GigaCloud Technology (ticker not provided), a leading online marketplace, has reported a record revenue growth for the sixth consecutive quarter, with Q2 total revenue more than doubling year-over-year to $311 million.
The company's marketplace Gross Merchandise Value (GMV) exceeded $1 billion over the past 12 months, bolstered by the addition of Noble House related SKUs and the launch of its BaaS offering. Despite a decline in US retail furniture sales, GigaCloud's diverse strategies and efficient supply chain management have positioned it to outperform the market and continue its growth trajectory.
Key Takeaways
- GigaCloud Technology's Q2 total revenue surged to $311 million, a year-over-year increase of over 100%.
- The company's marketplace GMV surpassed $1 billion, with Noble House SKUs contributing approximately $57 million.
- GigaCloud launched a BaaS offering, which has garnered strong interest from sellers.
- Service revenues from GigaCloud 3P grew over 97%, and product revenues increased over 105%.
- The company anticipates a sequential decline in Q3 revenue due to seasonality and industry headwinds but remains confident in its unique business model.
Company Outlook
- GigaCloud expects continued growth from both organic and inorganic sources, including further integration of the Noble House business and expansion of the B2B marketplace.
- The company has signed fixed-rate contracts to mitigate the impact of freight rates on gross margins.
- Strategic mergers and acquisitions are a focus to drive volume growth and expand GigaCloud's ecosystem.
Bearish Highlights
- The company is experiencing gross margin pressure due to new warehouse additions, which typically take four to six months to become fully operational.
- A sequential decline in revenue is expected in the third quarter, attributed to seasonality and industry headwinds.
Bullish Highlights
- GigaCloud's marketplace has seen a significant increase in buyer and seller base, contributing to its sustained profitability.
- The integration of Noble House SKUs and the launch of the BaaS offering have been successful, with the latter receiving strong interest from sellers.
- The company's strategic focus on M&A is aimed at growing volume in the ecosystem and expanding its reach.
Misses
- No specific misses were mentioned in the earnings call summary provided.
Q&A Highlights
- The increase in stock-based awards in Q2 is attributed to the rise in stock price and performance-based compensation.
- The CEO did not receive stock-based compensation in 2022 but was compensated for the impressive financial results in 2023.
- The concentration of stock-based compensation in Q2 is typical, and future awards are not expected to be at the same level.
GigaCloud Technology continues to demonstrate its capacity for sustained growth and profitability. The company's strategic initiatives, including the integration of Noble House and the expansion of its B2B marketplace, have allowed it to navigate a challenging retail environment successfully. While facing gross margin pressures and anticipating a seasonal decline in revenue, GigaCloud's focus on strategic mergers and acquisitions and its efficient supply chain management underscore its resilience and potential for continued market share gains. The company's leadership remains optimistic about its growth prospects and the ability to deliver value to its stakeholders.
InvestingPro Insights
GigaCloud Technology's impressive revenue growth story is further supported by the real-time metrics from InvestingPro. The company's market capitalization stands at a robust $1.06 billion, highlighting its significant presence in the online marketplace sector. This is backed by a healthy P/E ratio of 9.19, which becomes even more attractive considering the adjusted P/E ratio for the last twelve months as of Q2 2024, which is 8.27. Such valuation metrics suggest that the company is reasonably valued given its earnings.
InvestingPro Data also reveals an extraordinary revenue growth of 84.25% over the last twelve months as of Q2 2024, with quarterly revenue growth for Q2 2024 at an even higher 103.01%. This indicates not only sustained but also accelerating growth, aligning with the company's reported record revenue figures in the article. Additionally, with a gross profit margin of 26.57%, GigaCloud demonstrates its ability to maintain profitability amidst its rapid expansion.
From the InvestingPro Tips, it's worth noting that analysts predict the company will be profitable this year, which aligns with the article's bullish highlights on sustained profitability. Furthermore, the company's stock has experienced significant volatility with a notable price decline over the last three months, which could present a potential buying opportunity for investors given its strong fundamentals and growth trajectory. For those interested in deeper analysis and more such insights, InvestingPro offers additional tips on GigaCloud Technology at https://www.investing.com/pro/GCT, with a total of 11 InvestingPro Tips available to provide investors with comprehensive guidance.
Full transcript - GigaCloud Technology Inc (NASDAQ:GCT) Q2 2024:
Operator: Thank you all for standing by. Welcome to GigaCloud Technology’s Second 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, Larry Wu; it’s President Dr. Iman Shrock; and its Chief Financial Officer, David Lau. Iman will give a performance on operational review and David will share the financial results. After that there will be a conduct a question-and-answer session. 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. Additionally, 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 opening remarks. Please go ahead.
Larry Wu: Thank you, operator and welcome everyone to today's call. This quarter marks as a significant milestone for our company as we achieve the record revenue growth for the six consecutive quarter. Additionally, despite the industry wide challenge, including 7% year-over-year decline in retail furniture sale furniture sales in the first half of the 2024 in the United States, and the elevated ocean shipping costs or adjusted EBITDA increased substantially. These results underscore the strong demand for our marketplace and its ability to streamline the efficiency of the global -- wholesale global supply chain, and while we connect the buyer and sellers of large non-standard items seamlessly around the globe. Our acquisition with Noble House and Wondersign and the launch of our first -- industry first the base or branding the service are already contributing to our success. In the second quarter, we successfully introduced Noble House related SKUs to our marketplace with a contributed approximately $57 million in GMV. The first half of this year has been extremely productive and we are driving continued the progress sustainable and the profitable growth as a leader and the disruptor of the e-commerce technology solution. We will be honored to be added to the Russell 2000 Index through their recent reconstitution. Now I will turn the call over to Iman to provide more color and our operational highlights.
Iman Shrock: Thanks Larry. I'd like to add my welcome to those joining us today. We are happy to share that for the first time in our history, our GigaCloud marketplace GMV reached and surpassed $1 billion in the 12 months ended June 30. Let's dig into that. For the trailing 12 months as of June 30, GigaCloud marketplace GMV increased by over 80%, eclipsing our first quarter growth by approximately 17 percentage points. This momentum was driven by remarkable increase in our buyer and seller base. We welcome 265 new sellers and 2,906 new buyers on a net basis, expanding our three piece seller community by nearly 40% to a total of 930, and our buyer base by a record breaking 67% year-over-year to 7,257 at the end of the second quarter. Furthermore, average buyer spending climbed 8.3% to more than $151,000, demonstrating the increasing engagement our marketplace participants and the additional value our platform provides. By all metrics, our marketplace is thriving and we see many opportunities to continue this trajectory. Our average buyer spend as a whole decreased slightly over compared to Q1 due to the uptick in recent growth as we have observed a significant influx of over 900 buyers to our marketplace in the last quarter, whom we typically expect to start at lower initial trading volume. Average spends per buyer for participants that joined us prior to Q2 have continued to increase on a sequential basis. GMV and our 3P marketplace grew 76% from a year ago and totaled approximately $572 million for the trailing 12 months ended June 30, 2024. 3P sellers accounted for 52.1% of our total marketplace GMV for the same period. Combined with our one piece strategy, we have the pieces in place to continue growing the GigaCloud marketplace, while further improving efficiency and value for all participants. As I mentioned last quarter, our growth resulted from GigaCloud's highly robust technology suite that transforms and facilitates the way suppliers facilitate the way suppliers and retailers of large parcel and non-standard items connect and transact. Now, I'd like to give you a progress update on our BaaS offering, which was officially launched in the second quarter with our ecosystem brand, Christopher Knight Home. We built this unique solution to provide furniture suppliers with a streamlined and efficient way to build their brands, which has been a longstanding challenge throughout the industry. We have observed significant enthusiasm and interest in our BaaS program since we announced it. We have successfully launched the initial pilot phase with a carefully selected group of aid marketplace sellers. The overall level of additional strong interest from both existing and new sellers has far exceeded our expectations. This early momentum reinforces our belief that BaaS will be a powerful tool in strengthening and expanding our service offerings, empowering marketplace participants with a diverse toolbox to drive growth and success. Last quarter, we discussed addressing accelerating demand through the expansion of our fulfillment footprint. Our global fulfillment network has 42 prime locations in five countries comprising of more than 10 million square feet of fulfillment space. We are driving efficiencies and transactions among marketplace participants, and our established fulfillment centers across the U.S. are averaging over 90% utilization rate and we are actively seeking additional space to accommodate continued rapid growth. Our integrations of Noble House and Wondersign are moving forward nicely and as planned. In the second quarter, we introduced Noble House related SKUs to our marketplace, which contributed to approximately $57 million of GMV in the three months ended June 30, 2024. Currently, only 5% of the SKUs are accessible to our external buyers with the majority remaining with the original Noble House channels. Moving forward, we plan on gradually opening up these SKUs to external participants. As communicated previously, we expect to achieve breakeven with Noble House later this year with anticipated profitability in the first half of 2025. We are extremely bullish on our marketplace and the opportunities ahead. GigaCloud disrupted the B2B online marketplace with a unique business model that connects buyers and sellers of large parcel merchandise to efficiently grow their own businesses in a cost effective way. Now, I will turn the call over to David for a more detailed review of our financial results. David?
David Lau: Thanks, Iman. I'll now walk through our second quarter numbers in more detail. Please note that all figures quoted have been rounded. Our second quarter results demonstrate strong execution against our growth strategy. Total revenue is more than doubled year-over-year to $311 million in Q2, an increase roughly of 24% on a sequential basis. This is a direct result of our ongoing efforts to expand our marketplace, product and service offerings, and of our ability to capture growing market opportunities. Diving deeper into the revenue, specifically, service revenues from GigaCloud 3P grew more than 97% to $85 million, a direct reflection of enhanced engagement of our marketplace participants. Product revenues grew more than 105% to $225 million in Q2, we're pleased to report that our strategic investments from the previous year are yielding strong revenue returns. The impressive performance of Noble House outdoor product line contributed significantly to our second quarter sales, highlighting the effectiveness of our growth strategy. Furthermore, our fastest growing European markets continue to lead the way in product sales growth, achieving 139% year-over-year growth. Cost of revenues were $234 million for the second quarter compared with $113 million. While the absolute amount increased as a reflection of the investment we've made to support the soaring demand of our marketplace. The percentage to total revenues of 75% remained relatively stable for the second quarter compared to last year, demonstrating our ability to manage cost effectively and its rapid growth and changing environment. Gross profit for the second quarter increased approximately 90% to $76 million, gross margin percentage contracted slightly as we continued to build our fulfillment infrastructure with newly leased centers ramping up to full operational efficiencies. Additionally, increased delivery costs and temporary industry wide freight rates spiked in late April and May. However, we observed a moderation in rates during July and remain vigilant in monitoring this dynamic. Total operating expenses amount to $49 million for the second quarter compared with $17 million. Such expenses are associated with our ongoing infrastructure development required to meet growing demand of our B2B platform. Pricking this down further is selling and marketing expenses were $19 million compared with $10 million, driven mainly by higher staffing related costs, higher commissions and advertising costs in higher platforms to service fees paid to certain third party e-commerce websites. General and admin expenses totaled $26 million compared with $7 million last year. This increase primarily was due to the concentrated granting investing of our share base awards, higher staffing costs, including R&D efforts to accommodate expansion of our business. Higher professional service fees and increase in rental expense related to fulfillment centers, and also the set of expense required to bring our new fulfillment centers fully operational. A major component of our G&A expenses related to our people centric approach. We believe our employees are our greatest asset and we strategically invest in their development and growth. To attract, retain and incentivize top talents, our compensation programs include share base awards, which have traditionally been granted in the second quarter of each fiscal year, with the majority of granting investing immediately in the same quarter upon grant. Share base awards expense totaled $13.9 million compared to $1.5 million last year. As a company share price increased significantly year-over-year. The impact of these strategic investments and the industry-wide ocean shipping costs is reflected in our net income margin. We remain confident in our ability to deliver sustained profitability as our financial performance remains strong across key metrics. Our net income grew nearly 47% to $27 million. Adjusted EBITDA demonstrated robust growth increasing approximately 72% to $43 million in the second quarter. Adjusted EPS for the quarter increased 69% to $1.03. We're strong in our cash positions and continued to generate strong positive cash flows with our effective cash managed strategy. At the end of June, our cash, cash equivalence, restricted cash and investments position was $209 million. We have strategically allocated $10 million in CapEx during the second quarter, which primarily relates to facility preparation to enhance our global fulfillment capabilities. We remain debt free with no outstanding borrowing and the liabilities on our balance sheet primarily related to our fulfillment center leases, which have increased considerably to support our substantial growth. I'll wrap things up with our outlook for the third quarter, where we anticipate revenues will be in the range of $266 million to $282 million. Thank you all for joining us today. Operator, we're ready for questions. Thank you.
Operator: [Operator Instructions] Your first question comes from Ryan Meyers from Lake Street Capital Markets.
Ryan Meyers: First one for me, I just kind of want to unpack the second quarter revenue number. Obviously, you guys came in well ahead of your expectations. Maybe just kind of walk us through, provide a little bit more detail on what you saw during the quarter, where ultimately you were able to kind of report numbers that were a bit better than what you originally expected.
David Lau: Yes, absolutely. Perhaps, I'll take a stab and others please feel free to chime in. Like I said earlier, we're integrating the Noble House business and Noble House is very strong in the outdoor section and we are able to increases that portion into our entire SKU portfolio. And we mentioned earlier that, Noble House related SKUs were added into the B2B marketplace and that amounts of roughly $57 million in GMB. And that's really kind of -- what kind of blew out the quarter for us.
Ryan Meyers: And then kind of thinking about that as well, as we think about the third quarter guidance, I mean, what would you need to maybe see to come in at the high end of that range or even better than initially guided range? Is it more Noble House integration or is it just an improvement in the overall kind of GMV across the business? Just kind of help me think about that.
David Lau: Yes, I guess it's all of the above. I think when we were projecting how Q3 is going to look like for us, we incorporate what we think Noble House is going to contribute to the quarter. And obviously, the evolution and the growth and the expansion of the B2B, the organic marketplace. So I guess it's both organic and inorganic growth that we put into consideration when we projected our Q3 outlook.
Ryan Meyers: And then last question for me, I know, freight rates have been a drag on the gross margins. Just kind of walk us through maybe how we should be thinking about gross margins for Q3 and Q4 as freight rates are probably changing for you guys.
David Lau: Yes, I think, well I think if you look at the current freight rate, you'll see that it's actually gradually, normalizing. It's still on the higher end and we had a fixed rate contract that we mentioned in our last earnings call that is already in place in execution. So I think there will be some compression to margin overall, but we don't expect that to be significant in magnitude.
Operator: [Operator Instructions] Your next question comes from Matt Koranda from Roth Capital.
Matt Koranda: Just from Noble House you mentioned I guess 5% of the SKUs available to buyers on the marketplace and that's generating already, I guess $57 million in GMB. How long until we see a 100% of the SKUs available on the marketplace? And then, should we assume our sort of a ratable revenue improvement once you make all of the SKUs available to the marketplace?
David Lau: Iman, you want to take that one?
Iman Shrock: Sure. So with Noble House, the intention is to preserve the existing sales channel, as of right now. So we're slowly and gradually utilizing the marketplace to open up the SKUs in a calculated way to the marketplace participants. And we have ongoing plans to do this on a regular basis, and you should see like and you should see like more of the top line kind of slowly contributes in that sense.
Larry Wu: Maybe I assume -- it’s Larry, I think the idea we're having is we're trying to balancing utilizing the marketplace to help Noble House product to generate incremental growth in their sales. But at the same time, we're also trying to prioritize our relationship with the major B2B channels that the Noble House used to have a strong relationship with. So the idea is I think probably we're going to make 20%, 30% of the Noble House products be available on the marketplace, but we're trying to keep the majority of them with the major B2C partners we're having.
Matt Koranda: And then just I guess inventory is building a little bit more quarter-over-quarter and just wanted to hear sort of the drivers there. I would assume you're bringing in additional SKUs from Noble House, but maybe just talk about what you're doing on the inventory front with Noble House and the core business?
Larry Wu: This is Larry, I'll take this one. I think we understand although the turn of the Noble House product usually because it's a little bit slower than the bigger product, we still placed a pretty sizable order to the whole supply chain of the Noble House because we understand just because the bankruptcy our vendors need those kind of funding. And also the same time that we also try to provide the confidence to our channel partners. But we will gradually try to improve the turn of the Noble House of the product. Try to get those term efficiency to be closed to our traditional Giga products as closely as possible. The other reason is on yearly when the ocean shipping price goes up, because of the cost we're paying for the ocean product, although the quantity of the products keep the same, the yearly because of the increase of ocean shipping. The dollar value could increase for that reason that's also happened for the last time, when the ocean shipping cost went up, then you can get check our historical data to get the idea of that mechanism.
Matt Koranda: On the outlook, I guess maybe I'll ask it this way, one, why the sequential revenue decline in the third quarter relative to the second? I guess that breaks the trend that you guys have been on the nice trend over the last couple of years. So maybe just speak to sort of why we see that declining sequentially. And then also maybe if you could, I'd love to hear you just break out service versus product expectations, just because product does seem to be becoming a little bit more important with Noble House and you guys generating more revenue both on and off platform from Noble House.
Larry Wu: I think the first thing is, I need to point out Noble House's business has a strong seasonality because they're strong with the outdoor furniture. So the contribution for Q2 is a very significant from their legacy business. But the definitely for that part is where we're seeing the Q3 sales number won't be as strong as Q2 for the Noble House product. At the same time, I think, everybody understand that in the whole industry have been experiencing very strong headwinds of quite a while in the past, I think more than one year. So for the furniture industry as a whole, that we are very cautious about managing our growth and also the resources that we're putting in so that the reason you are seeing, the sequential growth what we're providing.
Matt Koranda: Maybe last one really quickly, just, if you could touch on the margin trajectory into the third quarter, maybe what the outlook may imply. I know David, earlier you mentioned you don't expect as much of an impact from the recent ocean freight increase. Maybe can you just put a finer point on why not this, why things are a little bit different this time around?
David Lau: Yes, Matt, as I mentioned, we have a fixed rate contract that we signed with various shipping companies, which we never had, I guess, two years ago when we saw ocean shipping rates surge. So this time, we're different. We're hedge, we're protected. Obviously, we're not hedged a 100% of the volume but because we have some of these fixed rate contracts, we're better protected on any further surge in ocean shipping rates.
Matt Koranda: And how far any characterization of how far out we're hedged, I would assume these are annual sort of contracts, so maybe it works out through this year, but any comfort you can provide folks around sort of timing, duration of that hedge?
David Lau: I'm not sure if I could disclose too much. I mean, obviously these are pretty sensitive contracts. But what I can say is we have pretty sizable of our volume being hedged using these fixed price contracts.
Larry Wu: Yes, I think, several things that happen is because of the hedging mechanism. One is, obviously that there's a good chance that we can see that the ocean shipping revenue, the margin, there's a chance that we can see improvement because of the difference of spot rates and the contract rates is getting wider. So it is the same time that for our 1P business, the cost is kind of will be negatively impacted for the 1P cost. But at the same time, we'll try to introduce new product and try to get the opportunity to do the pricing based on the updated or new ocean shipping costs. That's the few things that will happen at the same time. A little bit kind of complicated situation, but you try to sum up everything that we see probably moderate and kind of pressure of the margin. But because of the hedging mechanism and the pricing, repricing opportunity and different direction that the 1P and 3P business margin will go, I think that's a reason that the David expect that the change won't be as crazy as we saw in the last time that the ocean shipping rate went up.
Operator: [Operator Instructions] Your next question comes from Thomas Forte from Maxim Group.
Thomas Forte: Congrats Larry and team on the quarter. I have three questions. I'll go one at a time. For my first question, I wanted to ask, the one I get asked most often by investors, what is enabling you to outperform the category by such a large margin? Your sales growth in the second quarter is more than 100%, and the home category is down more than 10%. And then what gives you confidence you can continue to take market share in the future?
Larry Wu: I think the key reason is, we're introducing a new business model that obviously it's a proved to be a one that's providing better efficiency and the supply chain. I think that's the key reason that we don't do business in the way that most of business -- companies doing it. I think that's the most fundamental reason. But obviously, you see those kind of a difference in the efficiency from company to company. So, the quality of the management also a contributor to those difference. I think the major one is a business model. The minor one would be I think the way it will manage the company. I would say that.
Thomas Forte: My second question. You noticed gross margin pressure from new warehouse additions. Historically, housing optimization improved over time for new warehouses.
David Lau: Maybe I can take a stab at this one. Typically, with a new leased facility before it becomes fully operational, it takes approximately four to six months for us as far as the racking and the whole process goes. And that includes like all this shelving, the forklifts, the rental staffing and there's a ramp up period of four to six months, I would say.
Thomas Forte: And then from my third and final question, can you give your current thoughts on strategic M&A both from the opportunity standpoint and your strategy?
Larry Wu: This is Larry, maybe I take this one. I think we'll be focusing on looking for opportunity that either can help grow the volume in the ecosystem or to help us to expand the reach of our ecosystem. I think Noble House and Wondersign are two very good example for that kind of idea. I think Noble House was the one that help us to bring in a lot of new SKU that we were strong with, especially outdoor and Wondersign is a solution company that will help our customer to get a better reach that they didn't have to before. I think that's two very good example that we had with our M&A strategy.
Operator: Your next question comes from Sean Liu from Panoramic Capital.
Sean Liu: You mentioned an increase in stock-based awards earlier. Can you talk a bit more on this seems like it's concentrating Q2, but want to just want to make sure I understand correctly. Are we expecting the same awards in the following quarters?
Larry Wu: No. Usually, majority of the stock-based compensation will happen in Q2, because most of those stock compensation is highly kind of a performance based. So when we have access to all the data from the previous year that we will reward those contributors in the team based on that performance data that's the reason why that you are seeing majority of the stock base of concentration, a stock base of concentration that happened. Kind of a concentrated in Q2. So as, David explained that I think the increase is most of them were caused by the increase of the stock price. Although, the shares awarded and didn't change too much, but actually because of the stock price went up so much so that that's absolute number increase. And then another reason is, actually I didn't pay myself stock in the previous year, because as CEO I just feel I should be responsible for relatively not really kind of very exciting result for the 2022, as a CEO I think I should take that risk responsibility. I didn't get any stock-based compensation for that year. But for 2023, I think we delivered pretty impressive financial results. So, I also got compensated for the performance I did for 2023. I think these are the two major factors that to impact the stock based on compensation number you're seeing.
Operator: There are no further questions at this time. I'll now hand back to David for closing remarks.
David Lau: Great. Thank you all for continued support. We're excited about our recent growth and future prospects and we look forward to speaking with you again next quarter. If you have any questions, please feel free to reach out to the team. Thank you all.
Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
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