LightInTheBox Holding Co Ltd

SWB:L4XA

Earnings Call Transcript 2020-Q2

[Operator]

Good morning, everyone and welcome to the Second 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. Rene Vanguestaine for opening remarks and introduction. Please go ahead, sir.

[Rene Vanguestaine, Investor Relations]

Thank you, Rachel. Hello, everyone and welcome to LightInTheBox second 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. Yuan Jun 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 after the prepared remarks.

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 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 would like to turn the call over to Mr. He. Mr. He, please go ahead.

[Jian He, Chief Executive Officer]

Thanks, Rene and thank you everyone for joining us today. Despite the continued macroeconomic uncertainty, we are proud of achieving a significant milestone in the second quarter in relation to our operational and financial performance.

Total revenues were $113.9 million in the second quarter nearly doubling that of the second quarter in 2019 driven by the increase in new customers and more orders from existing customers across our core operating margins like North America, Europe and certain Asian countries. Gross margin was improved year-over-year, as a result, our ability to optimize our product mix and the leverage the depth of our relationships with the suppliers. At the same time, we achieved a net income of $8.5 million in comparison with net income of $0.7 million net income in the preceding quarter and a net loss of $7.3 million in the same period of last year, mainly due to our economies of scale that and the disciplined management of costs. These results reflected the success of our revamped strategy, which is to focus on optimizing product and the category mix, enhancing supply chain management and the driving customer engagement.

In the past few quarters, we made significant progress in implementing other growth strategies by not only responding to their immediate needs of our customers, but also consistently improving our operations. To ensure that our strategy can be successfully excluded, we focused on a number of key areas. First, we utilized our underlying technology-driven infrastructure to optimize our supply chain management although we have always benefited from longstanding relationships with suppliers and we have managed to strengthen those partnerships during the second quarter. It was our ability to use our expertise to find suitable suppliers for each merchandise category and our use of real-time data to inform suppliers of changes in demand that proved critical. As a result, we were able to leverage this capability to place larger volume orders with better unit economics, strengthen the relationships with our premium suppliers, improved gross margins and created a better value for money options for our end customers.

Second, we optimized overall product mix with essentially the goal of improving margins and the increasing the order value. And while many changes relate to the other reasons, the power of online stores, we paid particular attention to our cross-sell efficiency and the capabilities. As we continue to better understand the needs and the purchasing patterns of our customers, we offered the user relevant and related products that complement their existing orders, our ability to successfully execute that this strategy had the right impact on the perceived value of our platform and was a driver of higher order values and greater user growth.

Third, we further integrated our customers’ mindset across every part of our business, which allows [indiscernible] by the real needs of customers and as a result cultivated a more loyal customer base and an overall higher retention rate. Paying attention to our customers’ needs during this crisis enabled us to uncover opportunities in real-time across the regions. People continue to spend more time at home. The challenging construction highly is in the reliance on online shopping channels that enabled us to mobilize our supply chain resources and keep up with demand in a timely and cost effective manner. I am confident that our current strategy places us on the right path to sustainable and profitable growth and I am excited about our achievements as we navigate the crisis and our further opportunities as we imagine growing.

Our solid performance this quarter shows that our rapid response to the adverse working conditions caused by the coronavirus has been a success and is an encouraging sign to revamp of the strategies we laid out last year is in fact getting strong results as we focus on driving long-term sustainable value for shareholders. Our ability to drive greater operating leverage, expand our user base and to generate more order flow from existing users is the product of our team’s tremendous commitment, focus and hard work. And I am very proud of their work so far in 2020. As we look ahead to more progress in the third quarter, I am confident that we are well-positioned to scale the business further, improve profitability, to drive top line growth in years to come.

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

[Yuan Jun Ye, Chief Financial Officer]

Thank you, Mr. He and thank you everyone for joining the call. I will now review our financial results of the second quarter. Let me remind you that all numbers quoted are in U.S. dollars.

As Mr. He mentioned, we continue to implement our strategies and demonstrated strong execution, which led to significantly improved top and bottom line performance. Not only are our strategic decisions enabling to fully navigate the adverse impact of COVID-19, but they are positioning us well for sustainable growth beyond the crisis. We are confident that our current operations and growth trajectory will yield further increase in profitability when taking seasonality into account.

Now, let me walk you through the key financial results for the second quarter. Total revenue was $113.9 million, up 95.9% year-over-year from $58.1 million in the same quarter of 2019. This was mainly driven by strong growth of product sales, which were $107.2 million versus $57.1 million the same period in 2019 and growth in services and others, which was $6.7 million increased more than 5x year-over-year. Gross profit was $49.6 million compared with $24.4 million during the same period last year. Gross margin was 43.5% compared with 41.9% in the same quarter of 2019 primarily due to our continued efforts to drive revenue growth from categories with higher gross margins.

Total operating expenses in the second quarter was $41.4 million compared with $26.9 million during the same quarter of 2019. The increase was primarily due to an increase in selling and marketing expenses. Of operating expenses, fulfillment expenses were $7.4 million compared with $4.9 million in the same quarter of 2019. As a percentage of total revenues, fulfillment expenses were 6.5% compared with 8.4% in the same quarter of 2019 and 9.8% in the first quarter of 2020. Selling and marketing expenses were $26.5 million compared with $11.5 million in the same quarter of 2019. As a percentage of total revenues, selling and marketing expenses were 23.3% compared with 19.8% in the same quarter of 2019 and 28.7% in the first quarter of 2020.

Our focus on growth throughout 2020 will result in higher marketing expenses that we will continue to exercise cost discipline, so that selling and marketing expenses as a percentage of total revenues will remain relatively stable. G&A expenses were $7.5 million compared with $10.5 million in the same quarter of 2019. As a percentage of total revenues, G&A expenses were 6.6% compared with 18.1% in the same quarter of 2019 and 14.1% in the first quarter of 2020. Included in the G&A expenses, R&D expenses were $3.3 million compared with $4.1 million in the same quarter of 2019. Adjusted EBITDA, which represents a gain or loss from operations before share-based compensation expense, change in fair value of convertible promissory notes, interest income, interest expense, income tax expense and depreciation and amortization expenses were $9.1 million in the second quarter of 2020 compared with $0.9 million in the same quarter of 2019.

Net income was $8.5 million compared with a net loss of $7.3 million in the same quarter of 2019. Net income per ADS was $0.08 compared with net loss per ADS of $0.11 in the same quarter of 2019. As of June 30, 2020, we had cash and cash equivalents and restricted cash of $55 million compared with $35.6 million as of March 31, 2020. The increase in the company’s cash position for the second quarter is attributed to the cash inflow generated from its operating activities. For the third quarter of 2020, based on current information available and business seasonality, the company expects net revenues to be between $95 million and $110 million, representing a growth rate between 59% and 83% compared with the third quarter of 2019. This concludes our prepared remarks.

At this point, we are ready to take some questions. Operator?

[Rene Vanguestaine, Investor Relations]

Thank you, Rachel. This concludes our second quarter 2020 earnings conference call. Thank you all for your participation and ongoing support of LightInTheBox. We look forward to providing you with updates of our business in the weeks and months ahead. Have a good day or good night. Thank you all.

[Operator]

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