LightInTheBox Holding Co Ltd

SWB:L4XA

Earnings Call Transcript 2019-Q3

[Operator]

Good morning, everyone, and welcome to the Third Quarter 2019 Earnings Conference Call for LightInTheBox Holding Co., Ltd. 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.

[Christian Arnell, Investor Relations]

Thank you. Hello, everyone, and welcome to LightInTheBox's third 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 services.

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. 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 discussions 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 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 now like to turn the call over to Mr. He. Please go ahead.

[Jian He, Chief Executive Officer]

Thanks, Christian, and thank you, everyone, for joining us today. Our results this quarter are a strong reflection of the significant progress we have made. Since we began implementing our strategy to turn the business around, following the acquisition of Ezbuy, I'm pleased to report that we are beginning to see the tangible benefits of the changes we have been making to improving operational efficiency, product optimization and cost controls, which resulted in our first quarter of GAAP profitability since 2014.

Revenue growth accelerated during the quarter, increasing 34.3% year-over-year to $59.9 million. This also marks the second consecutive quarter increase in revenue since the acquisition. Gross margin expanded significantly to 42.3% from 15.1% during the same period last year, once again driven by our continuous efforts to drive revenues from categories with higher margin as part of the company’s optimization strategy around product mix.

Adjusted EBITDA was positive for the second consecutive quarter, increasing to earnings of $0.5 million from a loss of $17.3 million during the same period last year, which I believe demonstrates the growth trajectory we are on. Most importantly, this quarter, we posted net income of $10 million, the first time since 2014. We remain focused on executing our strategy to generate sustainable long-term growth and are very encouraged by our improvements to-date.

I would like to take this opportunity to highlight three key drivers embedded within our strategy, which have been critical in turning the business around and will continue to benefit us going forward. First is product optimization. We serve a global market spanning over 140 countries. Earlier this year, we began to refine our supplier selection process to focus primarily on sourcing higher margin products from best-in-class suppliers. This quarter, we began providing suppliers with cutting edge tools to derive greater market insights into popular products design, trends and even materials that are increasingly in demand for apparel products. These insights helps them to rapidly adapt and optimize their products to new trends and in turn has greatly improved our ability to meet customer demand with customized products across the different countries and the regions that we serve. This has helped drive substantial increase in repeat purchase rate, which brings us to our second driver, customer engagement. Having a more localized level with products that cater global trends and the consumer needs in each market is a key to increasing repeat purchase rate.

To further strengthen our position in each market, we launched a number of sales campaigns and highly localized promotional period. During this quarter, we ran a Prime Week campaign in North America to align already popular Prime Day global shopping event in mid of July.

Second time, it was a massive success and resulted in a 66% increase in operating profit from retaining customers. In August and September, we ran back-to-school promotions in North America and Europe which also achieved results.

Repeat purchase rates are not only driven by discounts but also because of an expanded selection of relevant and localized products, expanding the market scale. We identified several markets that we serve, their penetrating rates are still relatively low and presented ample room for us to grow sales volumes there.

Within these markets, we are focused on increasing our scale to improve overall operational efficiency. We have lowered the shipping cost by 40% and the shipping times by 15% across all our major markets and a number of new emerging markets, which we have targeted for further penetration. This improvement in costs combined with our focus on product optimization and targeted campaigns and promotions significantly increased our cart completion rate by 20%, an important metric for e-commerce. I'm extremely proud of our performance during the quarter and over the past few quarters as recovery and the strategy navigated the turnaround of this business.

I am confident that our financial and operational performance will continue to improve as our strategy takes further hold.

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, and thank you, everyone, for joining the call. As Mr. He mentioned, we are excited to see our top and bottom-line continue to grow over the past two quarters. We're confident in our current operations and growth trajectory, which we expect will support continued sustainable growth going forward when taking seasonality into account. I will now give you our financial results. Let me remind that all numbers quoted are in U.S. dollars.

Total revenue was $59.9 million, up 34.6% year-over-year. Revenues from product sales were $58.1 million, up 35.5% year-over-year, reflecting the progress we have made in product optimization. Revenue from service and others were $1.8 million, up 10% year-over-year.

Gross profit was $25.3 million compared with $6.7 million during the same period last year. Gross margin improved significantly to 42.3% compared with 15.1% in the same quarter of 2018, primarily due to our continued efforts to drive revenue growth from categories with higher gross margins. Total operating expenses were $25.7 million compared with $24.8 million in same quarter of 2018. The number of orders during the quarter were 1.4 million compared to 0.8 million during the same period last year. Corresponding fulfillment expenses were $6.8 million compared with $3.4 million in the same quarter of 2018.

Selling and marketing expenses were $12.4 million compared with $11.3 million in the same quarter of 2018 as we continue to optimize our product selection. We have also been improving customer acquisition efficiency, which is reflected in selling and marketing expenses as a percentage of revenue falling to 20.8% from 25.4% in the same quarter of 2018. G&A expenses were $1.6 million compared with $7.5 million in the same quarter of 2018. R&D expenses were $4.9 million compared with $2.5 million in the same quarter of 2018. As a percentage of total revenue, R&D expenses were 8.2% compared with 5.7% in the same quarter of 2018.

Technology is part of our DNA and our investments in R&D going forward will grow gradually as we fully enhance the user experience. This has already generated a substantial improvement in repeat purchase rate as we work to increase customer engagement.

Loss from operations improved significantly to $0.4 million compared with a loss of operations of $18.1 million in the same quarter of 2018. Net income was $10 million compared with a net loss of $17.8 million in the same quarter of 2018, which includes a $10.3 million gain in change in fair value of convertible promissory notes issued to acquire Ezbuy. Again, we are very pleased that our positive adjusted EBITDA with earnings of $0.5 million compared with negative $17.3 million in the same quarter of 2018. As of 30th September, 2019, we had cash and cash equivalents and restricted cash of $29.7 million compared with $29.4 million as of 30th of June, 2019.

For the fourth quarter of 2019, based on current information available to the company and business seasonality, we expect net revenues to be between $71 million to $75 million.

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

[Operator]

No questions as of the moment. Presenters, please continue.

[Christian Arnell, Investor Relations]

Thank you very much everyone for joining the call tonight. That concludes the call. If you have any further questions or answers, please don't hesitate to reach out to the LightInTheBox IR Team. Thank you and have a good night.

[Jian He, Chief Executive Officer]

Thank you.

[Operator]

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