Thank you all for standing by. Welcome to GigaCloud Technology's Third Quarter 2024 Earnings Conference Call. Joining today's call all participants will be in listen-only mode. Joining us today from GigaCloud are the company's Founder, Chairman and CEO, Larry Wu; its President, Dr. Iman Schrock; and its Interim Chief Financial Officer, Erica Wei. Iman will provide an overview of our performance and operations, and Erica will discuss our financial results. After that, there will be a question-and-answer session. As a reminder, this conference call contains statements about future events and expectations that are forward-looking in nature, and actual results may differ materially. Additionally, today's call will include non-GAAP measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as on the company's website. With that, I would like to turn the call over to Larry for his opening remarks. Please go ahead, sir.

Thank you, operator, and welcome, everyone, to today's call. The third quarter built upon the very strong growth path we have followed since the launching of our B2B online marketplace. Despite the continued industry headwinds, we are successfully navigating these challenges. This is shown by the new record high in net income and adjusted EBITDA and growing numbers of marketplace participants due to its unique ability to streamline operations and enhance efficiency for buyers and sellers of a big, bulky nonstandard item globally. Among other accomplishments, our acquisition of Noble House is on track to reach breakeven by the end of this year. Additionally, we are enhancing our technology through Wondersign, expanding its capability to better serve the brick-and-mortar stores. We believe that GigaCloud's current valuation doesn't fully capture the progress we have made or the exciting path ahead. To demonstrate our confidence in the future, on September 3, 2024, our Board authorized a $46 million of share repurchase program. As of November 6, 2024, we have repurchased an aggregate of approximately 467,000 Class A ordinary shares in the open market at a total consideration of $11.4 million pursuant to a repurchase plan under Rule 10b5-1. Our approach to creating lasting shareholder value is anchored in the strong operational performance and disciplined strategic capital decisions. In line with this commitment, we plan to retire the shares we have repurchased, effectively reduce our total issued shares. This step shows our belief in GigaCloud's long-term potential and strengthens each shareholder's stake in that journey. We view this as one of the many actions aligned with our vision for sustainable growth, and we are dedicated to building on our momentum in the quarters ahead. We maintain a very strong balance sheet with no debt and are generating positive cash flow from operations, allowing us to fund future profitable growth. We are extremely proud of what we have been able to accomplish this year to date and will continue driving progress as a leader and innovator of B2B commerce -- e-commerce technology solutions. Thank you everyone for joining us. Now I will turn the call over to Iman.

Thanks, Larry. I would like to add my welcome to those joining us today. It was another great quarter for GigaCloud. We're especially gratified by our ability to continue growing at a fast clip, even as we manage through those industry headwinds Larry mentioned. Because our B2B platform has become a powerful and proven way for buyers and sellers of non-standard items to seamlessly transact, our GigaCloud Marketplace GMV continued to grow for the trailing 12 months ended September 30, 2024. Specifically, GigaCloud Marketplace GMV increased by more than 80% year-over-year, keeping pace with our second quarter growth. We continue to see significant increases in our buyer and seller basis, which drove overall GMV growth. Our active 3P seller has crossed the 1,000 mark for the first time, now standing at 1,051. Meanwhile, our active buyer base has grown to 8,535. These milestones reflect our platform's growing momentum and appeal. Our plans to further increase participation in our marketplace include adding 3P sellers through geographical expansion, enhanced outreach and marketing initiatives. We expect to increase active buyers through a combination of onboarding brick-and-mortar retailers that are subscribed to the Wondersign catalog kiosk, enhancing our marketplace product categories and leveraging referrals from existing users, among others. GMV in our 3P seller marketplace grew 72% from a year ago and was $635 million for the trailing 12 months ended September 30, 2024. This represents a healthy 51.5% of our total marketplace GMV. Our combined 1P and 3P strategies are helping us build critical mass, enhancing the network effects that drive incremental value for all participants, while average buyer spending saw a modest 2.9% decrease compared to Q3 of last year, primarily reflecting the recent onboarding of a large number of over 1,000 buyers, who typically begin with a lower trading volume as…

Thank you, Iman, and thanks to everyone joining us today. As I review our third quarter results, please keep in mind that all figures I'll be referencing are rounded for clarity. Our third quarter and year-to-date financial results continue to exemplify our ability to successfully execute our growth strategy, even amid heavy industry headwinds that is outside of our control. Before diving into the quarterly details, I'd like to briefly touch on our anticipated growth trajectory and the impact of seasonality to our business. Regarding seasonality, our second and fourth quarters remain our strongest, driven by outdoor product demand from Noble House in Q2 and heightened holiday demand in Q4. As we look forward, it's important to recognize that, while GigaCloud has experienced rapid expansion, the pace of growth will naturally moderate as we reach larger scale. This trend reflects the typical progression for companies reaching critical mass, and it reinforces the stability and resilience of our business as we mature. Total revenues grew 70% for the third quarter to $303 million. The improvements were primarily driven by the increased market recognition and scale of our marketplace, which resulted in increases to our Marketplace GMV, sales volume, and the number of active sellers and buyers. Breaking down our third quarter revenues. In the third quarter, we saw significant growth across our revenue stream, underscoring the strength and adaptability of our platform. Service revenue from our 3P business grew substantially to $100 million, reflecting strong marketplace demand and continued engagement from our participants. We also saw a significant increase in service revenue margin of 8.7% sequentially from Q2 as we have utilized more fixed-rate ocean freight contracts this quarter that stabilizes cost in a heightened freight environment. On the product side, revenue growth of over 60% speaks of enhanced reach of…

Thank you. [Operator Instructions]. Your first question comes from Matt Koranda with ROTH Capital.

Hi guys. So maybe just starting off on the outlook for the fourth quarter, wanted to get a sense for the breakdown between service and product revenue in the fourth quarter. It just looks like pretty big deceleration on a year-over-year basis. And if I sort of assume that Noble House gives you a full contribution in the fourth quarter this year, organically, that might imply a little bit more deceleration, maybe just what's going on there and then the mix between service and product?

Yes. Hi, Matt, thanks for the question. So in terms of looking forward, a few things to think about. So service and products proportionately, we expect to somewhat stay similar to Q3. And then specifically on your question towards Noble House. So Noble House from a product perspective is contributing somewhere between 15% to 20% of product revenue even though we don't do a separate breakout of -- in terms of disclosures, and that will likely continue for Q4. Do keep in mind when comparing Q4 this year against Q4 last year that Q4 of 2023 had two months of Noble House included already.

Yes. Okay. Got it. And then maybe just on the service side, a pretty decent step-up in onboarding buyers onto the platform? Maybe just where did you see success? Could you talk a little bit about like sort of where we're essentially getting growth out of the buyer ecosystem?

Sure. So I think a big part of it has to do with the market, the furniture sector getting a better understanding of who we are and what we do. So it's very much a combination of our go-to-market efforts, including direct outreach, and it's also equally important word-of-mouth referrals that we're receiving, folks that are receiving more efficiency, more cost savings, more efficient solutions, especially right now when the environment is quite challenging.

Yes. Where are those buyers mostly sort of reselling? I'm just curious. You guys probably have good data on that, I would assume, or maybe just platforms where they're sort of plugged into where they're seeing growth and success?

Yes. So it's a lot of folks that are on the commerce platforms, right? So those are the big players that folks like you and I would be shopping from. There's a lot of that. There's also -- some of these are also vendors to those larger platforms. We also have a smaller number of non-large-scale e-commerce, such as smaller independent stores and a very small number of brick-and-mortar as well.

Okay. Got it. And then maybe just on the product revenue side. Curious how -- like last quarter, I think you mentioned trying to get more Noble House product as 1P on the GigaCloud platform. Maybe just speak to success there. How we've seen that progress over the last quarter or so?

Yes. We're still executing the original plan, where over time, we are going to slowly open up the -- expect to see more and more of that revenue shifting from off-platform into our 1P revenue stream, right? This also goes hand-in-hand with what Iman has talked about earlier in terms of new product development. So right now, we're seeing the initial influx of, in terms of deliveries, and we expect to see sales pick up and diversification pick up more next year.

Okay. Got it. On the tariff front, I guess, you addressed part of it upfront there. What I'm curious about, I guess, is if we think about the impact to the sellers on the marketplace, your third-party sellers, maybe just talk about sort of how much of their capacity. Do you have a view into how much of their capacity comes out of China? And then maybe just refresh everybody on how tariffs would even flow through the marketplace in a typical transaction? I guess you don't take title of the inventory. I assume you don't pay import duties. So does it just take effect as sort of a higher potential order value on the marketplace, and you would take a take rate on that, so it may even be beneficial? Maybe just walk us through the mechanics of how that works?

Sure. So a few questions packed into one there. I'll try to answer them one by one in order. So first off, from a seller perspective, yes, on the 3P side, we're seeing more that's coming out of China compared to Southeast Asia, right? So the platform is something that gives kind of all participants a little more flexibility. And we are also encouraging our clients or our customers to think about the potential impact on us accordingly as well. However, I do want to clarify that because of a lot of the inherent limitations, it's not -- we're seeing a lot of folks make a move in terms of where the supply chain is located, but it's not something that could 100% be moved nor is it as a terribly easy thing, right? And then in terms of mechanically, how this flows through us. So as we think about the typical 3P seller who's listing on the marketplace, that would include a component of the product cost itself, leaving the manufacturing facility. There would be a tariff added to that cost and ocean freight added to that product, right? And then there would be warehousing costs that's incurred and drayage services incurred for the aforementioned. So by the time it gets to the U.S., if you think about, let's call it, a hypothetical jump of 25% tariff to maybe 50% or 60% and you think about the percentage of the product itself, which is what the tariff would be applied to and the fraction of that against the entire cost when you throw in fulfillment, it's not a terribly large percentage, right? So the question becomes when the seller is facing the buyer, which is the retailer, especially when considering the margin a typical seller would expect, how impactful is that increase in tariff? It's not as large as what it sounds, if we're thinking about a number of 60%. Does that make sense?

Yes, I think I have the mechanics of it. Maybe we'll take the rest of mine offline around tariffs. And I'll turn it over to whoever wants to ask other questions here. Thank you.

Thank you, Matt.

Your next question comes from Ryan Meyers with Lake Street Capital Markets.

Hey guys. Thanks for taking my questions. Just curious, if we think about the guidance that you gave for Q4 here, I mean, obviously, if you think both the guidance that we gave for third quarter here, you came in well ahead of that expectation. So maybe what would you need to see to come in maybe at the high end of the guide for next quarter or even kind of beat like you guys have sort of shown a history of doing?

Thank you for the question. So there's a big component of that is how the market performs. So given that we have a very large number of market participants that are really covering of all major channels when it comes to furniture e-commerce, our exposure is really entirety, right? Obviously, we're growing very, very quickly with the newcomers and new additions, but that would be offset by -- partially by any softness that is experienced by all of our clients. So to answer your question, depending on how the market performs, how all of the retailers, the suppliers, how their results are in the quarter, that would directly impact us.

Okay. Got it. So it sounds like it's mainly just kind of a demand type thing is where a lot of that would kind of drive that maybe upside or downside to that?

That's a big part of it.

Okay. Yes. Okay. It does makes sense. And then it sounds like there'll be some nuances kind of on the margin side in Q4 here. But maybe can you provide a little bit of commentary on what we should be expecting as far as margins in 2025, especially if there's some of the initiatives investments that you guys are making, just kind of how we think that margin should show in '25?

So Ryan, I'm sure you know we don't typically give a year-long or beyond-the-quarter guidance, but we can kind of maybe talk about the color or what we're seeing a little bit. So we do expect positive things from Noble House, right? As our newly developed SKUs come in, we expect to see better margins on that front. But when it comes to the bigger market, it's hard to say at this point what exactly would happen. We definitely think in the near term, including maybe the beginning of next year, there are still going to be strong headwinds that's going to make it a little tougher on the margin side for everybody, including us. Towards the later of the year, it's going to depend on a number of things, including how the economy is doing and the demand side, especially the housing market. If we see differences there, that could really drive up demand for us.

Okay. Thanks for taking my questions.

Of course.

Your next question comes from Thomas Forte with Maxim Group.

Great. So first off, Larry and team, congrats on the quarter. I have five questions. I'll go one at a time. So the first question is, can you talk about the ability to grow the business by ramping existing categories such as home exercise equipment versus adding new categories such as auto parts or other bulky items?

Tom, thanks for the question. Iman, you want to take that one?

Sorry, I had to unmute. Absolutely. So basically, we have to discuss the TAM. When it comes to furniture alone, the TAM for the furniture industry on the wholesale front is about $60 billion a year. And like a could quick back-of-the-napkin math will kind of show you that we're presenting a small fraction of that as of right now. So there's a lot of runway. And absolutely, the platform is optimized for big and bulky nonstandard products. At the same time, while they are not the core focus because we dialed in on becoming more meaningful player in the furniture industry and home furnishings, the other categories are starting to trickle in by default.

Okay. And then for my second question, can you talk about what's driving the impressive growth in Europe?

Tom, I'll take that one. So Europe is -- we're still quite small in Europe, right? The scale is nowhere near what the United States is. So we've kind of entered a phase where things have fallen in line. The infrastructure is at a good place, and we've also attracted enough attention for ourselves. So combining those factors with a small base or small denominator, that's very, very fast year-over-year growth. And we do feel quite positive on the outlook there, right? We feel like Europe is in terms of potential market size quite close to the U.S. And in terms of how fragmented it is, it actually seems to be a little more, which really adds on to how much value add GigaCloud could provide to the market. So hopefully, good things there for us.

Great. And then for my next one, I wanted to talk about the last two years, for example, Amazon has had big Fall sales in October in addition to Prime Day, which is usually June, July. And then you saw from Target, Walmart and others, others having big sales in October. How, if at all, is that impacting your results? And do you see that as kind of a pull forward in sales? Or do you see it as accretive?

So this time of year compared to some of the more -- the recurring holiday seasons that we see and promotions that we see, this year feels a little softer, and it's not necessarily limited to any specific channels kind of across the board, and it's hitting a lot of folks. The names you mentioned earlier are part of that list. So in terms of would it be a pull forward, it kind of depends on where we land early next year and how things develop from here. It's very hard to say exactly what the impact is right now.

All right. So last two and thanks again for taking my questions. Can you give your current thoughts on strategic M&A following the very successful deals you've had to date?

Yes, absolutely. So we're always on the lookout for the right opportunities. There's kind of, I'd like to call it, the three buckets that we are interested in. Bucket 1 is going to be a target that complements our existing businesses on the product side. So a target that will fit in nicely and enhance our portfolio offerings both on the product side and in terms of the market connections from a channel and supplier perspective. So think Noble House here. It's a good example. Also, brands such as Christopher Knight are also very nice additions that help us broaden our market presence a little. The second category would be a technology target that helps us execute our long-term goals. So this is someone that would help us both understand and reach the brick-and-mortar market a little bit better. So Wondersign here is the good example. Third bucket we're interested in is Europe. So Europe, obviously, right now is our fastest-growing market, and we are very confident and good things that will happen in the future. So from that perspective, we're looking for a target that will help us accelerate our growth a little more in terms of infrastructure and connections locally.

Thank you. And then for my last question, can you talk about your pricing and your ability to pass on the incremental freight costs. You identified, I think, some specific freight costs, but I was wondering if you have any pricing power and ability to pass on any of that.

Yes. So direct and short version is, yes, we do. However, it's very, very important to consider market conditions and the strength of demand, right? So it's always a balance. And right now, the market is a little harder. But on the topic of ocean freight specifically, I think, Tom, you're thinking of the sequential decline in products margin. So important thing to keep in mind there is...

Yes, I think you gave a specific comment on like $5 million or something like that in the fourth quarter, I believe.

Right. Oh, I see. Yes. So that's referring to ground delivery, not ocean freight. On the ocean freight front, we're doing a lot more...

Okay. So [indiscernible] the ability to take price to offset any of that inflation on freight costs?

So we don't feel like right now is necessarily the best time to be pushing costs downstream. Alternatively, our strategy on this front is going to be more focusing on managing cost and limiting the volatility there to the extent we can. So that would entail us working with different partners and strengthening relationships and contracts there, similar to how we did with our ocean freight.

Thanks, Erica. Thanks for taking all my questions.

Of course.

There are no further questions at this time. I'll hand back to Ms. Erica Wei for closing remarks.

So thank you, everyone, for joining the call today. The future looks extremely bright as we work to bring everyone -- to bring even more value to our marketplace participants and our investors. We will speak to you again next quarter. But in the meantime, don't hesitate to reach out to our team if you have additional questions. Thank you and take care.

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