LightInTheBox Holding Co., Ltd. Q3 FY2020 Earnings Call

Good morning, everyone, and welcome to the Third Quarter 2020 Earnings Conference Call for LightInTheBox Holding Company, Ltd. Today's conference is being recorded. At this time, I would like to turn the call over to Mr. Tip Fleming for opening remarks and introductions. Please go ahead, sir.

Thank you, operator. Hello, everyone, and welcome to LightInTheBox's third quarter 2020 earnings conference call. The company's earnings results were released earlier today and are available on the company's IR website as well as through PR Newswire. Today, you will hear from LightInTheBox's CEO, Mr. Jian He, who will give an overview of the company's strategies and recent developments, followed by Ms. Yuanjun Ye, the company's Chief Financial Officer, who will go over financial results. Together with them today is Ms. Wenyu Liu, the company's Chief Growth Officer. All will be available for the Q&A at the end. Before we proceed, I would like to remind you of the Safe Harbor statement. Please note that the discussion today may contain certain forward-looking statements made under the Safe Harbor provisions of the U.S Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the company's current expectations. To understand the factors that could cause results to materially differ from those in the forward-looking statements, please refer to the company's Form 20-F filed with the Securities and Exchange Commission on May 1, 2020. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. With that, I'd like to turn the call over to Mr. He. Mr. He, please go ahead.

Thanks, Steve, and thank you, everyone, for joining us today. We are pleased to report another solid quarter as total revenue reached $100 million, up 57% year-over-year in line with our prior guidance. We continued to see healthy demand for our value-for-money products across the regions where we operate, including North America, Europe, and Southeast Asia. Benefitting from our consistent efforts to optimize our supply chain and product mix, we maintained our gross margin at a healthy level, achieving 43% during the quarter compared with 42% in the same period of last year. We maintained profitability. Net income for the quarter was $7.3 million. Our solid financial performance reflects successful execution of our strategy as we better position ourselves in the intensive and competitive cross-border e-commerce. We relentlessly focused on a number of key initiatives. For example, optimizing product and category mix, enhancing supply chain management, and improving customer satisfaction to increase new and repeat purchases on our platform. First, I will address supply chain management. Benefitting from our competitive advantages in supply chain has always been pursued by us, providing overseas consumers with value-for-money products is the foundation of our business expansion. Therefore, we continued to deepen our relationship with premium suppliers and have steadily increased our order volumes, so as to continuously reduce costs, while ensuring product quality. This cost-saving benefits customers, thereby enhancing the competitiveness of our products. Second, we continue to focus on variety and relevance. Our platform is committed to providing consumers with a full range of products, including apparel, wholesale, electronics, sports, cars, and hobby products in the center, so as to provide a one-stop shopping experience. In addition, we continue to capitalize on more cross-sell opportunities. Not only does this allow us to customize sales from each shopper, thus increasing customers' lifetime value, but also enhances long-term customer relationships and improves our operational efficiency. Third, while we continue to drive revenue growth, we also maintained a reasonable level of operating expenses. We have built up a healthy and solid foundation for future growth on the heels of achieving 12 consecutive quarters of GAAP profitability from the third quarter of 2019. Looking ahead, we expect to continue to achieve sustainable and profitable growth. For cross-border e-commerce, the strongest sales season has arrived. We have noticed that COVID-19 is still highly affecting some countries and regions. Consumer demand for value-for-money products is still strong. Therefore, we remain optimistic about the holiday season. I will now turn the call over to Yuanjun to go through the financials for the quarter.

Thank you, Mr. He, and thank you, everyone, for joining the call. I will now review our financial results for the third quarter. Let me remind you that all numbers quoted are in U.S. dollars. Total revenue was $100 million, up 67% year-over-year from $59.9 million in the same quarter of 2019. This was mainly driven by strong growth of product sales, which were $95.4 million versus $58.1 million in the same period in 2019 and growth in services and others, which were $4.6 million, increased 161.6% year-over-year. Gross profit was $43.1 million compared with $25.3 million during the same period last year. Gross margin was 43.1% compared with 42.3% in the same quarter of 2019, primarily due to our continued efforts to optimize the supply chain and product mix. Total operating expenses in the third quarter were $41.5 million compared with $25.7 million during the same quarter of 2019. The increase was primarily due to an increase in selling and marketing expenses. Operating expenses, fulfillment expenses were $6.7 million compared with $6.8 million in the same quarter of 2019. As a percentage of total revenues, fulfillment expenses were 6.7% compared with 11.3% in the same quarter of 2019 and 6.5% in the second quarter of 2020. Selling and marketing expenses were $26.9 million compared with $12.4 million in the same quarter of 2019. As a percentage of total revenues, selling and marketing expenses were 26.9% compared with 20.8% in the same quarter of 2019 and 23.3% in the second quarter of 2020. G&A expenses were $7.9 million compared with $6.5 million in the same quarter of 2019. As a percentage of total revenues, G&A expenses were 7.9% compared with 10.8% in the same quarter of 2019 and 6.6% in the second quarter of 2020. Included in the G&A expenses, R&D expenses were $3.5 million compared with $4.9 million in the same quarter of 2019 and $3.3 million in the second quarter of 2020. Adjusted EBITDA, which represents a gain or loss from operations before the share-based compensation expense, change in fair value of convertible promissory notes, interest income, interest expense, income tax expense, and depreciation and amortization expenses, was $12.7 million in the third quarter of 2020 compared with $0.5 million in the same quarter of 2019. Net income was $7.3 million compared with $10 million in the same quarter of 2019. Net income per ADS was $0.07 compared with $0.15 in the same quarter of 2019. As of September 30, 2020, we had cash and cash equivalents and restricted cash of $48.2 million compared with $55 million as of June 30, 2020. For the fourth quarter of 2020, based on current information available and business seasonality, we expect net revenues to be between $120 million and $135 million, representing a growth rate between 61% and 81% compared with the fourth quarter of 2019. This concludes our prepared remarks. At this point, we are ready to take some questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from the line of an unidentified analyst. Please ask your question.

Hello, good evening. Thanks for taking my call. Nice quarter, and the forward guidance is attractive also. I got a question for you. Your sales have done extremely well versus previous years. And I think maybe more people are buying online because of COVID. Certainly, that's the case with U.S. race to online retailers. But has there been a product mix that has accounted for increased sales? I mean, has your business, as your products that you're selling, attracted more buyers? And is that one of the reasons why your sales have done so well?

Hi. Thank you for the question. Allow me to introduce myself first. This is Wenyu Liu. I'm the Chief Growth Officer of LightInTheBox. I appreciate you asking this question. First of all, yes, this is a good quarter. And we do see that our sales revenue increased very healthily for the past two quarters. And in terms of product mix, right now, LightInTheBox is focusing on those consumer products that can satisfy customers' daily demands, like home and garden and sports-related products. Regarding product mix, I believe this is not particularly catered to the COVID period, but we do see that these products can help satisfy customers' demands in the long run.

Okay. And I see that your cash balance, which had grown in the second quarter, declined somewhat in the third. Is that seasonal? Or is there a reason for that since your sales continue to do well?

This is a seasonal effect.

I'm sorry, it's seasonal?

Yes, it is seasonal.

Gotcha. Okay. Finally, your company has been public for many years; I remember when you went public, frankly. And it's nice to see that you've got some very strong growth that has helped your stock as well. But is there any research coverage that your company enjoys, so that more investors can be aware of your company's success?

Yes. We are in the preparation of having all the necessary resources to make more investors understand our business well.

Okay. Thank you.

Thank you. Your next question comes from David Su from First Trust China. Please ask your question.

Good evening, management. This is David from First Trust, and thanks a lot for taking my question. Here are two questions. The first question is, I'm just curious about the Europe and North American market. Would you illuminate business performance of the company in these two major areas during the recent quarter? And the second question is, how much percentage of those two areas have contributed to the total revenue in the recent quarter? Thank you.

Thank you for your question. Let me answer your first question. As mentioned by Mr. He, we have been working on our supply chain and keep on providing customers more variety and value-for-money products. So, in fact, during the past few quarters, all the markets, all the regions are growing very healthily. Of course, in terms of North America and Europe markets, these two are the key markets where we can see very steady growth. Regarding your second question, about two-thirds of the total revenue comes from these two regions.

Okay, got it. Thank you.

Thank you.

As there are no further questions, I'll now hand the call back to Mr. Fleming for his closing remarks. Please go ahead.

Thank you. This concludes our third quarter 2020 earnings conference call. Thank you for your participation and ongoing support of LightInTheBox. We look forward to providing updates and visits in the coming weeks and months ahead. Have a good day.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.