Q4 2023 GigaCloud Technology Inc Earnings Call
Okay.
Good day, and thank you for standing by welcome to kick of cloud technologies fourth quarter and full year 2023 earnings conference call.
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Please be advised that today's conference is being recorded I would now like to hand, the conference I bet. He will speak today that'd be Reed founder and CEO. Please go ahead.
Thank you operator, and thank you everyone for joining us on the call today.
20th 23 in the fourth quarter in particular have embarked a significant inflection point for Google cloud.
One which has changed the trajectory of the business and that we believe will change the way people think about the industry.
We have jumped in order of magnitude in the scale of our business and the potential of our supplier fulfilled retail model.
On the top line, we saw revenue increase to $244 $7 million.
Quarter up approximately 95% period over period.
And for the full year revenue increased to $738 million, an increase of approximately 44% from 'twenty to 'twenty two.
While these are certainly impressive results, especially keeping in mind that the noble house transaction did not close until November one.
We believe that we have still not seen the full power of our business synergy yet.
You know alignment with our integration with noble House, we have taken strategic actions to further optimize its business.
This includes streamlining noble house's operation by divesting its direct to consumer online retail drayage and the manufacturing division.
Additionally, we have almost wasn't management of return item. These.
These decisions. So two key objectives first by sharpening our focus we ensure our concentration resources are directed towards strengthening our <unk> marketplace of proposition.
And secondly, we want to enhance our b to B markets.
<unk> and are committed to provide streamlined service to our buyers and sellers of the marketplace.
Before passing it over to Mark to discuss our operational highlights I want to remind everyone that you will see our first 10-K filed within the month. This.
This year will represent our first year as S. One filing.
We believe in.
40 stock to game water access to the international capital markets and are pleased to have completed this transition in a timely fashion.
Going forward <unk>.
Cloud will have the same reporting disclosure and filing obligations as other S warm ESR.
And you can expect the same cadence of our filings such as its 10-Q and 10-K as you would from any domestic NASDAQ listed company.
With that I would like to turn the call over to email.
Thank you Larry and thanks, again to everyone for joining us our mission here at Giga cloud is to revolutionize the way suppliers and retailers manage big and bulky items.
Our below the marketplace streamlines the entire process offering a seamless end to end experience and a successful integration of noble happened wonder side fuels. This transformation.
Through the integration of Noble House, we've expanded our sourcing origin to India, and our operations into Canada, with a warehouse and Milton Ontario.
And what we believe will be a strategic move to open our marketplace to even more buyers.
We've also already on boarded some noble house customers onto our BW marketplaces buyers and will continue to recruit both suppliers and new buyers from the existing noble house base of the business.
Finally, the financial plan for Noble House remains on track with a minimal net loss in the fourth quarter positioning us favorably to achieve our goal of breakeven by the end of 2024 and profitability within six quarters clearly we've made tremendous progress in our integration and execution plan.
We laid out for these acquisitions.
Which push Giga cloud further into a full service end to end <unk> solution provider in the big and bulky landscape.
Our wonder signed acquisition was a strategic entry into the brick and mortar space that has allowed us to begin work on the Giga IQ package.
Which will facilitate the seamless integration between retail systems, and our constantly expanding <unk> digital catalog for a more customer friendly streamlined and optimized transaction process.
Beauty of the <unk> integration and the future rollout of the Giga IQ package is the business model on the cloud side will remain similar taking an order from the reseller and delivering through our supplier fulfilled retailing model directly to the end consumer this model opens up opportunities for Giga cloud marketplace to <unk>.
<unk> new retailers.
The integration of wonder side, and the development of our Giga IQ package is a testament to our excellent technology and R&D, primarily our in house team of approximately 300 employees contributing to our R&D functions, including development of our proprietary cloud warehousing co.
Alexian of data and analytics and the design development and testing of our cloud marketplace.
Also wanted to mention our addition of the renewed global <unk> sellers with product origin in Mexico, Colombia, and Turkey, which we announced in February we are committed to continuously expanding our supplier network.
This strategic approach and Diversifies, our product portfolio and foster supply chain redundancy, ensuring our buyers have uninterrupted access to products in a timely manner.
Now, let's walk through some operational highlights for the period ending December 31 2023.
Our giga cloud marketplace, GMB grew approximately 53% year over year to $794 4 million and the TTM period.
On the seller side the platform side, approximately 46% increase in active Threep sellers, which ended at 815 for the quarter as I've mentioned in the past, we see the expansion of our <unk> ecosystem at a crucial aspect of our platform expansion and achieving scale in our.
Supplier fulfilled retailing model.
While we continue to devote a significant amount of time and resources into quickly vetting and onboarding, new sellers to our platform, we expect to see our acquisition and integration of Noble House continued to incrementally add a number of seller to this number.
We see our Threep seller marketplace <unk> increased dramatically in the quarter, increasing approximately 65% year over year to $426 3 million and the TTM period.
Overall this accounted for approximately 44, 54% of our total marketplace <unk> in the same period.
I've mentioned on our prior calls while our <unk> approach remains an integral part of our business strategy. Ultimately, we believe that the growth of our organic <unk> will be very important to the scaling of our business and we see positive momentum in our organic <unk> growth rate continuing to drive a larger and more productive.
The marketplace on the buyer side, we saw active buyers increased to over 5000 in the 12 months prior period, an increase of approximately 21% from the year prior with average spend per active buyer accelerating 27% to approximately 159.
Dollars.
This further demonstrates that we've been successful in attracting the type of high quality seller, we want on our platform. Finally, I wanted to briefly mentioned the incident in one of our Japanese warehouses.
First and foremost.
There were no injuries to giga cloud employees contractors or anyone else in the exited the safety and the wellbeing of our people is Paramount and we are thankful for this outcome in terms of business impact we have direct interest coverage for our <unk> inventory and involved in the incident.
While we believe the facts are still developing we have three other warehouses in Japan, and we have a plan in place to minimize any disruption to business in the region. We believe this situation as well and had however, we will update the market as necessary should there be material change in status.
Finally, I could not be more pleased with our results for the quarter and the year.
And I am incredibly proud of our entire Giga cloud family, including those who recently joined from the noble Hot and when they are signed.
From all over the world.
Our financial results were incredibly strong including revenue for the quarter up approximately 95% we are making excellent progress on the integration of noble House and wonder side with selective noble house skus to be available on our marketplace starting today.
We completed our transition to S filer, giving investors additional visibility into business.
And a consistent filing cadence, we expanded our warehouse footprint by over 100% ending the year with $8 2 million square feet of inventory space across 33 warehouses globally.
We are seeing tremendous gain in our operational kpis with our active buyers spend increasing over 20.
27% and the buyer base, increasing over 20% and with that I would like to turn the call over to David for a more detailed review of our financials David.
Hey, Thanks, Aman I'll now walk through our fourth quarter and full year numbers in more detail. Our total revenues for the fourth quarter were $244 7 million, which.
Which was an increase of 94, 8% year over year and approximately 37, 3% sequentially.
Full year basis, we generated $703 8 million a $43 six increase versus the year prior period.
Breaking this down for just the fourth quarter service revenue from Giga cloud <unk> saw a 92% year over year increase to 90%, sorry, $69 3 million product revenue from Giga cloud one piece at a 59% year over year increase to $88 3 million and product.
Revenue from off platform E Commerce saw 879, 7% year over year increased to $87 million each.
These increases correspond with a 53, 3% year over year increase in total care cloud marketplace, JV, which ended the full year at $794 4 million on a TTM basis.
Our gross profit for the fourth quarter was $69 $8 million.
Which was an increase of 161, 4% year over year and resulted in gross margin of 28, 5% versus 21, 2% in the prior period.
On a full year basis gross profit increased by 127% to $188 6 million, which resulted in a gross margin of 26, 8% versus 17% in the year prior period.
I also wanted to briefly touch upon on ocean shipping rate fluctuation.
The Red Sea incidents, mostly affect routes from Asia into Europe, which is still a small part of our volume compared to the United States.
We are already seeing the increased shipping rates from the most recent read see incident starting to come down.
Currently in the process of negotiating an attractive fixed price contract for a sizable portion of our shipping volume to soften the effects of these incidents going forward.
Our cost of revenue in the fourth quarter of 2023 were $174 9 billion, an increase of 76, 8% from $98 9 million in the fourth quarter of 'twenty two on a full year basis cost of revenues and 23 were $515 2 million.
An increase of 26, 6% from $407 million in 2022.
Our total operating expense for the fourth quarter were $32 7 million, which was an increase of 181, 9% year over year from $11 $6 million.
On a full year basis total operating expenses were $78 6 million, which was an increase of 63, 4% from 48, one point, sorry, $48 1 million in the year prior period.
Breaking this down for just the fourth quarter, selling and marketing expenses increased 122, 2% year over year to $14 million.
General and admin expense increased 235, 9% year over year to $13 1 billion R&D.
R&D costs were $2 3 million in the fourth quarter of 23, an increase of 64, 3% from fourth quarter of 2022.
The increases were due to staff costs related to selling and marketing personnel and increase in platform service fee for certain third party e-commerce websites and system wide technological upgrades on CAGR cloud marketplace.
I also want to mention.
I mentioned that we have not fully realized the cost synergies from.
Noble House at this time, we continue to expect realization of these synergies to occur throughout the year.
On the bottom line, our net income for the fourth quarter was $35 $6 million, which was an increase of approximately 184, 8% year over year from $12 $5 million.
This resulted in basic and diluted earnings per share of <unk> seven versus 31 cents in the year ago period.
On a full year basis, net income was $94 $1 million for the period ending December 31, 23, resulting in basic and diluted earnings per share of $2 31, and $2 30.
Versus net income of $24, sorry, 24 million in the prior period, which resulted in basic and diluted earnings per share of <unk> 60.
This resulted in adjusted EBITDA for the fourth quarter of 'twenty three of $43 $8 million, an increase of 188, 2% year over year from $15 $2 million on a full year basis, we generated adjusted EBITDA of $108 $3 million, an increase of 183%.
Fair to $41 $8 million in the year prior period.
Moving onto our balance sheet, we ended the fourth quarter with $183 $3 million in cash on balance sheet, a net increase of approximately $40 million from the quarter ended December 31.
I also want to mention that we currently have no outstanding borrowings under our debt free.
Do have a large non current liability that's related to our warehouse lease.
As we mentioned in our investor deck provide a favorable cash on delivery terms for several nobu, how suppliers, which were facing financial difficulties in the first quarter, we expect to see an associated impact on our free cash flow for the first quarter, resulting in less cash than usual flowing to our balance sheet.
We anticipate that noble house operation to start stabilizing in Q1, 'twenty four and expect business to pick up in Q2 as new products are starting to roll in for the outdoor furniture season.
I'd also like to highlight at the time of the IPO, We had several V. I E in place across a number of jurisdiction today I'm very pleased to announce that after a series of corporate reorganization, we have successfully converted.
Into fully owned subsidiaries of the company and we do not have any more <unk> in our corporate structure to date.
Finally, I want to briefly mention our financial outlook for currently expecting between $230 million to $240 million in revenue for the first quarter of 2024.
Thank you all for joining with that I'd like to ask operator to open the line for questions.
Thank you as a reminder to ask a question you will need to press star one and one on your telephone and wait for your name to be announced.
Your question. Please press star one and one again.
Please standby, while we compile the Q&A queue.
Our first question comes from the line of Matt Koranda from Roth.
<unk>. Please go ahead your line is open.
Hey, guys, it's Mike O'brien on for Matt.
Congrats on the quarter maybe.
Maybe just wanted to start with noble house in the guide.
How much exactly did noble house contribute in the fourth quarter.
I assume it was all in <unk>.
Off platform revenue, but just wanted to confirm there and then was there any contribution in the fourth quarter two service revenue from Onboarding Noble house suppliers to the marketplace.
Sure Hey, Matt It's David here.
So.
Right now.
We.
Have roughly $30 million of contributions coming in from the noble House.
We won't be breaking that out further.
This 10-K, Youll see that we have a standalone financials of noble house.
In the quarter of two.
2023 Q4.
There isn't any service revenue being contributed from your warehouse and as you said earlier.
Noble House revenue is contributed from our off platform product revenue.
Got it okay that makes sense.
In the <unk> guide calls for $235 million at the midpoint.
Any sense for what noble house will contribute in the guide and any sense for service versus product revenue growth, just trying to get to that $235 million.
And get a sense for growth.
Each category.
Yeah, Mike I don't think we will be breaking out further it is right now the noble House business is now doing a fully integrated to our group from a reporting standpoint.
But as I alluded earlier at <unk>.
<unk> House business stabilizing in Q1, and we're expecting the business to pick up in Q2.
On the other hand, our organic business continued to scale and expand.
We actually established a pretty good market position and you can see.
From our operational metrics. So all of these factors.
Are some of the things that we consider when we lay out our Q1 revenue guidance.
Full service versus product revenue growth.
And we said, we're integrating noble house, but any way to think about service.
Revenue growth was product revenue growth for the first quarter.
Yes, I think we're going to see is you'll see a bigger contribution from the product keeping that debt.
Direct contribution from the noble house's directly.
So our product revenue.
As you can see we've always been that 70% 30% split.
You'll probably see a bigger contribution coming in from product in.
In Q1.
Okay got you that makes sense.
Last one for me on gross margins.
What exactly is driving the product revenue and gross margin gross margins higher it seems like it's probably a higher.
Gross margin contribution from noble house, but just any other inputs to call out that explain the <unk> strength in product gross margins.
Yes, I think the noble house contribution is definitely there I think the other factor is as you know Q4 is a typical peak season for retail sales.
Black Friday cyber Mondays.
We're able to generate a higher margin profile.
Throughout those.
Retail days, so that's kind of one of the reason why you see it in improving gross margin overall.
Got it okay very clear thanks, guys. That's all for me.
Thanks Julie.
We'll now move on to next question.
Our next question comes from the line of Stacy Huang from C. M. B I. Please go ahead. Your line is open.
Okay. Thank you congratulations on nice quarter and.
And thank you for taking the question.
Just a follow up question on the <unk>.
Engine side, so how do you see the impact from.
Frank Thanks.
Please go ahead.
How do you view the margin trending the next Q.
Quarters.
Domino.
That difference.
Hey, so if we sorry can I confirm your question is about whether we're able to sustain our margin profile going forward I just want to make sure I understand the question correctly.
Yes, the margin jammed.
Yes.
So as I've discussed earlier I think Q4 was a good year because of the typical retail peak season.
Going forward, obviously, we're trying to maintain that but also we're also facing some macro challenges.
Things like softening of.
The housing market elevated shipping rates, which we discussed a little bit earlier that we're actually in the process of negotiating a fixed price contract for some of our volume.
So the management team is actually trying to steer the company through these challenges.
We do our estimates the profile, but that's kind of the situation we're in right now.
Okay.
Thank you for your question about caliber extensions got it and can you show us more color on that.
Thank you.
Okay.
And so that's the LNG market at the Hyatt.
Thank you all for expanded carrier market after another.
So how long do you really care community connection.
Non U S markets wrong.
Remind you want to take that one.
Around our global expansion.
Sure.
So as far as the total addressable market in the U S. We're looking at an industry within furniture our biggest.
Vertical up almost 65 billion.
And as you mentioned Europe has been a tremendous market for us as far as growth and you also saw that we have on boarded three new <unk> sellers from.
Different regions, Turkey, Colombia and Mexico.
So what we're going to continue to see is a global evolution of the business and as the Giga cloud marketplaces adopted and more and more marketplaces, while our primary market the United States would still be the growth driver going forward the European market will be right behind it.
Okay. Thank you. Thank you.
One.
Can you explain more in onshore.
Sure.
Thank you.
Thanks, guys.
Yes, maybe I'll take this one actually is a very quick question and I'm very glad you brought it up yes, we incurred close to $4 million in R&D expense in 2023.
As Amar alluded earlier, we have over 300 team members dedicated to our R&D efforts, which includes developing and testing of our platform.
Collection of data and analytics et cetera.
Some of that R&D efforts are actually being accounted for in our cost.
So therefore, our total cash or cost associated with R&D is actually far larger than the $4 million that you see in our R&D expense in our P&L.
Okay. Thank you very clear thank.
Thank you.
Yes.
Thanks Oliver.
Thank you.
We will now move on to our next question.
Our next question comes from Brian Keith Linger from Allianz Global Partners. Please go ahead. Your line is open.
Great. Thanks, so much for taking my questions from an organic growth perspective, I may have missed it can you highlight the number of Skus you're platform had at the end of the year versus the end of 2022, and then Im curious if youre seeing strengthening demand.
Per SKU on average in the fourth quarter, maybe compared to last year or even the first half of the year.
Yeah, Brian I think on the SKU point I don't have the exact.
The exact number in front of me, but if I recall.
We have roughly 30000 <unk> ku.
At the end of last year.
And I think that number for 2022 is somewhere in the 20000 range.
Yeah.
Great and then on the demand side.
Hum.
I think in the first half of the year.
Man per SKU on average was down did that change in the fourth quarter are you starting to see strengthening demand on your skus.
And you wanted to do that or.
I'll be more than happy to David Hi, Brian.
So obviously when it comes to home furnishings.
The entire industry is still experiencing.
A headwind with the cooling of the housing market and the softening of the consumer spending on the durable goods.
But with our business model, we're really well positioned in a very slow growth market.
<unk>.
As far as the SKU density and the performance.
We don't really make that information available, but by default some of the best metrics to look at is the growth in threep.
Supplier base and on the reverse side, the average spend per active buyer up 27%.
<unk> of the buyers grew by 20% to over 5000.
Got it thank you.
A little bit more forward looking if you can.
Great at growing the SKU count I know you've made acquisitions that will drive an increase but again from an organic basis can you continue to rapidly grow the number of skus.
Yeah.
We're pretty confident on growing skus, both on the <unk> side and now that we acquired noble house, which directly it would give us access to it.
8000, new Skus from the noble House business.
So there are a lot of new ways.
For us to kind of keep growing that SKU number.
Great Lastly, maybe for David can.
Can you quantify the cost synergies you realized from the recent acquisitions, thus far and then you talked about.
A big chunk of them will be realized and again in 2024 can you talk about maybe what those can you quantify those synergies.
Yes, I guess it's.
Kind of hard for me to quantify it.
What the synergies are from both a revenue or a cost savings standpoint at this point.
But what we can see from the health of the business is that.
We.
Basically incurred and minimal loss in Q4.
Q1 is starting to stabilize we've got new products coming in for the outdoor furniture season.
So Q2, we expect there's going to be a pickup from the business.
So that's kind of the health of the business, but hard for me to actually quantify what those synergies are at this point in time.
Great Congrats on a great 2023.
Thanks, Brian.
Thank you.
Our next question.
Our next question comes from the line of Rommel Dionisio from Aegis capital. Please go ahead. Your line is open.
Thank you good morning, I Wonder if I could just inquire about the new.
Repeat business from Colombia, and Mexico could you just maybe describe it a little more detail.
The potential evolution, there of that region of the world, which is.
You haven't talked about too much in the past.
Also are you going to require.
The building of infrastructure Salesforce I Wonder if you could talk about how you see that the potential market opportunity playing out here over the next few years and a long term opportunity there. Thank you.
Yeah.
Thank you Rommel.
As far as the new sellers.
Google Cloud is getting more known and known and in the global Arena as a better way to make trades and to the market I think.
Organically, we're going to see an interest coming from a lot of the global suppliers.
Our suppliers in the regions, we do not currently operate in.
And to becoming members in addition.
As far as recruitment of sellers.
The existing infrastructure can support the expansion with the outreach into if need be we can definitely expand into the region, but those.
Countries that you mentioned are new to the marketplace that kind of speaks volume too.
The true reach of Giga club business model globally, as a better way of doing big and bulky because in reality, we kind of transform the industry into making it more seamless end to end.
The better way of trading for big and bulky so with that being said I do expect the same trend to continue as we get to share our story with more and more manufacturers and distributors across the board to see them Onboarding and adapting the business model.
Okay, Thanks, very much and congratulations on the quarter.
Thank you Rommel.
Thank you.
<unk> next question please standby.
There are no further questions at this time, so I'll hand, the call back to Mr. David lawful closing remarks.
Thank you for your continued support in the business or please feel free to contact us Judy up any further questions and we look forward to speaking with you all in our next earning announcement.
Have a nice day. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect speakers. Please standby.
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