Yahoo Finance GigaCloud Technology Inc. (NASDAQ:GCT) Q4 2023 Earnings Call Transcript
GigaCloud Technology Inc. (NASDAQ:GCT) Q4 2023 Earnings Call Transcript March 18, 2024
GigaCloud Technology Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and thank you for standing by. Welcome to GigaCloud Technology’s fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. To ask a question during the session, you will need to press star-one-one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star-one-one again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Larry Wu, Founder and CEO. Please go ahead.
Larry Wu: Thank you Operator, and thank you everyone for joining us on the call today. 2023 and the fourth quarter in particular have marked a significant inflection point for GigaCloud, one which has changed the trajectory of the business and that we believe will change the way people think about the industry. We have jumped in order of magnitude in scale of our business and the potential of our supplier-fulfilled retail model. On the top line, we saw revenue increase to $244.7 million for the quarter, up approximately 95% period-over-period, and for the full year, revenue increased to $738 million, an increase of approximately 44% from 2022. While these are certainly impressive results, especially keeping in mind that the Noble House transaction did not close until November 1, we believe that we have still not seen the full power of our business synergy yet.
In alignment with our integration with Noble House, we have taken strategic actions to further optimize this business. This includes streamlining Noble House’s operation by divesting its direct-to-consumer online retail bridge and the manufacturing division. Additionally, we have outsourced management of returned items. These decisions served two key objectives: first, by sharpening our focus, we ensure our concentration and resources are directed towards strengthening our B2B marketplace proposition; and secondly, we want to enhance our B2B market neutrality and are committed to provide streamlined service to our buyers and sellers of the marketplace. Before passing it over to Iman to discuss our operational highlights, I want to remind everyone that you will see our first 10-K filed within the month.
This year will represent our first year as an S-1 filer. We believe this is an important step to gain broader access to the international capital markets and are pleased to have completed this transition in a timely fashion. Going forward, GigaCloud will have the same reporting disclosure and filing obligations as other S-1 issuers, and you can expect the same cadence of filings, such as 10-Q and 10-K, as you would from any domestic NASDAQ-listed company. With that, I would like to turn the call over to Iman.
Iman Shrock: Thank you Larry, and thanks again to everyone for joining us. Our mission here at GigaCloud is to revolutionize the way suppliers and resellers manage big and bulky items. Our B2B marketplace streamlines the entire process, offering a seamless end-to-end experience, and the successful integration of Noble House and Wondersign fuels this transformation. Through the integration of Noble House, we’ve expanded our sourcing origin to India and our operations into Canada with a warehouse in Milton, Ontario in what we believe will be a strategic move to open our marketplace to even more buyers. We have also already on-boarded some Noble House customers onto our B2B marketplace as buyers and will continue to recruit both suppliers and new buyers from the existing Noble House base of business.
Finally, the financial plan for Noble House remains on track with a minimal net loss in the fourth quarter, positioning us favorably to achieve our goal of breakeven by the end of 2024 and profitability within six quarters. Clearly, we have made tremendous progress in our integration and execution plan we laid out for these acquisitions, which push GigaCloud further into a full service end-to-end B2B solution provider in the big and bulky landscape. Our Wondersign acquisition was a strategic entry into the brick and mortar space and has allowed us to begin work on the Giga IQ package, which will facilitate the seamless integration between retail systems and our constantly expanding B2B digital catalog for a more customer-friendly, streamlined and optimized transaction process.
The beauty of the Wondersign integration and the future rollout of the Giga IQ package as the business model on the GigaCloud side will remain similar, taking an order from the reseller and delivering through our supplier-fulfilled retailing model directly to the end consumer. This model opens up opportunity for GigaCloud marketplace to on-board new retailers. The integration of Wondersign and the development of our Giga IQ package is a testament to our excellent technology and R&D, primarily our in-house team of approximately 300 employees contributing to our R&D functions, including development of our proprietary cloud warehousing, collection of data and analytics, and the design, development and testing of our GigaCloud marketplace. I also wanted to mention our addition of three new global 3P sellers with product origins in Mexico, Colombia and Turkey, which we announced in February.
We are committed to continuously expanding our supplier network. This strategic approach diversifies our product portfolio and fosters supply chain redundancy, ensuring our buyers have uninterrupted access to products in a timely manner. Now let’s walk through some operational highlights for the period ending December 31, 2023. Our GigaCloud marketplace GMV grew approximately 53% year-over-year to $794.4 million in the TTM period. On the seller side, the platform saw an approximately 46% increase in active 3P sellers, which ended at 815 for the quarter. As I’ve mentioned in the past, we see the expansion of our 3P ecosystems as a crucial aspect of our platform expansion and achieving scale in our supplier-fulfilled retailing model. While we continue to devote a significant amount of time and resources into quickly vetting and on-boarding new 3P sellers to our platform, we expect to see our acquisition and integration of Noble House continually to incrementally add a number of sellers to this number.
We see our 3P seller marketplace GMV increase dramatically in the quarter, increasing approximately 65% year-over-year to $426.3 million in the TTM period. Overall, this accounted for approximately 54% of our total marketplace GMV in the same period. As I’ve mentioned on our prior calls, while our 1P approach remains an integral part of our business strategy, ultimately we 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, more productive marketplace. On the buyer side, we saw active buyers increase to over 5,000 in the 12 month prior period, an increase of approximately 21% from the year prior with average spend per active buyer accelerating 27% to approximately $159,000.
This further demonstrates that we’ve been successful in attracting the type of high quality seller we want on our platform. Finally, I want to briefly mention the incident in one of our Japanese warehouses. First and foremost, there were no injuries to GigaCloud employees, contractors, or anyone else in the incident. The safety and the wellbeing of our people is paramount, and we are thankful for this outcome. In terms of business impact, we have direct insurance coverage for our 1P inventory involved in the incident. While we believe the facts are still developing, we have three other warehouses in Japan and we have a plan in place to minimize any disruption to business in the region. We believe this situation is well in hand; however, we will update the market as necessary, should there be a material change in status.
Finally, I could not be more pleased with our results for the quarter and the year, and I am incredibly proud of our entire GigaCloud family, including those who recently joined from Noble House and Wondersign from all over the world. Our financial results were incredibly strong, including revenue for the quarter up approximately 95%. We are making excellent progress on the integration of Noble House and Wondersign with selective Noble House SKUs to be available on our marketplace starting today. We completed our transition to S filer, giving investors additional visibility into business and a consistent filing cadence. We expanded our warehouse footprint by over 100%, ending the year with 8.2 million square feet of inventory space across 33 warehouses globally.
We are seeing tremendous gain in our operational KPIs with our active buyer spend increasing over 27% and the buyer base increasing over 20%. With that, I would like to turn the call over to David for a more detailed review of our financials. David?
David Lau: Thanks Iman. I will now walk through our fourth quarter and full year numbers in more detail. Our total revenues for the fourth quarter were $244.7 million, which was an increase of 94.8% year-over-year and approximately 37.3% sequentially. On a full year basis, we generated $703.8 million, a 43.6% increase versus the year prior period. Breaking this down for just the fourth quarter, service revenue from GigaCloud 3P saw a 92% year-over-year increase to 69.3 million. Product revenue from GigaCloud 1P saw a 50.9% year-over-year increase to $88.3 million, and product revenue from off-platform ecommerce saw a 179.7% year-over-year increase to $87 million. These increases correspond with a 53.3% year-over-year increase in total GigaCloud marketplace GMV, which ended the full year at $794.4 million on a TTM basis.
Our gross profit for the fourth quarter was $69.8 million, which was an increase of 161.4% year-over-year and resulted in gross margin of 28.5% versus 21.2% in the year prior period. On a full year basis, gross profit increased by 127% to $188.6 million, which resulted in a gross margin of 26.8% versus 17% in the year prior period. I also wanted to briefly touch upon ocean shipping rate fluctuations. The Red Sea incidents mostly affect routes from Asia into Europe, which is still a small part of our volume compared to the United States. We are already seeing the increased shipping rates from the most recent Red Sea incident starting to come down and we’re currently in the process of negotiating an attractive fixed price contract for a sizeable portion of our shipping volume to soften the effect of these incidents going forward.
Our cost of revenue in the fourth quarter of 2023 was $174.9 million, an increase of 76.8% from $98.9 million in the fourth quarter of ’22. On a full year basis, cost of revenues in ’23 were $515.2 million, an increase of 26.6% from $407 million in 2022. Our total operating expense for the fourth quarter was $32.7 million, which was an increase of 181.9% year-over-year from $11.6 million. On a full year basis, total operating expenses were $78.6 million, which was an increase of 63.4% from $48.1 million in the year prior period. Breaking this down for just the fourth quarter, selling and marketing expenses increased 122.2% year-over-year to $14 million. General and admin expense increased 235.9% year-over-year to $13.1 million. R&D costs were $2.3 million in the fourth quarter of ’23, an increase of 64.3% from fourth quarter of 2022.
The increases were due to staff costs related to selling and marketing personnel, an increase in platform service fees for certain third party ecommerce websites, and system-wide technological upgrades on GigaCloud marketplace. I also want to mention that we have not fully realized the cost synergies from Noble House at this time. We continue to expect realization of these synergies to occur throughout the year. On the bottom line, our net income for the fourth quarter was $35.6 million, which was an increase of approximately 184.8% year-over-year from $12.5 million. This resulted in basic and diluted earnings per share of $0.87 versus $0.31 in the year ago period. On a full year basis, net income was $94.1 million for the period ending December 31, 2023, resulting in basic and diluted earnings per share of $2.31 and $2.30, versus net income of $24 million the year prior period, which resulted in basic and diluted earnings per share of $0.60.
This resulted in adjusted EBITDA for the fourth quarter of ’23 of $43.8 million, an increase of 188.2% year-over-year from $15.2 million. On a full year basis, we generated an adjusted EBITDA of $108.3 million, an increase of 183% compared to $41.8 million in the year prior period. Moving onto our balance sheet, we ended the fourth quarter with $183.3 million in cash on balance sheet, a net increase of approximately $40 million from the quarter ended December 31. I also want to mention that we currently have no outstanding borrowings and are debt-free. We do have a large non-current liability that’s related to our warehouse lease. As we mentioned in our investor deck, we provided favorable cash on delivery terms for several Noble House suppliers which were facing difficulties in the first quarter.
We expect to see an associated impact on our free cash flow for the first quarter resulting in less cash than usual flowing into our balance sheet. We anticipate the Noble House operation to start stabilizing in Q1 ’24 and expect business to pick up in Q2 as new products start to roll in for the outdoor furniture season. I’d also like to highlight, at the time of the IPO, we had several VIE in place across a number of jurisdictions. Today, I’m very pleased to announce that after a series of corporate reorganizations, we have successfully converted these VIE into fully owned subsidiaries of the company, and we do not have any more VIEs in our corporate structure today. Finally, I want to briefly mention our financial outlook. We are currently expecting between $230 million to $240 million in revenue for the first quarter of 2024.
Thank you all for joining. With that, I’d like to ask the Operator to open the line for questions.
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