Q1 2024 GigaCloud Technology Inc Earnings Call
Okay.
Operator: Thank you all for standing by. Welcome to Gigacloud Technologies' first quarter 2024 earnings conference call. During today's call, all participants will be in listen-only mode. Joining us today from Gigacloud Technology are the company's founder, chairman, and CEO, Lei Wu. Its President, Dr. Iman Schrock, and its Chief Financial Officer, David Lau will give a performance and operational review. And David will share the financial results. After that, we will conduct a question and answer session.
Thank you all for standing by.
Operator: Conference call contains statements about future events and expectations that are forward-looking in nature, and actual results may differ materially. Today's call and webcast will include non-GAAP financial measures within the meaning of SEC Regulation G. When required, reconciliation of all non-GAAP financial measures 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 company website. With that, I would like to turn the call over to Larry for his opening remarks. Please go ahead.
Welcome to Giga Cloud technologies first quarter 2024 earnings conference call.
During today's call all participants will be in listen only mode.
Turning us from Google Cloud technology.
As founder Chairman and CEO Larry <unk>.
President Dr Riemann right.
And its chief Financial Officer, David Law Mom.
David Law: Mom will give a performance and operational review.
David Law: David will share the financial results after that we will conduct a question and answer session.
David Law: Okay.
David Law: Conference call contains statements about future events and expectations are forward looking in nature and actual results may differ materially.
David Law: Call and webcast will include non-GAAP financial measures within the meaning of SEC regulation G.
David Law: When required reconciliation of all non-GAAP financial measures 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 company website.
David Law: With that I would like to turn the call over to Larry for opening remarks. Please go ahead.
Larry: Thank you, operator, and welcome everyone to today's call. Building on last year's considerable success, our first quarter of 2024 demonstrated the Gigacloud's ability to drive sustainable and profitable growth. Amidst industry challenges and headwinds, we're pleased to share Gigacloud's strongest ever first quarter results and our fifth consecutive quarter of revenue growth. This comes even as consumer spending softens. For instance, the US Consensus Bureau reported an almost 8% year over year decline in retail furniture sales for Q1 2024.
Larry: Thank you operator and welcome everyone to today's call are building on last year's considerable success, our first quarter of 'twenty 'twenty, four demonstrate <unk> ability to drive sustainable and profitable growth.
Larry: This industry challenges and headwinds.
Larry: We're pleased to share with you called Pallas, the strongest ever first quarter results and our fifth consecutive quarter of revenue growth.
Larry: So even though consumer spending softens for instance, the U S. A consensus Bureau reported an almost 8% year over year decline in retail furniture sales Q1, 'twenty one before this.
Larry: Despite these headwinds, Gigacloud achieved top-line results that nearly doubled year-over-year, while also generating significant improvement in other key financial and operational measures. These achievements demonstrate our resilience and ability to thrive amidst the market downturn. As we continue to integrate Noblehouse and the Wondersign acquisitions, we expect to see ongoing revenue growth and the powerful synergies that we believe will create an even more robust and efficient online B2B market. In addition to the strategic nature of these acquisitions, we have taken extra steps to further accelerate the growth of our business.
Larry: As far as these headwinds through the cloud to achieve the top line results nearly double the year over year, while also generating significant improvements in other key financial and operational metrics.
Larry: These achievements demonstrate our resilience and the ability to thrive amidst the market downturns.
Larry: As we continue to integrate noble house, and Wonder signed acquisitions, we expect to see ongoing revenue growth and the powerful synergies that we believe will create an even more robust and efficient online be it would be marketplace.
Larry: In addition to strategic nature of these acquisitions.
Larry: We have taken extra steps to further accelerate the growth of our business.
Larry: Firstly, we launched a new marketplace service called Branding-as-a-Service, or BaaS, to help sellers amplify their product competitiveness in the Gigacloud market. Secondly, we expanded our supplier base by adding products from Colombia, Mexico, and Turkey. As a result, we have increased our product diversity, allowing buyers to source a wider range of quality products from these new markets. And lastly, we expanded our global fulfillment network to address increasing demand for our marketplace, further enhancing our world-class support for buyers and sellers.
Larry: Firstly, we launched a new marketplace a service called the branding at the survey so boss to help seller amplify their product happening in dark cloud marketplace.
Larry: Secondly, we expanded our supplier base by adding products from Colombia, Mexico, and Turkey. As a result, we have increased our product diversity, allowing buyer to source a wider range of quality products from these new markets and lastly, we expanded our global fulfillment now.
Larry: Our work to address increasing demand for our marketplace further enhancing our world class support for buyers and sellers.
Larry: We will hear more. You will hear more about these important initiatives in the near future. We are very excited to continue our growth journey and believe that Gigacloud will further enhance its position as a leader and the disruptor of B2B e-commerce technology. Going forward, we remain committed to streamlining the global supply chain journey for all our marketplace participants. Now, I will turn it over to Iman.
Larry: We will hear more or you will hear more about disease important initiative shortly.
Larry: We are very excited to continue our growth journey and believe that Google cloud will further enhance its position as the leader and the disruptor of our B to B E Commerce and technology solutions.
Larry: Going forward, we remain committed to streamlining the global supply chain journey for all of our market place participant.
Larry: Now I will turn it over to you Mark.
Iman Schrock: Thanks, Larry. I'd also like to add my welcome to everyone for joining us today. Despite challenging market conditions experienced by the industry, we're thrilled to share that the Gigacloud Marketplace GMV for the trailing 12 months as of March 31st increased by 64% year-over-year with 263 new sellers and 1,238 new buyers. Our growth is driven by Gigacloud's highly robust technology suite, which transforms and facilitates the way suppliers and retailers of large parcel items connect and transact.
Mark: Thanks, Larry I'll also like to add my welcome to everyone for joining us today, despite challenging market conditions experienced by the industry. We're thrilled to share that the giga cloud marketplace <unk> for the trailing 12 months as of March 31 increased by 64% year over year with 262.
Three new sellers and 238 new buyers.
Mark: Our growth is driven by Giga clouds, highly robust technology suite that transformed and facilitates the way suppliers and retailers of large parcel items connect and transact.
Iman Schrock: Our Supplier Fulfilled Retailing Model streamlines the global supply chain, offering a seamless end-to-end experience. Our acquisitions of Noble House and Wunderstein are further transforming our company by adding diversified products and services to our already robust offering. I'll provide an update on the integration progress shortly.
Mark: Our supplier fulfilled retailing model streamlines, the global supply chain offering a seamless end to end experience our acquisition of Noble House and Wonder signed are further transforming our company by adding diversified products and services to our already robust offerings.
Speaker Change: I'll provide an update on the integration progress shortly.
Iman Schrock: First, I'd like to discuss our latest groundbreaking initiative, BAS, or Branding as Service, which we launched last month. This program is an industry first and holds significant opportunities for both our Marketplace participants and for Gigacloud. This unique solution was developed to tackle the longstanding challenges associated with brands and furniture. Unknown Attendee, Kwok Lau, Lei Wu, Iman Schrock, Sophie Wang, Gigacloud Tech But with BaaS, Gigacloud is changing the game. At its core, the BaaS program enables qualified sellers for the Gigacloud marketplace to offer their products under the banner of industry-leading furniture brands, a solution that effectively resolves the difficulty of brand building and allows qualified sellers to compete more effectively, enjoy greater margins, and stand out in the market. The BAS program is an example of yet another addition to our services tool.
Speaker Change: First I'd like to discuss our latest groundbreaking initiative bass, our brand and guest service.
Speaker Change: Which we launched last month. This program is an industry first and holds significant opportunities for both our marketplace participants and forget about this unique solution was developed to tackle the longstanding challenges associates competed with brands.
Speaker Change: Fifth Street.
Speaker Change: And I respect it crowded and low purchase frequency nature furniture suppliers have traditionally had great difficulties when attempting to create brand recognition, including the need for significant amount of capital resources and time of course.
Speaker Change: But with that Giga cloud is changing the game at its core the bass program enables qualified sellers for the Giga cloud marketplace to offer their products under the banner of industry, leading furniture.
Speaker Change: Okay.
So did the multi brand building and allows qualified sellers to compete more effectively enjoy greater margins and stand out in the market.
Speaker Change: The vast program is an example of yet. Another addition to our services toolbox by providing effective solution to the industry challenges, we're creating a powerful magnet for the marketplace. We're attracting not only establish sellers, but also new suppliers eager to join our vibrant marketplace community as we gear up for the inaugural transact.
Iman Schrock: By providing effective solutions to the industry's challenges, we're creating a powerful magnet for the marketplace. We're attracting not only established sellers but also new suppliers eager to join our vibrant marketplace community as we gear up for the inaugural transaction and the second quarter. This translates to widespread enthusiasm, both from seasoned veterans and those new to the platform. Our first brand partner, Christopher Knight Home, has been a consumer favorite with products that have generated over 1 million five-star reviews online and are currently sold through some of the world's largest and best-known retailers.
Speaker Change: <unk> in the second quarter.
Speaker Change: This translates to widespread enthusiasm both from seasoned veterans and those new to the platform.
Speaker Change: Our first brand partner Christopher Knight home has been a consumer favorite with products that have generated over 1 million five star reviews online and currently sold through some of the worlds largest and best known retailers. We also look forward to expanding this program with additional industry leading brands in the future.
Iman Schrock: We also look forward to expanding this program with additional industry-leading brands in the future. As part of the VAST program, we've created the Gigacloud Brand Center. The Brand Center equips sellers with the tools they need to thrive, including strategic guidance to maximize their visibility and marketability, while simultaneously maintaining strict quality standards and stylistic standards set by participating brands.
Speaker Change: As part of the bass program, we've created the Giga Cloud brand Center group the brand center eclipsed sellers with the tools, they need to thrive, including strategic guidance to maximize their visibility and marketability, while simultaneously maintaining strict quality standards a stylistic.
Speaker Change: Standards set by participating brands.
Iman Schrock: Through inspections and imposing other quality control processes on suppliers, we aim to protect the reputation of participating furniture brands and ensure that end consumers receive products that not only meet but also exceed their expectations. As always, sellers will be able to utilize our B2B Marketplace's advanced fulfillment capabilities. Due to accelerating demand, we have added three new fulfillment centers in the U.S. and one fulfillment center in Germany during the first quarter of 2024.
Speaker Change: Through inspections, and imposing other quality control processes and suppliers, we aimed to protect the reputation of participating furniture, Brad and ensure that end consumers receive products that not only meet but also exceed their expectations as always sellers will be able to utilize our BTB marketplaces advance.
Speaker Change: While filming capabilities.
Speaker Change: Due to accelerating demand we have added three new warehouses fulfillment centers in the U S and one fulfillment center in Germany. During the first quarter of 2020 for our latest edition in April 2024 has brought us to 42 prime locations in five countries with over 10 million square feet of fulfillment space.
Iman Schrock: Our latest addition in April 2024 has brought us to 42 prime locations in five countries with over 10 million square feet of fulfillment space. We believe the expansion will enhance our global fulfillment operation by further improving efficiencies and transactions among marketplace participants. The new facilities are currently undergoing racking installation and will soon add to what is already a seamless, broad, and strategic global network designed for ease of use and efficiency.
We believe the expansion will enhance our global fulfillment operation by further improving efficiency and transactions among marketplace participants the new facilities are currently undergoing racking installation and will soon add to what is already a seamless broad and strategic global network designed for <unk>.
Speaker Change: For ease of use and efficiency.
Iman Schrock: By growing our infrastructure to keep pace with a dynamic market, we believe we are well positioned to capitalize on the amazing growth of the Gigacloud marketplace. We're seeing increased attention from suppliers in new regions, as Larry alluded to, a clear indicator of our growth and awareness, which reinforces our focus on enhancing our transaction experience by expanding our product breadth. We're committed to growing our marketplace buyer community through diversifying the selection of untransferred furniture design and providing a broader product offering.
Speaker Change: By growing our infrastructure to keep pace with a dynamic market. We believe we are well positioned to capitalize at the amazing growth of the Giga fab marketplace.
Speaker Change: We're seeing increased attention from the suppliers in new regions as Larry alluded to a clear indicator of our growing awareness for <unk> is our focus.
Speaker Change: This combines action experienced by expanding our product breadth, we are committed to growing our marketplace buyer community through a diversified the selection of Untransparent nature design, providing a broader product range.
Iman Schrock: Our integration of Noble House and WonderSun is progressing as planned and is helping drive additional innovation and transformation. The integration of Noble House has successfully enhanced our reach and global presence, and we remain on track with our original plan to break even in 2024. The integration of WonderSign is a testament to our ongoing technological advancement, and our combined expertise will unlock new avenues for innovation across the entire business ecosystem.
Speaker Change: Our integration of noble Hudson, who understand is progressing as planned and it's helping drive additional innovation and transformation. The integration of Nobel has successfully enhanced our reach and global presence and we remain on track with our original plan to breakeven in 2024.
Speaker Change: The integration of <unk> is a testament of our ongoing technological advancement and our combined expertise will unlock new avenues for innovation across the entire business ecosystem.
Iman Schrock: Together, these acquisitions signify more than just an expansion; they are driving innovation and fostering a powerful synergy that will empower us to deliver greater value to our customers. Now let's dive into our operational highlights, showcasing the strength of our platform. For the trailing 12 months ending March 31st, 2024, our Gigacloud Marketplace GMV, or the total gross merchandise value of transactions ordered through the marketplace, was $908 million, an increase of 64% year-over-year.
Speaker Change: Together these acquisitions Cigna signify more than just an expansion they are driving innovation and fostering a powerful synergy that will empower us to deliver greater value to our customers.
Iman Schrock: We generated a nearly 44% increase in active 3P or third-party sellers, ending the quarter with a total of 865. We are successfully adding scale to our supplier-fulfilled retailing network, which should continue to grow organically and through our acquisition of Noble. GMB and our three-piece seller marketplace grew almost 72% from the year ago and totaled approximately $490 million for the trailing 12 months. 3P sellers represented 54% of our total marketplace GMV for the same period.
Speaker Change: Now, let's dive into our operational highlights showcasing the strength of our platform for the trailing 12 months ending March 31, 2024 hour Giga cloud marketplace G. M D or the total gross merchandise value of transactions order through the marketplace was $908 million an increase of 60%.
Speaker Change: 4% year over year.
Speaker Change: We generated a nearly 44% increase in active <unk> or third party sellers ending the quarter with a total of 865.
Speaker Change: We are successfully adding scale to our supplier fulfilled retailing network, which should continue to grow organically and through our acquisition of noble House.
Speaker Change: G M D. In our three P seller marketplace grew almost 72% from the year ago and totaled approximately $490 million for the trailing 12 months.
Speaker Change: <unk> represented 54% of our total marketplace <unk> for the same period, we believe the combination of our <unk> and <unk> are vital to our growth strategy with a focus on continuing to drive organic growth of <unk> to build a larger more efficient and more sustained marketplace.
Iman Schrock: We believe the combination of our 3P and 1P is vital to our growth strategy, with a focus on continuing to drive organic growth of 3P GMV to build a larger, more efficient, and more sustained marketplace. Active buyers also grew substantially to 5,493 for the trailing 12 months, which is an increase of more than 29% from the same period last year. The average spend per active buyer increased 27% to $165,000.
Speaker Change: Active buyers are also grew substantially to 5493 for the trailing 12 months, which is an increase of more than 29% from the same period last year. The average spend per active buyer increased 27% to $165000 with ever growing high quality stellar part.
Kwok Hei Lau: With ever-growing high-quality seller participation in our marketplace and a growing product portfolio, we look forward to additional expansion of our buyer metric. Before I wrap up, I want to provide a brief update on the fire in one of our Japanese fulfillment centers that we disclosed last quarter. On March 9, 2024, one of our facilities in Japan suffered damages due to a warehouse fire estimated at approximately $1.8 million with respect to the cost of inventory held at this fulfillment center.
Speaker Change: This is a patient in our marketplace and a growing product portfolio, we look forward to additional expansion of our buyer metrics.
Before I wrap up I want to provide a brief update on the fire in one of our Japanese fulfillment centers that.
Kwok Hei Lau: Insurance coverage is expected to extend up to $1.5 million. However, it's worth noting that the impact on our overall operation is expected to be minimal, as the effective inventory in the Fulfillment Centre represented less than 1% of our total inventory capacity. I hope today's discussion has showcased our enthusiasm for Gigacloud's ongoing evolution and its promising future. Our financial performance remains robust, with consistent growth quarter after quarter. We're strategically expanding our Global Fulfillment Network to better serve our marketplace participants and to meet growing demands.
Speaker Change: That we disclosed last quarter on March 19, 2020 for one of our facilities in Japan suffered damages due to a warehouse fire.
Speaker Change: Estimated at approximately $1 $8 million with respect to the cost of inventory held at the spot them et cetera insurance coverage is expected to extend up to $1 5 billion.
Speaker Change: It's worth noting that the impact on our overall operation is expected to be minimal as the affected inventory in the fulfillment center represented less than 1% of our total inventory holdings.
Kwok Hei Lau: And let's not forget the integration of two key acquisitions, further accelerating our scalability and technological innovation. We're actively driving the future of global e-commerce, and we're thrilled to have you with us on this journey. Now, I will turn the call over to David for a more detailed review of our financials.
Speaker Change: I hope today's discussion has showcased our enthusiasm for giga clouds ongoing evolution and its promising future.
Speaker Change: Our financial performance remains robust with consistent growth quarter after quarter, we're strategically expanding our global fulfillment network to better serve our marketplace participants and to meet organic growing growing demands and let's not forget the integration of two key acquisitions further accelerating our scale.
Speaker Change: The ability of technological innovation.
Speaker Change: We're actively driving the future of global E Commerce, and we're thrilled to have you with US on this journey now I will turn the call over to David for a more detailed review of our financials.
Kwok Hei Lau: Thanks, Iman. For the benefit of those who are new to our company, I'll be defining some of our most used metrics. First, some quick housekeeping.
Thanks Ahmad for the benefit of those who are new to our company after defining some of our most used metrics.
Kwok Hei Lau: The numbers I'll be discussing today are for the first quarter of 2024, compared with the first quarter of 23, unless otherwise stated. Additionally, please note that this quarter, we began providing the non-GATT measures of adjusted EBITDA and adjusted EPS in our first 10Q filings after the transition of S-Filing. As Larry and Iman previously discussed, we had a great first quarter by all measures.
David Law: Some quick housekeeping the numbers I'll be discussing today are for the first quarter of 2024 compared with the first quarter of 'twenty three unless otherwise stated. Additionally, please note that this quarter, we began providing the non-GAAP measures of adjusted EBITDA and adjusted EPS in our first 10-Q filings after the transition of S. Filer.
David Law: Larry in Amman previously discussed we had a great first quarter by all measures total revenues nearly doubled to $251 million an increase roughly two 4% on a sequential basis, notably our first quarter's performance exceeded our fourth quarter, which is typically our strongest period due to seasonal trends in the industry.
Kwok Hei Lau: Total revenues nearly doubled to $251 million and increased roughly 2.4% on a sequential basis. Notably, our first quarter's performance exceeded our fourth quarter, which is typically our strongest period due to seasonal trends in the industry. This achievement underscores our continued growth trajectory.
David Law: This achievement underscores our continued growth trajectory.
Kwok Hei Lau: Service revenues from Gigacloud 3P, which mainly include platform commission, ocean transportation, warehousing, last mile delivery, and packaging services, grew 92% to $67 million. Product revenues from Gigacloud 1P, which mainly include product sales of our inventory through the Gigacloud Marketplace, improved to $90 million, an increase of nearly 47% year over year. Product revenues from off-platform e-commerce, which mainly include the sale of our inventory to and through third-party e-commerce channels, increased almost 200% year-over-year to over $93 million.
David Law: Service revenues from Giga Cloud <unk>, which mainly include platform Commission Ocean transportation warehousing last mile delivery and packaging services grew 92% to 67 million product revenues from <unk>, which mainly include product sales of our inventory through our cloud marketplace improved two nine.
David Law: <unk> million dollars, an increase of nearly 47% year over year.
David Law: Product revenues from off platform E Commerce, which mainly include the sale of our inventory to and through third party E Commerce channels increased almost 200% year over year to over $93 million. These.
Kwok Hei Lau: These increases were in line with a 64% gain in total market GMV, which equaled to $908 million at the end of the first quarter on a trailing 12-month basis. GMV is defined as the total gross merchandise value of transactions ordered through a Gigahoud marketplace before deductions for value-added tax, goods and services tax, shipping charges paid by buyers to sellers, and refunds.
David Law: These increases were in line with the 64% gain in total market GMB, which equaled two nine.
David Law: $908 million at the end of the first quarter on a trailing 12 month basis.
David Law: G M P as defined at the total gross merchandise value of transactions order through our <unk> marketplace before deductions for value added tax goods and services tax shipping charge paid by buyers to sellers and refunds.
Kwok Hei Lau: Cost of revenues was $185 million, or 74% of total revenues, compared with $98 million, or 77% of total revenues. The reduction in cost of revenues as a percentage of total revenues illustrates our success in enhancing sustained operational efficiency across our business operations. Gross profit for the first quarter increased more than 125% to $67 million, which resulted in an improved gross margin of 27% vs. 23% in their prior year period. I want to briefly touch on ocean shipping rates.
David Law: Cost of revenues were $185 million or 74% of total revenues compared with $98 million or 77% of total revenues the reduction in cost of revenues as a percentage of total revenues underscore our success in enhancing our sustained operational efficiency across our business operations gross.
David Law: For the first quarter increased more than 125% to $67 million, which resulted in an improved gross margin of 27% versus 23% in the prior year period.
Speaker Change: I wanted to briefly touch on ocean shipping rates Ocean shipped.
Kwok Hei Lau: Ocean shipping rate fluctuations have impacted the industry in the first quarter, with costs rising compared to the same period last year. We have secured a substantial amount of our shipping volume under a fixed-rate contract to effectively hedge against future price incursions. As a result of our continued growth and increase in volume, total operating expenses were $32 million compared to $12 million last year. Breaking down our operating expenses further, selling and marketing expenses were $15 million compared with $7 million, driven primarily by higher platform services paid to certain third-party e-commerce websites.
Speaker Change: Rate fluctuations have impacted the industry in the first quarter with costs rise compared to the same period last year, we have secured a substantial amount of our shipping volume under a fixed rate contract to effectively hedge against future price uncertainties.
Speaker Change: As a result of our continued growth and increase in volume total operating expense were $32 million compared to $12 million last year.
Breaking down our operating expense further selling and marketing expense for $15 million compared with $7 million driven primarily by higher platform surfaces paid to certain third party E Commerce website.
Kwok Hei Lau: Staffing costs include added personnel to support the continued growth of the company and higher commission and advertising costs. General and admin expenses total $15 million compared with $4 million. This increase primarily was due to higher staff costs, including our R&D efforts to accommodate the expansion of our business volume, higher professional services fees, an increase in rental expense related to certain newly leased fulfillment centers that are currently under preparation, along with a set of expenses required for the new fulfillment centers to reach full operational mode.
Speaker Change: Staffing costs include the added personnel to support the continued growth of the company and higher commission and advertising costs.
Speaker Change: General and admin expense totaled $15 million compared with $4 million.
Speaker Change: This increase primarily was due to higher staff costs, including our R&D efforts to accommodate the expansion of our business volume higher professional services fee and increasing.
Speaker Change: Rental expense related to certain newly leased fulfillment centers that are currently under preparation along with a set of expense required for the new fulfillment centers to reach full operational mode.
Kwok Hei Lau: Our bottom line expanded quite nicely, with net income growing more than 71% to $27 million compared with $16 million last year. Adjusted EBITDA grew by more than 74% to $35 million. Moving now to our balance sheet, we ended the first quarter with a total of $196 million in cash, restricted cash, and investments. We have strategically allocated our cash towards investments of $10 million. In support of our growing infrastructure network, we incurred $4 million in CapEx, including facility expansion and pallet racks to enhance our fulfillment capability, to ensure we can meet anticipated sales during the upcoming outdoor furniture season in Q2.
Speaker Change: Our bottomline expanded quite nicely with net income growing more than 71% to $27 million compared with $16 million last year.
Speaker Change: Adjusted EBITDA grew by more than 74% to $35 million moved.
Speaker Change: Moving now to our balance sheet. We ended the first quarter with a total of 109, sorry $196 million in cash restricted cash and investments we have strategically allocate our cash towards investment of $10 million in support of our growing infrastructure network, when we incurred $4 million in capex, including <unk>.
Speaker Change: <unk> expansion and pallet racks enhance our fulfillment capabilities.
Speaker Change: To ensure we can meet anticipated sales during the upcoming outdoor furniture season in Q2, we have strategically manage our cash flow to build sufficient inventory. In addition, as we mentioned in our previous quarter, we provide favorable cash on delivery terms for noble how suppliers that we are facing financial difficulties, resulting in a less unusual cash flow generation into our balance.
Kwok Hei Lau: We have strategically managed our cashflow to build sufficient inventory. In addition, as we mentioned in a previous quarter, we provide favorable cash on delivery terms for noble house suppliers that were facing financial difficulties, resulting in a less-than-usual cash flow generation into our balance sheet for the quarter. Additionally, we continue to have no outstanding borrowings and remain debt-free. Liabilities presented on our balance sheet represent obligations associated with our Fulfillment Center leases, as we have substantially expanded our network organically and through acquisition.
Speaker Change: <unk> for the quarter.
Speaker Change: Additionally, we have we continue to have no outstanding borrowings and we remain debt free.
Speaker Change: <unk> presented on our balance sheet represent obligation associated with our fulfillment center leases.
Speaker Change: As we have substantially expanded our network organically and through acquisitions.
Kwok Hei Lau: I'll finish up with our outlook for the second quarter. We're currently expecting revenues between $265 million and $280 million. Thank you all for joining us today, and I'll pray that we're ready for our questions.
Speaker Change: Finish up with our outlook for the second quarter. We're currently expecting revenues between $265 million and $280 million. Thank you all for joining us today and operator, we're ready for our questions. Thank you.
Operator: To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from Matt Koranda with Roth MKM. Your line is now open.
Speaker Change: To ask a question. Please press star one on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question. Please press star one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from Matt Koranda with Roth and Ken Your line is now open.
Matthew Butler Koranda: Hey, everybody. Good morning.
Matthew Butler Koranda: Hey, everybody good morning.
Maybe just wanted to start off with the first quarter.
And the organic growth rate that you experienced versus contribution from noble House. Just curious if you could clarify where the incremental revenue from nobody else is coming from I would assume.
Matthew Butler Koranda: Maybe I just wanted to start off with the first quarter and the organic growth rate that you experienced versus Contribution from Noble House. Just curious if you could clarify where the incremental revenue from Noble House is coming from. Unknown Attendee, Kwok Lau, Lei Wu, Iman Schrock, Sophie Huang, Gigacloud Tech
Matthew Butler Koranda: It's basically all off platform.
Matthew Butler Koranda: But that revenue stream looks particularly strong on area basis. So maybe you could just unpack the drivers there first.
Kwok Hei Lau: Hey, Matt, maybe I'll take this one. As we discussed in our last call, we don't break it out between what's organic and what's inorganic because right now we're kind of in the middle of fully integrating the business. So we don't really break that out as we see the business, but you're correct pointing out that the off-platform e-com revenue generation is driven mostly by the normal house business.
Speaker Change: Hey, Matt maybe I'll take this one.
Matthew Butler Koranda: So as we discussed in our last call, we don't break it out between what's organic and what's an organic because right now we're kind of in the middle of fully integrating the business. So.
So we don't really break that out as we see the business, but you are correct pointing out that the off platform E com.
Matthew Butler Koranda: Revenue generation is driven mostly by the noble house.
Speaker Change: Business. So that's correct.
Matthew Butler Koranda: Okay, got it. On the third-party service, gross margins, I was curious, what's driving the strength there? You mentioned ocean freight rates going up. So I would assume that typically would compress margins in that segment. Maybe just speak for a moment, if you could, about the strength and gross margins that you experienced in the third-party service revenue in the quarter.
Speaker Change: Okay got it.
Speaker Change: On the third party service.
Speaker Change: Gross margins was curious whats driving the strength there.
Speaker Change: You mentioned ocean freight rates going up so I would assume that typically.
Speaker Change: Would compress margins in that.
Speaker Change: That segment, maybe just.
Speaker Change: Speak for a moment, if you could about the strength in gross margins that you experienced in the third party service revenue in the quarter.
Kwok Hei Lau: Yeah, I think we're seeing a lot of momentum in our 3P side of the house, particularly now, and Iman alluded a little earlier that a lot of our sellers are gearing up for the outdoor furniture season. So we're seeing a lot of velocity and momentum.
Speaker Change: Yes, I think we're seeing a lot of momentum in our three P side of the house, particularly now in Mon alluded a little earlier that.
Speaker Change: A lot of our sellers are gearing up for the outdoor furniture season. So we're seeing a lot of velocity and momentum, yes, while that we see the overall shipping rates has been going up.
Kwok Hei Lau: Yeah, while we see that overall shipping rates have been going up, but I don't think it really impacted us as materially as others would have expected. And we also mentioned that we are now effectively hedging against future ocean shipping rate fluctuations. So we're fairly comfortable at the current margin profile that we're enjoying.
Speaker Change: But I don't think it really impacted us as materially as others would have expected.
Speaker Change: And we also mentioned that we are.
Speaker Change: Now effectively hedging against future Ocean shipping rates fluctuations, so we're fairly comfortable.
Speaker Change: Current margin profile, we're enjoying.
Matthew Butler Koranda: Okay, gotcha. And then just wanted to hear a little bit more about the branding as a service business. Any quantifiable metrics you can provide around that and how it's built into the second quarter guidance. I noticed, I think, in the release you mentioned the program may launch in the second quarter.
Speaker Change: Okay Gotcha.
Speaker Change: And then just wanted to hear a little bit more about the branding as a service business.
Speaker Change: Any quantifiable metrics you can provide around that and how it is built into the second quarter guidance I noticed I think in the release you mentioned.
Matthew Butler Koranda: So maybe just speak to sort of how we're thinking about revenue contribution from that. Is that the right way to think about that program effectively like a brand licensing or licensing revenue stream that layers into the third-party service revenue that you get already from your sellers? And then maybe just, is that how do you view the branding as a service program as a whole? Just simply, is it a seller acquisition tool? Is it a retention tool? Maybe just a little bit more on sort of why do this?
Speaker Change: The program May launch in the second quarter. So maybe just speak to sort of how we're thinking about revenue contribution from that is the right way to think about that program effectively like brand licensing our licensing revenue stream.
Speaker Change: That layers into the third party service revenue that you get already from your sellers.
Speaker Change: And then maybe just is that how do you view the <unk> as a service program as a whole just simply is it a seller acquisition tools at a retention tool, maybe just a little bit more on sort of why why do this.
Kwok Hei Lau: Larry or Iman, do you guys want to take this?
Speaker Change: Larry would you mind you guys wanted to take this.
Iman Schrock: I'll be more than happy to, David. Basically, branding as a service is an additional service that is being offered to make the business model even more sticky with both our seller base and the buyer base. And the whole idea behind this process is that through the end-to-end optimization process, we're able to manage the entire process in the network, which kind of contributes to all those margins that you just listed off as far as third-party sellers are concerned.
Larry: I'll be more than happy to David So.
David Law: Basically branding of this service.
David Law: As an additional service that is being offered.
David Law: To make the business model, even more sticky with our both our seller base at the buyer base and the whole idea behind this process is that through the end to end optimization process, we're able to manage the entire process process and network, which kind of contributes to all those margins.
David Law: You just.
David Law: Listed off as far as the third party sellers.
Iman Schrock: And at the end of the day, like you mentioned, this will definitely be a recruitment tool, but also a retention tool, as we're trying to basically tackle one of the biggest issues in the furniture business when it comes to building brands. I talked a little bit about this, that the nature of the industry is highly fragmented, and it requires a significant amount of investment as far as capital resources and time to build brand recognition because the purchase frequency is so low So by giving good products a chance to have access to good brands, we're hoping that, you know, we truly give these products a chance in a better market.
David Law: And.
David Law: At the end of the day like you mentioned this will be definitely a recruitment tool, but also a retention tool as we're trying to basically tackle one of the biggest issues and furniture business. When it comes to building brands I talked a little bit about this that the nature of the industry is highly fragmented and it requires.
David Law: Amount of investment is as far as the capital resources and time to build those brand recognition because the purchase frequency is so low so by giving the good product a chance to have access to good brands. We're hoping that we truly give these product a chance to better market and with that we increased the.
Iman Schrock: And with that, you know, we increased the usage of the existing supplier base but also attracted new sellers to join the marketplace. And by fueling the seller base, you know, we definitely add variety and style and choices for the buyers on the flip side to choose from.
David Law: Usage of existing supplier base, but also attract new sellers did two joined the marketplace and by fueling the seller base.
David Law: Definitely add variety and style and choices for the buyer than the flipside to choose from.
Matthew Butler Koranda: Unknown Speaker Okay, gotcha. And then just for the second quarter outlook, I think you guys provided a range of revenue and the 265 to 280 million range. Maybe, just since we're not breaking out of Noble House, at the very least, maybe just some commentary around, you know, third party service revenue contribution within that outlook versus product revenue in the second quarter and how we should think about that.
Speaker Change: Okay got you.
Speaker Change: And then just for the second quarter outlook. I think you guys provided a range of revenue in the $2 $65 million to $280 million range.
Speaker Change: Maybe just since we're not breaking out noble house at the very least maybe just some commentary around.
Speaker Change: Third party service revenue contribution within that outlook versus.
Speaker Change: Product revenue in the <unk>.
Speaker Change: Second quarter, and how we should think about that.
Kwok Hei Lau: Um, I think the way we see it is that the ratio between these two lines of business, if we remain fairly steady for a while, I don't think there will be any drastic changes in terms of the balance between the two businesses as a percentage of revenue.
Speaker Change: I think the way we see it is that the ratio between these two lines of business. If we will remain fairly steady for a while.
Speaker Change: I think there will be any drastic changes in terms of the balance between the two business as a percentage of revenue.
Matthew Butler Koranda: Got it. Maybe just the last one for me in terms of the margin profile on a go forward basis. I guess the integration of Noble House may be creating a little bit of a drag on margins. When do we expect that to sort of release, and we reach sort of at least a break even on a positive? Operating profit contribution from Noble House may just help us understand a level set around when that happens if it's within 24 or beyond.
Speaker Change: Okay got it.
Speaker Change: Maybe just last one for me in terms of.
Speaker Change: The.
Speaker Change: The margin profile on a go forward basis.
Speaker Change: I guess.
Speaker Change: The.
Speaker Change: Integration of noble house, maybe creating a little bit of a drag on margins.
Speaker Change: When do we expect that to.
Speaker Change: To sort of release and we reach sort of at least a breakeven to positive.
Speaker Change: Operating profit contribution from from Knowhow, So maybe just help us understand and level set around when that happens.
Speaker Change: Within 24 or beyond.
Kwok Hei Lau: Yeah, I think breaking even within 24 is our goal, and I think we're fairly confident with that goal in mind. I think we're starting to see some profitability from the noble house business probably by the end of the year if not early 2025.
Speaker Change: Yes, I think breaking even within 24 is.
Speaker Change: Our goal and I think we're fairly confident with that.
Speaker Change: That call in mind, I think we will starting to see some profitability generating from the noble house business.
Speaker Change: Probably by the end of the year, if not early 2025.
Matthew Butler Koranda: Okay, thanks guys.
Speaker Change: Okay. Thanks, guys.
Operator: Thank you. One moment for our next question. Our next question comes from Sophie Huang with CMBI. Your line is now open.
Speaker Change: Thanks, Matt.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from Sophie Wang with <unk>. Your line is now open.
Sophie Huang: Congratulations on the top-line growth. A really great first quarter of this year. So I noticed that revenue and gross margin both improved year-on-year, but net income margin seems to have decreased slightly. Could you please provide us with some insight into the reason and how do we look at the margin changing in the next few quarters? Thank you.
Sophie Wang: Thank you congratulation on the top line goes first.
Sophie Wang: Thank you.
Sophie Wang: I noticed that.
Sophie Wang: Sure Danielle.
Sophie Wang: My view.
Sophie Wang: <unk> decreased.
Speaker Change: Could you please provide us with that.
Speaker Change: You may now disconnect.
Speaker Change: Margins.
Speaker Change: Thank you.
Kwok Hei Lau: Hey, Sophie. Great question. I think from a high level, I think we can categorize two main factors that contributed to a temporary downward compression on margins for our first quarter. I think the first one is the cost associated with some of the new fulfillment centers that we opened during Q1. Iman and I talked a little bit earlier that we leased four new facilities in Q1 to keep up with our growing demand.
Speaker Change: Hey, Sophie.
Sophie Wang: Quick question I think from a high level I think we can categorize two main factors that contributed to.
Sophie Wang: A temporary downward compression on margins for first quarter.
Sophie Wang: I think the first one is the cost associated with some of the new fulfillment centers that we owe pincher in Q1.
Sophie Wang: And Martin and I talked a little bit earlier that we leased four new facilities in Q1 to keep up with our growing demand and it typically takes around four to six months about new facility now with all the racking systems to make sure that everything is working out. So this is <unk>.
Kwok Hei Lau: It typically takes around four to six months to set up a new facility with all the racking systems to make sure that everything is working out. So this is something that we are working on, and it's also fairly standard for the industry that we receive a standard kind of seven to nine months of rent free for our new facilities in the U.S. But because we're leasing these facilities, we have to expense the cost evenly throughout the life of the lease.
Sophie Wang: Something that we are working on and it's also a fairly standard for the industry that we receive a standard kind of seven to nine months of rent free for our new facilities in the U S.
Sophie Wang: But because were leasing the facilities, we have to expense the cost evenly throughout the life of the lease. So that's why you see there's a temporary downward compression to our margin profile during the setting up phase.
Kwok Hei Lau: So that's why you see there's a temporary downward compression to our margin profile during the setting up phase and to give you a little bit more color around the lease or the establishment costs for these new fulfillment centers. So for Q1, the expense for these new fulfillment centers amounted to around $2 million, and we're fairly confident that we'll see the benefits of these new facilities in the near future. And the second factor contributing to the margin is, as you know, we have a global business, and it's because of the foreign exchange fluctuations that we experienced in the first quarter.
Sophie Wang: And to give you a little bit more color around what the.
Sophie Wang: And it'll lease or the establishment costs.
Sophie Wang: For these new fulfillment centers.
Sophie Wang: So for Q1, the expense for new fulfillment centers amount to around $2 million and we're fairly confident that we'll see the benefits of these new added facilities in eastern Europe.
Sophie Wang: Future and the second factor contributing to the margin.
As you know we have a global business.
Sophie Wang: And it's because of the foreign exchange fluctuations that we experienced in first quarter.
Kwok Hei Lau: As you see, the U.S. dollar is very strong against the Euros and British pounds during the first quarter, and because of the fluctuation, we experienced some foreign exchange losses from our cash and receivables balance as of March 31st that are unrealized, and that amount is roughly $2 million. So hopefully, I'll explain the kind of the margin profile for Q1.
Sophie Wang: As you see.
Sophie Wang: U S dollar is.
Sophie Wang: Very strong against the euros.
Sophie Wang: British pound British pounds during the first quarter and because of the fluctuation we experienced some foreign exchange losses from our cash receivables balance as of March 31st there are unrealized and that amount is roughly $2 million. So hopefully I'll explain.
Sophie Wang: The margin profile for Q1.
Kwok Hei Lau: Very clear. Thank you. Thanks, Sophie.
Speaker Change: Alright, thank you.
Operator: Thank you. One moment for our next question, and our next question comes from Brian Kinstlinger with Alliance Global Partners. Your line is now open.
Speaker Change: Thanks Sophie.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And our next question comes from Brian <unk> with Alliance Global Partners. Your line is now open.
Brian Kinstlinger: Great, nice results. And thanks for taking my question. A follow-up on Noble House, if you will, to get that to a more profitable status, is that a combination of revenue growth and cost cuts, or is it just cost cutting that needs to get you there?
Brian: Great Nice results and thanks for taking my question.
Brian: A follow up on noble House, if you will.
Brian: Did you get that to a more profitable status is that.
Brian: A combination of revenue growth and cross correct.
Brian: Or is it just.
Brian: Cross cutting that needed to get you there.
Kwok Hei Lau: Yeah, Brian, I think it's both. So on the revenue side, we mentioned a little bit in our last call that we're expanding and plugging the Noble House SKU into our marketplace. And we're also utilizing some of the warehouse footprint that Noble House got from that acquisition from Noble House. And then on the cost side, because we also have a sizable warehouse footprint, we also have personnel on the ground. So we're able to extract some synergies from the cost side of the house.
Yes, Brian I think it's both so on the revenue side, we mentioned a little bit in our last call that we're expanding and plugging in noble house SKU into our marketplace.
Brian Kinstlinger: Great, that's helpful. And then on branding as a service, again a follow-up there, is that going to be a fee per unit, or is that going to be more of a recurring fee or license?
Brian: And we're also utilizing some of the warehouse footprint that noble house.
Brian: So from that acquisition from Noble House.
Brian: And then on the cost side, because we also have a sizable warehouse footprint. We also have personnel on the ground. So we're able to extract some synergies from the cost side of the house.
Speaker Change: Great. That's helpful and then on the branding of the service again, a follow up there is that going to be a fee per unit or is that going to be more of a.
Speaker Change: Recurring.
Speaker Change: Our license to use the branding.
Kwok Hei Lau: Yeah, sorry. No, no, no, no, no, no, no, no, no.
Speaker Change: Yes.
Speaker Change: Sorry.
Kwok Hei Lau: Yeah, basically, the BAS, the way it operates is per SKU. So once the SKU is qualified through that brand center mechanism that we discussed, then you know, a fee is charged a fixed amount. And that nominal fee, as of right now, is I believe about 4%, and the industry standard is about 10%. So it's very, very competitive.
Speaker Change: No no no no no no sorry, so basically.
Speaker Change: The best the way it operates is per SKU. So once the skus qualified through that Brad Center mechanism that we discussed.
Speaker Change: Then a fee is charged a fixed fee and that nominal fee as of right now I believe about 4% and the industry standard or about 10%. So it's very very competitive.
Brian Kinstlinger: And then my last question is, the 3P shell account continues to grow at a solid clip. Can you remind us about the recruiting process? How long is the recruiting cycle? And then, on average, how quickly do they ramp up the number of SKUs once they're onboarded? Thank you.
Speaker Change: Great and then my last question is.
Speaker Change: <unk> com continues to grow.
Speaker Change: Solid clip.
Speaker Change: Can you remind us about the recruiting process how long is the recruiting cycle and then on average how quickly do they ramp the number of Skus went through her onboard it. Thank you.
Kwok Hei Lau: So our recruiting efforts are mostly meeting kind of the suppliers locally, mostly out here in Asia. I don't know if I actually have the numbers in front of me, but I would imagine it will be a couple months for them to join. And I think usually suppliers would put out a couple of SKUs to kind of just try it out, and then they will start ramping up when they see success. So that's typically kind of the supplier profile for our 3P business.
Speaker Change: So our recruiting efforts as mostly meeting kind of the suppliers are locally mostly out here in Asia.
Speaker Change: I don't know if I actually have the numbers in front of me, but I would imagine it'll be a couple of months for them to join.
Speaker Change: And I think usually suppliers would put a couple of skus to kind of just try it out and then they will start ramping up when they see success.
Speaker Change: So that's typically tenant the supplier profile for our <unk> business.
Brian Kinstlinger: Great. A nice result. Thanks, guys.
Speaker Change: Great. Thanks.
Speaker Change: Thanks, guys.
Speaker Change: Thanks, Brian.
Kwok Hei Lau: Thank you. This concludes the question and answer session. I would now like to turn it back to David Lau for closing remarks.
Speaker Change: Thank you. This concludes the question and answer session I would now like to turn it back to David <unk> for closing remarks.
Kwok Hei Lau: Great. Well, thanks everybody for joining this call. If you have any questions, feel free to email our email address, and we look forward to discussing our results on our next earnings call. Thank you all for joining.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
David Law: Great well thanks, everybody for joining this call. If you have any questions feel free to email or.
David Law: Email address and we look forward to discussing our results in our next earnings call. Thank you all for joining thank you.
Speaker Change: Yeah.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
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