Good day and thank you for standing by. Welcome to GigaCloud Technology’s fourth quarter and full year 2023 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. To ask a question during the session, you will need to press star-one-one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star-one-one again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Larry Wu, Founder and CEO. Please go ahead.

Thank you Operator, and thank you everyone for joining us on the call today. 2023 and the fourth quarter in particular have marked a significant inflection point for GigaCloud, one which has changed the trajectory of the business and that we believe will change the way people think about the industry. We have jumped in order of magnitude in scale of our business and the potential of our supplier-fulfilled retail model. On the top line, we saw revenue increase to $244.7 million for the quarter, up approximately 95% period-over-period, and for the full year, revenue increased to $738 million, an increase of approximately 44% from 2022. While these are certainly impressive results, especially keeping in mind that the Noble House transaction did not close until November 1, we believe that we have still not seen the full power of our business synergy yet. In alignment with our integration with Noble House, we have taken strategic actions to further optimize this business. This includes streamlining Noble House’s operation by divesting its direct-to-consumer online retail bridge and the manufacturing division. Additionally, we have outsourced management of returned items. These decisions served two key objectives: first, by sharpening our focus, we ensure our concentration and resources are directed towards strengthening our B2B marketplace proposition; and secondly, we want to enhance our B2B market neutrality and are committed to provide streamlined service to our buyers and sellers of the marketplace. Before passing it over to Iman to discuss our operational highlights, I want to remind everyone that you will see our first 10-K filed within the month. This year will represent our first year as an S-1 filer. We believe this is an important step to gain broader access to the international capital markets and are pleased to have completed this transition in a timely fashion. Going forward, GigaCloud will have the same reporting disclosure and filing obligations as other S-1 issuers, and you can expect the same cadence of filings, such as 10-Q and 10-K, as you would from any domestic NASDAQ-listed company. With that, I would like to turn the call over to Iman.

Thank you Larry, and thanks again to everyone for joining us. Our mission here at GigaCloud is to revolutionize the way suppliers and resellers manage big and bulky items. Our B2B marketplace streamlines the entire process, offering a seamless end-to-end experience, and the successful integration of Noble House and Wondersign fuels this transformation. Through the integration of Noble House, we’ve expanded our sourcing origin to India and our operations into Canada with a warehouse in Milton, Ontario in what we believe will be a strategic move to open our marketplace to even more buyers. We have also already on-boarded some Noble House customers onto our B2B marketplace as buyers and will continue to recruit both suppliers and new buyers from the existing Noble House base of business. Finally, the financial plan for Noble House remains on track with a minimal net loss in the fourth quarter, positioning us favorably to achieve our goal of breakeven by the end of 2024 and profitability within six quarters. Clearly, we have made tremendous progress in our integration and execution plan we laid out for these acquisitions, which push GigaCloud further into a full service end-to-end B2B solution provider in the big and bulky landscape. Our Wondersign acquisition was a strategic entry into the brick and mortar space and has allowed us to begin work on the Giga IQ package, which will facilitate the seamless integration between retail systems and our constantly expanding B2B digital catalog for a more customer-friendly, streamlined and optimized transaction process. The beauty of the Wondersign integration and the future rollout of the Giga IQ package as the business model on the GigaCloud side will remain similar, taking an order from the reseller and delivering through our supplier-fulfilled retailing model directly to the end consumer. This model opens up opportunity…

Thanks Iman. I will now walk through our fourth quarter and full year numbers in more detail. Our total revenues for the fourth quarter were $244.7 million, which was an increase of 94.8% year-over-year and approximately 37.3% sequentially. On a full year basis, we generated $703.8 million, a 43.6% increase versus the year prior period. Breaking this down for just the fourth quarter, service revenue from GigaCloud 3P saw a 92% year-over-year increase to 69.3 million. Product revenue from GigaCloud 1P saw a 50.9% year-over-year increase to $88.3 million, and product revenue from off-platform ecommerce saw a 179.7% year-over-year increase to $87 million. These increases correspond with a 53.3% year-over-year increase in total GigaCloud marketplace GMV, which ended the full year at $794.4 million on a TTM basis. Our gross profit for the fourth quarter was $69.8 million, which was an increase of 161.4% year-over-year and resulted in gross margin of 28.5% versus 21.2% in the year prior period. On a full year basis, gross profit increased by 127% to $188.6 million, which resulted in a gross margin of 26.8% versus 17% in the year prior period. I also wanted to briefly touch upon ocean shipping rate fluctuations. The Red Sea incidents mostly affect routes from Asia into Europe, which is still a small part of our volume compared to the United States. We are already seeing the increased shipping rates from the most recent Red Sea incident starting to come down and we’re currently in the process of negotiating an attractive fixed price contract for a sizeable portion of our shipping volume to soften the effect of these incidents going forward. Our cost of revenue in the fourth quarter of 2023 was $174.9 million, an increase of 76.8% from $98.9 million in the fourth quarter of ’22. On a…

Thank you. [Operator instructions] Our first question comes from the line of Matt Koranda from Roth MKM. Please go ahead, your line is open.

Hey guys, it’s Mike [indiscernible] on for Matt. Congrats on the quarter. Maybe just want to start with Noble House and the guide. How much exactly did Noble House contribute in the fourth quarter? I assume it was all in the Giga off-platform revenue, but just wanted to confirm there; and then, was there any contribution in the fourth quarter to service revenue from on-boarding Noble House suppliers to the marketplace?

Sure, hey Mike, it’s David here. Right now, we have roughly $30 million of contribution coming in from Noble House. We won’t be breaking that out further, but this 10-K, you’ll see that we have standalone financials of Noble House. In the quarter of 2023 Q4, there isn’t any service revenue being contributed from Noble House, and as you said earlier, the Noble House revenue is contributed from our off-platform product revenue.

Got it, okay. That makes sense. The 1Q guide calls for $235 million at the midpoint. Any sense for what Noble House will contribute in the guide, and any sense for service versus product revenue growth? Just trying to get to that $235 million and get a sense for growth in each category.

Yes Mike, I don’t think we’ll be breaking out further, because right now the Noble House business is now being fully integrated to our group from a reporting standpoint, but as I alluded earlier, I see the Noble House business stabilizing in Q1 and we’re expecting the business to pick up in Q2. On the other hand, our organic business continues to scale and expand, and we’ve actually established a pretty good market position that you can see from our operational metrics, so all these factors are some of the things that we consider when we lay out our Q1 revenue guidance.

Got it, okay. Any sense for service versus product revenue growth? I know we said we’re integrating Noble House, but any way to think about service revenue growth versus product revenue growth for the first quarter?

Yes, I think what we’re going to see is you will see a bigger contribution from the product, given that the direct contribution from Noble House is directly into our product revenue. As you can see, we’ve always been that 70%-30% split, so you’ll probably see a bigger contribution coming in from product in Q1.

Okay, got you. Makes sense. Thanks for that, David. Last one from me on gross margins, what exactly is driving the product revenue gross margins higher? It seems like it’s probably a higher gross margin contribution from Noble House, but just any other inputs to call out that explain the 4Q strength in product gross margins?

Yes, I think the Noble House contribution is definitely there. I think another factor is, as you know, Q4 is the typical peak season for retail sales with Black Friday, Cyber Monday. We’re able to generate a higher margin profile throughout those retail days, so that’s one of the reasons why you see an improving gross margin overall.

Got it, okay. Very clear. Thanks guys, that’s all from me.

Thank you. We will now move onto our next question. Our next question comes from the line of Sophie Huang from CMBI. Please go ahead, your line is open.

Okay, thank you. Congratulations on a strong quarter, and thank you for taking the question. I just have a follow-up question on the margin side. How do you see the impact from [indiscernible] recently, and how do you view the margin trending in the next few quarters [indiscernible]? That’s the first one.

Hey Sophie, sorry - can I confirm your question is about whether we’re able to sustain our margin profile going forward? I just want to make sure I understand the question correctly.

Yes, the margin trend.

Yes, so as I discussed earlier, I think Q4 was a good year because of a typical retail peak season. I think going forward, obviously we’re trying to maintain that, but also we’re also facing some macro challenges, things like softening of the housing market, elevated shipping rates, which we discussed al little bit earlier that we’re actually in the process of negotiating a fixed price contract for some of our volume. The management team is actually trying to steer the company through these challenges. We’ll do our best to maintain the profile, but that’s kind of the situation we’re in right now.

Okay, very clear. The second question is really about your global expansion strategy. Can you give us more color on the performance of different markets? I remember you said that European market has the highest revenue growth and you also expanded Canada market after the Noble House consolidation, so how do you view the opportunities and the revenue contribution from those non-U.S. [indiscernible]?

Iman, do you want to take that one around our global expansion?

Sure. As far as the total addressable market in the U.S., we’re looking at an industry--within furniture, our biggest vertical, of almost $65 billion, and as you mentioned, Europe has been a tremendous market for us as far as growth, and you also saw that we have on-boarded three new 3P sellers from different regions - Turkey, Colombia and Mexico, so what we’re going to continue to see is a global evolution of the business as the GigaCloud marketplace is adopted in more and more marketplaces, while our primary market, the United States would still be the growth driver. Going forward, the European market will be right behind it.

Okay, thank you. The last one, can you explain more about your R&D expenses? They’re pretty low for a company of this size.

Yes, maybe I’ll take this one. Actually, it’s a very quick question and I’m very glad you brought it up. Yes, we incurred close to $4 million in R&D expense in 2023, and as Iman alluded earlier, we have over 300 team members dedicated to our R&D efforts, which includes developing and testing of our platform, collection of data and analytics, etc. Some of those R&D efforts are actually being accounted for in our costs, so therefore our total cash or costs associated with R&D is actually far larger than the $4 million that you see in our R&D expense in our P&L.

Okay, thank you. Very clear, thank you.

Thanks Sophie.

Thank you. We will now move onto our next question. Our next question comes from Brian Kintslinger from Alliance Global Partners. Please go ahead, your line is open.

Great, thanks so much for taking my questions. From an organic growth perspective, I may have missed it, can you highlight the number of SKUs your platform had at the end of the year versus the end of 2022, and then I’m curious if you’re seeing strengthening demand per SKU on average in the fourth quarter, maybe compared to last year or even the first half of the year.

Yes Brian, I think the SKU point, I don’t have the exact number in front of me, but if I recall, we have roughly 30,000 SKUs as of the end of last year. I think that number for 2022 was somewhere in the 20,000 range.

Great, and then on the demand side, I think in the first half of the year, demand per SKU on average was down, but did that change in the fourth quarter? Are you starting to see strengthening demand on your SKUs?

Iman, do you want to do that, or--?

I’ll be more than happy to, David. Hi Brian. Obviously when it comes to home furnishings, the entire industry is still experiencing a headwind with the cooling of the housing market and the softening of consumer spending on durable goods. But with our business model, we’re really well positioned in a very slow growth market, and as far as the SKU density and the performance, we don’t really make that information available but by default, some of the best metrics to look at is the growth in the 3P supplier base, and on the reverse side, the average spend per active buyer up 27% while the base of buyers grew by 20% to over 5,000.

Got it, thank you. A little bit more forward-looking, if you can, you’ve done great at growing the SKU count. I know you’ve made acquisitions that will drive an increase, but again from an organic basis, can you continue to rapidly grow the number of SKUs?

Yes, we’re pretty confident on growing SKUs, both on the 1P side and now that we acquired Noble House, which directly would give us access to 8,000 new SKUs from the Noble House business, so there are a lot of new ways for us to keep growing that SKU number.

Great. Lastly maybe for David, can you quantify the cost synergies you realized from the recent acquisitions thus far, and then you talked about a big chunk of them will be realized again in 2024. Can you talk about maybe what those--can you quantify those synergies?

Yes, I guess it’s kind of hard for me to quantify what the synergies are from both a revenue or a cost savings standpoint at this point, but what we can see from the health of the business is that we basically incurred a minimal loss in Q4. Q1 is starting to stabilize, we’ve got new products coming in for the outdoor furniture season, so Q2 we expect there’s going to be a pick-up from the business. That’s kind of the health of the business, but hard for me to actually quantify what those synergies are at this point in time.

Great, congrats on a great 2023.

Thanks Brian.

Thank you, we’ll now move onto our next question. Our next question comes from the line of Rommel Dionisio from Aegis Capital. Please go ahead, your line is open.

Thank you, good morning. I wonder if I could just inquire about the new 3P business from Colombia and Mexico. Could you just maybe describe in a little more detail how--you know, the potential evolution there of that region of the world, which you haven’t about too much in the past. Also, are you going to require the building of infrastructure, a sales force? I wonder if you could talk about how you see that potential market opportunity playing out here over the next few years, and the long term opportunity there. Thank you.

Thank you Rommel. As far as the new sellers, as GigaCloud is getting more known in the global arena as a better way to make trades into the market, I think organically we’re going to see interest coming from a lot of the global suppliers in regions we do not currently operate in, into becoming members. In addition, as far as recruitment of sellers, the existing infrastructure can support the expansion with outreach, and if need be, we can definitely expand into the region. But those countries that you mentioned are new to the marketplace. That kind of speaks volumes to the true reach of the GigaCloud business model globally as a better way of doing big and bulky, because in reality, we kind of transformed the industry into making it more a seamless end-to-end--better way of trading, you know, for big and bulky. With that being said, I do expect the same trends to continue as we get to share our story with more and more manufacturers and distributors across the board, to see them on-boarding and adopting the business model.

Okay, thanks very much, and congratulations on the quarter.

Thank you Rommel.

Thank you. We’ll now move onto our next question, please stand by. There are no further questions at this time, so I’ll hand the call back to David Lau for closing remarks.

Thank you for your continued support in the business, and please feel free to contact us should you have any further questions. We look forward to speaking with you all in our next earnings announcement. Have a nice day, thank you.

This concludes today’s conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.