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; its 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 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, 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 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.

Thank you, operator, and welcome everyone to today's call. This quarter marks a significant milestone for our company as we achieve record revenue growth for the six consecutive quarters. Additionally, despite the industry-wide challenges, including a 7% year-over-year decline in retail furniture sales in the first half of 2024 in the United States, and elevated ocean shipping costs, our adjusted EBITDA increased substantially. These results underscore the strong demand for our marketplace and its ability to streamline the efficiency of the global wholesale supply chain as we connect buyers and sellers of large non-standard items seamlessly around the globe. Our acquisition of Noble House and Wondersign, as well as the launch of our industry-first branding service are already contributing to our success. In the second quarter, we successfully introduced Noble House related SKUs to our marketplace, which contributed approximately $57 million in GMV. The first half of this year has been extremely productive and we are driving continued progress toward sustainable and profitable growth as a leader and disruptor in e-commerce technology solutions. We are 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 on our operational highlights.

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 a remarkable increase in our buyer and seller base. We welcomed 265 new sellers and 2,906 new buyers on a net basis, expanding our third-party 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 of 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 spending decreased slightly 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, who we typically expect to start at a lower initial trading volume. Average spending per buyer for participants that joined us prior to Q2 has continued to increase on a sequential basis. GMV in our third-party marketplace grew 76% from a year ago and totaled approximately $572 million for the trailing 12 months ended June 30, 2024. Third-party 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 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 eight marketplace sellers. The 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 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 a 90% utilization rate as we actively seek 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 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 has 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.

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 more than doubled year-over-year to $311 million in Q2, an increase of roughly 24% on a sequential basis. This is a direct result of our ongoing efforts to expand our marketplace, product and service offerings, and our ability to capture growing market opportunities. Diving deeper into the revenue, specifically, service revenues from GigaCloud's third-party offerings 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 the 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 costs effectively in a rapidly growing and changing environment. Gross profit for the second quarter increased approximately 90% to $76 million. The gross margin percentage contracted slightly as we continued building 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 amounted to $49 million for the second quarter compared to $17 million. Such expenses are associated with our ongoing infrastructure development required to meet the growing demand of our B2B platform. Breaking this down further, selling and marketing expenses were $19 million compared to $10 million, driven mainly by higher staffing-related costs, higher commissions, and advertising costs in higher platform service fees paid to certain third-party e-commerce websites. General and administrative expenses totaled $26 million compared with $7 million last year. This increase was primarily due to the concentrated granting of our share-based awards, higher staffing costs, including R&D efforts to accommodate the expansion of our business, higher professional service fees, and increased rental expenses related to fulfillment centers, alongside the set of expenses required to bring our new fulfillment centers fully operational. A major component of our G&A expenses relates 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 talent, our compensation programs include share-based awards, which have traditionally been granted in the second quarter of each fiscal year, with the majority of granting occurring immediately in the same quarter upon grant. Share-based awards expense totaled $13.9 million compared to $1.5 million last year. As the 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 position and continue to generate strong positive cash flows with our effective cash management strategy. At the end of June, our cash, cash equivalents, restricted cash, and investment position was $209 million. We 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 borrowings, and the liabilities on our balance sheet primarily relate 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.

Your first question comes from Ryan Meyers from Lake Street Capital Markets.

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.

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. We were able to increase that portion into our entire SKU portfolio. We mentioned earlier that Noble House-related SKUs were added into the B2B marketplace, and that amounts to roughly $57 million in GMV. And that's really what kind of blew out the quarter for us.

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.

Yes, I guess it's all of the above. I think when we were projecting how Q3 is going to look, we incorporated what we think Noble House is going to contribute for the quarter. And obviously, the evolution and the growth and the expansion of the B2B organic marketplace. So I guess it's both organic and inorganic growth that we put into consideration when we projected our Q3 outlook.

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.

Yes, I think, well, 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 execution. So I think there will be some compression to margins overall, but we don't expect that to be significant in magnitude.

Your next question comes from Matt Koranda from Roth Capital.

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 GMV. How long until we see 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?

Iman, you want to take that one?

Sure. So with Noble House, the intention is to preserve the existing sales channel for now. So we're slowly and gradually utilizing the marketplace to open up the SKUs in a calculated way to the marketplace participants. We have ongoing plans to do this on a regular basis, and you should see top line contributions grow at that pace.

The idea we're exploring is to find a balance between using the marketplace to boost sales for Noble House products and maintaining our strong relationships with the major B2B channels that Noble House previously relied on. We anticipate making 20% to 30% of Noble House products available on the marketplace while keeping the majority with our main B2C partners.

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?

This is Larry, I'll take this one. I think we understand that the turn of the Noble House product is usually a bit slower than the larger products. We still placed a sizable order across the entire supply chain of Noble House because we understand that due to the bankruptcy, our vendors need that funding. At the same time, we also try to provide confidence to our channel partners. However, we will gradually try to improve the turnover of Noble House products to get that efficiency as close as possible to our traditional Giga products. The other reason is that annually, when ocean shipping prices go up, because of the cost we pay for ocean products, the quantity remains the same, but the dollar value could increase. That's been a trend we've observed in the past when ocean shipping costs increased. You can check our historical data to see that mechanism.

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 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 decline sequentially. And then also 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.

I think the first thing is I need to point out that Noble House's business has strong seasonality due to their focus on outdoor furniture. So the contribution for Q2 is significant from their legacy business. Therefore, we expect that the Q3 sales number won't be as strong for Noble House products. At the same time, the entire furniture industry has experienced strong headwinds for quite a while—more than a year. So we are very cautious about managing our growth and the resources we allocate, which is why you are seeing the sequential revenue decline.

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 time around?

Yes, Matt, as I mentioned, we have fixed rate contracts that we signed with various shipping companies, which we didn't have two years ago when we saw ocean shipping rates surge. So this time, we are different. We are hedged. We're protected. Obviously, we're not hedged 100% of the volume, but because we have some of these fixed rate contracts, we're better protected against any further surge in ocean shipping rates.

And how far any characterization of how far out we're hedged? I would assume these are annual contracts, so maybe it works out through this year, but any comfort you can provide folks around sort of timing, duration of that hedge?

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 a sizable portion of our volume being hedged using these fixed price contracts.

Yes, several things happen because of the hedging mechanism. One is that there's a good chance we could see that ocean shipping revenue margin improve because the difference between spot rates and contract rates is getting wider. At the same time, for our one-piece business, costs will be negatively impacted, but we will try to introduce new products and seize pricing opportunities based on updated or new ocean shipping costs. It's a complicated situation, but to sum up everything, we expect moderate pressure on margins. However, due to the hedging mechanism, pricing opportunities, and differing directions for our one-piece and third-party business margins, I think that's the reason David expects the change won't be as drastic as we saw the last time ocean shipping rates spiked.

Your next question comes from Thomas Forte from Maxim Group.

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?

I think the key reason is we're introducing a new business model that has proven to provide better efficiency in the supply chain. I think that's the fundamental reason. We do not do business in the same way that most companies do. The quality of the management also contributes to those differences in efficiency from company to company. I would emphasize that the business model is the major factor, while management quality is a minor factor.

My second question. You noticed gross margin pressure from new warehouse additions. Historically, housing optimization improves over time for new warehouses.

Maybe I can take a stab at this one. Typically, with a newly leased facility, before it becomes fully operational, it takes approximately four to six months for us since it involves setting up racking and shelving, forklifts, rental staffing, and other processes. It takes that ramp-up period.

And then from my third and final question, can you give your current thoughts on strategic M&A, both from an opportunity standpoint and your strategy?

This is Larry; let me take this one. I think we're focusing on looking for opportunities that either help grow the volume in the ecosystem or expand the reach of our ecosystem. Noble House and Wondersign are two very good examples of that kind of strategy. Noble House helps us bring in a lot of new SKUs that we're strong with, especially outdoor products, while Wondersign is a solution company that will help our customers achieve better reach than they had before. These are two very good examples of our M&A strategy.

Your next question comes from Sean Liu from Panoramic Capital.

You mentioned an increase in stock-based awards earlier. Can you talk a bit more on this? It seems like it's concentrating in Q2, but I want to make sure I understand correctly. Are we expecting the same awards in the following quarters?

No. Usually, the majority of stock-based compensation happens in Q2 because most of those awards are highly performance-based. When we have access to all the data from the previous year, we reward those contributors in the team based on that performance data. That's the reason why you are seeing stock-based compensation heavily concentrated in Q2. As David explained, the increase is mainly due to the increase in stock price. Although the shares awarded didn't change much, the significant increase in stock price raised the total compensation amount. Another reason is that I didn't take stock compensation last year because, as CEO, I felt responsible for our relatively unimpressive results in 2022 and I should take that risk. I didn't receive any stock-based compensation for that year. But for 2023, I believe we delivered impressive financial results. Therefore, I got compensated for my performance this year. Those are the two major factors impacting the stock-based compensation number you're seeing.

There are no further questions at this time. I'll now hand back to David for closing remarks.

Great. Thank you all for your 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.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.