GigaCloud Technology - Q2 2023

Transcript

Operator (participant)

Good day, ladies and gentlemen, thank you for standing by, and welcome to GigaCloud Technology's second quarter and half year 2023 earnings conference call. During today's call, all participants will be in a listen-only mode. Joining us today from GigaCloud Technology are the company's Founder, Chairman, and Chief Executive Officer, Larry Wu; the company's President, Dr. Iman Schrock; and the company's Chief Financial Officer, David Lau. On today's call, Iman will give an overview of the company's performance and details of the company's operational results, David will share the company's financial results. After that, we'll conduct a question-and-answer session. As a reminder, this conference contains statements about future events and expectations, which are forward-looking in nature. Statements on this call may be deemed as forward-looking, actual results may differ materially.

Today's call and webcast will include non-GAAP financial measures within the meanings of the SEC's Regulation G. When required, 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'd like to turn the call over to Larry for your opening remarks. Please go ahead, sir.

Larry Wu (Founder, Chairman, and CEO)

Thank you, Operator, and thank you everyone for joining us here today. I want to start off today by giving my heartfelt thanks to the entire GigaCloud family for their diligent efforts across the board. As Iman will speak to, our results continue to demonstrate positive momentum, led by an over 200% period-over-period increase in net income in the first half of 2023. We continue to beat our own expectations across the board, and are thrilled to deliver this result to our stakeholders. Our 3P sellers and platform-wide buyers continue to see the inherent value in our Supplier Fulfilled Retailing model, and we're continuing to onboard new buyers and sellers as we reinvest earnings into accelerating our organic growth.

Our strong balance sheet and fresh cash flow generation give us the optionality to pursue a number of strategies to grow the business as well. We're also adding a number of corporate positions and key decision-making roles to our headquarters in Walnut, California, supplementing our mature overseas back office personnel. We see this as a key part of our global strategy and will expand GigaCloud footprint and talent pool. Finally, we are also thrilled to welcome two new board members, Mr. Jan Willem Visser and Mrs. Lorri Kelley, who bring deep industry expertise and diverse viewpoints to our board. Now, I would like to turn the call to Dr. Iman Schrock, President of GigaCloud. Iman?

Iman Schrock (President)

Thank you, Larry. Thanks again to everybody for joining us. We could not be more pleased with our second quarter results. I want to start by thanking the entire GigaCloud team for their tireless work and execution. We are dedicated to changing the way suppliers and resellers do business in buying, selling, and shipping all things large and bulky. Through the state-of-the-art technology and innovation, we believe this message and mission are resonating well, given the success of our marketplace. Our outstanding profitability resulted in an ending cash balance of $181.5 million, up from $143.5 million as of December 31, 2022. As we have mentioned in the past, the strength of our balance sheet gives us the ability to selectively evaluate targets for tuck-in acquisitions.

Our criteria for potential targets range from companies that would further penetrate our existing target markets, add new capabilities to our already robust technology stack, penetrate a new segment of market, or technology that would further enhance our users' experience on GigaCloud platform. Our cash balance also gives us the ability to make strategic moves on our share repurchase plan, which was approved for $25 million in June. While we did not repurchase any shares in the second quarter, the approval for the repurchase plan runs through June 2024. We will update the investment community on this initiative as appropriate. We are carefully evaluating the use of repurchase plan to ensure we are striking the right balance between creating shareholder value and protecting our stock fundamentals. Let's walk through some of the operational highlights for the quarter.

Our GigaCloud Marketplace GMV grew approximately 32% year-over-year, to $607.5 million in the TTM period. On the seller side, the platform also saw an approximately 47% year-over-year increase in active 3P sellers, ending the total number for the quarter at 665, which was also a 10% sequential increase. Organically, expanding our ecosystem of 3P sellers is crucial to our achieving scale and our Supplier Fulfilled Retailing model, and we continue to devote a significant amount of time and resources into quickly vetting and onboarding new 3P sellers and adding new SKUs to our platform. While buyers may churn on and off the platform or consolidate the number of accounts they are working on-...

We see the number of 3P sellers on the platform as a more important indicator of a healthy marketplace, providing buyers variety in the number of SKUs they can choose from. The trend of our 3P sellers marketplace GMV expanding only accelerated in this quarter, increasing 65% year-over-year to $324.7 million, and now making up approximately 53% of our total GMV. As I mentioned on our last call, while our 1P approach remains an integral part of our business strategy, ultimately, we believe that the growth of our organic 3P GMV will be very important to scaling our business as we see positive momentum in our organic 3P growth rate, continuing to drive a larger, more productive marketplace.

On the buyer side, we saw active buyers increasing by over 7% year-over-year, ending the quarter at 4,351, with average spend per buyer increasing by 24% year-over-year to $139,629. The increase in the average spend indicates that we are seeing growth in the number of high quality, high volume buyers that we seek to attract to the platform. These buyers tend to be very sticky in their adoption of the platform, and growth in their average spend can quickly fuel growth in our results. We will continue to invest in our platform, we believe there is still a very strong runway of organic growth that can be achieved as we penetrate new markets around the world.

One area that, that we continue to invest heavily in is to build out continued momentum and organic growth in our marketing and advertising, particularly to brick-and-mortar retailers of furniture, who historically enjoy a large market share in the furniture space and have a large amount of inventory requirements. We continue to specifically target this segment of resellers through additional advertisement and media campaigns, see a significant amount of white space for our business to continue to expand into this market. I would also like to discuss GigaCloud's transition from a Foreign Private Issuer, or FPI, to following the same reporting and disclosure obligations as domestic companies. As many of you have already seen, on July 3rd, we issued a press release announcing that as of the end of second quarter, it was determined that GigaCloud no longer qualifies as an FPI.

Practically, what that would mean for GigaCloud and the investment community is that starting January 1st, 2024, GigaCloud will be subject to the same reporting, disclosure, and filing obligations as the other S-Form issuers. Starting next year, you can expect the same cadence of filings, such as 10-K and 10-Q, as you would any domestic NASDAQ-listed company. We believe that this is a very important step forward in building confidence in our story for investors, we are laser focused on becoming even more engaged and transparent with our shareholders and potential shareholders. We are also adding a number of corporate positions in key decision-making roles to our headquarters in Walnut, California, supplementing our mature overseas back office personnel.

We announced a number of changes to our board of directors on August 10th, including the addition of two new independent directors, Jan Visser and Lorri Kelley. Mr. Visser is currently the Vice President of Logistics at doTERRA International, while Mrs. Kelley has previously held a number of senior roles in the furniture industry, most recently as the President of BDI Furniture, before founding her own strategic consulting firm. Both Mr. Visser and Mrs. Kelley bring with them critical industry experience and new, diverse insights, we are thrilled to have them come on board. Clearly, we are dedicated to building out our global presence and expanding the GigaCloud footprint around the world, we believe these moves are a strong step in the right direction to building an even stronger tie to the investment community in the U.S. and other nations.

Overall, we are encouraged by our progress in second quarter. We believe we are making significant headway in our mission to build the world's best B2B large parcel shopping experience for both buyers and sellers. We are thrilled by our second consecutive quarter of record profit. We believe we should see our gross margins support a similar level of profitability for the remainder of the year. Our industry-leading marketplace saw significant growth in this quarter, growing in total GMV by 32% year-over-year, with active buyers increasing by over 7% and average spend per active buyer by 24% in the same period. Our balance sheet provides us flexibility to pursue potential M&A targets, as well as support a steady pace of organic growth.

Finally, our move to become an S-filer demonstrates our commitment to the international capital markets and increases transparency for shareholders and potential shareholders. With that, I would like to turn the call over to David for a closer review of our second quarter and first quarter, first half numbers. David?

David Lau (CFO)

Thanks, Iman. Let me walk you through our second quarter and first half numbers in more detail. Our total revenues for the second quarter were $153.1 million, which was an increase of 23.5% year-over-year and approximately 20% sequentially. On a first half basis, we generated $280.9 million for the six months ended June 30, 2023, an 18.8% increase versus the year prior period. Breaking this down for just the second quarter, service revenue from GigaCloud 3P saw a 31.9% year-over-year increase to $43.3 million. Product revenue from GigaCloud 1P saw a 14.9% year-over-year increase to $69.8 million.

Product revenue from off-platform ecommerce saw a 31.6% year-over-year increase to $40.1 million. As Iman mentioned, these increases correspond with a 32.2% year-over-year gain in total market of GMV, which ended the second quarter at $607.5 million on a TTM basis. Our gross profit for the second quarter was $40.4 million, which was an increase of 137.1% year-over-year and resulted in gross margin of 26.4% versus 13.7% in the year prior period.

On a first half basis, gross profit increased by 106.4% to $69.9 million for the 6 months ended June 30, 2023, which resulted in a gross margin of approximately 25% versus 14.3% in the year prior period. These increases in gross margin were largely a result of the return to normalized ocean shipping rates from the all-time highs in the first six months of 2022. As a result, our cost of revenues increased only 5.4% to $112.8 million for the quarter. We would expect ocean shipping rates to remain stabilized for the rest of the year. Our total operating expense for the second quarter were $17 million, which was an increase of 93% year-over-year from $8.8 million.

On a first half basis, total operating expense were $28.7 million, which was an increase of 57.8% from $18.2 million in the year prior period. Breaking this down further for just the second quarter, selling and marketing expenses increased 74.9% year-over-year to $9.5 million. General and admin expenses increased to 106.7% year-over-year to $6.9 million. Research and development costs were $500,000 in the second quarter of 2023 versus none in the second quarter of 2022. The increases were due to additional headcount to support our growing organization, a larger amount of advertisement, and more trade shows present in order to bolster organic growth and reinvestment in our technological platform to continuously improve our user experience.

On the bottom line, our net income for the second quarter was $18.4 million, which was an increase of approximately 202% year-over-year from $6.1 million. This resulted in basic and Diluted Earnings per Share of $0.45 versus $0.15 in the year ago period. On a six-month basis, net income was $34.3 million for the period ending June 30, 2023, resulting in a basic and Diluted Earning per Share of $0.84 versus net income of $10.8 million in the year prior period, which resulted in basic and Diluted Earning per Share of $0.28. This resulted in Adjusted EBITDA for the second quarter of 2023, was $24.9 million, an increase of 219.3% year-over-year from $7.8 million.

On a first half basis, we generated Adjusted EBITDA of $44.7 million for the six months ended June 30, 2023, an increase of 203.9% compared to $14.7 million in the year-prior period. Moving on to our balance sheet. We ended the second quarter with $181.5 million in cash on the balance sheet, a net increase of approximately $38 million from the quarter ended December 31st, 2022, and an increase of $18.8 million from the quarter ended March 31st, 2023. Finally, I want to briefly mention our financial outlook.

For the third quarter of 2023, we're now expecting total revenues in the range of $162 million-$167 million, which would represent an approximately 28.5% gain over the year prior period at the midpoint. In addition, in the third quarter of 2022, as a result of the successful completion of our IPO, we recorded a one-time stock-based compensation expense of $8.9 million. The SBC expense for Q2 was $1.5 million, and we expect our SBC expense to be more evenly spread out going forward. Thank you all for joining. With that, I would like to ask the Operator to open the line for questions. Thank you.

Operator (participant)

Thank you. To ask a question, you will need to press star one one on your telephone. To withdraw your question, please press star one one again. Please wait for your name to be announced. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question comes from the line of Matt Koranda with Roth. Your line is now open.

Matt Koranda (Managing Director and Senior Research Analyst)

Hey, guys. Good morning. Thanks for taking the questions. Just wanted to cover the third quarter outlook for revenue in a bit more detail. Is there a way you could maybe provide a breakdown between the product and marketplace revenue that you're assuming in that third quarter outlook? It looks like a nice acceleration that you're planning on. Just wondering where that's sort of coming from, first of all. Then maybe just on the gross margin commentary as well, you mentioned a similar level of profit through the rest of the year. Just wanted to see if maybe you could comment on sort of, does that mean we can stick with the mid-20% gross margin you put up in the second quarter, for the third and the fourth? Maybe just a little bit more color on that as well.

David Lau (CFO)

Hey, Matt, it's David. Maybe I'll address your question around our margin profile. I think we are quite comfortable to our margin profile today. I think it's depending on how the outlook of the second half of the year looks like, you know, given where ocean shipping rates are today, I think it's safe to assume that we can maintain this trajectory for the second half of the year. Going back to your first question, I think the breakup between our product and service has been, you know, on, on a revenue basis, has been between, you know, 60%-40%. I think going forward, that's probably in the second half of the year, is probably in the same trajectory as well.

Matt Koranda (Managing Director and Senior Research Analyst)

Okay. I got it, 60/40. That, that's helpful. Then just digging into the services revenue line for the second quarter. You mentioned a nice step up in last mile as a driver of growth on a year-over-year basis. I just wanted to see if you could maybe unpack that, discuss the types of last mile services that your sellers are paying you for. What's that a function of? Maybe just, you know, I would assume better rate card versus your smaller sellers on the platform, but maybe if you could just kind of explain the drivers of that nice year-over-year growth.

David Lau (CFO)

Iman, you wanna do that one?

Iman Schrock (President)

Matt, could you kindly repeat that question? I was trying to write.

Matt Koranda (Managing Director and Senior Research Analyst)

Sure. yeah, just the, the step up in last mile services revenue was notable in the second quarter. Just wanted to see if you could discuss the drivers of that, of that nice acceleration on a year-over-year basis.

Larry Wu (Founder, Chairman, and CEO)

Yeah, maybe I can take one, this one. This is Larry Wu. I think, in the past, because of, you know, restriction, that, you know, a lot of the, the, the shipping partner we had, that they, they have, you know, limited capacity, so we didn't allow our customer to ship, their product that, that not, you know, transact, transacted on, on, you know, with our marketplace. We understand that, our customer always have the need to ship their product that they're, they're selling on their own or through other channels. Because, the, we are seeing that, most of our, you know, shipping partner are, removing those kind of, you know, restrictions.

We are allowing our customer to ship the product that not transacted in our marketplace, that, you know, provide them the flexibility of using the marketplace in, you know, different way. I definitely believe that, you know, we are, you know, offering more value by, you know, being able to providing that service.

Matt Koranda (Managing Director and Senior Research Analyst)

Okay. That, that's helpful. Thanks, Larry. Just on the seller growth, it was, it was pretty robust year-over-year, at 47%. Just wanted to hear maybe a bit more detail on where you're seeing success in adding sellers. I noticed a, a bit of an uptick in the, the sales and marketing line. Just wanted to see, are we spending into seller acquisition to get that acceleration? Just maybe a bit more detail on sort of the dynamics of seller acquisition that you're seeing.

Iman Schrock (President)

Hi, Matt. Sorry, I was talking on mute. Thank you, Larry, for taking that question. Obviously, you know, as I mentioned earlier in the script as well, bringing in organic seller growth is, is gonna be, you know, an, a, a clear indicator of a healthy marketplace. We're investing a lot of energy into recruiting, sellers of different kind, you know, that could come to the marketplace. A lot of these sellers will bring with them different intricacies. You know, a big portion of the recruitment as of late have been, you know, the sellers that go to all the way to the end consumer with the LTL portion and last mile delivery and all those added value, added services, which is something that alludes to the first question.

Absolutely, we're gonna invest in recruiting sellers, and we're anticipating that trend to continue, because the sellers with themselves, they'll bring in variety of SKUs, and that variety of SKUs attracts additional buyers.

Matt Koranda (Managing Director and Senior Research Analyst)

Okay, great. Just to that end, I guess, wondering on, on the spend per buyer, which took a, a pretty nice step up. Just wanted to see if you could talk about, are we adding larger buyers? Is the assortment growing and allowing more spend per average buyer? Are we trimming kind of marginal buyers? Maybe just some of the movements underneath the hood there in terms of the spend per buyer.

Iman Schrock (President)

If I may take that question. We're kind of seeing both, Matt, you know, 'cause, you know, there are some buyer consolidation, 'cause some of the buyers operate multiple accounts, sometimes those consolidated to a bigger one. Also the competition kinda shines out the better buyers and, you know, that's, that's what really happens. The marketplace is becoming a place for, you know, the better, you know, as far as the fitter, who can, you know, produce and generate results. We, we're seeing both of those dynamics happening concurrently. This is very-

Matt Koranda (Managing Director and Senior Research Analyst)

Okay.

Iman Schrock (President)

you know, pleasant for the marketplace because the model is becoming more and more sticky, because that average spend growing is basically the indicator that we would like to see.

Matt Koranda (Managing Director and Senior Research Analyst)

Okay, excellent. Maybe one more from me, and then I'll, I'll leave it to others. On the M&A funnel, you, you've mentioned some M&A in your prepared remarks and, and just potential sort of ideas around what you may do. Just wondering if there's anything in the funnel that's maturing. How should we be thinking about capital deployment toward M&A for the remainder of the year?

David Lau (CFO)

Hey, Matt, it's David. Perhaps I'll take this one. Unfortunately, I don't think we'll be able to disclose anything further at this point in time. As we progress, at the appropriate time, we'll disclose to the market. What we view M&A as a lever for us to quickly enter into areas or markets that we're seeking, that's seeking to enter or expand into. We're just trying to look for the right target for us. Some of the areas that we're looking for is, you know, and then we discussed this in our prior discussion, is looking for channels, looking for, you know, product portfolio expansions.

As you understand, we operate in a pretty fragmented market, and M&A is a great tool for us to consolidate and bring in parties, to, to come to our marketplace.

Matt Koranda (Managing Director and Senior Research Analyst)

Yep, understood. I appreciate it, guys. Nice job on the quarter, and I'll leave it there.

David Lau (CFO)

Thanks, Matt.

Operator (participant)

Thank you for your questions. One moment for our next question, please. Our next question comes from Rommel Dionisio with Aegis Capital. Your line is now open.

Rommel Dionisio (Head of Research)

Good morning. Thank you. I wonder if you could talk about -- I know you don't necessarily break out the geographic distribution revenues, but I know you're making a big push in Europe, and I just wonder if you could sort of characterize how much of the growth you saw in the quarter came from in the core US business as opposed to some of the foreign markets, particularly Europe. Thank you.

David Lau (CFO)

Maybe I can take that one. I think European market, as of today, is an important market for us. We've seen some pretty good acceleration growth quarter-over-quarter. Unfortunately, I won't be able to break it down to you. That's not really something that we track, but we see a lot of good acceleration growth in the quarter coming out from Europe.

Rommel Dionisio (Head of Research)

Okay, fair enough. Just a follow-up, if I could. During the call, you talked about, and you mentioned this before, a focus on some furniture retailers. I wonder if you could just, in terms of expansion of your customer base, I wonder if you could just talk about, you know, the, the difference in your marketing platform of, of what it'll take to really continue to see, you've already seen solid penetration there, but to continue to see the growth in that segment, are you gonna have to shift gears in from a marketing perspective, you know, bring in additional hires, maybe change your marketing platform, or are you just kind of continuing with your current trend, which seems to be working very well? Thanks.

Iman Schrock (President)

Hi, Rommel. As we alluded to earlier, brick-and-mortar expansion is a big part of our, you know, future growth plans. Absolutely, you know, we are going to be actively, you know, involved in recruiting and advertising. You know, there's a lot of white spaces available, especially right now. I think with furniture, brick-and-mortar retailers, a lot of challenges that we can tackle on with the concept of the marketplace, Supplier Fulfilled Retailing and all the little things that we do so, so well. That is going to be a huge area of focus for us going forward.

Rommel Dionisio (Head of Research)

Okay. Thank you, and congratulations on the quarter.

Iman Schrock (President)

Thank you.

Operator (participant)

Thank you. One moment for our next question, please. Our next question comes from the line of Sophie Huang with CMBI. Your line is now open.

Sophie Huang (Equity Research Analyst)

Okay, thank you for taking my question, and congratulations on a strong quarter. I have two questions here. First, we noticed that you announced repurchase program, and we're just wondering, you have repurchased any shares after that? The second question is about the Q3 outlook. We noted that you had two consecutive quarters of profitability, and you're guiding a higher Q3 revenue. Do you want to share more color on what the outlook for Q3 and beyond? Thank you.

David Lau (CFO)

Sorry, I was on mute. Perhaps I'll, I'll take your question with respect to outlook for the rest of the year. I think if you look closely to our 2022 Q3 earnings, you'll notice actually our net income was a little under $1 million. If you actually look closely, that was because of a one-off stock-based charges, and that was a result of a successful completion of our IPO at that time. I alluded earlier in my speech, we expect our SBC charges to be more spread out going forward, and we will continue record SBC charges to our various stakeholders in the company.

You know, if you're putting all the pieces together, that's probably the extent I can share in terms of profitability or for the second half of the year. Your earlier questions around repurchase. Iman actually alluded, we didn't repurchase any shares in the open market in our second quarter. What I can share is we executed a repurchase agreement with a broker by the end of Q2 to help the company to execute open market purchases.... and we will share to the extent possible when we can to the market.

Sophie Huang (Equity Research Analyst)

Okay, thank you. That is helpful. Thank you.

Operator (participant)

Thank you. One moment for our next question, please. Our next question comes from the line of Lynn Brecken with BCA. Your line is now open.

Lynn Brecken (Equity Research Analyst)

Yes. Hey, hey, guys. Nice to talk to you. I had two questions, and some of this was broadly addressed, but I'm gonna ask it anyway. I'm just wondering, the, you know, the efforts in regards to growth inorganically versus organically. You know, specifically, are there any geographic or product verticals beyond the furniture, for example, that you're looking at going into 2024 to continue the top line growth? The second question is relating to volatility introduced by shipping rates and what the company is doing to mitigate the variability on the gross margin line in respect to that. Thanks.

Iman Schrock (President)

I can perhaps take the first question. As a company, we're accelerating our spend in sales and marketing aimed at brick-and-mortar retailers, because as of right now, we're seeing a huge, huge issue in the industry as a whole, with large inventory needs. That represents a lot of opportunity for us to basically penetrate and capture market share. Digital-only retailers also continue to gain momentum. At the end of the day, the large majority of furniture sales are happening at the physical location, so gaining market share would require us to remain focused on the brick-and-mortar. As far as your question about the opportunity, I believe that would also continue to remain with the brick-and-mortar side of things going forward.

Lynn Brecken (Equity Research Analyst)

It, I mean, just to follow up there.

Iman Schrock (President)

Mm-hmm.

Lynn Brecken (Equity Research Analyst)

Where do you think your penetration rate is into that segment, if you think it's so underpenetrated?

Iman Schrock (President)

So I can give you an idea about the total addressable market within that category. By the way, the, the big and bulky, you know, is very, very fragmented. It includes, you know, for us, you know, furniture is obviously, you know, the biggest, but there's also home fitness, there is gardening, there is even auto parts. You know, there are so many categories that would qualify as big and bulky, and it's super fragmented in every single one of those. Furniture being the biggest, the total addressable market in the U.S., one of our markets, the biggest market, is about $60 billion a year in wholesale volume.

Lynn Brecken (Equity Research Analyst)

I'd say you're pretty underpenetrated, but okay.

Iman Schrock (President)

Exactly. lot, lots of, runway ahead of us.

Lynn Brecken (Equity Research Analyst)

Okay. All right. That, that's great. What, what about the variability introduced by shipping rates to margins?

Iman Schrock (President)

David?

David Lau (CFO)

Yeah. I think if you look closely to our financials, you will see that, you know, ocean shipping rates was at all-time high, you know, first half of 2022. If you look at closely at our financials, we still maintain a profit. Obviously, there is a positive correlation between the two, right? When you see ocean shipping rates rising, it hurts our profitability. I would say that's not the single factor that can push us in and out of profit. While that's a big cost factor for us, but I believe that, we've gone through and navigated through the worst of times, and we still maintain a profit during that time. I, I hope that kind of clears out what you had in mind.

Lynn Brecken (Equity Research Analyst)

Okay. If I just might add one more, can you just discuss who you see competitively, out there and, you know, maybe one or two that you see day-to-day, and who you think your biggest competitors are, and an idea of why your clientele is choosing you over them?

Iman Schrock (President)

If, if, if, if you focus on what we do, the core, you know, value that we deliver, I don't think there is any part of par competitor for us, because we're dabbling in big and bulky on the wholesale end, and that is quite an advantage, you know, for us across the board. As, as far as the competitive landscape, there is a privately owned company based in Silicon Valley by the name of Fair.com that is kind of similar in the concept, but they don't dabble in anything big and bulky. They do smaller, lighter stuff. We believe all the, you know, the value and the competitive advantage remains in handling the big and bulky, which is a non-standard item, and the Faire.com currently has a valuation of $12 billion.

Lynn Brecken (Equity Research Analyst)

Okay. All right. Thanks, guys.

Iman Schrock (President)

Yeah.

Operator (participant)

Thank you. As a reminder, that's star 1one one to ask your question. One moment for our next question, please. Our next question comes from the line of Howard Sum, private investor. Your line is now open.

Howard Sum (Shareholder)

Hi, I just have a very quick question. I noticed that the company is bringing in 2 new U.S.-based directors to the board. Are you guys trying to be a bit more Americanized from a governance perspective? Thank you.

Larry Wu (Founder, Chairman, and CEO)

Yeah, maybe I, I take that question. It's Larry. Actually, no, 'cause the majority of our board members today are already U.S. persons, while the proposed board restructuring will have all our board members to be either U.S. residents or citizens. The purpose of this restructuring was mainly from operational and diversity consideration. Like, Jan had over 19 years of work experience at Walmart, and currently serving as the Vice President of Global Logistics at doTERRA International. He will definitely provide us with a lot of invaluable experience that will continue to grow in the United States and internationally. Lorri has a long history of experiencing U.S. furniture industry. She has established a consulting firm, providing advisory services to many top U.S. furniture companies. We're confident that our proposed board will offer a lot of fresh insight and diverse perspectives on our business.

Thank you.

Howard Sum (Shareholder)

Thank you.

Operator (participant)

Thank you. I'm showing no further questions at this time. I'd like to turn the conference back to Mr. David Lau for closing remarks.

David Lau (CFO)

Thank you, everyone, for joining our earnings call today. If you have any questions for the management team, feel free to email us. We look forward to speaking with you again. Thank you, everybody.

Operator (participant)

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.