LightInTheBox Holding Co Ltd

SWB:L4XA

Earnings Call Transcript 2019-Q2

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the LightInTheBox Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. I must advise you that this conference is being recorded.

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

[Christian Arnell, Investor Relations]

Thank you. Hello, everyone, and welcome to LightInTheBox' second quarter 2019 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 CEO, Mr. Jian He, who will give 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. They will both be available to take your questions during the question-and-answer session that follows.

Before we proceed, I'd like to remind you of the 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 the 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. Thank you, everyone, for joining us today. I'm great to report solid results which, I believe, demonstrated the effectiveness of our strategy over the past two quarters to stabilize and turnaround our business.

Our revenues during the quarter regained the growth momentum, increasing 4.9% year-over-year to $58.1 million. Gross margin, in particular, expanded significantly to 41.9% from 25.4% during the same period last year, driven by a sustainable shift in product mix from lower margin categories such as wholesale electronics towards higher margin ones such as clothing, shoes and bags and home and garden.

More importantly, adjusted EBITDA hit a milestone for us by breaking positive, increasing to earnings of $0.9 million compared to a loss of $8.9 million during the same period last year.

Our net loss also narrowed substantially to $7.2 [ph] million during the quarter, which includes a $6.6 million non-operating loss in change in fair value of convertible promissory notes issued to acquire Ezbuy.

We're building this business to be sustainable for the long-term. And as you can see, we're clearly headed in the right direction financially and operationally.

Innovation and technology are part of our DNA and we will continue to invest in R&D in order to drive future growth. This includes optimizing our product recommendation algorithms to recommend more cost-effective products to users and rolling out initiatives to increase our repeat purchase rates.

Aside from R&D, we're strategically cutting costs as well to keep our corporate structure lean and efficient.

Sales and marketing expenses as a percentage of revenue also continued to trend downwards, falling to 19.8% while repeat purchase rate increased.

With our financial and operational metrics improving greatly since the acquisition of Ezbuy, I'm fully confident that we have the right strategy in place to build upon this momentum going forward. I remain fully convinced that LightInTheBox has a huge potential and we will continue to focus on executing our strategy to drive long-term sustainable growth and increase shareholder value.

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

[Wenyu Liu, Acting Chief Financial Officer]

Thank you, Mr. He, and thank you, everyone, for joining the call. As I review our financial results, let me remind that all numbers quoted are in US dollars.

Total revenue was $58.1 million, up 4.9% year-over-year. Revenue from product sales was $57.1 million, up 9.7% year-over-year. Revenue from service and others was $1 million, down 69.5% year-over-year as we continue to optimize our revenue mix with a focus on higher margin products.

Gross profit was $24.3 million (sic) [$24.4 million], up 73.1% year-over-year. Gross margin improve significantly to 41.8% (sic) [41.9%] compared with 25.4% in the same quarter of 2018. This was a direct result of our ongoing efforts to drive sales revenue from fashion, home and garden, and other higher-margin categories.

Total operating expenses were $26.9 million compared with $23.7 million in the same quarter of 2018.

Fulfillment expenses were $4.9 million compared with $3.7 million in the same quarter of 2018. As a percentage of total revenue, fulfillment expenses were 8.4% compared to 6.7% in the same quarter of 2018. Since the acquisition of Ezbuy, we have been improving fulfillment efficiency by restructuring our warehouse workflow.

The number of orders during the quarter were 1.3 million compared to 0.9 million during the same period last year. Fulfillment expenses per order were $3.80 versus $4.10 for the second quarter of 2019 and 2018.

Selling and marketing expenses were $11.5 million compared with $11.3 million in the same quarter of 2018. As a percentage of total revenues, selling and marketing expenses were 19.8% compared to 20.4% in the same quarter of 2018.

G&A expenses were $6.4 million compared with $5.9 million in the same quarter of 2018. As a percentage of total revenues, G&A expenses were 11% compared with 10.6% in the same quarter of 2018 and 15.3% in the same quarter of 2019 (sic) [first quarter of 2019].

R&D expenses were $4.1 million compared with $2.8 million in the same quarter of 2018. As a percentage of total revenues, R&D expenses were 7.1% compared with 5.1% in the same quarter of 2018. Technology is part of our DNA [ph]and our investments in R&D going forward will grow gradually as we further enhance the user experience.

Loss from operations was $2.6 million for the second quarter of 2019, down 63.4% year-over-year.

Net loss was $7.3 million compared with $9.5 million in the same quarter of 2018. Net loss per ADS was $0.11 compared with $0.14 in the same quarter of 2018.

Again, we're glad that our adjusted EBITDA hit the milestone and reached positive $0.9 million compared with a negative $8.9 million in the same quarter of 2018.

As of June 30, 2019, we had cash and cash equivalents and restricted cash of $29.4 million compared with $30.3 million as of March 31, 2019.

For the third quarter of 2019, based on current information available to the company and business seasonality, we expect net revenue to be between $58 million and $61 million.

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

[Operator]

[Operator Instructions]. Your first question comes from the line of David Ellis. Please ask your question.

[Unidentified Participant]

With earnings for the second quarter, when you compare it to last year, there was an improvement. But when you go back to 2017, they're way down. And if you go back to 2015, I think you had a $90 million quarter. It is right here. Q2 2015, you had $90.8 million of revenue. Why is the revenue going down so much over the years? And what are you doing to try to turn your company into positive earnings? Thank you.

[Wenyu Liu, Acting Chief Financial Officer]

Okay. Thank you for the question. I will do a translation for Mr. He Jian later. Give us a second.

Mr. He Jian will answer this question in Chinese and I will do a translation.

[Jian He, Chief Executive Officer]

[Foreign Language]

[Wenyu Liu, Acting Chief Financial Officer]

Okay, I will do a translation. If you noticed, for the past few quarters, we have been emphasizing that – we're right now focusing on higher-margin categories like fashion, food and bev, home and garden. So, the drop in revenue is actually because we shifted the sales of those very low margin, but high value products like consumer electronics towards fashion and other low value, but high gross margin products. So, the decrease in revenue is actually caused by this shift of sales. So, if you look at our gross margin, it's actually a very positive growth as compared to 2017 and 2018. So, this explains your first question.

And moving on, if you notice, what we are focusing on right now is actually those products made in China, which means, in China, we have good manufacturers, we have a lot of good factories, we are specialized in producing these kind of products, like fashion shoes, and bags. So, we believe that this kind of made in China product has a very good future. If we can enhance our supply chain and further improve our user experience, we are able to sell more products that we are good in. So, we believe, in future, we're able to regain the growth momentum.

[Unidentified Participant]

Thank you.

[Operator]

[Operator Instructions]. There are no further questions at this time. I would now like to hand the conference back to Mr. Christian Arnell. Please continue.

[Christian Arnell, Investor Relations]

That concludes the call for today. Thank you, everyone, for joining. If you have any further questions or comments, please don't hesitate to reach out to anyone here. This concludes the call. Have a good night.

[Operator]

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