GIGACLOUD TECHNOLOGY THIRD QUARTER 2026 EARNINGS CALL - GIGACLOUD TECHNOLOGY INC

Financial Performance:

• Revenue reached a record $424 million, up 27% year-over-year (YoY), comprising 23% organic growth and 4% inorganic growth from New Classic.
• Earnings Per Share (EPS) grew 42% YoY to $1.41, outpacing revenue growth due to operating leverage and share buybacks.
• Service revenue increased 26% to $136 million, driven by marketplace activity and logistics demand; Service gross margin improved 3.6% sequentially to 15.3%.
• Product revenue rose 28% to $288 million; Product gross margin was 29.4%, down 2% sequentially due to logistics costs and competitive dynamics.
• Combined company gross margin stood at 24.9%, down from 25.6% in the prior quarter.
• Net income hit a record $51 million (12% of revenue), up 36% YoY; Operating cash flow was $56 million.
• Balance sheet remains debt-free with $418 million in total liquidity; $17.7 million was spent on share buybacks in Q3.
• Selling and marketing expense was 8% of revenue; General and administrative expense was 2% of revenue.

Guidance and Future Outlook:

• Q4 revenue guidance is set between $425 million and $450 million.
• Management expects New Classic sales contributions from new product introductions to materialize primarily in 2027 rather than the current year.
• Long-term capital allocation strategy prioritizes returning capital to shareholders via buybacks, with unused balances in the $120 million plan potentially converted to a special dividend by August 2029.
• M&A activity is expected to resume post-integration completion of New Classic, with the company remaining active in the market due to favorable buying opportunities.
• The company aims to focus on the $60 billion U.S. wholesale furniture market before expanding horizontally into new categories like fitness equipment.

Business Segments and Product Lines:

• GigaCloud Marketplace: Trailing 12-month GMV surpassed $1.8 billion (up 24% YoY); Active third-party sellers up 22% to 1,500+, and active buyers up 21% to 14,000.
• United States: Domestic marketplace GMV grew 13% despite industry headwinds; product revenue grew 16% to $141 million (5% organic, 11% New Classic contribution).
• Europe: Marketplace GMV surged 65% YoY; 3P GMV grew nearly 330% YoY to ~$30 million; product revenue increased 46% to $129 million (45% of global product revenue).
• New Classic Integration: Portfolio refreshed with 140 new collections (500 new SKUs) at the October High Point Furniture Market; phasing out underperforming SKUs; leveraging brick-and-mortar relationships to drive 1P product sales via the marketplace.
• Service Offerings: Expanded focus on ocean freight, warehousing, last-mile delivery, and packaging; dynamic pricing utilized to offset fuel and energy cost increases.

Market and Competitive Landscape:

• The U.S. furniture market remains under pressure due to soft housing starts, elevated logistics costs, and high interest rates.
• Europe is identified as a high-growth, less competitive market compared to the saturated U.S. sector, offering superior initial margins.
• The company is shifting focus from traditional B2C marketplaces (e.g., Amazon, Wayfair) to serving brick-and-mortar retailers via a Supplier-Fulfilled Retailing (SFR) model, differentiating its value proposition.
• "Agentic commerce" is viewed as an opportunity to enhance distribution reach for diverse participants rather than consolidating sales to major platforms.
• The company sees a "new normal" of market challenges but maintains confidence in its diversified strategy to navigate the environment.

Risks and Challenges:

• Ongoing softness in the U.S. housing market and elevated interest rates impacting consumer demand.
• Volatility in ocean freight pricing, fuel costs, and energy expenses affecting fulfillment margins.
• Tariff fluctuations; the company reports receiving government refunds and passing adjustments to wholesale customers, mitigating net impact.
• Integration risks associated with New Classic, requiring disciplined portfolio optimization that may cause short-term revenue dips.
• Inflation pressures on diesel and logistics; the company mitigates this via dynamic pricing and rapid portfolio rotation.

Management Commentary and Tone:

• Tone is confident, disciplined, and focused on profitable growth rather than revenue at all costs.
• Emphasis on execution patience, stating that long-term value creation requires sustained investment and strategic M&A integration.
• Management highlighted the "self-reinforcing cycle" of the marketplace model, where seller growth drives buyer engagement and vice versa.
• Larry Boo and Erika V. emphasized resilience and adaptability, citing the ability to pivot quickly in response to market shifts like inflation and logistics volatility.

Analyst Questions and Answers:

• Agentic Commerce: Management views it as a value-add for building infrastructure to connect diverse sellers (including brick-and-mortar) to customers, rather than a risk to their marketplace model.
• Market Timing: Management avoids specific predictions on housing rebounds, focusing instead on adapting through geographic expansion (Europe) and M&A.
• Tariff Refunds: Confirmed receipt of government refunds, with terms passed transparently to customers to mitigate net financial impact.
• Q3 Beat Drivers: Q3 revenue beat was driven by outperformance in Europe and higher service margins from sustained high ocean freight spot rates.
• Margin Outlook: Europe currently offers slightly better margins than the U.S. due to lower competition; long-term margins are expected to converge as the market matures.
• M&A Pipeline: Three target buckets identified: 1) Traditional wholesalers/distributors to strengthen the ecosystem (e.g., New Classic, Noble House model), 2) Logistics players to support European scaling, and 3) Technology providers to enhance customer stickiness (e.g., Wonder model).
• New Categories: Expansion beyond furniture will target "big and bulky, non-standardized" categories like fitness equipment once the current furniture runway is sufficiently addressed.

Other Key Points:

• The "Supplier-Fulfilled Retailing" (SFR) model allows brick-and-mortar retailers to access large SKU pools without holding inventory or working capital, fundamentally changing their capital structure.
• Approximately two dozen retailer customers have begun sourcing inventory through the New Classic-integrated marketplace, with 60+ more in the pipeline.
• The company utilizes a "playbook" successful with the Noble House acquisition to streamline underperforming products and introduce high-potential new collections.
• Share buyback activity continues opportunistically, with $115 million remaining under the $120 million authorization.