Earnings Call Transcript - GCT Q1 2026

Operator, Operator

Good day, everyone, and welcome to GigaCloud Technologies First Quarter 2026 Earnings Conference Call. Joining us today are GigaCloud's Founder and Chief Executive Officer, Larry Wu; its President, Iman Schrock; and its Chief Financial Officer, Erica Wei. Larry will provide opening remarks. Iman will discuss the company's operational progress, and Erica will review financial results. After that, we will open the call to questions. 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 will include a discussion of non-GAAP 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 the press release issued today by GigaCloud, which is posted on the company's website. Now I will turn the call over to Larry. Please go ahead.

Larry Wu, Founder & Chief Executive Officer

Thank you, operator, and hello, everyone. Our first quarter results highlight the resilience of our business model and the effectiveness of our strategy. During the quarter, industry conditions remained under pressure with the U.S. furniture industry estimated to be down single digits year-over-year. While the U.S. remains a critically important market for us, our performance reflects the power of diversification. Driven by disciplined execution across multiple fronts, we've delivered more than 30% year-over-year revenue growth and more than 50% EPS growth, proof of a sound strategy and consistent disciplined execution, all guided by a long-term view of where we're headed. The long-term view is our compass, and it keeps us focused on what works, building multiple growth vectors while staying agile and responsive as conditions evolve. That approach continued to deliver both for what's driving us now and what we are building for the future. And the future we're building is clear: a truly channel-agnostic marketplace that serves every corner of the big and bulky industry, whether online or offline, domestic or international, spanning categories and borders, wherever our customers choose to do business. Europe continues to be a powerful proof point, delivering growth today and demonstrating our model scales. What works here works abroad. Our success in Europe is a strong validation of our strategy, reflecting the value of long-term strategic positioning, thoughtful investment, and the ability to effectively localize. At the same time, we're building for the future. The acquisition of New Classic adds a new and promising growth vector to our platform. While integration is on track and New Classic has already deepened our capabilities by broadening our offering, its full contribution lies ahead. We're approaching it deliberately and confidently that with time and disciplined execution, these new capabilities position us to better serve more corners of the industry in the long run. We remain optimistic about the future. Our strategy is clear. Our platform is stronger than ever. Our team is executing with discipline, speed, and purpose. That optimism comes from knowing exactly where we're headed, and we're building towards that goal every day through organic expansion and strategic M&A, creating a stronger, more diversified ecosystem without losing agility. Now I will turn the call to Iman for discussion of our ongoing operational progress.

Iman Schrock, President

Thank you, Larry, and hello, everyone. Our marketplace delivered another quarter of strong growth, further reinforcing its expanding relevance and increasing scale. GMV rose 17% year-over-year on a trailing 12-month basis ended March 31, 2026, to $1.7 billion, reflecting both higher transaction activity and expanding buyer engagement. Our marketplace ecosystem continues to strengthen with active third-party sellers growing 19% to 1,377, broadening product assortment for our buyers, while active buyers increased 25% to 12,473, reinforcing the platform's value proposition. These results reflect a healthy, well-balanced marketplace with strong momentum. Our open-ended ecosystem and tech-enabled supply chain drive efficiency and help manage risk, especially in uncertain conditions. We remain focused on execution, operating lean, moving quickly and maintaining discipline to support long-term growth. Although the U.S. market remains highly volatile due to the industry-wide headwinds and ongoing policy uncertainty, we delivered 12% U.S. marketplace GMV growth on a quarterly basis. This performance was not driven by sector growth. It came from continued market share gains enabled by our SFR trading model and disciplined execution. Moving beyond the U.S., Europe continues to emerge as a powerful growth vector and a clear example of our scalable execution-driven model. Overall, marketplace GMV in Europe grew 83% on a quarterly basis, driven by the same disciplined approach we successfully applied domestically in the U.S. As we've shared before, our playbook for new markets remains consistent: lead with 1P to establish the market and attract buyers, then layer in 3P by leveraging buyer demand, creating scale efficiencies and reinforcing the value inherent in our strategy. Europe is still early in that journey with volume today primarily driven by 1P. However, 3P momentum is building rapidly with quarterly GMV growth of more than 500% year-over-year. That's the power of scaling a proven model. And we are complementing that organic growth with deliberate strategic initiatives, such as our recent acquisition of New Classic to deepen our reach within the industry and strengthen our presence across a broader range of channels. With New Classic, we have the opportunity to meaningfully deepen our penetration in servicing brick-and-mortar retailers, a massive segment of the furniture industry with significant runway for growth. All of this is in service of our long-term goal of building the foundational infrastructure that powers the industry wherever business happens. As Larry shared in his year-end letter to the shareholders, this vision of becoming the industry's infrastructure is exactly where we're headed. And with every move, we'll get closer. Integration of New Classic is underway and proceeding as planned. We're approaching it with the same discipline and patience that has served us well in the past because we know that getting this right matters more than getting it fast. Right now, our teams are focused on the foundational work: aligning processes, integrating systems, building relationships with New Classic clients to ensure a smooth transition, and developing new product assortments that are better tailored to the channels New Classic opens up for us. Consistent with our approach to previous acquisitions, we do not intend to run New Classic as a stand-alone company. Instead, we will fully integrate New Classic into our platform and manage it as part of our broader portfolio, unlocking greater efficiency through scale and shared resources. The full value will take time to unfold, but we're confident the long-term payoff—deeper market reach and a more complete offering—will be significant. As we've shared many times before, our focus is on profitable revenue. Unprofitable revenue is simply not our model. One of our core strengths is the ability to pivot quickly when conditions change. We don't chase revenue for the sake of revenue. So when tariffs reshaped the landscape in 2025, we moved decisively. We made an intentional decision to exit certain lower-margin product categories in the domestic market, such as steel furniture, where the economics no longer made sense. That decision put near-term pressure on U.S. revenue, but it was the right call to protect our bottom-line integrity. Now with New Classic, we have a clear path to recapture and grow from there. Through New Classic's strong brick-and-mortar relationships, we expect to drive margin-accretive revenue in the U.S. market over time, reinforcing our long-term profitability while being disciplined on what we're willing to chase. That's how we grow, not just for the quarter, but for the long run. Now it is my pleasure to turn the call over to Erica for a discussion of our first quarter financials.

Erica Wei, Chief Financial Officer

Thank you, and hello, everybody. A quick reminder before we get into our financial results. All figures I cover today are rounded and unless otherwise noted, comparisons are against the same period last year. In the first quarter, we drove sustained profitable growth despite a challenging backdrop. Revenue grew 32% to $359 million from the prior year quarter, while earnings per share grew 53% to $1.04. Breaking our results down further: service revenue increased 24% to $117 million as more industry participants turn to our marketplace. Packaging, warehousing, and other services revenue increased double digits, partially offset by lower ocean service revenue due to reduced ocean spot rates in Q1 of 2026 compared with that of Q1 2025 and reduced ocean volume after the tariff changes that occurred in April 2025. From a margin perspective, service gross margins increased 250 basis points sequentially—primarily the carryover of holiday season surcharges in the first quarter. On a year-over-year basis, service margin declined by 7.3%, mainly driven by lower ocean spot rates and also impacted by higher delivery and freight revenue costs. Turning to the product side: product revenue rose 7% to $243 million as we saw growth across all regions. In the U.S., product revenue totaled $126 million, up 15% from last year's first quarter even against a challenging backdrop. Within that 15%, 2% of the increase represented organic growth, while approximately $14 million was attributable to inorganic growth with the acquisition. That said, on a stand-alone portfolio basis—meaning New Classic's performance in the same quarter last year before we acquired it—New Classic was down approximately 20% year-over-year. This reflects the difficult U.S. industry environment we've been navigating and some near-term disruption as we integrate New Classic operations into our own. This pattern is familiar to us; we saw the same with our last acquisition, Noble House, which experienced a similar short-term decline before we streamlined operations, removed redundancies and applied our platform efficiencies. Noble House not only recovered top-line-wise, but also delivered improved margins and stronger profitability. That's the long-term view in action: patience through the noise and conviction that a comparable trajectory with New Classic will result in short-term disruption followed by long-term margin-accretive growth. In Europe, product revenue grew 80% year-over-year to $103 million as we continue to observe strong demand. Product margins were 31.3% this quarter, up 3.8% year-over-year, driven primarily by price increases as we capitalized on strong demand and benefited from lower ocean shipping costs. As previously shared, while service margins tend to decline during periods of low ocean shipping rates, product generally benefited from such lower rates, with the two lines having an offsetting effect. On a sequential basis, product margins declined 80 basis points due to expected seasonality with the first quarter generally being our softest. Total company gross margin grew to 23.9% for Q1 of 2026 from 23.4% in last year's quarter. From a cost standpoint, sales and marketing costs for Q1 were $31 million or 9% of total revenue compared to last year. The increase was primarily higher channel commission spend and staffing costs associated with market expansion. General and administrative costs totaled $10 million or 3% of total revenue, down from 5% in last year's first quarter, reflecting increased warehouse utilization rates and lower professional and administrative expenses. This brings our net income margin to 10.6% with net income of $38 million, up 12% year-over-year. On a per-share basis, EPS was up 53% year-over-year, driven by increased net income and amplified by a reduction in average weighted shares due to buybacks. We used $22 million in operating cash flows in the first quarter as we built up more inventory for the summer selling season in the second quarter. Total liquidity, inclusive of cash and equivalents, restricted cash, and short-term investments, totaled $364 million. Importantly, we remain debt-free with a disciplined capital allocation strategy. This strategy includes returning capital to shareholders through continued buybacks and pursuing strategic acquisitions that support long-term growth objectives. To date, our cumulative share buybacks across all plans totaled approximately $114 million. We have completed 38% of our latest $111 million plan announced in August of 2025, with $68 million in remaining authorizations for future buybacks. Before we wrap up, a note on the second quarter: the flooding that took place in Vietnam towards the end of 2025, the worst in decades, resulted in some delays and short-term supply chain disruptions for our outdoor season inventory. Looking ahead, we remain confident in our ability to manage through these temporary disruptions and expect revenue in the $365 million to $390 million range. Operator, we are now ready to begin the Q&A session.

Operator, Operator

And our first question comes from Thomas Forte from Maxim Group.

Thomas Forte, Analyst, Maxim Group

So one question and one follow-up. And first off, congratulations on another strong quarter. So Larry, as you scale the business, how should we think about your strategic M&A efforts and your interest in acquiring larger assets as the business gets bigger?

Larry Wu, Founder & Chief Executive Officer

Yes. Thank you for the question. Yes, we are continuously looking for opportunities that could potentially help us build a broader product line or any opportunities to help us improve our technology capability to better service the customer. Yes, we are definitely looking.

Thomas Forte, Analyst, Maxim Group

Excellent. And for my follow-up, how should we think about how rising oil prices affect your business?

Larry Wu, Founder & Chief Executive Officer

Yes. Right now, I think—okay.

Erica Wei, Chief Financial Officer

Go ahead, Larry.

Larry Wu, Founder & Chief Executive Officer

Yes, you can go ahead.

Erica Wei, Chief Financial Officer

Thanks for the question, Thomas. So I think rising oil prices definitely have an impact. The immediate impact would be delivery cost, both on the ocean and ground fronts. There is also the general indirect impact to both consumers and earlier parts of the manufacturing stage of the supply chain. However, it's not fundamentally different from many of the disruptions we've seen in the past—simply a form of cost increase. It could be logistics. Ultimately, we do try to stay very, very disciplined. So we're quite confident in our ability to navigate such increases.

Operator, Operator

And our next question comes from Ryan Meyers.

Ryan Meyers, Analyst

First one for me. The business is obviously accelerating and performing very well despite what you guys consider a difficult macro environment. The question is, what do you think is really driving your ability to consistently outperform the broader furniture and large parcel market right now?

Erica Wei, Chief Financial Officer

Good question, Ryan. I think it ultimately comes down to the marketplace—specifically the SFR model, which is a little bit different from what most folks are used to in the industry. It truly gives participants more flexibility, more efficiency, and helps them manage risk, especially inventory risk, a little better. As we gain more recognition and exposure, we see more participants joining the marketplace looking for those benefits. You can see this through our GMV numbers.

Ryan Meyers, Analyst

Okay. Got it. And then just briefly a question on inventory and operating cash flow. It was obviously down for the year, and it looks like you guys had a big inventory build. What should we be aware of in terms of that inventory build and the purpose of that?

Erica Wei, Chief Financial Officer

Yes. So the majority of that was in preparation for the Q2 season. Q2 is a pretty important season for us because of our outdoor category, so that was the reason for the inventory buildup. On top of that, there is also a little bit of increased spend due to the acquisition. New Classic's initial purchasing terms are not as favorable as GigaCloud's right out of the gate, but obviously that will change over time.

Operator, Operator

And our next question comes from Matt Koranda from ROTH Capital Partners.

Matt Koranda (Joseph on for Matt), Analyst, ROTH Capital Partners

It's Joseph on for Matt. I just wanted to see if you guys could talk a little bit here on gross margin and profitability, kind of piggybacking on Tom's initial question. As we think about elevated energy levels, you said in your prepared remarks that you have some giveback in services gross margins and increased product gross margins. Anything else you can highlight for us there in terms of the impact on services over the last couple of quarters? And how should we be thinking about service gross margins as we look into 2026?

Erica Wei, Chief Financial Officer

Thank you for the question. For Q1, we saw product margins improve year-over-year and compared to Q4. That's a result of both capitalizing on continued demand and pricing appropriately, plus the benefit from lower ocean spot rates in 2025. On the service front, we saw the opposite effect: decreased service gross margin because of reduced ocean spot rates. So there's a natural hedge between the two revenue lines. Moving ahead, assuming spot rates in logistics increase, the two lines might move in the other direction but still in an offsetting manner.

Matt Koranda (Joseph on for Matt), Analyst, ROTH Capital Partners

Got it. I appreciate the color there. As we integrate New Classic with Q1 being the first consolidated quarter, any thoughts on the timeline? Are we expecting the business to slowly ramp similar to Noble House within a 12 to 18-month range? Should that be accelerated or lagging that timeline? Any preliminary thoughts?

Erica Wei, Chief Financial Officer

During our last call, we communicated roughly six quarters for integration, which is similar to the Noble House case in terms of integration efforts, and we believe that is still the case. We're on track for that schedule. In the beginning, we'll probably see a little disruption, similar to Noble House, as we focus on integrating the foundation and getting the portfolio set up for future success. Once we get through that phase, we'll see things reverse and return to growth.

Matt Koranda (Joseph on for Matt), Analyst, ROTH Capital Partners

Got it. And then a final question—could you give thoughts on capital allocation? I know the biggest bucket is share buybacks with a little over $60 million left on your authorization, and also between international expansion and M&A. How should we think about capital allocation in the near term and longer term?

Erica Wei, Chief Financial Officer

You're absolutely right. Those are our two main focal points for capital allocation. Share buybacks have been an ongoing priority and will continue to be an important part of our plan. Strategic acquisitions are also planned for the future, but we won't necessarily be aggressive immediately since we are focused on integrating New Classic the right way.

Operator, Operator

And our last question comes from Rommel Dionisio from Aegis Capital.

Rommel Dionisio, Analyst, Aegis Capital

I wonder if you could provide a little more color on the strength in Europe. Obviously, you're making continued progress and growth in that market. Could you talk about it on a regional basis? Is Germany the key driver there, or are other markets driving it? And also, as you grow so quickly in that market, might that require any infrastructure spend, whether it be warehouses or so forth?

Erica Wei, Chief Financial Officer

We are doing quite well in Europe. There are a few elements to consider. First, the model has been tested and performed well in the U.S., and we're scaling it in Europe similarly. Europe is significantly more fragmented than the United States—more channels, more vendors, and more country-level differences in customer preferences. As of right now, we are operating out of Germany and the United Kingdom for warehousing. However, our product delivery and sales are not limited to those two regions. Germany is the centralized driver right now, but we already cover many countries such as France, Italy, and Spain. Moving ahead, given the speed of growth and anticipated volume from the 3P side, we do expect to plan for more fulfillment centers in the region.

Larry Wu, Founder & Chief Executive Officer

This is Larry. I want to add to what Erica shared about service margins. The margin pressure is not only coming from ocean shipping but also from the ground services we're providing to customers because of the challenges we're seeing in the economy and the rebound in capacity constraints in the shipping industry. We expect that pressure may continue for the coming few quarters. I just wanted to add that note.

Operator, Operator

Thank you. This does conclude today's conference. We appreciate your participation. You may disconnect your lines at this time, and have a wonderful day.