Q1 2025 GigaCloud Technology Inc Earnings Call
As a reminder, this conference call contains statements about future events and expectations that are forward looking in nature and actual results may differ materially.
Operator: As a reminder, this conference call contains statements about future events and expectations that afford looking in nature, and actual results may differ materially. Additionally, today's call will include non-GAP measures within the meaning of SEC Regulation G.
Additionally, today's call will include non-GAAP measures within the meaning of SEC regulation G.
Operator: When required, a 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 the press release issued today by Gigacloud, as well as on the company's website.
When required a 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 the press release issued today, if I take a cloud.
As well as on the company's website.
I would now like to turn the call over to Larry for his opening remarks. Please go ahead Sir.
Operator: I would now like to turn the call over to Larry for his opening remarks. Please go ahead, sir.
Larry: Thank you operator, and welcome everyone to our first earnings call of 2025.
Larry: Thank you, operator, and welcome everyone to our first earnings call of 2025. We started the year on solid footing with the year over year top line growth of 8% supported by disciplined operations and execution across the business. despite a challenging industry environment. Our B2B marketplace continued to expand with a 56% year-over-year GMB growth on a trading 12-month basis. as participants derived significant value from many efficiencies we bring to the supply chain for large parts of merchandise. While short-term headwinds persist, long-term fundamentals remain intact. Our marketplace and supplier-fulfilled retailing model streamlines cross-border trade and positions us to capture the growing demand for efficient, technology-enabled commerce.
Larry: We started the year on solid footing.
Larry: The year over year topline growth of 8% supported by disciplined operations and execution across the business, despite a challenging industry environment.
Larry: Our <unk> marketplace continue to expand with the 56% year over year GMB growth on a trailing 12 month basis.
Larry: As the participants derive significant value from many efficiencies, we bring to the supply chain.
Larry: Large parcel merchandise.
While short term headwinds persist long term fundamentals remain intact.
Larry: <unk> place and supplier fulfilled retail model streamlines cross border trade and positions us to capture the growing demand for efficiency efficient technology enabled commerce.
Larry: And we remain focused on growing Gigacloud in a disciplined and sustainable manner.
Larry: And we remain focused on growing Google cloud in a disciplined and sustainable manner.
Larry: A few things we have been focused on like lately.
Larry: A few things we have been focused on like lately. We continue to execute our integration plan for Nobel House. We have started the process of introducing new SKUs with simultaneously optimizing procurement costs through our large network of vendors. While we are still in the early stage of this effort, initial feedback we're seeing has been very encouraging. We're excited for the future as we gradually continue to introduce new more profitable SKUs while simultaneously retiring less profitable merchandise as we We remain focused on growing our marketplace outside of the U.S. Europe performance continues to be strong with its close to 80% year over year growth.
Larry: We continue to execute our integration plan for noble House.
Larry: We have started the process of introducing new skus with simultaneously optimizing procurement costs through our large network of vendors. While we are still in the early stage of this effort initial feedback we're seeing has been very encouraging.
Larry: We're excited for the future as we gradually continue to introduce new more profitable skus.
Larry: Simultaneously retiring less profitable merchandise as we go.
Larry: We remain focused on growing our marketplace outside of the U S.
Larry: Europe performance continues to be strong with close to 80% year over year growth. We're.
Larry: We're also receiving increased interest from our 3P sellers for international markets, such as the EU, UK and Japan. The launch of our Wunder app has been positively received with a promising traction and we have welcomed a great new partner to our BAS program as well.
Larry: We're also receiving increased the interest from owners please be sellers for international markets, such as the EU UK and Japan.
The launch of our Wonder App has been positively received with a promising traction and we have welcomed a great new partner to our baas programs as well.
Larry: We're excited by the long term potential of these initiatives and to remain focused.
Larry: We're excited by the long term potential of these initiatives and remain focused.
Larry: Undisciplined Execution. With that said, we recognize the recent tariff developments have introduced new complexities into global trade, and the high level of uncertainty has caused disruptions to the supply chain. I want to take a moment to discuss this. Obviously, we cannot see into the future. And we do not know when and how things will play out exactly. With where terrorists currently are and the level of uncertainty, there's no doubt this poses a challenge for many, including But we're confident in our ability to manage the challenges to come. I am a firm believer that the best time to prepare for a challenge is before it occurs.
Larry: Disciplined execution.
Larry: With that said, we recognize the recent tariff developments have introduced new complexities into global trade and the high level of uncertainty has caused disruptions to the supply chain.
Larry: I want to take a moment to discuss this obviously, we cannot see into the future and we do not know when and how things will play out exactly.
Larry: With where terrorists currently are and the level of uncertainty there is no doubt that suppose is a challenge for many including us.
Larry: But we're confident in our ability to manage the challenges com.
Larry: I am a firm believer that the best time to prepare for a challenge.
Larry: Is it before it occurs and we have been preparing for a long time by always been being reserve focus on efficiency and agility.
Larry: And we have been preparing for a long time, by always being razor focused on efficiency and agility. We designed the Gigacloud marketplace to be an open-ended, channel-agnostic and dynamic ecosystem that supports adaptation as quickly as the market changes. For Gigacloud and our clients, this means the ability to pivot quickly in terms of both product sourcing and sales channels. The just-in-time approach towards inventory procurement brought by our SFR model also proves to be particularly valuable during times of uncertainty and rapid change. We expect the near term disruptions for these macro and industry headlines. But we are confident that the platform we have built positions us to capture outsized opportunities over the long run.
Larry: We designed the <unk> cloud marketplace to be an open ended channel agnostic and dynamic ecosystem that supports adapt adaptation as quickly as the market agendas.
Larry: Well Giga cloud and our clients. This means the ability to pivot quickly in terms of both proud of sourcing and sales channels adjusted.
Larry: So just in time approach towards inventory procurement brought by our <unk> model also proved to be particularly valuable during times of uncertainty and rapid change.
Larry: We expect that near term disruptions for these macro and industry headwinds, but we are confident.
Larry: The platform, we have built positions us to capture outsized opportunities over the long run.
Larry: As I have said before, periods of uncertainty reveal true strength. Gigacloud is resilient, adaptable, and experienced. The efficiency baked into our marketplace, it's precisely what help us and our partners navigate whatever comes next.
Larry: As I have said before periods of uncertainty reveal truths rent.
Larry: Google Cloud is resilient adaptable and the experienced.
Larry: The efficiency baked into our marketplace, it's precisely what help us and our partners navigate whatever comes next.
Iman: Now I will give the microphone to Iman to provide operational update. Thank you, Larry. I am pleased to share that our marketplace continues to grow, even as we work through current headwinds. For the trailing 12 months ended March 31, 2025, Gigacloud Marketplace GMV grew more than 56% to $1.4 billion as buyers and sellers of large parcel merchandise took advantage of the flexibility and efficiencies offered by our SFR business. Our active 3P seller base grew more than 33% to 1,154. While GMV from this base increased 50% year over year to $734 million on the trailing 12 month basis.
Martin: Now I will give the microphone to Martin to provide operational updates.
Martin: Thank you Larry I am pleased to share that our marketplace continues to grow even as we work through current headwinds for the trailing 12 months ended March 31, 2025, Giga cloud marketplace <unk> grew more than 56% to $1 4 billion as.
Martin: As buyers and sellers of large parcel merchandize took advantage of the flexibility and efficiencies offered by our <unk> business model.
Martin: Our active seller base grew more than 33% to 1100 54, while <unk> from this space increased 50% year over year to $734 million on a trailing 12 month basis <unk> sellers currently account for about 52% of our total marketplace GMB.
Iman: 3P sellers currently account for about 52% of our total marketplace Our buyer base is nearing 10,000 for the first time, growing more than 81% year over year. We again saw a small reduction in average buyer spend as we continue to onboard a large number of buyers who, as you are aware, generally start on our platform, trading with lower volumes and learning and testing. As Larry mentioned, we're driving ongoing momentum in Europe as a result of our focus on diversifying our business. GMB in this region grew over 80% for the first quarter. Looking ahead, we're doubling down on Europe.
Martin: Our buyer base is nearly 10000 for the first time growing more than 81% year over year. We again saw a small reduction in average buyer spend as we continue to onboard a large number of buyers who as you are aware generally start on our platform trading with lower volumes and learning and testing.
Martin: As Larry mentioned are driving ongoing momentum in Europe as a result of our focus on diversifying our business <unk> in this region grew over 80% for the first quarter. Looking ahead, we're doubling down on Europe. The fulfillment center. We opened earlier this year in Bremen, Germany has strengthened our regional fulfillment footprint.
Iman: The Fulfillment Center we opened earlier this year in Bremen, Germany, has strengthened our regional fulfillment footprint that supports our growth initiatives across continental markets. At the same time, the evolving tariff landscape is encouraging many buyers and sellers to diversify their sourcing and sales channels, and we're well positioned to meet the demand. We're continuing to make progress on the Noble House integration. As a reminder, last quarter, we began phase three, which is all about refreshing the catalog to retire the underperforming SKUs and replace them with successful new ones. In the first quarter, we phased out over 400 legacy SKUs and launched more than 300 new ones, helping us keep the assortment fresh while improving inventory efficiency.
Martin: That supports our growth initiatives across continental markets at the same time, the evolving tariff landscape is encouraging many buyers and sellers to diversify their sourcing and sales channels and we are well positioned to meet the demand.
Martin: We're continuing to make progress on de Novo House integration as a reminder, last quarter, we began phase III, which is all about refreshing the catalog to retire the underperforming skus and replace them with successful new ones in the first quarter, we phase out over 400 legacy Skus and launched more than 300, new ones helping.
Martin: Keep the assortment fresh while improving inventory efficiency looking ahead, we have approximately 600 Skus currently in development Rollouts planned over the next two quarters.
Iman: Looking ahead, we have approximately 600 SKUs currently in development with rollouts planned over the next two quarters. This constant cycle of product development is critical to the long-term business health. The new SKUs we introduced this quarter are encouraged by the initial feedback from our partners. That said, given how early we are in the process, sales volume from these SKUs are still relatively low and will take time to scale. In general, three to six months are needed for each SKU to ramp up to healthy sales levels. As the catalog continues to evolve and adoption builds, we aim to begin phase four of the integration towards the end of this year, which will focus on driving margin expansion across the channel.
Martin: This constant cycle of product development is critical to the long term business health.
Martin: The new Skus, we introduced this quarter are encouraged by the initial feedback from our partners.
Martin: And then how early we are in the process sales volume from these skus are still relatively low and we will take time to scale in general three to six months are needed for each SKU to ramp up to healthy sales levels.
Martin: As the catalog continues to evolve and adoption builds we aimed to begin phase four of the integration towards the end of this year, which will focus on driving margin expansion across the channels.
Iman: Since rebranding and launching our Wonder app, we've been focused on refining the experience through a closed beta phase. While it's still early, we're encouraged by the initial traction. As we continue collecting user insights and advancing development, we look forward to broadening access and sharing further updates in the coming quarters ahead. Importantly, not only is this app ideal for retail stores that are seeking a more efficient method to manage their sales teams, but it also provides suppliers a direct line into retail sales activity, enabling better engagement and outcomes at the point of sale. The app is another example of our innovation as we continue to bring added transparency and efficiency into the supply chain.
Martin: Since rebranding and launching our one their app, we've been focused on refining the experience through a closed beta phase while it is still early we are encouraged by the initial traction as we continue collecting user insights and advancing development. We look forward to broadening access and sharing further updates in the coming quarters ahead.
Martin: Importantly, not only is this app ideal for retail stores that are seeking a more efficient method to manage their sales teams, but it also provides supplier has a direct line into retail sales activity, enabling better engagement and outcomes at the point of sale.
Martin: The App is another example.
Martin: Our innovation as we continue to bring transparency and efficiency into the supply chain.
Iman: On the Bass front, we're excited to welcome Scott Living, the well recognized and beloved home brand from Jonathan and Drew Scott, better known as the Scott Brothers, and widely recognized from their hit television series, Property Brothers. Their trusted brand presence and strong consumer following brings significant value to our platform and aligns well with our growth strategy. As a reminder, under the Bass program, marketplace sellers are able to sell and distribute select Christopher Knight's home and Scott Living branded products via a per SKU approval process. Gigacloud oversees product development, quality control, brand management, fulfillment, and promotional support, ensuring that all branded products meet and exceed industry standards.
Martin: On the bass front, we're excited to welcome Scott living the well recognized and beloved home brand from Jonathan and drew Scott that are known as the Scott brothers and widely recognized from their hit television series property brothers there.
Martin: Our trusted brand presence and strong consumer following brings significant value to our platform and aligns well with our growth strategy.
As a reminder, under the <unk> program marketplace sellers are able to sell and distribute select Christopher Knight home and Scott living branded products via a per SKU approval process Giga cloud overseas product development quality control brand management fulfillment and promotional support ensuring that.
Martin: All branded products meet and exceed industry standards.
Iman: Thank you again for joining us today.
Speaker Change: You again for joining us today, I'll turn things over to Erik for the discussion of our financials.
Erica: I'll turn things over to Erica for the discussion of our financials in the first quarter.
Martin: First quarter.
Erik: Thank you, Mike and good afternoon, everyone.
Erica: Thank you, Iman, and good afternoon, everyone. Before I jump into our results, please note that all figures I'll be discussing today have been rounded and comparisons are made against the prior year period unless otherwise stated. Let's dive into this quarter's results. Total revenues grew 8% to $272 million, mainly due to increased market recognition and the growth of our Gigacloud marketplace. Let's take a deeper look starting with service sales. service revenue grew by approximately 23% year over year to $94 million in Q1 2025, driven by continued growing demand from our existing and new customers. Service gross margins was 15.9%, a 3.5% decrease sequentially, primarily due to lowered ocean freight rates and lower last mile delivery prices.
Erik: Before I jump into our results. Please note that all figures I will be discussing today have been rounded.
Erik: And comparisons are made against the prior year period, unless otherwise stated.
Erik: Let's dive into this quarter's results.
Erik: Total revenues grew 8% to $272 million, mainly due to increased market recognition and the growth of our giga cloud marketplace.
Erik: Let's take a deeper look starting with service sales.
Erik: Service revenue grew by approximately 23% year over year to $94 million in Q1 2025.
Erik: And by continued growing demand from our existing and new customers.
Erik: Service gross margin was 15, 9%.
Erik: Three 5% decrease sequentially.
Erik: Merrily due to lowered ocean freight rates and lower last mile delivery pricing.
Erica: As we discussed in the last earnings call, our fixed-rate ocean contracts gives us an advantage during times of high ocean pressure. As prices continue to come down and normalize during the first quarter of 2025, we stop seeing this kind of arbitrage margin. Compared to prior year, we have also began pricing more competitively on the last mile delivery front, starting Q1 2025, as we position for long term growth.
Erik: As we discussed in the last earnings call, our fixed rate Ocean contracts gives us an advantage during times of high Ocean freight.
Erik: If prices continue to come down and normalize during the first quarter of 2025, we start seeing this kind of arbitrage margin.
Compared to prior year, we have also began pricing more competitively on the last mile delivery front, starting Q1 2025, as we position for long term growth.
Erik: Moving on to product sales.
Erica: Moving on to product sales. Global product revenue grew by approximately 2% year over year to $178 million for the quarter. We saw robust growth in key international markets led by Europe, which grew by over 70% year over year. Product revenue growth in our international markets was partially offset by the expected year-over-year decrease in our domestic U.S. market. We saw a 17% year-over-year domestic decrease, which was a result of the controlled contraction associated with refreshing the Noble House product catalog, persistent industry headwinds in the U.S., and softness seen in some of our downstream partner channels. We expect to see this trend carry forward into the next quarter as we continue to deepen our presence in the European markets and execute on phase three of the noble house integration plan and the domestic US market.
Erik: Global product revenue grew by approximately 2% year over year to $178 million for the quarter.
Erik: We saw robust growth in key international markets led by Europe, which grew by over 70% year over year.
Erik: Product revenue growth in our international markets was partially offset by the expected year over year decrease in our domestic U S markets.
Erik: A 17% year over year domestic decrease.
Erik: Which was a result of the controlled contraction associated with refreshing the noble house product catalog.
Erik: Persistent industry headwinds in the U S.
Erik: And softness seen in some of our downstream partner channels.
Erik: We expect to see this trend carry forward into the next quarter as we continue to deepen our presence in the European markets and execute on phase III of the Novo House integration plan and the domestic U S market.
Erik: Product margin improved by 4% sequentially to 27, 4%.
Erica: product margin improved by 4% sequentially to 27.4%. The improvement is attributable to improved costing of goods sold during the first quarter. As we discussed during our last call, high capitalized cost goods procured during the peak of high ocean freights in 2024 had compressed our Q4 product margin. As we had less of these goods left to move through during Q1 of 2025, product margins have correspondingly seen recovery. In addition, as we move away from the holiday season surcharges, ground delivery fees have also decreased, resulting in improved margins. Overall, our growth margins was 23.4% for Q1 2025, a sequential improvement of 1.4% from the fourth quarter of 2024.
Erik: The improvement is attributable to improved costing of goods sold during the first quarter.
Erik: As we discussed during our last call high capitalized cost goods procure during the peak of high Ocean freight in 2024 had compressed our Q4 product margins.
Erik: As we had less of these goods left to move through during Q1 of 2025 product margins have correspondingly seen recovery.
Erik: In addition, as we move away from the holiday season surcharges ground delivery fees have also decreased resulting in improved margins.
Erik: Overall, our gross margin was 23, 4% for Q1 2025.
Erik: Sequential improvement of one 4% from the fourth quarter of 2024.
Total operating expenses was 13% of total revenue largely in line with last quarter and last year quarter.
Erica: Total operating expenses was 13% of total revenue. largely in line with last quarter and last year quarter. Breaking that down, we saw slightly higher selling and marketing expenses at 6.8% of total revenue compared to 6.1% and 5.8% in prior quarter and prior year quarter, respectively, as we saw higher off platform to see sales as a percentage of total revenue this quarter. G&A expenses fell to 5.3% of total revenue from 6% as we continue to focus on gaining efficiency as we grow. Net income for the first quarter was $27 million at 10% compared to 10.8% in the prior year period.
Erik: Breaking that down we saw slightly higher selling and marketing expenses at six 8% of total revenue compared to six 1% and five 8% in prior quarter and prior year quarter, respectively. As we saw higher off platform to see sales as a percentage of total revenue this quarter.
Erik: G&A expenses fell to five 3% of total revenue from 6% as we continue to focus on gaining efficiency as we grow.
Erik: Net income for the first quarter was $27 million at 10% compared to 10, 8% in the prior year period.
Erik: We ended the quarter with liquidity of approximately $288 million, which is inclusive of cash cash equivalents restricted cash and short term investments, which is down slightly from $303 million at the end of last year, mainly due to the repurchase of our stock.
Erica: We ended the quarter with liquidity of approximately $288 million, which is inclusive of cash, cash equivalents, restricted cash, and short term investment. which is down slightly from $303 million at the end of last year, mainly due to the repurchase of our stock.
Erik: Back in September 2024, our board authorized a program of $46 million, which was subsequently increased to $62 million. This past March.
Erica: Back in September 2024, our board authorized a program of $46 million, which was subsequently increased to $62 million this past March. We've been active under this program, and to date, we have repurchased approximately 3.7 million shares for approximately $61.8 million. We plan on retiring all shares repurchased.
Erik: We have been active under this program and to date, we have repurchased approximately three 7 million shares for approximately $61 8 million.
Erik: We plan on retiring all shares repurchased.
Erik: Turning to our outlook for the second quarter.
Erica: Turning to our Outlook for the second quarter. We expect total revenue to be between $275 million and $305 million.
Erik: We expect total revenue to be between $275 million and $305 million.
Erik: Thank you again for your continued support and for joining us today.
Erica: Thank you again for your continued support and for joining us today.
Operator: Operator, we're now ready to take questions from the line. Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question.
Erik: Operator, we're now ready to take questions from the line.
Erik: Thank you.
Erik: To ask a question. Please press star one on your telephone and wait for your name to be announced if you wish to cancel your request. Please press star two if.
Erik: If you're on a speaker phone please pick up the handset to ask your question.
Ryan Meyers: Your first question comes from Ryan Meyers with Lake Street. Please go ahead.
Ryan Meyers: Your first question comes from Ryan Meyers with Lake Street. Please go ahead. Hey guys, thank you for taking my questions. First one for me, I just kind of want to unpack the quarter results a little bit more, you know, results obviously came in a little bit ahead of what your expectations were back when you gave guidance on the fourth quarter call. So just wondering, you know, what you saw that ended up driving the results ahead of expectations. Thanks, Ryan.
Ryan Meyers: Hey, guys. Thank you for taking my questions.
Ryan Meyers: First one for me I, just kind of want to unpack the quarter results a little bit more results. Obviously came in a little bit ahead of what your expectations were back when you gave guidance on our fourth quarter call. So just wondering what you saw that ended up driving the results ahead of expectations.
Thanks, Brian.
Unknown Executive: I think it was a combination of things. Mostly, I think we saw very strong growth on the on our service side, and also Europe. Those are kind of our two big kind of shining points for the first quarter. Okay, got it.
Ryan Meyers: I think it was a combination of things.
Ryan Meyers: Mostly I think we saw very strong growth on the.
Ryan Meyers: On our service side and also Europe. Those are kind of are to date kind of shining points for the first quarter.
Ryan Meyers: Okay got it and then if we think about the sequential gross margin improvement that you saw from the fourth quarter into the first quarter. You know maybe how should we think about that here in the second quarter. What you guys are seeing already as you roll out some of those under profitable Skus and we expect to see gross margin expansion.
Unknown Executive: And then, you know, if we think about the sequential gross margin improvement that you saw from the fourth quarter into the first quarter, you know, maybe how should we think about that here in the second quarter, what you guys are seeing already as you, you know, roll out some of those under profitable skews, could we expect to see a gross margin expansion or what the biggest hit on that kind of skew rationalization come here in the second quarter? Great question. Unfortunately, I don't think we're able to say for sure what will happen for Q2. As you know, the environment, it's been very interesting with all the changes, right.
Ryan Meyers: Or will the biggest hit on that.
On a SKU rationalization come here in the second quarter.
Ryan Meyers: Great question. Unfortunately, I don't think we're able to say for sure what will happen for Q2 as you know the the environment. It's been very interesting with all the changes right and this is kind of caused a wide range of different reactions from different players in.
Unknown Executive: And this is kind of caused a wide range of different reactions from different players in the entire supply chain. So I don't think at this point we have enough clarity.
Ryan Meyers: The entire supply chain so.
Ryan Meyers: Don't think at this point, we have enough clarity and specifically.
Unknown Executive: And specifically, on the point you made regarding noble house, so I do want to throw in a reminder here. Yes, we are seeing very good feedback during this initial rollout of the new SKUs, but usually it takes us a bit of time for new SKUs to develop kind of a higher level or healthier level of sales. The typical time required is three to six months. What I'm trying to say is for us to see meaningful margin impact, that would typically be the amount of time needed. Okay, got it. So we probably wouldn't expect to see that quite yet.
Ryan Meyers: On the point you made regarding noble house, so I do want to throw in a reminder, here. Yes. We are seeing very good feedback. During this initial rollout of the new skus, but usually it takes us a bit of time for new Skus to.
Develop kind of.
Ryan Meyers: A higher level, a healthier level of sales the typical time required a three to six months.
Ryan Meyers: What I'm trying to say is for us to see meaningful margin impact that would typically be the amount of time needed.
Ryan Meyers: Okay got it so we probably wouldn't expect to see that quite yet.
Unknown Executive: Awesome. Sounds good. Thank you for taking my questions. Correct. Of course.
Sounds good thank you for taking my questions correct.
Ryan Meyers: Of course.
Speaker Change: Your next question comes from Tom Forte with Maxim Group. Please go ahead.
Tom Forte: Your next question comes from Tom Forte with Maxim Group. Please go ahead. Great.
Ryan Meyers: Yeah.
Tom Forte: Great. So.
Tom Forte: First off, Larry, Iman, Erica, congrats on the quarter. I have four. I'll go one at a time.
First off Larry a mine Erika congrats on the quarter.
Speaker Change: For I'll go one at a time.
Tom Forte: You touched on this in your prepared remarks, but I was hoping you could give a little bit of a longer answer. How should we think about the ability of your marketplace to empower buyers and sellers to sell in markets outside the U.S., such as Europe? Hey, Tom, thanks for the question. So I think the marketplace can be helpful in a few ways. First off, we offer flexibility and reach, right? So let's say a seller who didn't traditionally operate in Europe is looking to grow into that market. They would need a lot of support in terms of, for example, logistics.
Speaker Change: You touched on this in your prepared remarks, but I was hoping you can give a little bit of a longer answer how should we think about the ability of your marketplace to empower buyers and sellers to sell in markets outside the U S such as Europe.
Tom Forte: Hey, Tom Thanks for the question.
Speaker Change: So I think the marketplace can be helpful. In a few ways.
Speaker Change: First off we offer flexibility and reach right. So let's say.
Speaker Change: A seller who didn't traditionally operate in Europe.
Speaker Change: Is looking to grow into that market. They would need a lot of support in terms of for example, logistics and those are obviously, if you were to do it on your own quite a bit of a capital investment right.
Tom Forte: And those are obviously, if you were to do it on your own, quite a bit of a capital investment, right? The Gigacloud model offers reach and a lot of flexibility, meaning it's a pay as you go, use as you go.
Speaker Change: The Giga cloud model offers reach and a lot of flexibility, meaning it's a pay as you go use as you go.
Speaker Change: Kind of model. So this changes with or the seller could use this with a lot of flexibility based on how the market is responding to their products, how they were doing et cetera.
Tom Forte: Kwok Lau, Lei Wu, Iman Schrock, Erica Wei, Gigacloud Tech Okay, and then Erica, my next question. All right, can you explain how tariffs may translate into higher prices? I think there's a common misconception that 100% tariff, for example, results in 100% price increase, when in fact, there's a lot of costs that are not impacted by tariffs. Correct. So I don't think 100% tariff would translate dollar for dollar or into a direct 100% increase for the end consumer, right? Because tariffs are only applied on the value of the goods, not the all of the cost of the seller, which includes a wide variety of things such as, you know, warehousing, ground shipping, picking and packing.
Speaker Change: Okay and then Eric on my next question can you explain how tariffs may translate into higher prices I think there is a common misconception that 100% tariff. For example results are 100% price increases were in fact theres a lot of costs that are not impacted by tariffs.
Speaker Change: Yeah.
Speaker Change: Correct.
Speaker Change: I think 100% tariff would translate dollar for dollar or into a direct.
Speaker Change: 100% increase for the end consumer right because terrorists.
Speaker Change: Our only.
Speaker Change: Applied on the value of the goods not the all of the cost of the seller, which includes a wide variety of things such as warehousing.
Speaker Change: Round shipping picking and packing.
Speaker Change: Okay and then for my next one.
Tom Forte: Okay, and then for my next one... Yes.
Speaker Change: Yes.
Tom Forte: So can you talk about your interest in entering new categories? I think there was a point in time when you were considering expanding into auto parts as an example. Also, we do already have auto parts on our marketplace. So, our marketplace, I know most folks when they think of us, they think furniture, but really the marketplace is designed for products that are big and bulky and non-standardized. Those are kind of the two key words the entire system and SFR model is built around. So, as of today, furniture is definitely our biggest category, but we do have a lot of sellers that are working with a wide range of different products.
Speaker Change: So can you talk about your interest in entering new categories. I think there is a point in time when you were considering expanding in the auto parts as an example.
Speaker Change: Okay.
Speaker Change: Also we do already have auto parts on our marketplace.
Speaker Change: Our marketplace I know most folks when they think of us they think furniture.
Speaker Change: But really the marketplace is designed for.
Speaker Change: Products that are big and bulky and non standardized those are kind of the two keywords the entire system and FSFR model is built around so as of today.
Speaker Change: Furniture is definitely our biggest category, but we do have a lot of sellers that are working with a wide range of different products. So auto parts. Like you said just now is one of them. There is also a fitness equipment larger toys certain.
Tom Forte: So, auto parts, like you said just now, is one of them. There's also fitness equipment, larger toys, certain gardening tools, think, you know, your bigger ones like lawnmowers and such, and different pet supplies, cat trees, larger dog houses, etc., and various, you know, other materials such as bathtubs. There's a wide range of them.
Speaker Change: Gardening tools think bigger ones like lawnmowers and such.
Speaker Change: And different pet supplies cat trees larger dog houses et cetera.
Speaker Change: And various.
Speaker Change: Other materials, such as bathtubs, Theres, a wide range of them.
Speaker Change: Okay and then my last question. Thanks for taking my question can you give your current thoughts on strategic M&A and the types of assets are considered.
Tom Forte: Okay, and then my last question. Thanks for taking my question.
Tom Forte: Can you give your current thoughts on strategic M&A and the types of assets you're considering? Yes, so I think we've talked about this before, but this is definitely a category, an area we're very interested in. So, and right now is a very interesting time that might prove to have some very attractive opportunities for us. And they usually, they mostly surround, are around a few topics. So the first one is obviously Europe. We're growing very quickly here, and with everything that's been going on, we're getting even more interest from our customer base in expanding into Europe, if they're not already there.
Speaker Change: Yes.
Speaker Change: So I think we've talked about this before but this is definitely a category an area. We're very interested in so and right. Now is a very interesting time that might prove to have some very attractive opportunities for us and they usually they mostly surrounding.
Speaker Change: Our around a few topics. So the first one is obviously Europe, we're growing very quickly here and with everything that's been going on we're getting even more interest from our customer base in expanding into Europe, if they're not already there and we would like our infrastructure to be growing.
Tom Forte: And we would like our infrastructure to be growing at a pace that's sufficient to support that effectively. So anything that fits that bill, we're interested.
Speaker Change: At a pace that's sufficient to support that effectively so anything that fits that bill we're interested.
Speaker Change: The other one is kind of our long term.
Tom Forte: The other one is kind of our long-term, aligns with our long-term strategy in terms of better servicing the brick-and-mortar space that could come in different ways. For example, technology that helps us better understand and serve that customer base. WonderSign is a good example here, or other sort of channels or connections would also be appealing.
Speaker Change: Aligned with our long term strategy in terms of that are servicing the brick and mortar space that could come in in different ways for example, techs.
Speaker Change: Technology that helps us better understand and serve that customer base <unk> is a good example here.
Speaker Change: Or other sort of channels, where connections would also be appealing.
Speaker Change: Great. Thank you.
Tom Forte: Great, thank you.
Speaker Change: Once again, if you wish to ask a question. Please press star one on your telephone and wait for your name to be announced.
Operator: Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced.
Speaker Change: Your next question comes from Matt Koranda with Roth. Please go ahead.
Matt Koranda: Your next question comes from Matt Koranda with Ross. Please go ahead. Hey guys, just wanted to make sure I understood that.
Matt Koranda: Hey, guys.
Matt Koranda: Just wanted to make sure I understood. The did you guys reclassify some product revenues from last year and the service revenue I just wanted to make sure I understand what's happening with the segment comparisons on a year over year basis that you gave.
Matt Koranda: Did you guys reclassify some product revenues from last year into service revenue? I just wanted to make sure I understand what's happening with the segment comparisons on a year over year basis that you gave. Hey, Matt. Yes, that's right. Yes, we did. So if you go into our footnote, we have a kind of a detailed discussion there. But we can go over that again as well. So we used to when we sell a product as part of our 1P operations, the customer has the option of selecting if they want to use their own delivery services aka a will call or having Gigacloud deliver it to the designated location as required by customer.
Hey, Matt, Yes, that's right, yes, we did so if you go into our footnote we have kind of a detailed.
Matt Koranda: <unk> discussion there, but we can go over that again as well so.
We used to when we sell a product as part of our <unk> operations.
Matt Koranda: The customer has the option of selecting if they want to use their own delivery services, AK will call or having giga cloud deliver it to the designated location as required by customer. So historically, we have made the election to report the two parts as one.
Matt Koranda: So historically we have made the election to report the two parts as one under product revenue under US GAAP.
Matt Koranda: Under product revenue under U S GAAP.
Matt Koranda: So as of late or as of Q1 2025 we are now reporting the two separately and we have accordingly retrospectively adjusted 2024 financials to make the comparables still relevant. So we think this is a better method because it provides more transparency and breaks down the different components with more detail and also this is related to a recent platform upgrade that gives the customer or the buyer a little more flexibility. They don't have to decide which type of whose delivery service to use on the spot. It's a decision they can make and change after the fact whenever they like.
As of late.
Or as of Q1 2025, we are now reporting the two separately and we have accordingly retrospectively adjusted 2020 for financials to make the comparable is still relevant. So we think this is a better method.
Matt Koranda: Because it provides more transparency and breaks down the different components with more detail and also this is related to a recent platform upgrades that gives the customer or the buyer a little more flexibility. They don't have to decide which type of Oh, whose delivery service to use on the spot. It's a decision they can make and chain.
Matt Koranda: <unk> after the fact whenever they like.
Matt Koranda: Okay.
Matt Koranda: Okay, got it. All right, I'll take a look in more detail. And then just want to make sure I understand sort of the trend that we're implying in the guidance. So the first quarter, there was some growth on a year-over-year basis. But we're guiding at least at the midpoint for the second quarter to a sequential deceleration in revenue and looks like maybe negative on a year-over-year basis, if I just use the midpoint of the range. What is the, I guess, what's the missing piece here in terms of what causes that deceleration in year-over-year growth in the second quarter?
Matt Koranda: Got it.
Matt Koranda: You can look in more detail and then.
Matt Koranda: Just want to make sure I understand sort of the trend that we're implying in the guidance. So.
The first quarter, there was some growth on a year over year basis.
Matt Koranda: But we're guiding at least at the midpoint for the second quarter to a sequential deceleration in revenue and it looks like may be negative on a year over year basis, if I just use the midpoint of the range.
Speaker Change: What is the I guess, what's the missing piece here.
Matt Koranda: In terms of what causes that deceleration.
Speaker Change: And year over year growth in the second quarter.
Unknown Executive: You mean, so Q2 this year compared to Q2 last year, the main difference is going to be Noble House, right? So we had a really good quarter last year because summer has traditionally always been Noble House's strongest quarter. It has a kind of very strong edge in outdoors products. So this year, because we're in phase three of the integration plan and we're switching out a lot of the old SKUs, even though the new SKUs are showing good results so far, we do need more time to ramp up volume. That's kind of the biggest delta we have there.
Speaker Change: You mean, so Q2 this year compared to Q2 last year. The main difference is going to be noble house right. So we had a really good quarter last here.
Because summer has traditionally always been noble house's strongest quarter. It has a kind of very strong engine outdoors products.
Speaker Change: This year, because we're in phase III of the integration plan and we are switching out a lot of the old skus.
Even though the new Skus are showing good results. So far we do need more time to ramp up volume that's kind of the biggest delta we have there.
Speaker Change: There is also certain channels that we're seeing a little more softness in the U S. At our historically strong mobile health partners. So there's a bit of an impact from that as well.
Unknown Executive: There's also certain channels that we're seeing a little more softness in the US that are historically strong noble house partners. So there's been an impact from that as well.
Speaker Change: Okay got it.
Unknown Executive: Okay, all right. Got it. Maybe just wanted to make sure I understand what is reflected in the second quarter guidance because it's just a lot of the sort of macro news is so fresh these days. But does the second quarter outlook, I assume, takes into account the the pause between the US and China in terms of reciprocal tariffs? Great question. Thank you for asking that. So I do want to clarify. I think the impact from the pause is going to be limited in Q2 financial. So if you consider the amount of time it takes to ship something over and the natural kind of turn cycle or days in warehouse for the furniture inventory, we actually expect to see most of that impact in Q3, not Q2.
Speaker Change: Maybe just wanted to make sure I understand what is reflected in the second quarter guidance, because it's just a.
Speaker Change: Lot of the sort of macro news is so fresh these to his but does the second quarter outlook I assume it takes into account the.
Speaker Change: The pause between the U S and China in terms of reciprocal.
Speaker Change: For cyclical tariffs.
Speaker Change: Great question. Thank you for asking that so I do want to clarify.
Speaker Change: I think the impact from the pause is going to be limited in Q2 financials.
Speaker Change: So if you consider the amount of time it takes to ship something over and the natural kind of turn cycle or days and warehouse for the furniture inventory, we actually expect to see most of that impact in Q3 not Q2.
Speaker Change: Okay Alright.
Unknown Executive: Okay, all right. I'll, I'll take the rest of mine online. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Operator: That does conclude our question and answer session and our conference for today. So thank you for participating and you may now disconnect.
Speaker Change: That does conclude our question and answer session and our conference for today. Thank you for participating and you may now disconnect.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Okay.
[music].
Speaker Change: Okay.
Speaker Change: Okay.
Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Uh huh.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.