Q2 2023 GigaCloud Technology Inc Earnings Call
Okay.
Good day, ladies and gentlemen, and thank you for standing by and welcome to <unk> Cloud technology second quarter and half year 2023 earnings conference call. During today's call all participants will be in a listen only mode. Joining us today from getting a club technology or the company's founder chairman and Chief Executive.
Sure Larry Webb, the company's President Doctor I.
Even struck and the Companys Chief Financial Officer, David low on today's call, even will give an overview of the company's performance and details of the company's operational results.
And David will share the company's financial results. After that we'll conduct a question and answer session. As a reminder, this conference contains statements about future events and expectations.
Which our fun forward looking in nature statements on this call maybe deemed as forward looking and actual results may differ materially today's call and webcast will include non-GAAP financial measures within the meanings of the SEC's regulation G. When required reconciliation of all non-GAAP financial measure.
As to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the Companys website with that I'd like to turn the call over to Larry for opening remarks. Please go ahead Sir.
Thank you operator, and thank you everyone for joining us today.
I want to start off today by keeping my heartfelt thanks to the entire eco called family for their diligent efforts across the board.
I will speak to our results continued to demonstrate positive momentum led by an over 200% period over period increase in net income in the first half of 2023.
We continue to beat our own expectations and our three year old deliver a decent result to our stakeholders.
Our three P sellers in plasma and wildfires continue to see the inherent value in our supply for fueled the retail model and we are continuing to onboard new buyers and sellers.
Reinvest earnings into accelerating our organic growth.
Our strong balance sheet and fresh cash flow generation give us the optionality to pursue a number of our strategies to grow the business as well.
We see this as a key part of our global strategy and well expand keto called footprint and talent pool.
Finally, we are also thrilled to welcome two new Board members, Mr. John Williams, Mr and Mrs. Lauren Kelly, who will bring deep industry expertise and diverse viewpoints to onboard now.
Now I would like to turn the call to Doctor Imams Schrock, President Uchida Hall.
Thank you Larry and thanks, again to everybody for joining us with could not be more pleased with our second quarter results and I want to start by thanking the entire do you get cloud team for their tireless work and execution, we are dedicated to changing the way suppliers and resellers do business.
In buying selling and shipping all things large and bulky through the state of the art technology and innovation. We believe this message and Michigan are resonating well given the success of our marketplace.
Our outstanding profitability resulted in an ending cash balance of 181, and a half million dollars up from 143, and a half million dollars as of December 31 2022.
As we have mentioned in the past the strength of our balance sheet gives us the ability to selectively evaluate targets for tuck in acquisitions.
Our criteria for potential targets range from companies that would further penetrate our existing target market at.
Add new capabilities to our already robust technology stomach penetrate a new segment of market or technology that would further enhance our users' experience on Google cloud platform.
Our cash balance also gives us the ability to make strategic moves on our share repurchase plan, which was approved were $25 million in June .
While we did not repurchase any shares in the second quarter the approval for the repurchase plan runs through June 2024.
We will update the investment community on this initiative as appropriate we are carefully evaluating the use of repurchase plan to ensure we are striking the right balance between creating shareholder value and protecting our stock fundamentals.
Now, let's walk through some of the operational highlights for the quarter.
Our biggest club marketplace GMB grew approximately 32% year over year to $675 million and the TTM period on the seller side. The platform also saw an approximately 47% year over year increase in active three peat sellers and in the total number for the <unk>.
At 665, which was also a 10% sequential increase organically.
Expanding our ecosystem of <unk> sellers is crucial to our achieving scale and our supplier built build retailing model and we continue to devote a significant amount of time and resources into quickly vetting and onboarding, new threep sellers, and adding new skus to our platform.
While buyers may turn on and off the platform or consolidate the number of accounts they are working on.
See the number of <unk> sellers on the platform as a more important indicator of a healthy marketplace, providing buyers variety in the number of skus they can choose from.
The trend of our Threep sellers marketplace, GMB, expanding only accelerated in this quarter, increasing 65% year over year to $324 7 million and now making up approximately 53% of our total GMB as I.
I mentioned on our last call while our one P approach remains an integral part of our business strategy. Ultimately, we believe that the growth of our organic <unk> will be very important to all to scaling our business as we see positive momentum in our organic <unk> growth rate continuing to.
To drive a larger more productive marketplace on the buyer side, we saw active buyers increasing by over 7% year over year ending the quarter at 4351.
Average spend per buyer, increasing by 24% year over year to 139 629.
The increase in the average spend indicates that we are seeing growth in the number of high quality high volume buyers that we seek to attract to the platform. These buyers tend to be very sticky in their adoption of the platform.
And growth in their average spend can quickly fueled growth in our results. We will continue to invest in our platform and we believe there is a.
Still a very strong runway of organic growth that can be achieved as we penetrate new markets around the world.
One area that we continue to invest heavily to build out continued momentum in organic growth.
In our marketing and advertising, particularly to brick and mortar retailers, a furniture, who historically enjoy a large market share in the furniture space and have a large amount of inventory requirements. We continue to specifically target. This segment of resellers through additional advertisement and meat.
<unk> campaigns and see a significant amount of white space for our business to continue to expand into this market.
I would also like to discuss gives it does transition from a foreign private issuer or FBI two following the same reporting and disclosure obligations at domestic company as.
As many of you have already seen on July 3rd we issued a press release announcing that as of the end of second quarter. It was determined that giga cloud no longer qualifies as an spi.
Practically what that would mean for Google cloud and the investment community is that starting January one 2024 gigabit cloud will be subject to the same reporting disclosure and filing obligations as the other S form issuers. Starting next year you can expect the same cadence of filings.
Such as 10-K, and 10-Q and as you would any domestic NASDAQ listed company. We believe that this is a very important step forward in building confidence in our story for investors and we are laser focused on becoming even more engaged and transparent with our shareholders.
Potential potential shareholders.
We are also adding a number of corporate position and key decision, making roles to our headquarters in Walnut, California, supplementing our mature overseas back office personnel. We also announced a number of changes to our board of directors on August 10th, including the addition of two new independent Directors, John Vista and <unk>.
Kelly Mr. Victor is currently the vice President of logistics as do Terror International while Mrs. Kelly has previously held a number of senior roles in the furniture industry. Most recently as the president of BVI furniture, if for family of her own strategic consulting firm.
Mr. Mr and Mrs. Kelly bring with them critical industry experience and new diverse insight and we are thrilled to have them come on board.
Clearly we are dedicated to building out our global presence and expanding the giga cost footprint around the world and we believe these moves are strong step in the right direction to building, an even stronger tied to the investment community in the U S and other nations.
Overall, we are encouraged by our progress in second quarter, and we believe we are making significant headway in our mission to build the worlds best.
The large parcels shopping experience for both buyers and sellers.
We are thrilled by our second consecutive quarter of record profit and we believe we should see our gross margins support a similar level of profitability for the remainder of the year.
Our industry, leading marketplace saw significant growth in this quarter growing in total <unk> by 32% year over year with active buyers increasing by over 7% and average spend per active buyer by 24% in the same period, our balance sheet provides us flexibility to pursue potential M&A.
Target as well as support a steady pace of organic growth finally.
Our move to become an S. Filer demonstrates our commitment to the international capital markets and increases transparency for shareholders and potential shareholders and with that I would like to turn the call over to David for a closer review of our second quarter and first quarter first half numbers David.
Thanks Ahmad.
Let me walk you through our second quarter and first half numbers in more detail.
Our total revenues for the second quarter were $153 1 million, which was an increase of 23, 5% year over year and approximately 20% sequentially.
On a first half basis, we generated $289 million for the six months ended June 30, 'twenty three at 18, 8% increase versus the year prior period.
Breaking this down for just the second quarter service revenue from ticket counts three piece or a 31, 9% year over year increase to $43 3 million.
Product revenue from ticket come out one piece or a 14, 9% year over increase to $69 $8 million and product revenue from off platform E. Commerce. So a 31, 6% year over year increase to $40 1 million.
As Martin mentioned these increases correspond with a 32, 2% year over year gain in total market of <unk>, which ended the second quarter at 607 5 million on a TTM basis.
Our gross profit for the second quarter was $40 4 million, which was an increase of 137, 1% year over year and resulted in gross margin of 26, 4% versus 13, 7% in the year prior period.
On a first half basis gross profit increased by 106, 4% to $69 $9 million for the six months ended June 30 'twenty three.
It resulted in a gross margin of approximately 25% versus 14, 3% in the year prior period.
These increases in gross margin were largely a result of the return to normalized ocean shipping rates from the all time highs in the first six months of 'twenty two.
As a result, our cost of revenues increased only five 4% to $112 8 million for the quarter.
Would expect ocean ship from rates to remain stabilized for the rest of the year.
Our total operating expense for the second quarter or a $17 billion.
Which was an increase of 93% year over year from $8 $8 million.
On a first half basis total operating expense for $28 7 million, which was an increase of 57, 8% from $18 $2 million in a year prior period.
Breaking this down further for just the second quarter, selling and marketing expenses increased 74, 9% year over year to $9 $5 million.
General and admin expenses increased to 106, 7% year over year to $6 9 million.
Research and development costs were half a million in the second quarter of 'twenty three versus none in the second quarter of 2022.
The increases were due to additional head count to support our growing organization, a larger amount of advertisement and more trade show was present in order to bolster organic growth and reinvestment in our technological platform to continuously improve our user experience.
On the bottom line, our net income for the second quarter was $18 4 million, which was an increase of approximately 202% year over year from $6 $1 million. This resulted in basic and diluted earnings per share of <unk> 45.
<unk> 15 cents in the year ago period on a six months basis net income was $34 $3 million for the period ending June 30, 23, resulting in a basic and diluted earning per share of <unk> 84.
Versus net income of $10 $8 million in the year prior parent, which resulted in basic and diluted earning per share of <unk> 28 cents.
This resulted in adjusted EBITDA for the second quarter of 2003 was $24 9 million an increase of 219, 3% year over year from $7 8 million on a first half basis, we generated adjusted EBITDA of $44 $7 million for the six months ended June 30 'twenty three.
An increase of 203, 9% compared to $14 7 million in the year prior period.
Moving onto our balance sheet, we ended the second quarter with $181 5 million in cash on the balance sheet and net increase of approximately 38 million from the quarter ended December 31, 22, and an increase of $18 8 million from the quarter ended March 31 23.
Finally, I want to briefly mentioned our financial outlook for the third quarter 'twenty. Three we're now expecting total revenues in the range of $162 million to $167 million, which represent an approximately 28, 5% gain over the year prior period at the midpoint.
In addition in the third quarter of 2002 as a result of the successful completion of our IPO, we recorded a onetime stock based compensation of expense of $8 $9 million. The SBC expense for Q2 was $1 $5 million and we expect our SBC expenses to be more evenly spread out going forward. Thank you all for joining and with that I would like to ask.
The operator to open the line for questions. Thank you.
Thank you.
To ask a question you will need to press star one wondering your telephone to withdraw your question. Please press star one again, please wait for your name to be announced please standby, while we compile the Q&A roster.
For your first question.
And our first question comes from the line of Matt Koranda with Roth. Your line is now open.
Hey, guys good morning.
Thanks for taking the questions just wanted to cover the third quarter outlook for revenue in a bit more detail.
Is there a way you could maybe provide a breakdown between the product and marketplace revenue that youre, assuming in that third quarter outlook. It looks like a nice acceleration.
Youre planning on so just wondering where that's sort of coming from first of all and then maybe just on the gross margin commentary as well you mentioned a similar level of profit through the rest of the year.
Just wanted to see if maybe you could comment on sort of does that mean, we can stick with the mid 20% gross margin you put up in the second quarter for the third and the fourth maybe just a little bit more color on that as well.
Hey, Matt It's David maybe I'll address your question around our margin profile.
I think we are quite comfortable too.
Our margin profile today.
So I think it's depending on how the outlook of the second half of the year looks like given where ocean shipping rates are today, I think it's safe to assume that.
Can maintain this trajectory for the second half of the year.
And then going back to your first question.
The breakup between our product and service has been.
On a revenue basis has been between 60% to 40%.
I think going forward, that's probably in the second half the year is probably in the same trajectory as well.
Okay. All right got it 60 40, that's helpful. And then just digging into the services.
The revenue line for the second quarter.
You've mentioned, a nice step up in last mile.
As a driver of growth on a year over year basis.
So just wanted to see if you could maybe unpack that discuss the types of last mile services that your sellers are paying you for what's that a function of maybe just.
I would assume better rate card versus your smaller sellers on the platform, but maybe if you could just kind of explain that.
The drivers of that nice year over year growth.
And you wanted to that one.
Matt could you repeat that question I was trying to write.
Sure.
So just the step up in last mile.
Services revenue.
It was notable in the second quarter. So just wanted to see if you could discuss the drivers of that.
Of that nice acceleration on a year over year basis.
Yes, maybe I can take this one this is Larry.
I think.
In the past because of <unk>.
Restriction that.
A lot of the shipping partner we have.
<unk>.
<unk> capacity, so we didn't allow our customer to ship their product it does not.
Transact transact.
With our marketplace, but we understand that our customer always have the needs to get their product that they're selling on their own or through other channels. So because.
We are seeing that most are already shipping partner are.
Removing those kind of.
Restrictions.
We are allowing our customers to ship the product that did not.
Transact in our marketplace that.
Provide them the flexibility of using the marketplace.
A different way.
Simply believe that.
Our.
Offering more value by.
Being able to providing that service.
Okay. That's helpful. Thanks, Larry.
And then just on the seller growth that was pretty robust year over year at 47%.
Just wanted to hear maybe a bit more detail on where youre seeing success in adding sellers.
And then I noticed a bit of an uptick.
And the sales and marketing line. So just wanted to see are we spending and to tell our acquisition to get that acceleration, just maybe a bit more detail on sort of the dynamics of seller acquisition that youre, saying.
Hi, Matt sorry, I was talking on mute.
Thank you Larry for taking that question obviously.
As I mentioned earlier in the script as well.
Bringing in organic seller growth is going to be.
And a clear indicator of a healthy marketplace. So we're investing a lot of energy into recruiting.
Sellers of different kinds.
That could come to the marketplace and a lot of these sellers will bring with them different intricacies, a big portion of the recruitment as of late have been the sellers that goes all the way to the end consumer with the LTI portion in last mile delivery and all those added value added services, which is something that alludes to the first question, but absolutely we are.
We're going to invest in recruiting sellers and we're anticipating that trend to continue that the sellers would themselves. They will bring in variety of skus and that variety of skus attracts additional buyers.
Okay, Great and then just to that end I guess wondering on the spend per buyer, which took a pretty nice step up.
Maybe just wanted to see if you could talk about are we adding larger buyers is the assortment growing and allowing more spend per average buyer a recurring kind of marginal buyers maybe just some of the movements underneath the hood there in terms of the spend per buyer.
If I may take that question, we're kind of seeing both Matt.
There are some buyer consolidation that some of the buyers operate multiple accounts, sometimes those consolidated so the bigger one but also the competition kind of shines out.
Better buyers.
That's what really happens the marketplaces, becoming a place for.
The better as far as the bidder, who produce and generate results. So we're seeing both of those dynamics happening concurrently.
And this is very pleasant.
I think for the marketplace, because the model is becoming more and more sticky because that average spend growing is basically the indicators that we would like to see.
Okay excellent maybe one more for me and then I'll leave it to others, but.
On the M&A funnel.
You mentioned some M&A in your prepared remarks, and just potential sort of ideas around what you may do.
Just wondering if there is anything in the funnel that's maturing.
How should we be thinking about capital deployment towards M&A for the remainder of the year.
Hey, Matt David perhaps I'll take this one.
Unfortunately, I don't think we will be able to disclose anything further at this point in time as we progress at the appropriate time, we will disclose to the market.
But what we view M&A as a lever for us to quickly enter into areas or markets that we're seeking.
That's seeking to enter or expand into.
So we're just trying to look for the right target for us and some of the areas that we're looking for is.
And we discussed this in our part discussion is looking for channels.
<unk> four <unk>.
Per full expansions.
And as you understand we operate in a pretty fragmented market and M&A is a great tool for us to consolidate and bringing parties stuff to come to our marketplace.
Understood I appreciate it guys nice job on the quarter and I'll leave it there.
Thanks, Matt. Thank you for your questions one moment our next question. Please.
Next question comes from Rommel Dionisio with Aegis capital. Your line is now open.
Yes.
Good morning, Thank you.
Wonder if you could talk about I know you don't necessarily break out the geographic distribution of revenues, but I know you are making a big push in Europe and I just wonder if you could sort of characterize how much of the growth you saw in the quarter came from in the core U S business as opposed to some of the foreign markets particular Europe . Thank you.
Okay.
Maybe I can take that one.
I think European market as of today is an important market for us we've seen some.
I'm pretty good acceleration growth for the quarter.
Unfortunately, I won't be able to break it down too, but that's not really something that we track but.
But we see a lot of good acceleration growth in the quarter coming out from Europe .
Okay fair enough.
Just a follow up if I could.
During the call you talked about and you mentioned this before I'll focus on some furniture retailers.
If you could just in terms of expansion of your customer base I Wonder if you could just talk about.
The difference in your marketing platform of what it'll take to really.
Continue to see.
Ernie.
Solid penetration there, but to continue to see the growth in that segment.
Are you going to have to shift gears from a marketing perspective, bringing additional hires maybe changed your marketing platform or are you just.
Continuing with your current trend, which seems to be working very well. Thanks.
Okay.
Hi rebel.
So.
As we alluded to earlier brick and mortar expansion is a big part of our.
Future growth plans.
And.
Absolutely.
We are going to be actively.
Involved in recruiting and advertising and Theres a lot of white space available, especially right now I think with furniture brick and mortar retailers a lot of challenges that we can tackle on with the concept of the marketplace suppliers will build retailing and all the little things that we do so so well so that is going to be a huge area.
Our focus for us going forward.
Okay. Thank you and congratulations on the quarter.
Thank you.
Thank you one moment for our next question. Please.
And our next question comes from the line of Sophie Wang with <unk>. Your line is now open.
Okay. Thank you for taking my question and congratulation comes from quarter.
Two questions. Please.
Doug can you announced repurchase program.
Against Rodriguez.
And you have repurchased shares after that.
So congrats.
Q3 on zinc.
Hum.
Now two consecutive quarters now.
Perfect.
You're guiding Q3 revenue so do you mind share more color on what the.
The outlook for Q3 and beyond thank.
Thank you.
Sorry, I was on mute, perhaps I'll take your question with respect to outlook for the rest of the year.
<unk>.
I think if you look closely too.
And I alluded earlier in my speech, we expect our SBC charges to be more spread out going forward.
And we will continue to record SBC charges to our various stakeholders in the company.
So.
If you're putting all the pieces together, that's probably the extent I can share.
A profitability are for the second half of the year.
And then your earlier questions around repurchase so he might actually alluded we did in <unk>.
Purchase any shares in the open market and our second quarter what.
What I can share as we execute at a repurchase agreement with a broker by the end of Q2 to help the company to execute open market purchases.
And we will share to the extent possible when we can to the market.
Okay. Thank you.
That's helpful. Thank you.
Thank you.
One moment for our next question please.
And our next question comes from the line of Lin Bracken with BCA. Your line is now open.
Yes, Hey, guys nice to talk to you.
I had two questions and some of this was broadly addressed but I'm going to ask it anyway.
I'm just wondering.
The efforts in regards to growth Inorganically.
Versus organically.
<unk>.
And specifically are there any geographic or product.
Verticals beyond the furniture.
For example that Youre looking at going into 2024 to continue the top line growth and the second question is relating to volatility introduced by shipping rates and what the company is doing to mitigate the variability on the gross margin line in respect to that thanks.
So I can perhaps take the first question so as a company.
We're accelerating our spend in sales and marketing aimed at brick and mortar retailers.
Because as of right now we're seeing a skew.
Huge huge issue in the industry as a whole with large inventory and that represents a lot of opportunity for us to basically penetrate and capture market share.
Digital only retailer is also continuing to gain momentum and large but at the end of the day. The large majority of furniture sales are happening at the physical location. So gaining market share would require us to remain focused on the brick and mortar.
Yeah.
As far as your question about.
The opportunity.
I believe that would also continue to remain with the brick and mortar side of things.
Going forward.
Okay.
Just a follow up there.
So where do you think your penetration rate is into.
That segment, if you think it's.
So underpenetrated.
So I can give you an idea about the total addressable market within that category.
And by the way the big and bulky.
It's very very fragmented includes for US furniture is obviously the biggest but theres also home fitness there is gardening, there's even auto parts. There are so many categories that would qualify as big and bulky and the Super fragmented and every single one of those furniture being the biggest the total addressable market in the U S.
One of our markets the biggest market.
<unk> is about $60 billion a year.
And wholesale volume.
Okay.
I would say you are pretty underpenetrated with okay.
So lots of.
Runway ahead of us.
Okay.
Alright, that's great what about the variability introduced by shipping rates to margins.
David Yes.
If you look closely to our financials.
You will see that ocean shipping rates was at all time high.
First half of 2022.
If you look at closely at our financials, we still maintain a profit obviously there is a positive correlation between the two right. So when you see ocean shipping rates rising it hurts our profitability.
But I would say that's not a single factor that can push us in and out of profit. So while that's a big cost factor for us, but I believe that we.
We've gone through and navigate it through the worst of times and we still maintain a profit during that time and so.
I hope that.
Kind of clears out what you had in mind.
Okay, and if I just might add one more can you just discuss who you see.
Competitively.
Out there.
Maybe one wanted one or two that you see day to day.
Thank you your biggest competitors are in.
Why your clientele is choosing you are with them.
So.
Yes.
If you focus on what we do the core.
Value that we deliver I don't think theres any part of our competitor for us because we're dabbling in big and bulky under wholesale in it.
Ed.
That is quite an advantage for us across the board.
As far as the competitive landscape there.
<unk>.
A privately owned company based in Silicon Valley by the name of fear Dot com.
That is kind of similar in concept.
What date did they go into Abilene, 18, big and bulky they do smaller lighter stuff.
But we believe the value and the competitive advantage remains in handling the big and bulky, which is a non standard item and the fair Dot Com currently has a valuation of $12 billion.
Okay, Alright, thanks, guys.
Okay. Thank you as a reminder, that star one wanted to ask a question one moment for our next question. Please.
Our next question comes from the line of Howard Chen Private Investor. Your line is now open.
Hi, I just have a very quick question I noticed that the company is bringing into new U S based directors to the board.
Are you guys trying to be more americanized from a governance perspective. Thank you.
Yes, maybe I'll take that question is Larry.
Actually no because majority of our blue members today are already U S persons why would the proposal the board of restructuring will have all our board members to be either U S residents or.
Citizens. The purpose of this restructuring was mentally from operational diversity consideration.
Like John had over 19 years of work experience at Walmart and currently serving as Vice President Global logistics.
Sarah International he won't definitely provide us with a lot of invaluable experience of what's continued to grow in the United States and internationally.
<unk> has a long and Q3 are experiencing you guys of furniture industry. She has established a consulting firm providing advisory services to many top U S. A furniture companies. So we're confident that our proposed the board will offer a lot of our fresh insight and diverse for sex perspective.
On our business.
Thank you.
Thank you. Thank you.
And Im showing no further questions at this time I'd like to turn the conference back to Mr. David <unk> for closing remarks.
Yes.
Thank you everyone for joining our earnings call today, if you have any questions for the management team feel free to email US we look forward to speaking with you again, thank you everybody.
This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
Okay.
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Okay.
Okay.
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