LightInTheBox Holding Co Ltd

SWB:L4XA

Earnings Call Transcript 2019-Q4

[Operator]

Good morning, everyone, and welcome to the LightInThebox Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions]

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]

Thank you. Hello, everyone, and welcome to LightInTheBox's Fourth Quarter 2019 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. 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 expectation. 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 U.S. Securities and Exchange Commission on April 29, 2019. We do not assume any obligation to update any forward-looking statements as required under applicable law.

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

[Jian He, executive]

Thank you, Christian, and thank you, everyone, for joining us today.

2019 was a transformative year for our business. On the one hand, we set ourselves ambitious targets as well as driving great operational efficiency, improving margins, completing the integration of Ezbuy and generating sales and sustainable growth. I'm pleased to report that we delivered on these targets as we successfully improved our gross margins through prudent inventory and capital management. We also delivered a positive net operational cash flow in 2019, the first time we have done so since 2014. Our achievements last year not only reflects our strong commitment to turning this business around but it also forged the way for us to optimize our cost structure. Even better, we'll use this momentum to build and grow our business at scale going forward.

Revenue growth accelerated during the quarter, increasing 29.9% year-over-year to $74.7 million. Gross margin expanded significantly to 40.4% from 34.6% during the same period last year, once again driven by our continued efforts to grow revenues from categories with higher margins as part of our efforts to improve the optimization of our product mix.

Adjusted EBITDA remained stable when compared to a year ago. Most importantly, this quarter, we delivered our second straight quarter of GAAP profitability, also the first time since 2014. And our cash position improved, allowing us to finish the year with $40.4 million in cash and cash equivalents, which is giving us greater flexibility in achieving growth going forward.

Our strong cash position can be attributed to our disciplined approach to product optimization and the innovative use of technology to generate faster and healthier inventory turnaround. Inventory leverage remained healthy with approximately 46% earmarked for shipment, which [indiscernible] 1/2 month of cost of sales. Our results encouraging indicated that our strategy works, and we will continue to focus on the disciplined execution required to generate sustainable and healthy long-term growth.

Our goal in 2020 is to drive sales growth and continue to improve profitability. We will achieve this by leveraging our current structure, which is now healthier and more scalable, to drive sales growth and capitalize on our investments in R&D to generate greater operational efficiency and product optimization.

That said, we are already seeing the impact of coronavirus and other macroeconomic headwinds that lead a challenging environment for growth. We expect [indiscernible] will be affected much in the same way that the others across the industry will be as well. We were beginning to see an acceleration in sales volume in early March before the situation globally deteriorated drastically. We believe this acceleration reflects the underlying strength and growth of our strategy of delivering before the lockdown began, which we expected will continue once the recovery begins.

Our strategy approach to product optimization and a diversified supply chain has provided us with the flexibility needed to navigate this challenging environment. Most of the products we sell are in the apparel and home and building categories with low fixed price, which we believe will remain resilient even in challenging conditions created by the pandemic.

This year, we expect the revenue in Q1 2020 to grow on a year-over-year basis, however. And important, 95% of orders placed were shipped out to customers, and 95% of our suppliers have resumed production at full capacity during the first quarter of 2020, which target, in spite of the lockdown, our warehouse and logistics infrastructure. Our teams' working increased, have to use any resource available to ensure their shipments go out quickly during this difficult time. We have also brought onboard many new suppliers over the past 3 months. The transformation of our business and the infrastructure over the past year is now fully in place, leaving us ideally positioned to capitalize once the recovery begins.

We have already maintained the highest level of corporate and social responsibility and believe the most important thing we can do right now is to stabilize the supply chain and the shipping process for medical supplies to ensure access for everyone. We have been leveraging our deep relationship with the suppliers across China to secure sizable stock of medical face masks, safety covers, hand sanitizer and other related products, which are being displayed on our website and the mobile app. And it can be shipped to customers globally as the pandemic spreads.

In addition to making medical supply available to everyone, we have been leveraging our innovative logistics network to creatively distribute 1.5 million free masks to those who need across North America, Europe and Southeast Asia. Our deepest thoughts are to those currently being affected by the pandemic and we sincerely hope for a quick recovery for everyone.

While we have limited visibility going forward, we are confident that our nimble approach to product optimization will drive sales once the recovery begins. We will continue to use this time to provide much needed medical supplies in the fight to contain the pandemic globally.

I'm extremely proud of our performance during the quarter and the year 2019 as we carefully and strategically navigate the turnaround of this business. We set ourselves ambitious targets and we delivered on them. I'm looking forward to further progress in 2020. And I'm confident that we are now well positioned to improve profitability and the top line growth once the recovery begins.

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

[Wenyu Liu, executive]

Okay. Thank you, Mr. He, and thank you, everyone, for joining our 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 excited to see continued growth momentum in our top line and bottom line, overall profitability and stronger balance sheet. We are confident in our current operations and growth trajectory will yield further increases in profitability when taking that into account.

Total revenue was $74.7 million, up 29.9% year-over-year from $57.5 million in the same quarter of 2018. This was mainly driven by growth in product sales, which was $71.7 million, up 29.2% year-over-year as a result of the continued optimization of our products towards higher-margin categories and stronger sales around the 11/11, Black Friday and other events around the Christmas holidays.

Revenues from service and others were $3 million, up 47.3% year-over-year. We will continue to prioritize high-quality growth by serving the needs of our user base and by improving operational efficiencies in the long run. We will also continue to look for unique opportunities to partner with our suppliers and focus on product categories that scale well while we also focus on improving profitability.

Gross profit was $30.2 million compared with $19.9 million during the same period last year. Gross margin improved to 40.4% compared with 34.6% in the same quarter of 2018 primarily due to our continued effort to drive revenue growth from categories with higher gross margins.

Total operating expenses in the fourth quarter of -- were $34.5 million and increased from $21.6 million during the same quarter of 2018. The increase was primarily due to an increase in selling and marketing expenses and the inclusion of Ezbuy, which had not been consolidated during the same period last year. On a full year basis, we actually see that operating expenses per item fell in 2019 when compared to 2018, which reflects the synergies that are being created with Ezbuy.

Taking a closer look at the result this quarter, fulfillment expenses were $8 million compared with $3.5 million in the second quarter of 2018. The increase was primarily due to the inclusion of Ezbuy and some reclassifications of certain fulfillment expenses. As a percentage of total revenues, fulfillment expenses were 10.7% compared to 6.2% in the same quarter of 2018 and 11.3% in the third quarter of 2019.

The number of orders for product sales during the first quarter were 1.8 million compared to 1.3 million during the same period last year.

Selling and marketing expenses were $17.9 million compared with $11.9 million in the same quarter of 2018. As a percentage of total revenues, selling and marketing expenses were 23.9% compared to 20.5% in the same quarter of 2018 and 20.8% in the third quarter of 2019. On a full year basis, selling and marketing in 2019 only grew by 1.2% year-on-year when compared to 2018.

G&A expenses were $8.8 million compared with $6.2 million in the same quarter of 2018. As a percentage of total revenues, G&A expenses were 11.8% compared with 10.8% in the same quarter of 2018 and 10.8% in the third quarter of 2019. Included in G&A expenses, R&D expenses were $4.6 million compared with $2.2 million in the same quarter of 2018.

Technology will continue to be a part of our DNA, and our investments in R&D going forward will grow regularly as we further enhance the user experience and improve future operating margins. In 2019, technological enhancements translated into a substantial improvement in repeated purchase rates by increasing customer engagement.

Loss from operation was $4.3 million in the fourth quarter of 2019 compared with $1.7 million in the same quarter of 2018. Net income was $12.5 million compared with a net loss of $24.4 million in the same quarter of 2018, which includes a $16.2 million gain in change in fair value of convertible promissory notes issued to acquire Ezbuy.

Net income per ADS was $0.17 compared with net loss per ADS of $0.37 in the same quarter of 2018. As of 31 December 2019, the company had cash and cash equivalents and restricted cash of $40.4 million compared with $29.7 million as of 30 September, '19 -- 2019.

For the first quarter of 2020, based on current information available to the company and business seasonality, the company expects net revenue to be between $53 million and $57 million.

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

[Operator]

[Operator Instructions] As there are no questions at this time, I will hand the call back over to Christian Arnell for any closing remarks.

[Christian Arnell]

Thank you. This concludes our fourth quarter earnings conference call. Thank you for your participation and ongoing support of the company. We look forward to providing you with updates on our business in the coming weeks and months ahead. If you have any further questions or comments, please don't hesitate to reach out to the IR team. Thank you, and have a good night.

[Operator]

That does conclude our conference call for today. Thank you for participating. You may now disconnect.