GigaCloud Technology (ticker: GCT) has reported significant growth in its first quarter of 2024, with a notable increase in revenue, gross profit, and net income. The company has seen its fifth consecutive quarter of revenue growth, nearly doubling its top-line results year-over-year. GigaCloud's marketplace Gross Merchandise Value (GMV) saw a 64% increase, with the addition of 263 new sellers and 1,238 new buyers.
The company's financial strength is evident with total revenues reaching $251 million and net income at $27 million for the quarter. Looking ahead, GigaCloud expects Q2 revenues to fall between $265 million and $280 million, and aims to reach profitability with the recently acquired Noble House by late 2024 or early 2025.
Key Takeaways
- GigaCloud Technology's Q1 2024 earnings show strong growth with a 64% increase in marketplace GMV year-over-year.
- The company's total revenues hit $251 million, with a net income of $27 million.
- GigaCloud launched a new Branding-as-a-Service (BaaS) to enhance product competitiveness.
- The integration of Noble House is expected to break even within 2024.
- GigaCloud's service revenues from 3P increased by 92% to $67 million, while product revenues from 1P grew by 47% to $90 million.
- The company is mitigating price uncertainties by securing shipping volume under fixed-rate contracts.
Company Outlook
- Second-quarter revenue is projected to be between $265 million and $280 million.
- Noble House integration is on track to break even within 2024, with profitability expected by year-end or early 2025.
Bearish Highlights
- Margins in Q1 were temporarily affected by the costs of new fulfillment centers and foreign exchange fluctuations.
- The company incurred around $2 million in expenses for new fulfillment centers and similar unrealized foreign exchange losses.
Bullish Highlights
- GigaCloud has secured substantial shipping volume under fixed-rate contracts to mitigate price uncertainties.
- The company's adjusted EBITDA increased by over 74% to $35 million.
Misses
- The company experienced temporary downward compression of their margin profile due to expenses of new fulfillment centers and foreign exchange fluctuations.
Q&A Highlights
- The company plans to improve profitability through revenue growth and cost reductions, particularly with Noble House.
- The BaaS program charges a fixed fee per SKU, around 4% of industry standards.
- The recruiting process for 3P sellers takes a couple of months, with suppliers starting with a few SKUs and expanding based on success.
- Further questions can be emailed, and the next earnings call was announced.
InvestingPro Insights
GigaCloud Technology's impressive performance in the first quarter of 2024 is reflected in the real-time data and analysis provided by InvestingPro. With a market capitalization of $1.6 billion and a robust revenue growth rate of 43.62% over the last twelve months as of Q4 2023, the company is demonstrating significant momentum. This growth is further underscored by a substantial 94.85% quarterly revenue increase in Q4 2023, indicating a strong demand for GigaCloud's services and offerings.
Investors have also seen considerable returns, with the stock delivering a 1-week price total return of 12.8% and an impressive 1-year price total return of 639.19% as of the most recent data. These figures highlight the market's positive reception to GigaCloud's strategic initiatives and operational success.
InvestingPro Tips suggest that analysts are optimistic about the company's prospects, anticipating sales growth in the current year. Furthermore, GigaCloud's stock has been characterized by high price volatility, which could present opportunities for investors with a higher risk tolerance. Additionally, it's worth noting that the company's cash flows can sufficiently cover interest payments, reflecting financial stability.
For those interested in a deeper dive into GigaCloud's financial health and future potential, InvestingPro offers additional insights. There are 14 more InvestingPro Tips available for GigaCloud, which can be accessed by visiting https://www.investing.com/pro/GCT. To enhance your investing strategy further, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - GigaCloud Technology (GCT) Q1 2024:
Operator: Thank you all for standing by. Welcome to GigaCloud Technology’s First Quarter 2024 Earnings Conference Call. During today’s call all listeners will be in listen-only mode. Joining us today from GigaCloud Technology are the company’s founder, chairman, CEO, Larry Wu, it’s President Dr. Iman Shrock and it’s Chief Financial Officer, David Lau. Iman will give a performance on operational review and David will share the financial results. After that we will conduct a question-and-answer session. Conference call contains statements about future events and expectations that are forward-looking in nature and actual results may differ materially. Today’s call and webcast will include non-GAAP financial measures within the meaning of SEC Regulation G when required reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP [Indiscernible] 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. Beauty on last years considerable success our first quarter of 2024 demonstrated that GigaCloud’s ability to drive sustainable and profitable growth. Amidst the industry challenges and headwins we’re pleased to share GigaCloud’s strongest ever first quarter results and our fifth consecutive quarter of revenue growth. This comes even as the consumer spending softens. For instance, the US Consensus Bureau reported an almost 8% year-over-year decline in retail furniture sales of Q1 2024. Despite these headwinds, GigaCloud achieved the top line results that nearly doubled the year-over-year while also generating significant improvement in other key financial and operational metrics. These achievements demonstrate our resilient and ability to thrive amidst the market's downturns. As we continue to integrate Noble House and the Wondersign acquisitions, we expect to see ongoing revenue growth and the powerful synergies that we believe will create an even more robust and efficient online B2B marketplace. In addition to strategic nature of these acquisitions, we have taken extra steps to further accelerate the growth of our business. Firstly, we launched a new marketplace service called the Branding-as-a-Service or BaaS to help seller amplify their product competitiveness in the GigaCloud marketplace. Secondly, we expanded our supplier base by adding products from Columbia, Mexico and Turkey. As a result, we have increased our product diversity, allowing buyers to source a wider range of quality products from these new markets. And lastly, we expanded our global fulfillment network to address increasing demand for our marketplace, further enhancing our world-class support for buyer and sellers. We will hear more, you will hear more about these important initiatives shortly. We are very excited to continue our growth journey and believe that GigaCloud will further enhance its position as a leader and the disruptor of the B2B e-commerce technology solution. Going forward, we remain committed to streamlining the global supply chain journey for all our marketplace participants. Now I will turn it over to Iman.
Iman Shrock: Thanks, Larry. I'd also like to add my welcome to everyone for joining us today. Despite challenging market conditions experienced by the industry, we're thrilled to share that the GigaCloud marketplace GMV for the trailing 12 months as of March 31st increased by 64% year-over-year with 263 new sellers and 1,238 new buyers. Our growth is driven by GigaCloud's highly robust technology suite that transforms and facilitates the way suppliers and retailers of large parcel items connect and transact. Our supplier fulfilled retailing models, streamlines the global supply chain, offering a seamless end-to-end experience. Our acquisition of Noble House and Wondersign are further transforming our company by adding diversified products and services to our already robust offerings. I'll provide an update on the integration progress shortly. First, I'd like to discuss our latest groundbreaking initiative, BaaS or Branding-as-a-Service, which we launched last month. This program is an industry-first and holds significant opportunities for both our marketplace participants and for GigaCloud. This unique solution was developed to tackle the long-standing challenges associated with brand-sending and [Indiscernible] industry. The industry is highly-precedented, crowded, and low-purchase frequency nature furniture suppliers have traditionally had great difficulties when attempting to create brand recognition, including the need for significant amount of capital resources and time, of course. But with that, GigaCloud is changing the game. At its core, the BaaS program enables qualified sellers for the GigaCloud marketplace to offer their products under the banner of industry-leading furniture and a solution that effectively helps solve the disability brand-building and allows qualified sellers to compete more effectively, enjoy greater margins, and stand out in the market. The BaaS program is an example of yet another addition to our services toolbox. By providing effective solutions to the industry challenges, we're creating a powerful magnet for the marketplace. We're attracting not only established sellers, but also new suppliers eager to join our vibrant marketplace community as we gear up for the inaugural transaction in the second quarter. This translates to widespread enthusiasm, both from seasoned veterans and those new to the platform. Our first brand partner, Christopher Knight Home, has been a consumer favorite with products that have generated over 1 million five-star reviews online and currently sold through some of the world's largest and best known retailers. We also look forward to expanding this program with additional industry leading brands in the future. As part of the BaaS program, we've created the GigaCloud Brand Center Group. The Brand Center equips sellers with the tools they need to thrive, including strategic guidance to maximize their visibility and marketability, while simultaneously maintaining strict quality standards and stylistic standards set by participating brands. Through inspections and imposing other quality control processes and suppliers, we aim to protect the reputation of participating furniture brands and ensure that end consumers receive products that not only meet, but also exceed their expectations. As always, sellers will be able to utilize our B2B Marketplace's advanced fulfillment capabilities. Due to accelerating demand, we have added three new fulfillment centers in the U.S. and one fulfillment center in Germany during the first quarter of 2024. Our latest addition in April 2024 has brought us to 42 prime locations in five countries with over 10 million square feet of fulfillment space. We believe the expansion will enhance our global fulfillment operation by further improving efficiencies and transactions among marketplace participants. The new facilities are currently undergoing racking installation and will soon add to what is already a seamless, broad, and strategic global network designed for ease of use and efficiency. By growing our infrastructure to keep pace with a dynamic market, we believe we are well positioned to capitalize on the amazing growth of the GigaCloud marketplace. We're seeing increased attention from suppliers in new regions, as Larry alluded to, a clear indicator of our growing awareness. This includes our focus on enhancing our compliance action experience by expanding our product breadth. We're committed to growing our marketplace by our community through diversifying the selection of on-transparenature design and providing a broader product range. Our integration of Noble House and Wondersign is progressing as planned and is helping drive additional innovation and transformation. The integration of Noble House has successfully enhanced our reach and global presence, and we remain on track with our original plan to break even in 2024. The integration of Wondersign is a testament of our ongoing technological advancement, and our combined expertise will unlock new avenues for innovation across the entire business ecosystem. Together, these acquisitions signify more than just an expansion. They are driving innovation and fostering a powerful synergy that will empower us to deliver greater value to our customers. Now let's dive into our operational highlights, showcasing the strength of our platform for the trailing 12 months ending March 31st, 2024. Our GigaCloud marketplace, GMV, or the total gross merchandise value of transactions ordered through the marketplace was $908 million, an increase of 64% year-over-year. We generated a nearly 44% increase in active 3P or third-party sellers, ending the quarter with a total of 865. We are successfully adding scale to our supplier-fulfilled retailing network, which should continue to grow organically and through our acquisition of Noble House. GMV and our 3P seller marketplace grew almost 72% from the year ago and totaled approximately $490 million for the trailing 12 months. 3P sellers represented 54% of our total marketplace GMV for the same period. We believe the combination of our 3P and 1P are vital to our growth strategy, with a focus on continuing to drive organic growth of 3P GMV to build a larger, more efficient, and more sustained marketplace. Active buyers are also grew substantially to 5,493 for the trailing 12 months, which is an increase of more than 29% from the same period last year. The average spend per active buyer increased 27% to $165,000, with ever-growing high-quality seller participation in our marketplace and a growing product portfolio we look forward to additional expansion of our buyer metrics. Before I wrap up, I want to provide a brief update on the fire in one of our Japanese fulfillment centers that we disclosed last quarter. On March 9th, 2024, one of our facilities in Japan suffered damages due to a warehouse fire. Estimated approximately $1.8 million, with respect to the cost of inventory held at this fulfillment center. Insurance coverage is expected to extend up to $1.5 million. It's worth noting that the impact on our overall operation is expected to be minimal as the effected inventory in the fulfillment center represented less than 1% of our total inventory holdings. I hope today's discussion has showcased our enthusiasm for GigaCloud's ongoing evolution and its promising future. Our financial performance remains robust with consistent growth quarter after quarter. We're strategically expanding our global fulfillment network to better serve our marketplace participants and to meet growing demands. And let's not forget the integration of two key acquisitions, further accelerating our scalability and technological innovation. We're actively driving the future of global e-commerce, and we're thrilled to have you with us on this journey. Now I will turn the call over to David for a more detailed review of our financials.
David Lau: Thanks, Iman. For the benefit of those who are new to our company, I'll be defining some of our most used metrics. First, some quick housekeeping. The numbers I'll be discussing today are for the first quarter of 2024 compared with the first quarter of 2023, unless otherwise stated. Additionally, please note that this quarter we began providing the non-GAAP measures of adjusted EBITDA and adjusted EPS in our first 10-Q filings after the transition of S filer. As Larry and Iman previously discussed, we had a great first quarter by all measures. Total revenues nearly doubled to $251 million and increased roughly 2.4% on a sequential basis. Notably, our first quarter's performance exceeded our fourth quarter, which is typically our strongest period due to seasonal trends in the industry. This achievement underscores our continued growth trajectory. Service revenues from GigaCloud 3P, which mainly include Platform Commission, Ocean Transportation, or Housing, Last-Mile Delivery, and Packaging (NYSE:PKG) Services grew 92% to $67 million. Product revenues from GigaCloud 1P, which mainly include product sales of our inventory through the GigaCloud marketplace, improved to $90 million, an increase of nearly 47% year-over-year. Product revenues from off-platform e-commerce, which mainly include the sale of our inventory to and through third-party e-commerce channels, increased almost 200% year-over-year to over $93 million. These increases were in line with a 64% gain in total market GMV, which equaled to $908 million at the end of the first quarter on a trailing 12-month basis. GMV is defined as the total gross merchandise value of transactions ordered through our GigaCloud Marketplace before deductions for value-added tax, goods and services tax, shipping charge paid by buyers to sellers, and refunds. Costs of revenues were $185 million, or 74% of total revenues, compared with $98 million or 77% of total revenues. The reduction in costs of revenues as a percentage of total revenues underscores our success in enhancing a sustained operational efficiency across our business operations. Gross profit for the first quarter increased more than 125% to $67 million, which resulted in an improved gross margin of 27% versus 23% in the prior year period. I want to briefly touch on ocean shipping rates. Ocean shipping rate fluctuations have impacted the industry in the first quarter with cost rise compared to the same period last year. We have secured a substantial amount of our shipping volume under a fixed-rate contract to effectively hedge against future price uncertainties. As a result of our continued growth and increase in volume, total operating expense were $32 million compared to $12 million last year. Breaking down our operating expense further, selling and marketing expense were $15 million compared with $7 million driven primarily by higher platform services paid to certain third-party e-commerce websites. Staffing costs include the added personnel to support the continued growth of the company and higher commission and advertising costs. General and admin expense total $15 million compared with $4 million. This increase primarily was due to higher staff costs including our R&D efforts to accommodate the expansion of our business volume, higher professional services fee, and increase in rental expense related to certainly lease-fulfillment centers that are currently under preparation, along with a set of expense required for the new fulfillment centers to reach full operation amount [ph]. Our bottom line expanded quite nicely with net income growing more than 71% to $27 million compared with $16 million last year. Adjusted EBITDA group by more than 74% to $35 million. Moving now to our balance sheet. We ended the first quarter with a total of $196 million in cash, restricted cash, and investments. We have strategically allocated our cash towards investment of $10 million in support of our growing infrastructure network. We incurred $4 million in CapEx, including facility expansion and pallet racks to enhance our fulfillment capabilities. To ensure we can meet anticipated sales during the upcoming outdoor furniture season in Q2, we have strategically managed our cash flow to build sufficient inventory. In addition, as we mentioned in a previous quarter, we provide favorable cash on delivery terms for noble house suppliers that were facing financial difficulties, resulting in a less than usual cash flow generation into our balance sheet for the quarter. Additionally, we continue to have no outstanding borrowings and remain debt-free. Liabilities presented on our balance sheet represent obligation associated with our fulfillment center leases as we have substantially expanded our network organically and through acquisitions. I'll finish up with our outlook for the second quarter. We're currently expecting revenues between $265 million and $280 million. Thank you all for joining us today, and operator, we're ready for our questions. Thank you.
Operator: [Operator Instructions] Our first question comes from Matt Koranda from Roth MKM. Your line is now open.
Matt Koranda: Hey, everybody. Good morning. Maybe just wanted to start off with the first quarter and the organic growth rate that you experienced versus contribution from Noble House. Just curious if you could clarify where the incremental revenue from Noble House is coming from, I would assume. It's basically all off-platform, but that revenue stream looks particularly strong on a year-to-year basis, so maybe you could just unpack the drivers there first.
David Lau: Hey, Matt. Maybe I'll take this one. So as we discussed in our last call, we don't break it out between what's organic and what's inorganic because right now we're kind of in the middle of fully integrating the business. So we don't really break that out as we see the business, but you're correct pointing out that the off-platform e-com revenue generation is driven mostly by the normal house business. So that's correct.
Matt Koranda: Okay, got it. On the third-party service, gross margins was curious, what's driving the strength there? You mentioned ocean freight rates going up, so I would assume that typically would compress margins in that segment. Maybe just speak for a moment if you could about the strength and gross margins that you experienced in the third-party service revenue in the quarter.
David Lau: Yes, I think we're seeing a lot of momentum in our 3P side of the house, particularly now, and Iman alluded a little earlier that a lot of our sellers are gearing up for the outdoor furniture season, so we're seeing a lot of velocity and momentum. Yes, while that we see the overall shipping rates has been going up, but I don't think it really impacted us as materially as others would have expected, and we also mentioned that we are now effectively hedging against future ocean shipping rights fluctuations, so we're fairly comfortable at the current margin profile that we're enjoying.
Matt Koranda: Okay, got you. And then just wanted to hear a little bit more about the branding as a service business. Any quantifiable metrics you can provide around that and how it's built into the second quarter guidance that I noticed, I think in the release you mentioned, the program may launch in the second quarter, so maybe just speak to sort of how we're thinking about revenue contribution from that. Is the right way to think about that program effectively like brand licensing or licensing revenue stream that layers into the third-party service revenue that you get already from your sellers? And then maybe just, is that, how do you view the branding as a service program as a whole? Just simply is it a seller acquisition tool? Is it a retention tool? Maybe just a little bit more on sort of why do this.
David Lau: Larry, do you guys want to take this?
Larry Wu: I'll be more than happy to, David. So basically branding as a service is an additional service that is being offered to make the business model even more sticky. Both our seller base and the buyer base and the whole idea behind this process is that through the end-to-end optimization process, we're able to manage the entire process in network, which kind of contributes to all those margins that you just, listed off as far as the third party sellers. And at the end of the day, like you mentioned, this will be definitely a recruitment tool but also a retention tool as we're trying to basically tackle one of the biggest, issues in furniture business when it comes to building brands. I talked a little bit about this, that the nature of the industry is highly fragmented and it requires significant amount of investment as far as the capital resources and time to build those brand recognition because the purchase frequency is so low. So by giving the good products a chance to have access to good brands, we're hoping that we truly give these products a chance to better market. And with that we increased the usage of existing supplier based but also attract new sellers to join the marketplace. And by fueling the seller base, we definitely add variety and style and choices for the buyers on the flip side to choose from.
Matt Koranda: Okay, got you. And then just for the second quarter outlook, I think you guys provided a range of revenue in the $265 million to $280 million range. Maybe just, since we're not breaking out Noble House, at the very least maybe just some commentary around, third party service revenue contribution within that outlook versus product revenue in the second quarter and how we should think about that?
Larry Wu: I think the way we see it is that the ratio between these two lines of business, if we will, remain fairly steady for a while. I don't think there will be any drastic changes in terms of the balance between the two business as a percentage of revenue.
Matt Koranda: Okay, got it. Maybe just last one for me in terms of the margin profile on a go-forward basis. I guess the integration of Noble House may be creating a little bit of a drag on margins. When do we expect that to sort of release and we reach sort of at least a break even to a positive operating profit contribution from Noble House? Maybe just help us understand a level set around when that happens, if it's within 24 or beyond.
David Lau: Yes, I think breaking even within 2024 is our goal and I think we're fairly confident with that that that call in mind. I think we'll starting to see some profitability generating from the Noble House business probably by the end of the year if not early 2025.
Matt Koranda: Okay, thanks guys.
David Lau: Thanks Matt.
Operator: Thank you. One moment for our next question. Our next question comes from Sophie Huang with CMBI. Your line is now open.
Sophie Huang: Thank you. Congratulations on the top line goals. Really a great first quarter of this year. So I noticed that revenue and the gross margin both improved year-on-year, but the income margin has decreased slightly. So could you please provide us with some insight into the reason and how do we look at the margin channel in the next few quarters? Thank you.
Larry Wu: Hey Sophie. Great question. I think from a high level I think we can categorize two main factors that contributed to a temporary downward compression on margins for our first quarter. I think the first one is the cost associated with some of the new fulfillment centers that we opened during Q1. Iman and I talked a little bit earlier that we leased four new facilities in Q1 to keep up with our growing demand. It typically takes around four to six months to set up a new facility with all the racking systems to make sure that everything is working out. So this is something that we are working on. And it's also fairly standard for the industry that we receive a standard kind of seven to nine months of rent free for our new facilities in the U.S. But because we're leasing these facilities, we have to expense the cost evenly throughout the life of the lease. So that's why you see there's a temporary downward compression to our margin profile during the setting up phase. And to give you a little bit more color around what the kind of lease or the establishment costs for these new fulfillment centers. So for Q1, the expense for new fulfillment centers amount to around $2 million. And we're fairly confident that we'll see the benefits of these new added facilities in the near future. And the second factor contributing to the margin is, as you know, we have a global business. And it's because of the foreign exchange fluctuations that we experience in the first quarter. As you see, U.S. dollar is very strong against the euros, British pounds during the first quarter. And because of the fluctuation, we experience some foreign exchange losses from our cash receivables balance as of March 31st that are unrealized. And that amount is roughly $2 million. So hopefully that will explain kind of the margin profile for Q1.
Sophie Huang: Very good. Thank you.
Larry Wu: Thanks, Sophie.
Operator: Thank you. One moment for our next question. And our next question comes from Brian Kintslinger with Alliance Global Partners (NYSE:GLP). Your line is now open.
Brian Kintslinger: Great. Nice results. And thanks for taking my question. And a follow-up on Noble House, if you will, to get that to a more profitable status, is that a combination of revenue growth and cost cuts, or is it just cost cutting that needs to get you there?
David Lau: Brian, I think it's both. So on the revenue side, we mentioned a little bit in our last call that we're expanding and plugging in the Noble House SKU into our marketplace. And we're also utilizing some of the warehouse footprint that Noble House, from that acquisition from Noble House. And then the cost side, because we also have a sizable warehouse footprint, we also have personnel on the ground. So we're able to extract some synergies from the cost side of the house.
Brian Kintslinger: Great. That's helpful. And then on the Branding-as-a-Service, we're going to follow up there, is that going to be a fee per unit? Or is that going to be more of a recurring fee or license to use the branding?
Larry Wu: So basically, the BaaS it operates is per SKU. So once the SKU is qualified through that Brand Center mechanism that we discussed, then, a fee is charged, a fixed fee. And that nominal fee as of right now, I believe about 4% and the industry standard are about 10%. So it's very, very competitive.
Brian Kintslinger: Great. And then my last question is, the three-piece seller account continues to grow in a solid clip. Can you remind us about the recruiting process? How long is the recruiting cycle? And then, on average, how quickly do they ramp the number of SKUs once they're on boarded? Thank you.
Larry Wu: So our recruiting efforts is mostly meeting kind of the suppliers locally, mostly out here in Asia. I don't know if I actually have the numbers in front of me, but I would imagine it will be a couple months for them to join. And I think usually suppliers would put a couple SKUs to kind of just try it out and then they'll start ramping up when they see success. So that's typically kind of the supplier profile for our 3P business.
Brian Kintslinger: Great. Nice result. Thanks, guys.
Larry Wu: Thanks, Brian.
Operator: Thank you. This concludes the question-and-answer session. I'll now like to turn it back to David Lau for closing remarks.
David Lau: Great. Well, thanks everybody for joining this call. If you have any questions, feel free to email our IR email address and we look forward to discussing our results in our next earnings call. Thank you all for joining. Thank you.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
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