Yahoo Finance GigaCloud Technology Inc. (NASDAQ:GCT) Q3 2023 Earnings Call Transcript
GigaCloud Technology Inc. (NASDAQ:GCT) Q3 2023 Earnings Call Transcript December 5, 2023
Operator: Good day and thank you for standing by. Welcome to the GigaCloud Technology Third Quarter 2023 Earnings Call and Webcast. Joining us today from GigaCloud Technology are the company's Founder, Chairman and CEO, Larry Wu, the company's President, Dr. Iman Schrock, and the company's Chief Financial Officer, David Lau. On today's call, Imran will give an overview of the company's performance and details of the company's operational results, and David will share the company's financial results. After that, we'll conduct a question and answer session. [Operator Instructions]. As a reminder, this conference contains statements about future events and expectations which are forward-looking in nature. Statements on this call may be deemed as forward-looking and actual results may differ materially.
Today's call and webcast will include non-GAAP financial measures within the meaning of the 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 the GAAP can be found on today's press release as well as on the company's website. Please note that today's conference is being recorded. I would now like to turn the conference over to our speaker, Mr. Larry Wu, Chairman and CEO. Please go ahead, sir.
Larry Wu: Thank you, operator, and thank you everyone for joining with us today. First, I want to express my gratitude to the entire Giga family for another remarkable quarter. The dedication you have shown is integral to the continued success of GigaCloud and It won't be the same without it. Since we have spoken last, GigaCloud not only posted three consecutive quarters of record-breaking results, we have also closed on two strategic acquisitions that accelerate both our growth in our B2B ecosystem as well as strengthen our penetration into brick and mortar channels. Before turning to Iman to discuss these two acquisitions in details, on a high level, we could not be more pleased with our result in the quarter, which featured an approximately 40% year-over-year increase in our total revenue, and an incredible 150% increase in our year-over-year adjusted EBITDA.
As we mentioned in our press release, this marks our third consecutive quarter of record profitability, showcasing the incredible earning potential and flexibility of our supplier fulfilled retailing business model. Keep in mind that these results are purely organic as we did not close either acquisition within the period and are result of our unwavering commitment to ensuring the success of our GigaCloud B2B marketplace participant. As Iman will speak too shortly. Our acquisition of Noble House will provide additional scale, diversity of product, supply chain enhancement [Technical Difficulty] brick and mortar market with the launch of our new GIGA IQ package. And with that, I would like to turn the call over to Iman Schrock, President of GigaCloud, for a more detailed discussion on the quarter and our two acquisitions.
Iman?
Iman Schrock: Thank you, Larry. And thanks again, everyone, for joining us. Our results this quarter speaks for itself by the appeal, the earning potentials of our supplier fulfilled retailing model, a big testament to the commitment and execution of the entire GigaCloud team. We continue to revolutionize the way of transacting big and bulky products in a cross-border landscape through our innovative technology platform and we are seeing continued momentum on this front. Before we go through some of our operational highlights for this quarter, I first wanted to discuss our two acquisitions, Noble House and Wondersign in more detail. Let's start with Noble House, which closed on October 31st for a purchase price of $85 million.
We acquired [Wonder House] (ph) through a bankruptcy process where we acquired substantially all assets in this transaction. Noble House is a leading B2B furniture distributor with over 8,000 SKUs across 100 categories covering both indoor and outdoor furniture. In addition to providing GigaCloud with an extensive network of third-party channel partners and suppliers from around the world, Noble House will provide significant warehouse expansion and synergistic cost savings for both 1P and 3P shipping volume. This additional supplier diversity and sourcing coverage will significantly strengthen our supply chain and expand our product offerings in newness and diversity, which we believe is essential to attracting new high-quality buyers and sellers to the B2B marketplace.
Further, the acquisition expands our existing network of warehouses by 2.3 million square feet serving to enhance our fulfillment infrastructure and ensure timely, accurate deliveries as well as allowing GigaCloud to expand our operations into Canada and add a new sourcing origin in India. Finally, Noble House provides relationships with top retailers including Amazon, Target, Wayfair, Lowe's, Beyond, formerly known as Overstock, and Walmart, that greatly expand the ability of our sellers to reach their target customers. Moving on, we'd like to delve deeper into the strategic acquisition of Wondersign, concluded on November 16th, for a total consideration of $10 million in cash. Wondersign, a Tampa, Florida-based innovator in cloud-powered digital signage and electronic catalog management is set to broaden GigaCloud's footprint within the physical retail sector.
This integration is pivotal in the launch of our new avant-garde GIGA IQ package. Leveraging Wondersign’s established network of over 2,500 retail locations, the GIGA IQ package is designed to offer consumers a streamlined experience to explore, select, and transact GigaCloud's diverse product offerings through our retail partners, outlets, and stores. These purchases will be processed via the physical store, with GigaCloud facilitating the order fulfillment and dropshipping process, mirroring the efficiency of our B2B marketplace operation. The intent behind acquiring Wondersign is to transition the GigaCloud marketplace into an intuitive end user oriented platform, enhancing the transactional journey for both marketplace affiliates and the retail clientele.
Together, we are confident that the acquisition of Noble House and Wondersign will enhance GigaCloud's scale, volume, and reach beyond our organic growth. These integrations aim to further accelerate our momentum, offering customers with more diverse ways to connect and transact, ultimately positioning us as a leader in global B2B landscape. Now let's walk through some of the organic operational highlights of the quarter. Our GigaCloud Marketplace GMV grew approximately 41% year-over-year to $684.8 million in the TTM period. On the seller side, the platform saw an approximate 43% year-over-year increase in active 3P sellers, which ended at 741 for the quarter. As I mentioned last quarter, we see the expansion of our 3P ecosystem as a crucial part of our platform expansion and achieving scale in our supplier fulfilled retailing model.
While we continue to devout a significant amount of time and resources into quickly vetting and onboarding new third party sellers to our platform, we also expect to see the acquisition of Noble House to add a significant number of sellers. We continue to see our 3P seller marketplace GMV growth accelerated in the third quarter, increasing 67% year-over-year to $369.5 million in the TTM period, which accounted for 54% of our total marketplace GMV in the same period. As I mentioned on our prior calls, while our 1P approach remains an integral part of our business strategy, ultimately we'll believe that the growth of our organic 3P GMV will be very important to the scaling of our business and we see positive momentum in our organic 3P growth rate continuing to drive a larger and more productive marketplace.
Moving on to the buyer side, we saw active buyers increase to 4,602 in the 12 months ended September 30, 2023, an increase of approximately 10% from the year prior period, with average spend per active buyer making a significant 28.5% jump from the year prior period to approximately $149,000. We continue to see growth in the number of high quality, high volume buyers that we seek to attract to the platform as demonstrated by the significant increase in the average buyer spend. We will continue to invest in our platform and believe there is still a long runway of organic growth that can be achieved as we penetrate new markets around the world. Clearly this was a blockbuster quarter of organic results for GigaCloud and subsequently a transformative one in the fourth quarter which we saw GigaCloud close two important acquisitions, Noble House and Wondersign.
We believe that these moves have provided GigaCloud the additional scale and the reach it's needed to position the company for success and additional market share in the near and long term. As Larry mentioned, we posted our third consecutive quarter of record profit, resulting in year-to-date net income of $58.5 million as of September 30th. Organically, we are seeing promising growth across all KPIs with the rise of approximately 41% of total GMV from comparable TTM period. Approximately 10% more active buyers than the comparable TTM period, an increase of 28.5% in average spend per active buyer over the comparable TTM. And with that, I would like to turn the call over to David Lau, CFO, for a more detailed overview of third quarter financials.
Thank you.
David Lau: Thanks, Iman. Before we discuss our financials and details, I'd like to share with you some important corporate initiatives in the quarter. First, our share repurchase program, which we had announced on June 14th of this year. Our Board of Directors had authorized a share repurchase program under which the company may purchase up to $25 million of its Class A ordinary shares in a 12-month period. I'm very pleased to share that for the launch of our share repurchase program through September 30, 2023, we have purchased approximately 215,000 Class A ordinary shares in the open market for a total price of approximately $1.6 million. With approximately $23.4 million remaining on the share repurchase authorization, we'll continue to look to repurchase shares when valuation level warrants.
Second, on a transition from a foreign private issuer, or FPI, to S-Filer status, where we'll have the same reporting and disclosure obligation as domestic companies. We're pleased to report that we're on track to transition to an S-Filer on Jan. 1, 2024, which is when GigaCloud will be subject to the same reporting disclosure and filing obligations as other S-Form issuers. Starting next year, you can expect the same cadence of filings such as 10-Ks and 10-Qs. We believe this move will continue to build confidence in the GigaCloud story, and we continue to be focused on shareholder engagement and transparency. Now I'd like to walk you through our third quarter's numbers in more detail. As Larry mentioned, I'd like to reiterate that the numbers I'll be discussing are all organic GigaCloud numbers, as neither acquisitions mentioned had closed in the period ending September 30, 2023.
Our total revenues for the third quarter were $178.2 million, which was an increase of 39.2% year-over-year and 16.4% quarter-over-quarter. Breaking this down for the third quarter, service revenue from GigaCloud 3P saw a 27.2% year-over-year increase to $51.5 million. Product revenue from GigaCloud 1P saw a 38.1% year-over-year increase to $80.4 million. Product revenue from off-platform e-commerce saw a 58% year-over-year increase to $46.3 million. These increases correspond with 40.8% year-over-year gain in total market GMV, which ended the third quarter at $684.8 million on a TTM basis. Our revenue growth is a testament of the continued adoption of our supplier fulfilled retailing business model. Moving on to our gross profit for the third quarter was $48.9 million, which was an increase of 117.3% year-over-year and resulted in gross margin of 27.4% versus 17.6% in the year prior period.
These increases in gross margin were largely a result of the continued return to normalization of ocean shipping rates from the all-time highs in the first six months of 2022. Our total operating expense for the third quarter were $17.2 million, which was a decrease of 6% year-over-year from $18.3 million. Working this down for the third quarter, selling and marketing expenses increased 61.8% year-over-year to $11 million. General and admin expenses decreased 49.6% year-over-year to $5.8 million. Research and development costs were $0.4 million in the third quarter of 2023 versus none in the third quarter of 2022. The increases were due to an increase in staff costs relating to selling and marketing personnel, an increase in platform services fee that we incurred to certain third-party e-commerce websites and system-wide technological upgrades on GigaCloud Marketplace to support the company's growth.
These were offset by the decrease in G&A expenses, which was primarily due to a decrease in share-based compensation expenses. On bottom line, our net income for the third quarter was $24.2 million, which was an increase of approximately 3,357.1% year-over-year from $0.7 million. This resulted in basic and diluted earning of -- shares of $0.59 per share versus $0.01 per share a year ago. Our share-based comp expense in the third quarter was $317,000 versus $8.9 million in the year prior. As I mentioned in our previous call, we incurred a large one-time SBC charge of $8.9 million related to our IPO in third quarter 2022. Our SBC charges will be more evenly spaced going forward, and we do not expect to see a single quarter with such an SBC to charge in that magnitude in the future.
This resulted in adjusted EBITDA for third quarter of 2023 of $29.8 million, an increase of 150.4% year-over-year from $11.9 million. Moving on to our balance sheet, we ended the third quarter with $214 million in cash, a net increase of approximately $70.5 million from the third quarter, sorry, from the quarter end of December 31, 2022, an increase of $32.5 million for the quarter ended June 30, 2023. As Iman and Larry mentioned, subsequent to the quarter, we acquired Noble House for approximately $85 million and Wondersign for approximately $10 million. Both of these acquisitions were funded exclusively with cash off our balance sheet. Finally, I want to briefly mention our financial outlook. For the fourth quarter, we're now expecting total revenues in the range of $217 million to $223 million, which will represent an approximately 75% gain over the year prior period at the midpoint.
Thank you all for joining. With that, I'd like to ask the operator to open the line for questions.
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