Earnings Call: Q2 2021

Sep 7, 2021

Earnings release

Good morning, everyone, and welcome to the Second Quarter 2021 Earnings Conference Call for LightInTheBox Holding Co Limited. Today's conference is being recorded. At this time, I would like to turn the call over to Mr. Rene Van Westijn for opening remarks and introduction. Please go ahead, sir. Thank you, Ray. Hello, everyone, and welcome to Lightinthebox Second Quarter 2021 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 CEO, Mr. Jian He, who will give an overview of the company's strategies and recent developments, followed by Ms. Wang Jun Yeung, the company's Chief Financial Officer, who will go over the financial results. Together with them today is Min Wen Yu Liu, the company's Chief Growth Officer. All will be available for the Q and 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 all 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 20F filed with the Securities and Exchange Commission on April 21, 2021. 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 turn the call over to Mr. He. Mr. He, please go ahead. Yes. Thanks, Renan, and thank you everyone for joining us today. Following a solid Q1, we continued to achieve stable year over year growth in the Q2. Total revenue reached RMB122.2 million, up 7.3% from the same period of 2020. Our gross profit margin in Q2 was 46.8%, higher than 43.5% in the same period of 2020, while adjusted EBITDA grew by 59% year over year. Total revenues for the first half of this year were RMB234.2 million, representing a 41.6% increase from the first half of twenty twenty. From the macro perspective, as vaccination rates around the world increase, people are engaging in more outdoor and social activities with family and friends as well as offline shopping at retail stores and the malls is a good phenomenon and we are pleased to see this happen. In the long run, we believe that online and offline shopping can complement each other for a better shopping experience. Overall speaking, our sales in Q2 continued to sustain a healthy growth momentum. Product sales increased by 11% year over year. Notably, apparel sales increased by 149% and is our top category, contributing 62% of the total product sales in Q2, compared with 28% in Q2 last year. For the first half of the year, apparel sales grew by 56% from the same period of last year. The solid performance is attributable to our enriched and select product portfolio and our continuous efforts in enhancing our customers' shopping experience. On the other hand, we believe that investing in R and D is a critical element that fuels our solid position to stand out from the fear competition. Our R and D expense increased by 52% year over year to RMB5.1 million in Q2 as we continue to strengthen our R and D capabilities. The pandemic accelerated the shift towards online shopping, But at the same time, it has attracted more competition to the e commerce space from new and established players. Right now, we are still facing the economic uncertainties, partly due to the resurgence of coronavirus in a number of countries. We will continue as in the past quarters to implement strategies to enhance our platform to be more responsive and user friendly, so that the customer will enjoy the comprehensive product selections and the convenience of online shopping even more on our website and the mobile app. I'd now like to turn the call over to Yuanjun to go through the financial results. Thank you, Mr. He and thank you everyone for joining the call. I will now review our financial results for the Q2. Please be reminded that all numbers quoted are in U. S. Dollars. Total revenue was $122,200,000 up 7.3% year over year from $113,900,000 This was mainly driven by strong growth in product sales, which were $119,300,000 versus $107,200,000 in the same period in 2020. Revenues from services and others were $2,900,000 compared with $6,700,000 Included in product sales, revenues from apparel increased by 149 percent to $74,000,000 in the Q2 of 2021, compared with $29,700,000 in the same quarter of 2020. Gross profit was $57,100,000 compared with $49,600,000 during the same period last year. Gross margin was 46.8 percent, up from 43.5% the same quarter of 2020, primarily due to our continued efforts to optimize supply chain and product mix. Total operating expenses $60,600,000 compared with $41,400,000 during the same quarter of 2020. The increase was mainly due to an increase in selling and marketing expenses. Fulfillment expenses was $7,600,000 compared with $7,400,000 in the same quarter of 2020. As a percentage of total revenues, fulfillment expenses were 6.2% compared with 6.5% in the same quarter of 2020 and 6.5% in the Q1 of 2021. Selling and marketing expenses were $43,500,000 compared with $26,500,000 in the same quarter of 2020. As a percentage of total revenue, selling and marketing expenses were 35.6% compared with 23.3% in the same quarter of 2020 and 31.8% in the Q1 of 2021. The increase was due to high expenses for online advertising from leading ad providers. G and A expenses were $9,500,000 compared with $7,500,000 in the same quarter of 2020. As a percentage of total revenues, G and A expenses were 7.8% compared with 6.6% in the same quarter of 2020 and 7.5% in the Q1 of 2021. Included in the G and A expenses, R and D expenses were $5,100,000 compared with $3,300,000 in the same quarter of 2020 and $4,900,000 in the Q1 of 2021. Other income net in the Q2 of 2021 was 17 $200,000 compared with $300,000 in the same quarter of 2020. Included in other income net in the Q2 of 2021, dollars 17,100,000 was derived from change in fair value on our equity investments. The gain in fair value change on our equity investments after respective income tax of $4,200,000 was 12,900,000 dollars Net income was $9,500,000 compared with $8,500,000 in the same quarter of 2020. Net income per ADS was $0.08 compared with $0.08 in the same quarter of 2020. Adjusted EBITDA, which represents income from operations before share based compensation expense, interest income, interest expense, income tax expense, depreciation and amortization expenses were $14,500,000 in the Q2 of 2021, compared with $9,100,000 in the same quarter of 2020. As of June 30, 2021, we had cash and cash equivalents with cash of $58,200,000 compared with $65,500,000 as of December 31, 2020. Our revenue growth and net income in the past quarters have validated our well established growth strategies as we continue to maintain business continuity in unprecedented time. Over the next quarters, we expect to continue to face challenges in highly competitive markets, and we will continue to implement our long term growth strategy to optimize user experience across our platform and mobile apps. The commitment of our experienced management team leading our operations and our R and D and Technology innovation has given us the solid foundation we need to stay well positioned in the industry. However, it is unlikely to reasonably determine whether any business fluctuations in the midst of the current economic dynamics are likely to materially affect our operations. To focus on long term goals and avoid overly underlying short term objectives, we will not provide revenue guidance for the Q3 of 2021. This concludes our prepared remarks. At this point, we are ready to take some questions. Operator? Thank you. Ladies and gentlemen, we will now begin the question and answer session. The first question comes from the line of Matthew Larson from National. Please go ahead. Okay. Hi. Thanks for taking my call. Good evening to you all. Okay. It was nice to see the top line growth and bottom line. I guess the bottom line, a lot of it derived from a derivative revaluation. What is that emanate from? It's the investment game. On what, I guess, what's the investment? Hi, Mr. Matthew Larson. This is an investment on a company that we invested several years ago whose business was on selling cosmetic products. Okay. So it's a related business, it's retail. And do you maintain that business investment exposure? So that could impact hopefully positively in the future just as it did this quarter? We are just a shareholder. We do not maintain the business in this investment equity. Okay, right. But it's a shareholder of a retail type of business, which you're familiar with. It's cosmetics. So it's part of the assets on your balance sheet. Is that in addition to the cash, the 50 some odd million you have in cash, you also have securities in this business as well. Is that accurate? Okay. This investment gain is based on the company, which raised capital and our initial investment gained this the book value was increased according to the new equity rates in this company. Right. But the gain is quite nice and there's nothing it's always good to have investments in addition to cash because you have plenty of cash on the balance sheet. But the investment seems to be working quite well. So I'm trying to get a sense of what you have assets on the balance sheet since you don't have any debt. You have cash, you have this investment in this company and what is the total value of your investment if you could gauge it based on the at the end of the second quarter? The total value of this company, I think it's not an available information that we could disclose. The long term investment that you are seeing on our balance sheet was valued according to the U. S. GAAP with the relative methodology. It's not totally equivalent to the value of this investment company. Okay. But it went up $12,000,000 to $13,000,000 So it must in the aggregate, the value in the investment must be more than that. So it just allows me to get a better sense of the value of your company in addition to the operating value that you could be that we could place on you all because of your revenue generating capabilities? Yes. As we are only a minor shareholder and we are in different markets. So the methodology behind is quite different. So it's really hard to explain to also compare the value of this investment company. Okay. Very well. What you can see okay, please go ahead. Well, I was just saying that if we could get a sense of the value of your investments that you might have made a while ago, the current value based on GAAP accounting, we would be able to add that to your book value or just as an investor that I represent a number of investors that have a pretty good exposure to your company and this is a plus. I didn't know you had other assets that could really help the overall value of Light in the Box in addition to the cash you have and the top line operating capabilities of your firm. And so this was a plus that obviously is working well for you. Okay. So in addition, the guidance, you're not going to put it out. As you said, it's very competitive and things in the PRC are still being impacted like they are elsewhere with COVID and things like that. But the retail is a very competitive business anyway. You all have done extremely well over the last year. You've had 4 quarters, I believe, in a row where you've doubled your previous year's revenues. This year, you did not because last year was a tough comparison, but you still did better, which was very nice. On an operating basis, you had a small loss and the breakout that I could see was that the SG and A went up to 43.5% from 26.5%. So obviously, that's up quite a bit. Is that due to higher costs for sourcing because of shipping costs and other things like that, that might abate so that the SG and A might be less of a percentage going forward? Okay. Thank you for your question. Yes, hi. Okay. So for G and A expenses, the absolute value will remain most likely stable. So if the revenue continue to grow in terms of G and A expenses percentage, they'll definitely decrease. Yes, because the revenue grew 7%, which was great because last year it was up 100% maybe. And so but last year you were able to achieve that with SG and A of 26,500,000 dollars This quarter, it was $43,500,000 So there was a big jump there. And of course, that hurts your bottom line, but is the SG and A in the future expected maybe be more contained relative to your revenue, your top line capabilities. So can we expect that to be less as a percentage of overall sales? Yes, we can. Okay. So all right. So again, just so I'm very clear, because your news releases are pretty basic. The SG and A jumped $17,000,000 from $26,500,000 to 43,500,000 dollars which was up 60% or 70%. Sales were up 7%. So is the jump in SG and A for what reasons? I know here in the U. S. That there is bottlenecks and the costs of containers of ships coming from Asia, China to the U. S. Carrying goods have jumped considerably in price. So costs have gone up, which it is for everybody. Is that the case with you? And if so, if these if the tightness for many things slows down, would your SG and A become less of a percentage of your overall sales so that it could fall your sales could fall to the bottom line and we could see greater profitability? Okay. For the absolute value, as you have mentioned, there's a jump as compared to last year. There are two reasons. One was because last year we had some subsidies from the government due to COVID-nineteen, but this year there's no more that kind of subsidies. The other reason was caused by R and D expenses as mentioned just now. Okay. All right. That makes sense to me. The R and D went up fractionally and it's important that you continue to invest in your platform. Yes. This number will remain relatively stable. This number what? I'm sorry. This number will remain stable in future, at least for this year for this year. Okay. Well, that's good to know. So if you can continue to grow, the real what you are driving at is your company after many years after you went public, kind of flat line, but all of a sudden your top line growth, your revenue has been excellent. And so you're benefiting from more and more people focusing on making purchases online versus elsewhere. Now you did withhold guidance. Is it just because it's hard for you to figure it out? Or is you're just is it slowing down? Or what is the reason why, because in the past, you've been able to give guidance? And we're already almost at the end of the quarter. Okay. So this quarter, honestly speaking, there's some uncertainties we are facing right now. As mentioned just now by our CFO. So it's yes, it's unlikely we can provide accurate guidance right now. Okay. And when you do have that ability, will you announce it prior to earnings announcements? But can you give guidance, you can preannounce those types of things? I think we are not planning to have another release, but we will try to have an early release for Q3 quarterly report. Okay. And then maybe finally, do you expect to be profitable for the year? Or is that based also on the other investment that changes in value? We can't predict the final profitability for the whole year. What we know now is the 1st 2 quarters result. I see. So okay, you only know what you've done so far, but you can't predict the rest of the year. And is that your company or is that you find with a lot of online retail companies like yourself in the PRC? Is that just what most of your competitors are probably not able to do? Maybe, okay. Allow me to give you a few reasons. First of all, as mentioned just now, due to the macro environment, the vaccination rate keeps increasing and people are more engaged in outdoor activities. As a result, I believe online portion gets affected. In fact, other players also observe the similar trend. This is one reason. The second reason will be, yes, as you have mentioned, there are many new players joining cross border e commerce industry, so which did impose some new challenges as far as the competition besides we are also facing some uncertainties in certain countries due to the impact of COVID-nineteen. As a result, it's a bit hard for us to predict the guidance for Q3 as well as the whole year. Okay. But you do expect to be profitable for the whole year? No. We can't make Because you're all right. We can't make this conclusion right now. You can't make any predictions. Yes, we can. Okay. All right. Brie, your company is extremely undervalued relative to many other online merchants. The value of your company is only about one quarter to 1 third of sales, which is very unusual. I mean generally companies in your with your business model trade at 2 or 3 times sales. And in addition, you have a very, very solid and robust very an excellent balance sheet. So that is very comfortable for investors. So it's just a question of you all being able to pull your top line sales to the bottom line, because the value of your stock is so low. Let me ask a final question. I mean, is the principles of the firm, are you all happy with your stock price? Or do you want it to go up? Is that an interest of yours? Because it is down 70% or 80% from its high, even though your revenues are going to continue to grow and you have a very clean balance sheet. Do you have any interest or of trying to get the stock price higher through buybacks or other measures, acquisitions? Okay. First of all, Matthew, I think we do appreciate that you have done a lot of analysis on this company as far as this market. We do appreciate that. And I do appreciate that you see the value in this company. But for the stock price, we don't have any comments right now. As for whether we want to drive up the stock price, I think it's a tough topic. Yes, this is a good question and we will bring this to our Board and initiate some discussion. At the same time, I think if you have any further questions, we can keep in touch after the call. You can send our email address from IR's website. We do appreciate whatever you have asked or whatever you have suggested. Okay. I'll appreciate that. I'll let somebody else jump in here if there's people waiting. Thank you for your time. Good luck. Thank you so much. Thank you. I will now hand the call back to Mr. Rene Van der Sten for any closing remarks. Sir, please go ahead. Thank you, Ray. This concludes our call for today. Thank you for your participation and ongoing support of Light in the Box. We look forward to providing you with updates on our business in the weeks months ahead. Have a good day.