's second quarter of 2022 earnings conference call. This concludes our call today and we thank you all for listening in. Goodbye.

The conference will begin shortly. To raise your hand during Q&A, you can dial star 11.

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