LightInTheBox Holding Co Ltd

SWB:L4XA

Earnings Call Transcript 2019-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the LightInTheBox Holding Company Limited First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Presentation should be followed by question-and-answer session. [Operator Instructions] I must advise you that this call is being recorded today, Monday, 24th of June, 2019.

I would like to hand the conference over to your first speaker for today, Mr. Christian Arnell. Thank you. Please go ahead.

[Christian Arnell, Investor Relations]

Thank you. Hello, everyone, and welcome to LightInTheBox’ first quarter 2019 earnings conference call. The Company’s 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’ CEO, Mr. Jian He, who will give you an overview of the Company’s strategies and recent developments; followed by Ms. Wenyu Liu, the Company’s acting 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 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 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 April 29, 2019. We do not assume any obligation to update any forward-looking statements except as required under applicable law.

At this point, I’d like to call the – turn the call over to Mr. He. Mr. He, please go ahead.

[Jian He, Chief Executive Officer]

Thanks, Christian, and thank you, everyone, for joining us today. We are pleased to announce that the initiative we implemented last quarter continued to stabilize and turn our business around as our outlook and long-term growth opportunities gradually improved. Last year in the early stages, these initiatives continue to positively impact our financials and operations, which clearly indicate we are heading in the right direction.

While net revenues decreased 27.4% year-over-year to $50.9 million, we improved our gross margin to 34.8% from 29.2% during the same period last year, which was also essentially flat sequentially. Revenue during the quarter was impacted by the seasonality from the Chinese New Year holiday, where our suppliers based in China shut down. Our net loss expanded to $14.1 million in the first quarter of 2019, a large portion of which was the impact of a $5.3 million loss in change in fair value of convertible promissory notes issued to acquire Ezbuy.

If we exclude the impact from the convertible promissory notes and share-based compensation, adjusted EBITDA was $7.9 million in the first quarter of 2019, almost flat when compared with the same period last year, which I believe is more indicative of the progress we have made in turning the business around. These initial results demonstrate the confidence and the dedication of our employees toward building the long-term success of the business and to weathering challenge in order to regain growth momentum. Let me go into a little more detail.

First, the strategy of shifting our focus from geography markets towards generating sales in categories that have higher gross margins such as wedding events, fashion, home garden, and sports is generating solid results. We’re also integrating high-quality suppliers from Ezbuy’s network improving supply chain management and reducing procurement cost, which has resulted significant improvement in inventory turnover efficiency.

Second, the integration of operation between Ezbuy and LightInTheBox continues to progress well. Cost of revenue decreased year-over-year and sequentially as we continue to create new synergies between Ezbuy and LightInTheBox and optimize operational efficiency.

Sales and marketing expense as a percentage of revenue also continued to trend down, falling to 18.3% during the quarter with 23% during the same period last year and 20.5% last quarter. We are working with suppliers of product categories that allow more flexible payment terms and are also seeing increase in repeat purchase as we continue to integrate our systems and optimize our product implementation algorithm to recommend more cost-effective products to users.

The consolidation of four warehouses into two was completed during the quarter as well. We are also creating more opportunities to consolidate digital marketing, shipping, order fulfillment, and further drive down costs over time. We incurred a onetime charge of approximately $3 million, which was split between G&A and fulfillment expense during the quarter in connection with warehouse and operational team consolidation, which we are confident will improve our overall operational efficiency over the long-term and strengthen our competitive position.

I’m very pleased with the progress we have made so far and the direction we are moving forward to implement these initiatives, and a number of others will continue to improve efficiency and fully leverage the synergy between LightInTheBox and Ezbuy.

I will now hand the call over to Wenyu to go through the financials for the quarter.

[Wenyu Liu, Acting Chief Financial Officer]

Thank you, Mr. He. As I review our financial results, let me remind you about a few things. All numbers quoted are in U.S. dollars; all the percentage changes refer to year-over-year unless otherwise noted. So to start, total revenues decreased by 27.4% % year-over-year to $50.9 million. Revenues from product sales were $49.8 million compared with $60.6 million in the same quarter of 2018. Revenues from service and others were $1.1 million, compared with $4.1 million in the same quarter of 2018. As a percentage of total revenues, service and others accounted for 2.2% in the first quarter of 2019.

The number of orders for product sales was 2.6 million compared with 1.3 million in the same quarter of 2018. The number of customers for product sales was 0.6 million compared with 1 million in the same quarter of 2018. Product sales from the apparel were $14.4 million compared with $19.9 million in the same quarter of 2018. As a percentage of product sales, apparel revenues accounted for 28.9% compared with 30.2% in the same quarter of 2018. Product sales from other general merchandise were $35.4 million in the same quarter of 2019.

Total cost of revenue was $33.2 million compared with $49.6 million in the same quarter of 2018. Cost for product sales was $32.8 million compared with $45.9 million in the same quarter of 2018. Cost for service and others was $0.4 million compared with $3.7 million in the same quarter of 2018. Gross profit was $17.7 million, compared with $20.5 million in the same quarter of 2018. Gross margin was 34.8% compared with 29.2% in the same quarter of 2018.

Total operating expenses were $26.5 million compared with $28.6 million in the same quarter of 2018. Fulfillment expenses were $5.2 million compared with $4.5 million in the same quarter of 2018. As a percentage of total revenues, fulfillment expenses was 10.2% compared with 6.4% in the same quarter of 2018, and 6.2% in the fourth quarter of 2018.

Selling and marketing expenses were $9.3 million compared with $16.1 million in the same quarter of 2018. As a percentage of total revenues, selling and marketing expenses was 18.3% compared to 23% in the same quarter of 2018, and 20.5% in the fourth quarter of 2018.

G&A expenses were $12 million compared with $8 million in the same quarter of 2018. As a percentage of total revenues, G&A expenses was 23.6% compared with 11.4% in the same quarter of 2018 and 10.8% in the fourth quarter of 2018. G&A expenses in the same quarter of 2019 included $4.2 million in research and development expense compared with $3 million in the same quarter of 2018. Loss from operations was $8.8 million compared with a loss from operations of $8.1 million in the same quarter of 2018.

Net loss was $14.1 million compared with a net loss of $7.9 million in the same quarter of 2018. The increase in the net loss was mainly due to the change in fair value of convertible promissory notes issued on December 10, 2018 for acquiring total issued share capital of Ezbuy Holding Limited. The net loss due to the change in fair value of the convertible promissory notes in the first quarter of 2019 was $5.3 million. Net loss per ADS was $0.21 compared with net loss per ADS of $0.12 in the same quarter of 2018.

Adjusted EBITDA was $7.9 million in the first quarter of 2019 compared with $7.4 million in the same quarter of 2018. As of March 31, 2019, we had cash and cash equivalents and restricted cash of $30.3 million compared with $39.8 million as of December 31, 2018. For the second quarter of 2019, based on current information available to the company and business seasonality, we expect net revenues to be between $57 million and $60 million.

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

[Operator Instructions]. No questions as of this time. And I would like to hand the conference back to Mr. Arnell. Please go ahead.

[Christian Arnell, Investor Relations]

Thank you. This concludes the First Quarter 2019 Earnings Conference Call. Thank you for your participation and your ongoing support. If you would like any updates or like to contact us, please don’t hesitate to reach out to the LightInTheBox IR team. Have a good night. Thank you.

[Operator]

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