蘭亭集勢 (LITB) 2020 Q1 法說會逐字稿

Good morning, everyone, and welcome to the First Quarter 2020 Earnings Conference Call for LightInTheBox Holding Company Limited. Today's conference is being recorded.

At this time, I would like to turn the call over to Mr. Christian Arnell for opening remarks and introductions. Please go ahead, sir.

Thank you. Hello, everyone, and welcome to LightInTheBox' First Quarter 2020 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' CEO, Mr. Jian He, who will give you an overview of the company's strategy and recent developments, followed by Ms. Wenyu Liu, the company's acting Chief Financial Officer, who will go over financial results in more detail.

Before we proceed, I'd like to remind you of our safe harbor statement. Please note that the discussion today may contain 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 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 Securities and Exchange Commission on May 1, 2020. We do not assume any obligation to update any forward-looking statements except as required under applicable law.

At this point, I'd now like to turn over the call to Mr. He. Please go ahead.

Thanks, Christian. And thank you, everyone, for joining us today. The first quarter presented unprecedented challenges for our business in terms of overall consumer demand and fulfillment restrictions due to the impact of the coronavirus. This has created an opportunity to further test our current strategy for driving our operational efficiency and forced us to make strategic adjustments throughout the quarter to weather the economic disruption. I'm proud to say that all of our efforts to ensure the health and the safety of our employees, maintain business activity, plan for the resumption of normal operations and safeguard partnerships for fulfillment capacity, resulted in our third consecutive quarter of GAAP profitability since 2014. Our strategy adjustments in the first quarter also deepened our relationships with the suppliers, expanded our customer base and further optimized our cost structure. All of which has helped to improve our market condition and our ability to scale the business going forward.

Despite the significant reduction in business activities globally, revenue still increased to $51.5 million during the quarter, up 1.3% year-over-year. Gross margin expanded significantly to 46.4% from 34.8% during the same quarter last year. Once again, driven by our continuous efforts to grow revenues from categories with higher margins as part of our efforts to improve the optimization of our product mix. This was also underpinned by our ability to quickly negotiate with suppliers to secure fast-moving products in the PPE category, and realize cost savings through a disciplined approach to inventory management.

Adjusted EBITDA also improved significantly, increasing to $1.4 million compared with a loss of $7.9 million in the same quarter of 2019. As I mentioned earlier, we delivered our third consecutive quarter of GAAP profitability, while our cash and cash equivalents position remains healthy at $35.6 million, which will continue to provide us with the resources and flexibility needed to drive growth going forward.

We began to see the impact of coronavirus on business activities as early as late January. We couldn't deliver goods from our warehouses for almost a month. Employees were severely restricted from coming to work, and then we anticipated the operating environment could get worse -- it got worse. As countries started to put more global travel restrictions in place and customer services became more constrained, our focus has to shift greatly to safeguarding our employees but equally as important, ensuring that our customers will continue to receive packages on time. In rapid response to the challenge, our management team quickly implemented a remote working protocols, we had serious strategy conversations with suppliers. And we made adjustments to our innovative logistics infrastructure while securing fast-moving and high demand PPE products. This helps to mitigate the overall impact in our business. But we also took a step further by stepping up our commitment to greater corporate and social responsibility and helping many of our global customers in the fight against the pandemic.

During the quarter, we shipped over 1.5 million free masks to customers in the United States, Europe and Southeast Asia. The unintended effect of all our efforts results in even larger customer footprint, expansion of our suppliers' relationships and an overall improvements in LightInTheBox brand visibility. And lastly sales volume picked up across all the countries we cover and though it's premature to give specifics, we can confidently say that our repeat customer purchase rates are trending higher.

We expect revenue in Q2 2020 to grow on a year-over-year basis. We resumed production at full capacity towards the end of the first quarter of 2020, and have been seeing a sustained increase in selective categories, like Home & Garden. Over the last 2 to 3 weeks, we have also started to see a rebound in more traditional categories, such as fashion as customers plan for gradual reopenings. Irrespective of the resulting operating environment throughout the rest of the year, we are confident that our balanced category mix, enhanced efficiency, expanded customer base and factory relationships, innovative logistics infrastructure and the increasing worldwide adoption of the online shopping, all position us well to drive profitability going forward and deliver on our targets for margin expansion.

Our performance this quarter reflects our ability to rapidly adapt to adverse operating conditions, showcased the tremendous commitments of our employees and the management team, and illustrated how well the strategies we laid out last year are driving long term sustainable value for shareholders despite the challenges. I'm extremely proud of our performance during the quarter and am already very encouraged by the resurgence in activity we have been seeing in the second quarter so far. I'm looking forward to further progress throughout the rest of 2020 and am confident that we are well positioned to scale business further, improve profitability and drive top line growth as the recovery continues.

I will now turn the call over to Wenyu 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. Let me remind that all numbers quoted are in U.S. dollars. As Mr. He mentioned, we are very encouraged by the continued growth in our top line, bottom line, overall profitability and stronger balance sheet strength despite the significant adverse conditions due to COVID-19. We are confident that our current operations and growth trajectory will yield further increase in profitability when taking seasonality into account.

Total revenue was $51.5 million, up 1.3% year-over-year from $50.9 million in the same quarter of 2019. This was mainly driven by stable product sales, which were $49. 9 million, compared with $49.8 million in the same period in 2019, and growth in service sales, which were $1.6 million, up 45.5% year-over-year. We will continue to prioritize high-quality growth, leverage the expansion and strength of our relationships with factories and we cater to the needs of our growing user base and improved operational efficiencies in the long run. We will also continue to look for unique opportunities to optimize our category mix towards products that scale well with the overall focus remaining squarely on margin expansion and sustainable profitability.

Gross profit was $23.9 million compared with $17.7 million during the same period last year. Gross margin improved to 46.4% compared with 34.8% in the same quarter of 2019, primarily due to our continued efforts to drive revenue growth from the categories with higher gross margins.

Total operating expenses in the first quarter were $27.1 million, a marginal increase from $26.5 million during the same quarter of 2019. The increase was primarily due to an increase in selling and marketing expenses.

Taking a closer look at the results this quarter, fulfillment expenses were $5.0 million compared with $5.2 million in the same quarter of 2019. The decrease was primarily due to the increased efficiency across our innovative logistics infrastructure. As a percentage of total revenue, fulfillment expenses were 9.8% compared with 10.2% in the same quarter of 2019, and 10.7% in the fourth quarter of 2019. The number of orders for product sales during the first quarter was 1.0 million compared with 1.2 million during the period last year.

Selling and marketing expenses were $14.8 million compared with $9.3 million in the same quarter of 2019. As a percentage of total revenues, selling and marketing expenditures were 28.7% compared with 18.3% in the same quarter of 2019 and 23.9% in the fourth quarter of 2019. Our focus on growth throughout 2020 will likely result in higher marketing expenses, but we will continue to exercise cost discipline in order to maintain profitability and healthy margins.

G&A expenses were $7.3 million compared with $12.0 million in the same quarter of 2019. As a percentage of total revenue, G&A expenses were 14.1% compared with 23.6% in the same quarter of 2019 and 11.8% in the fourth quarter of 2019. Included in G&A expenses, R&D expenses were $3.5 million compared with $4.2 million in the same quarter of 2019.

Technology will continue to be a part of our DNA, but the slight scale back in R&D investment reflected our ability to leverage technological enhancements that we made throughout 2019 while preserving cash during the COVID-19 outbreak, which caused a slowdown in our operations. We intended to gradually increase our investments in R&D going forward as we further enhance the user experience and improve future operating margin.

Throughout the first quarter of 2020, repeated purchase rate were impacted by longer delivery times due to COVID-19, included logistic constraints. However, in the last 2 or 3 weeks as the operating environment continues to rebound, we have been seeing a significant improvement in repeated purchase rate alongside increasing customer engagement from an extended customer base.

Adjusted EBITDA, which represents a gain or loss from operations before shared-based compensation expense, change in fair value of convertible promissory notes, interest income, interest expense, income tax expense and depreciation and amortization expenses was $1.4 million in the first quarter of 2020 compared with a loss of $7.9 million in the same quarter of 2019.

Net income was $0.7 million compared with a net loss of $14.1 million in the same quarter of 2019. Net income for ADS was $0.01 compared with a net loss per ADS of $0.21 in the same quarter of 2019. As of March 31, 2020, we have cash and cash equivalents and restricted cash of $35.6 million compared with $40.4 million as of December 31, 2019. We believe this level of liquidity is sufficient to navigate an extended period of uncertainty.

For the second quarter of 2020, based on current information available and business seasonality, we expect net revenue to be between $105 million and $120 million.

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

(Operator Instructions)

No question at this time. I'd now like to hand the call back to Mr. Christian Arnell. Please go ahead.

Thank you very much, everyone, for joining today's call. If you have any questions or further comments, please don't hesitate to reach out to the LightInTheBox IR team. This concludes the call. Have a good night.

Thank you. Ladies and gentlemen, this concludes our conference call for today. Thank you for participating. You may now all disconnect.