蘭亭集勢 (LITB) 2016 Q3 法說會逐字稿

Ladies and gentlemen, thank you first standing by and welcome to the LightInTheBox 2016 third-quarter earnings conference call. (Operator Instructions). I must advise that this conference is being recorded today December 12, 2016. I would like now to hand the conference over to your host today, Mr. Christian Arnell. Thank you. Please go ahead, Sir.

Thank you, Joe. Hello, everyone, and welcome to LightInTheBox's third-quarter 2016 earnings conference call. The Company's results were released earlier today and are available on the IR website as well as through PR Newswire.

Today you will hear from LightInTheBox's Chairman and CEO, Mr. Alan Guo, who will give you an overview of the Company's strategies and recent developments; followed by Mr. Robin Lu, the Company's Chief Financial Officer, who will address financial results in more detail.

Before we proceed I would like to remind you of our Safe Harbor statement. Please note that today's discussion may contain certain forward-looking statements made under the Safe Harbor provisions of the US 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 our current expectations.

To understand the factors that could cause results to materially differ from those in the forward-looking statements, please refer to our Form 20-F filed with the US Securities and Exchange Commission on April 29, 2016. We do not assume any obligation to update any forward-looking statements except as required under applicable law. At this point I would like to turn the call over to Alan. Alan, please go ahead.

Thanks, Christian, and thank you, everyone, for joining us today. We are pleased with our performance during the third quarter. Revenue came in at $64.4 million, exceeding our guidance of $61 million to $63 million. We also delivered a much improved net income with GAAP net loss shrinking to $2.3 million, a 73.8% improvement over $8.6 million during the same quarter last year.

As a testament of our improving efficiency, fulfillment expenses, selling and marketing expenses, as well as G&A expenses, all decreased year-over-year and sequentially as a percentage of total net revenues.

Total operating expenses during the quarter were $25.0 million, a 28.1% improvement over $34.7 million during the same quarter of last year. During the second half of the third quarter, while many currencies, including the euro, continued to fluctuate, we saw the renminbi further depreciate against the US dollar. We think this will create an improved macroeconomic environment for our business, which focuses on exporting goods from China abroad and could present us with new opportunities for growth as the pricing of our products could become more competitive.

As a result we fine-tuned our strategy in the fourth quarter to regain revenue growth momentum which has been trending upwards as shown by the 10% increase in our Black Friday sales and our fourth-quarter guidance. The midpoint of our fourth-quarter guidance represents approximately 5% year-over-year growth and [a 43%] (corrected by company after the call) sequential growth which would be our highest sequential growth rate in the past five years.

After a number of quarters where we continue to realign our supply chain, we think we have built a stronger foundation to support our strategy of capturing new opportunities and sales expansion with fewer but stronger suppliers which have a more manageable and more engaged supply chain with higher quality products. We are also continuing to increase direct sourcing from factories and factory direct wholesale marketplaces rather than through trading agents.

As a result we saw a significant sequential increase in the number of new product listings and products sourced directly turning into a new important revenue driver for the fourth quarter. Our improved supply chain management is helping us maintain healthy margins while allowing us to become more competitive on price. It is also enabling our category expansion into sports and hobbies, among others, an integral part of our growth strategy.

Operational efficiency -- optimization in logistics and warehousing also further improved. Fulfillment costs as a percentage of the revenue dropped to 6.0% compared to 7.0% in the same quarter last year. The percentage of orders shipped with trackable or expanded shipping carriers reached an all-time high and our post-return refunds dropped to a low for the last two years, demonstrating the effectiveness of our initiatives.

Thanks to our big data analytics capabilities we were able to more accurately determine which products were stored and in which warehouse, keeping our overall inventory level low and at the same time improving order fulfillment rates and shorten delivery times to the customers. As a result, customer satisfaction with order fulfillment continued to improve. We are also continuing to gain traction and make progress with LanTingZhiTong, our global cross-border logistics platform, with the number of order shipments increasing.

LightInTheBox how it's always been a technology enabled online retail Company with strong capabilities to develop proprietary productivity enhancement software. We believe that many other companies could leverage our software to achieve higher efficiency in their operations, which presents us with a new business opportunity.

Therefore in early November we launched a cloud-based enterprise resource planning Software-As-A-Service solution for online and off-line distribution companies. It was developed on top of our self-developed and proprietary ERP system which has been better tested and improved over the past eight years.

We believe it is a great solution for small and emerging companies that have never used an ERP system as well as large distribution companies that handle millions of orders per year and manage thousands of suppliers like us.

Designed for both online and off-line distribution companies, retail and wholesale, particularly off-line business trying to expand online, the newly launched system comes with a full spectrum of management solutions to facilitate order management, procurement management, product category management, supplier management and inventory management.

The ERP solutions is a web-based, easily configured, and requires no installation and it comes with fully self-serving registration. It's built to use open source software and database stacks and can easily be deployed on several major cloud platforms such as Amazon AWS. We will offer it for free for small and medium enterprises, first in China and later globally, to demonstrate how innovative and disruptive our ERP solution is to the distribution industry.

We are currently in trial runs with a number of our partners in the Zall off-line wholesale ecosystem and expect that increasing adoption will contribute to further growth in our business in the future. Now I will turn to Robin who will walk you through our Q3 financials.

Thank you, Alan. As I review our financial results let me remind you about a few things. All numbers quoted are in US dollars, all percentage changes refer to year-over-year unless otherwise noted.

As revenues were $64.4 million, total orders were $1.4 million and the total number of customers who made a purchase in the quarter were 1.1 million. Revenues in the apparel category were $23.6 million. As a percentage of total net revenues, apparel revenues were 36.7% compared with 41.6% a year ago. Revenues generated from other general merchandise were $40.8 million.

Looking at our business geographically, revenues from North America were $20.4 million and accounted for 31.7% of total net revenues. Revenues from Europe were $35.6 million representing 55.3% of total revenues, while revenues from other countries were $8.4 million representing 13% of total net revenues.

Gross profit was $22.5 million and the gross margin was 35% compared with 37.5% in the same quarter of 2015. Fulfillment expenses which include payment processing fees decreased to $3.9 million from $4.9 million.

Selling and marketing expenses were $13.3 million, lower than $19.5 million in the same quarter of last year.

G&A expenses were $7.8 million or 12.2% of total net revenues, down from $10.3 million or 14.7% of total net revenues. G&A expenses include $3.1 million in technology investments compared with $3.6 million during the same period last year.

GAAP net loss was $2.3 million compared with GAAP net loss of $8.6 million a year ago. Non-GAAP net loss was $1.1 million compared with non-GAAP net income of $3.3 million in the same quarter of 2015. GAAP net loss per ADS was $0.03 compared with GAAP net loss per ADS of $0.18 in the same quarter of last year.

As of September 30, 2015 we had cash and cash equivalents and restricted cash of $89.1 million. As of September 30, 2016, the Company had repurchased a total of $0.4 million of ADS as part of a 10 million share repurchase program announced on June 8, 2016.

For the fourth quarter of 2016, based on our current estimates and the business seasonality, we expect net revenues to be in the range of $91 million to $93 million. This forecast reflects the Company's current and preliminary view on the market and operational conditions, all of which are subject to change.

This concludes our prepared remarks. At this point we are ready to take some questions. Operator?

(Operator Instructions). Our first question comes from the line of Rong Dai, Zhong He Capital.

^ May I ask you two questions? The first question is can you give us more color about your cloud ERP and the relationship with your core business? The second one is that with your announcement of 10% growth on your Black Friday sales, as well as higher than the last few years' revenue guidance, what are the main factors that drive that growth? That is all.

Thank you. So as I mentioned before, the ERP system was part of our own operation to develop the software we have used for a long period of time. And over the years we discovered actually many other distribution companies in the wholesale business or in the e-commerce business also need this type of software. And a lot of the solutions on the street actually cannot meet their requirements. And our product actually is well battle tested. So we (inaudible) the software and made it a cloud-based solution for the SMEs.

We also work very closely with our strategic partner, Zall, which has a relationship with a large number of wholesalers in China. We think with their help we will be able to get a lot of adoptions in the market. We feel it is a very important strategy for us in the future.

For your second question, we are very pleased that our revenue in the fourth quarter started gaining growth momentum. Our Black Friday sales increased 10% year-over-year and we provided guidance today with year-over-year growth compared with last year and also a very significant sequential growth compared with last quarter.

We think there are a couple reasons for that. The first reason is after a rather long period of time of streamlining and optimizing our supply chain we gained a better supplier base, our products have been with better quality, and also the price of our product -- it is more competitive which drives up the conversion rate from our customers.

And secondly, we also felt the general macroeconomic environment, especially the depreciation of the Chinese yuan against the US dollar, would be a help -- a force for us to gaining market share. And we also made a number of improvements in other areas of our operations including marketing, including customer service, etc., and all these things contribute to the regaining growth of our sales in Q4. Thank you.

Okay, thank you.

(Inaudible). Our next questions comes from the line of Rick Shea, Vardon Capital. Please go ahead.

Good evening. Nice work on the expense and service improvements. So based on the new expense structure, what total annual sales number do you think the Company needs to produce positive earnings per share and what initiatives for 2017 will drive the top line to that number?

Rick, this is Alan. We certainly have internal motives what kind of fixed costs in the Company. The ballpark of the fixed costs actually are the personnel-related. And a big part of it is actually software R&D. So we have about a quarter of our personnel cost is about R&D and three-quarters of them spread between marketing, supply chain, customer service and order fulfillment.

So the customer service and order fulfillment is pretty much variable cost, while the revenue goes up it goes up. So it's while we are improving over time but it is more or less a percentage based cost. And the rest of that is actually fixed cost.

I think during the past six quarters we have been well-managed our fixed cost. And we feel we have reached a point where we can start to regain revenue, which will give us further leverage off our fixed cost. And the higher -- certainly the higher the revenue goes it will give us a better cash flow and better profitability.

But that is kind of the way I look at it. But beyond the Q4 we are certainly not giving guidance at this time for 2017. But we feel with the macro environment, with our internal cost management initiatives, with our stronger price competitiveness in supply chain we feel the Company is certainly in much stronger shape than a couple quarters ago.

And just maybe as one follow-up. You have mentioned the continued progress on direct sourcing of products as opposed to working through agents. Any quantification of that in terms of what percentage of total inventory or merchandise sales is now sourced directly without a third party?

We actually track two things internally. A, we track the number of product listings, especially the number of new product listings come from direct. The second is obviously the procurement dollar percentage.

We don't feel that it is the metrics we want to disclose externally, but we feel very good about our access direct, especially after we have a strong partner in the supply chain and go in the factory direct wholesale marketplace which our partner, Zall, has been running a very big part together with us. So I guess quantitatively we certainly see the percentage going up.

Thank you.

(Operator Instructions). There are no further questions at this time. I would like to hand the conference back to Mr. Arnell. Please continue.

Thank you. This concludes our third-quarter 2016 earnings conference call. Thank you all for your participation and ongoing support of LightInTheBox. If you have any other questions or would like to visit the Company in China, please don't hesitate to reach out to us. Thank you very much. Have a good day.

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