GigaCloud Technology Aktie

Good day, everyone, and welcome to GigaCloud Technologies First Quarter 2026 Earnings Conference Call. Joining us today are GigaCloud's Founder and Chief Executive Officer, Larry Wu; its President, Iman Schrock, and its Chief Financial Officer, Erica Wei.

Larry, will provide opening remarks. Iman, will discuss the company's operation progress, and Erica will review financial results. After that, we will open the call to questions. 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 a discussion of non-GAAP measures within the meaning of SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most direct comparable financial measures calculated and presented in accordance with GAAP can be found in the press release issued today by GigaCloud, which is posted on the company's website. Now I will turn the call over to Larry. Please go ahead.

Thank you, operator, and hello, everyone. Our first quarter results highlight the resilience of our business model and the effectiveness of our strategy. During the quarter, industry conditions remain under pressure with the U.S. furniture industry estimated to be down single digit year-over-year.

While the U.S. remains a critically important market for us, our performance reflects the power of diversification. Driven by the disciplined execution across multiple fronts, we've delivered more than 30% year-over-year revenue growth and more than 50% EPS growth, proof of a sound strategy and consistent disciplined execution, all guided by a long-term view of where we're headed.

The long-term view is our comp, and it keeps us focused on what works, building multiple growth vectors while staying agile and responsive as conditions evolve. That approach continued to deliver across both what's driving us now and what we are building for the future. And the future we're building is clear, a truly channel-agnostic marketplace that serves every corner of the big and bulky industry, whether online or offline, domestic or international, spanning categories and borders, wherever our customers choose to do business.

Europe continues to be a powerful proof point, delivering growth today and demonstrating our model scales. What works here works abroad. Our success in Europe is a strong validation of our strategy, reflecting the value of long-term strategic positioning, thoughtful investment, and the ability to effectively localize.

At the same time, we're building for the future. The acquisition of New Classic adds a new and promising growth vector to our platform. While integration is on track and the New Classic has already deepened our capabilities by broadening our offering, its full contribution lies ahead. We're approaching it deliberately confident that with time and the disciplined execution, these new capabilities position us to better serve more corners of the industry in the long run.

We remain optimistic about the future. Our strategy is clear. Our platform is stronger than ever. Our team is executing with discipline, speed, and purpose. That optimism comes from knowing exactly where we're headed, and we're building towards that goal every day through organic expansion and strategic M&A, creating a stronger, more diversified ecosystem without losing agility. Now I will turn the call to Iman for discussion of our ongoing operational progress.

Thank you, Larry, and hello, everyone. Our marketplace delivered another quarter of strong growth, further reinforcing its expanding relevance and increasing scale. GMV rose 17% year-over-year on a trailing 12-month basis ended March 31, 2026, to $1.7 billion, reflecting both higher transaction activity and expanding buyer engagement.

Our marketplace ecosystem continues to strengthen with active third-party sellers growing 19% to 1,377, broadening product assortment for our buyers, while active buyers increased 25% to 12,473, reinforcing the platform's value proposition. These results reflect a healthy, well-balanced marketplace with strong momentum. Our open-ended ecosystem and tech-enabled supply chain drive efficiency and help manage risk, especially in uncertain conditions.

We remain focused on execution, operating lean, moving quickly and maintaining discipline to support long-term growth. Although the U.S. market remains highly volatile due to the industry-wide headwinds and ongoing policy uncertainty, we delivered 12% U.S. marketplace GMV growth on a quarterly basis. This performance was not driven by sector growth. It came from continued market share gains enabled by our SFR trading model and disciplined execution.

Moving beyond the U.S., Europe continues to emerge as a powerful growth vector and a clear example of our scalable execution-driven model. Overall, marketplace GMV in Europe grew 83% on a quarterly basis, driven by the same disciplined approach we successfully applied domestically here in the U.S.

As we've shared before, our playbook for new markets remains consistent, lead with 1P to establish the market and attract buyers, then layer in 3P by leveraging buyer demand, creating scale efficiencies and reinforcing the value inherent in our strategy. Europe is still early in that journey with volume today primarily driven by 1P. However, 3P momentum is building rapidly with quarterly GMV growth of more than 500% year-over-year.

That's the power of scaling a proven model. And we are complementing that organic growth with deliberate strategic initiatives, such as our recent acquisition of New Classic to deepen our reach within the industry and strengthen our presence across a broader range of channels. With New Classic, we have the opportunity to meaningfully deepen our penetration in servicing brick-and-mortar retailers, a massive segment of the furniture industry with significant runway for growth.

All of this is in service of our long-term goal of building the foundational infrastructure that powers the industry wherever business happens. As Larry shared in his year-end letter to the shareholders, this vision of becoming the industry's infrastructure is exactly where we're headed. And with every move, we'll get closer.

Integration of New Classic is underway and proceeding as planned. We're approaching it with the same discipline and patience that has served us well in the past because we know that getting this right matters than getting it fast. Right now, our teams are focused on the foundational work, aligning processes, integrating systems, building relationships with New Classic clients to ensure a smooth transition and developing new product assortments that are better tailored to the channels New Classic opens up for us.

Consistent with our approach to previous acquisitions, we do not intend to run New Classic as a stand-alone company. Instead, we will fully integrate New Classic into our platform and manage it as a part of our broader portfolio, unlocking greater efficiency through scale and shared resources. The full value will take time to unfold, but we're confident the long-term payoff deeper market reach and more complete offering will be significant.

As we've shared many times before, our focus is on profitable revenue. Unprofitable revenue is simply not our model. One of our core strengths is the ability to pivot quickly when conditions change. We don't chase revenue for the sake of revenue. So when tariffs reshaped the landscape in 2025, we moved decisively. We made an intentional decision to exit certain lower-margin product categories in the domestic market, such as steel furniture, where the economics no longer made sense. That decision put near-term pressure on U.S. revenue, but it was the right call to protect our bottom line integrity. Now with New Classic, we have a clear path to recapture and grow from there. Through New Classic's strong brick-and-mortar relationship, we expect to drive margin-accretive revenue in the U.S. market over time, reinforcing our long-term profitability while being disciplined on what we're willing to chase. That's how we grow, not just for the quarter, but for the long run. Now it is my pleasure to turn the call over to Erica for a discussion of our first quarter financials.

Thank you, and hello, everybody. A quick reminder before we get into our financial results. All figures I cover today are rounded and unless otherwise noted, comparisons are against the same period last year.

First quarter, we drove sustained profitable growth, a challenging backdrop. Revenue grew 32% to $359 million from first quarter, while earnings per share grew 53% to $1.04. Breaking our results down further. Service revenue increased 24% to $117 million as more industry participants turn to our marketplace. Packaging, warehousing and other services revenue double digits, partially offset by lower ocean service revenue due to reduced ocean spot rates in Q1 of 2026 compared with that of Q1 2023 and reduced ocean volume for the after tariff changes that occurred in April 2025.

From a margin perspective, service gross margins increased 250 basis points sequentially -- primarily hold of holiday season surcharges in the first quarter. On a year-over-year basis, service margin declined by 7.3%, mainly driven by lower ocean spot rates and also impacted by higher delivery and revenue. Turning to the product side. Product revenue rose 7% to $243 million as we saw growth across all regions. In the U.S., product revenue totaled $126 million, up 15% from last year's first quarter even against a challenging backdrop. Within that 15%, 2% of the increase represented organic growth, while approximately $14 million was attributable to inorganic growth with the acquisition.

That said, on a stand-alone portfolio basis, meaning New Classic performance to the same quarter last year before we acquired it on January 1. New Classic was down approximately 20% year-over-year. This -- factors, the difficult U.S. industry environment we've been navigating and some near-term disruption as we integrate New Classic operations into our own. This pattern is familiar to us, saw the same with our last acquisition, Noble House, which experienced a similar short-term decline before we streamlined operations, removed redundancies and applied our platform efficiencies.

It's settled, Noble House not only recovered top line-wise, but also delivered improved margins and stronger profitability. That's the long-term view in action. Patience through the noise conviction Comparable trajectory with New Classic short-term followed by long-term margin-accretive growth. In Europe, product revenue grew 80% year-over-year to $103 million as we continue to observe strong demand.

Product margins were 31.3% this quarter, up 3.8% year-over-year, driven primarily by price increases as we capitalized on strong demand and benefited from lower ocean shipping costs. As previously shared, while service margins tend to decline during periods of low ocean shipping rates, product generally benefited from such lower with the 2 having an offsetting. On a sequential basis, product margins declined 80 points due to expected seasonality with the first quarter generally being our softest.

Total company gross margin grew to 23.9% for Q1 of 2026 from 23.4% last year quarter. From a standpoint, sales and marketing costs for Q1 were $31 million or 9% of total revenue compared to last year. The increase was primarily higher channel commission spend and staffing costs associated with earning expansion. General and administrative costs totaled $10 million or 3% of total revenue, down from 5% from last year's first quarter, reflecting increased warehouse utilization rates and lower professional and administrative expenses.

This brings net income to 10.6% with net income of $38, 12% year-over-year, on a per share basis, EPS was up 53% year-over-year, driven by increased net income and amplified by a reduction in average weighted shares due to buybacks. We used $22 million in operating cash flows in the first quarter as we built up more inventory for the summer selling season in the second quarter.

Total liquidity, inclusive of equivalents, restricted cash, and short-term investments totaled $364 million. Importantly, we remain debt-free with a disciplined capital allocation strategy. This strategy includes return capital to shareholders through continued buybacks and strategic acquisitions that support long-term growth objectives. As of date, our cumulative share buybacks across all plans totaled approximately $114 million. We have completed 38% of our latest $111 million plan announced in August of 2025, with $68 million in remaining authorizations for future buybacks. Before we wrap up, a note on the second quarter. The flooding that took place in Vietnam towards the end of 2025, the worst in decades, resulted in some delays and short-term supply chain disruptions for our outdoor season inventory. Looking ahead, we remain confident in our ability to manage through these temporary disruptions and expect revenue in the $365 million to $390 million range. Operator, we are now ready to begin the Q&A session.

[Operator Instructions]. And our first question comes from Thomas Forte from Maxim Group.

So one question and one follow-up. And first off, congratulations on another strong quarter. So Larry, as you scale the business, how should we think about your strategic M&A efforts and your interest in acquiring larger assets as the business gets bigger?

Yes. Thank you for the question. Yes, we are continuously looking for the opportunity that this could potentially help us to build a broader product line or any opportunities to help us to really improve our technology capability to better service the customer. Yes, we are definitely looking.

Excellent. And for my follow-up, how should we think about how rising oil prices affect your business?

Yes. Right now, I think -- okay.

Go ahead, Larry.

Yes, you can go ahead.

Thanks for the question, Thomas. So I think rising oil prices definitely has an impact in terms of the immediate impact would be delivery cost, both on the ocean and ground front, right?

And then there's obviously the general indirect impact to both the consumers, the earlier parts or the manufacturing stage of the supply chain. However, it's not fundamentally different from many of the disruptions we've seen in the past, simply a form of cost increase. It could be logistics. It could be -- ultimately, we do try to stay very, very [indiscernible]. So we're quite confident in terms of navigating such increases.

And our next question comes from Ryan Meyers.

First one for me. The business is obviously accelerating and performing very well despite what you guys consider a difficult macro environment. The question is, what do you think is really just driving your guys' ability to consistently outperform sort of the broader furniture and large parcel market right now?

Good question, Ryan. I think it ultimately comes down to the marketplace. So the marketplace that's driven by the SFR model, which is a little bit different from maybe what most folks are used to in the industry. It does truly give participants a little more flexibility, a little more efficiency and tries to help folks manage risk, especially inventory risk a little better. So as we gain more recognition, a little more exposure, we see more and more joining the marketplace looking for those benefits. And you can see this through our GMV numbers.

Okay. Got it. And then just briefly a question on inventory and operating cash flow. It was obviously down for the year, and it looks like you guys had a big inventory build. What should we be aware of in terms of that inventory build and the purpose of that?

Yes. So the majority of that was in preparation for the Q4 season. So I'm sure you're well aware that Q2 is a pretty season for us because of our outdoor. So that was for the inventory buildup. On top of that, there is also a little bit of increased spend due to the acquisition. New Classic has slightly -- the terms of buying are not as favorable as GigaCloud right out of the gate, but obviously, that will change over time.

And our next question comes from Matt Koranda from ROTH Capital Partners.

It's Joseph on for Matt. I just wanted to see if you guys could talk about a little bit here on gross margin profitability, kind of piggybacking on Tom's initial question. As we think about elevated energy levels, you said in your prepared remarks kind of you have some giveback in services gross margins and increased product gross margins as we're thinking about the impact of higher energy levels. But anything else kind of you guys can highlight for us there in terms of the impact of services in the -- as of the last couple of quarters? And how should we be thinking about service gross margins as we look into 2026?

Thank you for the question. So for the quarter that just passed, Q1, I think we saw product margins improve year-over-year and about compared to Q4. So there's a lot of -- that's a result of both us capitalizing on continued demand and pricing appropriately, plus there's also the benefit of spot rates, ocean spot rates, particularly going down in 2025.

On the service front, we have the opposite effect. We have decreased service gross margin because of that reduced ocean spot rate. So there's a bit of a natural hedge going on between the 2 service -- sorry, the 2 revenue lines. Moving ahead, assuming spot rates in terms of logistics will be increasing, the 2 lines might move the other direction, but still in an offsetting manner.

Got it. Okay. I appreciate the color there. And then as we kind of integrate new Classic is with 1Q being the first consolidated quarter, just any thoughts here on the time line? Are we expecting the business to kind of slowly ramp just as we saw Noble House within that 12 to 18-month range? Should we -- should that be accelerated or lagging that time line? Just any preliminary thoughts there?

Yes. So I think during our last call, we had communicated roughly 6 quarters, which is similar to the Noble House case in terms of integration efforts. and we believe that is still the case. We're on track for that schedule. So in the beginning, we'll probably see a little bit of disruption, similar with Noble House as we are focusing on integrating the foundation and getting the portfolio set up for success in the future. And then once we get through that phase, we'll see things going in the opposite direction and going back to growth.

Got it. Okay. And then just a final question here. Just could you give us some thoughts on capital allocation? I know the biggest bucket being share buybacks with you guys having a little bit over $60 million in share buybacks left on your authorization between -- and also between international expansion and M&A. Just kind of rough cut thoughts on how we should be thinking about capital allocation in the near term or longer term?

Yes. Thank you. You're absolutely right. Those are our 2 main focal points in terms of capital allocation. We've been doing the share buybacks for a while now, and that's something that will continue to be an important part of our plan. In terms of strategic acquisitions, that is also something that we have planned for the future. It just won't necessarily be immediately right now since we are focused on integrating New Classic the right way.

And our last question comes from Rommel -- I'm sorry, Dionisio from Aegis Capital.

I wonder if you could provide a little more color, please, on the strength in Europe. Obviously, you're making continued progress in growth in that market. Could you just talk about it on a regional basis? Is Germany the key driver there? Or is it some other markets? And also, as you grow so quickly in that market, might that require any infrastructure spend, whether it be warehouses or so forth?

Yes. Thank you for the question. So we are doing quite well in Europe. I think there's a few elements to think about here. First off, the model has been tested and performed well in the U.S. and it's a little -- perhaps a little faster when we're scaling things up in Europe as well. On top of that, the difference between the U.S. market and Europe market. Europe is a market that is significantly more fragmented than the United States. More different -- more channels, more vendors, more differences in terms of countries, what folks want.

As of right now, we are operating out of Germany and the United Kingdom in Europe in terms of warehousing. However, our product delivery or ultimate sales is not limited to those 2 regions. Germany is kind of the centralized driver right now, but we are already covering many different countries such as France, Italy, for example, Spain.

Moving ahead, given the speed of growth and how much volume, especially the anticipated growth coming from the 3P side, yes, I do think we will be planning for more fulfillment centers in that region.

This is Larry. There's one call of out I want to add to what Erica already shared about the service margin. Actually, the pressure of the margin numbers just -- not only coming from ocean shipping, but also come from the ground service we're providing to our customer just because the challenge we're seeing from the economy that just because of the rebound in the capacity that we're seeing everybody in the shipping industry that we will see the pressure that we've been seeing will continue probably for the coming few quarters. That's just something I want to add.

Thank you. And this does conclude today's conference. We appreciate your participation. You may disconnect your lines at this time, and have a wonderful day.

Welcome to GigaCloud Technologies Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining us today from GigaCloud are the company's Founder and Chief Executive Officer, Larry Wu; its President, Iman Schrock; and its Chief Financial Officer, Erica Wei. Larry will provide opening remarks. Iman will discuss the company's operational progress and Erica will review financial results. After that, we will open the call to questions.

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 a discussion of 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 the press release issued today by GigaCloud, which is posted on the company's website.

I would now like to turn the call over to Larry. Please go ahead, sir.

Thank you, operator, and good morning, everyone. 2025 marked a defining chapter for us, record revenue, record EPS and a level of performance that underscore not only the strength of our model, but also our resilience and adaptability when facing challenges. In the year, when the macro backdrop was anything but predictable, our agility and operational discipline powered the strong double-digit growth and position us to accelerate even further.

From the beginning, we understood the importance of building a new growth vectors for sustainable long-term value creation. And that strategy continues to pay off. We have expanded our geographic reach, scaled our marketplace and strengthened our market platform through targeted acquisition. In doing so, we have built not just a thriving company, but an ecosystem designed to lead the next phase of growth. Our acquisition of Noble House is a great example of how we are building our growth vectors into business and how those factors are already driving momentum. In under 2 years, we took bankrupt company to a profitable and growing portfolio. Our work to discipline and patience. We broadened our product line, expanded our channel reach and enhanced our operational efficiency. But more importantly, we've built a repeatable playbook for M&A integration that sets us up for long-term success.

And now what we're applying the same playbook to our new acquisition, New Classic home furnishing. This move positions us to serve every corner of our industry with even greater depth and capability. Iman and Erica will get into the details shortly, but the headline is simple. We are generally excited about the value New Classic unlocks for our marketplace, our partners and our shareholders. Our success in Europe is another clear validation of this approach and it reflects the value of long-term strategic depositing with 68% of revenue growth from 2024 to 2025. We expanded our presence in the measured strategic way, extending the reach of our marketplace and giving our buyers and sellers around the world a more efficient way to transact.

Our performance has also given us a financial flexibility to be disciplined with our capital, investing in growth where we see the highest conviction of opportunities while continuing to return capital through ongoing share repurchases is a core part of how we create the durable value. We feel confident in what we have built and we have -- we are headed. We believe this is a business that can perform across cycles, supported by strong execution, a portfolio of durable growth vectors, disciplined capital management.

Now I would like to turn the call over to Iman for a discussion of our continued progress.

Thank you, Larry, and hello, everybody. Our marketplace continues to deliver impressive momentum, posting another period of substantial growth.

Over the trailing 12 months ended December 31, 2025, marketplace GMV increased approximately 18%, reaching a record of nearly $1.6 billion. Sellers continue to join our marketplace at a strong pace with our 3P seller base expanding 17% year-over-year on a trailing 12-month basis, reaching 1,299 as of December 31. More encouragingly, GMV from this space grew by 23% to $851 million as our sellers continue to find success on the marketplace. We added nearly 2,800 new buyers in 2025 on a net basis, bringing our total buyer base to 12,089. By increasing efficiencies and lowering transaction risk, our marketplace is even more compelling solution for participants looking to operate confidently in a volatile global environment. While global macro trends and policy shifts remain outside of our control, we can and do control the flexibility and responsiveness of our model. We operate with the expectation that conditions will change, and we are structured to adapt quickly. Europe is a clear example.

Our focus on Europe as a key growth vector continues to deliver. By shifting more resources and focus to Europe in light of softness in the U.S. market, we drove tangible results. Europe delivered 68% revenue growth on an annual basis, a key contributor to our double-digit global growth for the full year. This is exactly the kind of agility we've built into our model. The ability to identify where growth is happening and redeploy resources accordingly. To build on this momentum, we strengthened our marketplace operations and expanded our infrastructure to 7 facilities in Europe. We are building a truly global business. Europe proves that our model travels and that the growth vectors we planted years ago are now delivering. For us, that's the value of long-term strategic positioning, placing disciplined bets, giving them time and letting the results speak. And this isn't just about geography. We are applying the same lens across the business, broadening our product offerings and strengthening our distribution channels.

With that in mind, I'd like to share an update on Noble House and provide additional context on our more recent acquisition of New Classic. It has been 2 years since our acquisition of Noble House in Q4 of 2023, and I would like to take a moment to look back on how far we've come. We acquired Noble House out of bankruptcy, a business that was losing close to $40 million a year. We began leaning on GigaCloud's superior marketplace model and operational expertise to trim fast and streamline the business. From there, we executed a complete overhaul of the Noble House's portfolio offering, rationalizing SKUs to focus on what works. The process took patience and discipline, and the results speak for themselves. The Noble House portfolio turned to profitability during the earlier half of 2025 and returned to growth in the third quarter of this year. I am pleased to share that we have stabilized the portfolio as of Q4 2025, slightly ahead of our original goal of Q2 2026.

Moving forward, we expect to continue refreshing the portfolio through a disciplined cadence of regular new SKU introduction and selective rationalizations, consistent with how a healthy portfolio evolves rather than a comprehensive overhaul we executed in 2025. As of today, all elements of operations for Noble House portfolio have been fully integrated into GigaCloud. On a go-forward basis, legacy Noble House will be managed as a part of GigaCloud's larger growing portfolio. Given the completion of our integration efforts, we do not plan on providing portfolio-specific updates in future calls. The acquisition and integration of Noble House brought us new product capabilities, especially in the outdoor space as well as wider and deeper distribution channels. It also reinforced what is possible when we apply patients, discipline and the full weight of our operational expertise and the marketplace model even in challenging conditions.

While our acquisition of -- with our acquisition of New Classic, we see a similar opportunity. On January 1 of this year, we completed the acquisition of New Classic funded with $18 million cash on hand. The acquisition broadens our product offerings and strategically deepens our foothold in brick-and-mortar distribution, an area where we see meaningful growth potential. We are eager to get to work, apply the same disciplined approach and capture the value we know is there. On the integration front, we are off to a strong start. The new Classic team brings deep expertise and relationships in the brick-and-mortar space, and we have been working closely to ensure a smooth transition. Similar to Noble House, New Classic will be integrated directly into GigaCloud rather than being run as a distinct subsidiary. Our focus is on preserving New Classic's strong distribution channels and relationships while thoughtfully layering in GigaCloud's marketplace model and operational capabilities with a target integration period of 6 quarters.

We are excited about the growth potential that will come from combining New Classic and GigaCloud. On the revenue side, we see 2 clear and immediate opportunities. First, we will leverage GigaCloud's vast nationwide fulfillment network to expand New Classic's geographic reach, moving beyond the constraints of its current 2 facility footprint. Second, we plan to leverage GigaCloud's deep supply chain routes and new product development capabilities to widen New Classic's assortment, driving increased volume through its brick-and-mortar channels. We are energized by what lies ahead. Our team is focused on executing with patients and precision, and we believe we are well positioned for the future.

And with that, I will turn things over to Erica for a discussion of our fourth quarter financial results.

Thank you, Iman, and hello, everybody. A quick note before we get into our results. All figures I cover today are rounded and unless otherwise noted, comparisons are against the same period last year.

Now let's take a look at our results. We delivered strong fourth quarter and full year results, breaking several records. Fourth quarter revenue was $363 million, up 23% against prior year quarter and full year revenue rose 11% to $1.3 billion. Quarterly diluted EPS grew 37% on a quarterly basis to $1.04 per share, and full year diluted EPS increased 18% and to $3.59 per share.

Now let's dig in a bit deeper, starting with service revenue. Service revenue increased 21% year-over-year to $129 million for the fourth quarter. Growth was driven by strong demand from our marketplace participants, including higher last mile activity along with higher packaging service revenue and commissions, reflecting larger transaction volumes and increased use of our fulfillment services. These gains were partially offset by a decline in ocean service revenue, resulting from ocean spot rates being meaningfully lower in Q4 2025 than they were in Q4 2024 due to softer overall demand for ocean shipping after Liberation Day across the broader economy. Q4 service margin declined by 3 percentage points sequentially to 6%, primarily due to cost increases related to peak season ground fulfillment surcharges as expected during the holiday season and similar to prior years. Service margin also saw modest sequential pressure from the lower ocean spot rates.

Turning to product revenue. Product revenue increased by 24% year-over-year in the fourth quarter to $234 million, driven by growth across all operational regions. Breaking that down further, U.S. product revenue totaled $121 million, up 3% year-over-year against a challenging backdrop. We continue to remain disciplined in the current volatile environment, prioritizing profitable revenue over empty volume that does not translate into earnings. Consistent with this approach, we had intentionally paced top line revenue for the Noble House portfolio earlier this year as we rationalize SKUs to protect bottom line integrity. I am pleased to share that our efforts are paying off. The Noble House portfolio saw over 40% year-over-year growth on a quarterly basis in Q4, driven by new products and SKUs introduced this year. We are encouraged by the results of our turnaround efforts and are optimistic about the portfolio's future. As Iman mentioned earlier, given the portfolio's full integration, this will be our last stand-alone update on the Noble House portfolio.

Europe product revenue continued to be a strong contributor. Product revenue for the region increased by 64% year-over-year to $98 million total. Product margins increased 220 basis points sequential to 32.1%. The expansion was driven by several factors, including targeted pricing actions aimed at capitalizing on strong fourth quarter demand, growth in off-platform sales, which typically carry higher gross margins to offset higher selling expenses as well as benefits from lowered ocean shipping costs. While declining ocean spot rates can negatively impact service margins, they also translate to cost reduction on the product front, supporting product margin expansion. Combining the above, total gross margins for the quarter was 22.9%.

Diving into our expense categories. Sales and marketing costs for the fourth quarter totaled $29 million and represented 8% of total revenue compared with 6% for last year's fourth quarter. The increase was due to higher channel-related advertising spend and staffing costs associated with our European expansion. G&A was $11 million or 3% of total revenue, down from 6% last year due to increased warehouse utilization rates and lower stock-based compensation and administrative compensation compared with the prior year quarter. Combined, net income margin for the fourth quarter was 10.6% and net income was $38.5 million, a 24% increase from prior year quarter. Our net income growth was further amplified by share buybacks, translating to a 37% year-over-year increase in diluted quarterly EPS to $1.04. We generated $64 million in operating cash flows during Q4, ending the quarter and year with total liquidity, which includes cash, cash equivalents, restricted cash and short-term investments of $417 million. We remain debt free.

Our capital allocation plans remain consistent as previously communicated. Strategic M&A on an opportunistic basis and returning capital to shareholders through ongoing buybacks. On the buyback front, since the announcement of our latest $111 million share repurchase program in August of 2025, we have executed $33 million in share buybacks at a weighted average price of $31.60 per share, representing 30% of the approved plan. Finishing up with our first quarter outlook. Revenue is expected to be between $330 million and $355 million.

Operator, we are now ready to begin the Q&A session.

[Operator Instructions] Our first question comes from Ryan Meyers with Lake Street Capital Markets.

Congratulations on the strong results and the strong quarter. So first question for me, thinking about where revenue ended up coming in well ahead of guidance that you previously gave, what were the sources of upside? And then how should we think about that as a potential lead in for what you gave for the second quarter guidance and then the range that you guys gave there?

Ryan, thanks for the question. This is Erica. Yes. So Q4, our strongest growers or drivers of year-over-year growth was, a, Europe, which we've seen very strong performance from for the last several quarters. And looking forward, we expect that to continue in the near future.

Now I do want to be clear, we don't expect the region to indefinitely grow at close to 70%, right? A year from now, we should see some gradual slowing down. The other big grower was Noble House. So I think we've talked about this on previous calls several times. There was actually a decline in the first half of 2025 because we were doing a complete overhaul of the SKUs in that portfolio. What that meant exactly was we had, at the time, taken out a lot of the SKUs that were not performing as well, not quite as profitable as we would like them to be and replace them with new SKUs. So there was a period where revenue was down. And Q3 and Q4 was when the new SKUs that we introduced really started kicking in or the efforts started paying off, and we saw really quite strong growth of over 40% in Q4 of this year. And looking ahead, Q1, I would also expect strong contribution from that portfolio. And down the line, that will tend to kind of taper off slowly as we become more and more stable.

Okay. Makes sense. And then gross margin, I think you briefly had called it out. It came down a little bit from last quarter, but was up year-over-year. So what were the main drivers of that? And then how should we think about the gross margin in the first quarter here?

Yes. So for overall margin, you really do have to look at product and service separately. So if we look at service first, the main driver, if we're looking at year-over-year, the biggest one is for sure, ocean, right? So we all know what happened there. Ever since April, overall demand for ocean services globally have been down. And I'm not talking about GigaCloud or even the furniture industry, I'm talking about the broader economy. So spot rates are a lot lower than what they were in 2024.

We actually moved to more containers this year than last year. But because of the lowered price per unit, overall revenue and margin from that piece is down. And if we look at it sequentially, usually, we do see a bit of compression coming out of Q4 because of last mile surcharges that our vendors charge, and these tend to go away around mid-January. Product-wise, we did see very strong performance coming from Europe, which for sure, our strongest region. And then for all of our geographical regions, we also did see stronger or higher off-platform channel sales. Usually, those have higher gross margins because of the higher sales and advertising expenses that come with. Does that answer your question, Ryan?

No, that does. That makes sense.

The next question comes from Joseph Gonzalez with ROTH Capital Partners.

Congratulations on another good quarter. This was already asked, but kind of attacking it from a different angle. As we look to your 1Q sales outlook, is there any way you can break out service versus product tier and growth? And also any color on New Classic contributions as we look into 1Q?

Yes. Thank you for the question. So we haven't -- we don't really have a breakdown specifically for product and service. But overall, we do expect the trend or kind of they were growing at similar speeds this quarter. We expect that trend to continue for the coming quarter. And the guidance that was given does indeed include New Classic. So for Q1, we expect revenue from that portfolio to be in the probably mid-teens.

Got it. Okay. And then again, just looking -- as we look into like 1Q, thoughts on service gross margin recovery. It looks like services came in at like roughly 6%. I know you just answer that it's mainly coming from ocean spot rate, but any color as we're heading into 1Q and 2026 on gross margin expansion on that front?

Sequentially, I do expect a bit of recovery, mainly because of the change in last mile costs. So usually, between November and mid-January, we do see increased costs from our vendors because of holiday season and the very high volume. Once that goes away, Q1, usually last mile margins recover a bit. And then on top of that, we have also been conducting a little bit of pricing increase in Q1.

Okay. Got it. And then if I could just squeeze one more in here. Just any preliminary thoughts on ocean freight? I know we've seen compression in 2025. Just want to see what are your preliminary thoughts are just on gross margin -- on service gross margins this year and how it may be impacted?

Great question. Unfortunately, I'm not able to really predict the future when it comes to ocean spot rates, I really wish I could. With that said, what we're seeing at the moment is things seem to be pretty stable, and they are at a point where -- of what I would consider fairly low if we look back at the last 2 years.

This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the GigaCloud Technology Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Mr. Larry Wu, CEO. Please go ahead.

Thank you, operator, and welcome, everybody, to today's call. This quarter's performance is a strong testament to GigaCloud's resilience and adaptability. Despite the challenges brought by global trade uncertainties, a cooling housing market and wavering consumer confidence, we delivered a robust 10% year-over-year growth, returning to 2-digit increase and setting new records of $333 million in quarterly revenue and $0.99 in quarterly EPS.

These results reflect our ability to move fast, stay lean and execute with precision even in the face of macroeconomic headwinds. We're navigating today's environment with confidence, guided by the disciplined execution to our long-term strategy, staying agile, continuing to diversify for resiliency.

Our Nova House optimization is delivering fantastic results. strategically adding new products and phasing out underperformers has fueled our first year-over-year revenue growth, since we completed the acquisition. We are excited for the future value that we expect this portfolio to unlock as we continue our optimization effort.

As we have discussed many times before, we view our M&A as a part of our long-term growth strategy. Noble House is a powerful validation of the strategy by combining product, channel, vendor resources from Noble House with operational efficiency and transformative marketplace of GigaCloud. We have not only been able to turn a bankrupt company losing nearly $40 million in 2023 to a profitable growing assets in less than 2 years, but also expanded our product line and the channel outreach.

This result is exactly why we view M&A as a cornerstone of our long-term growth. As we look forward, this successful playbook gives us tremendous confidence in our strategy to continue unlocking new value for the future. With that said, I'm very excited to share our plan to acquire New Classic Home Furnishing scheduled to close on January 1, 2026.

As a traditional brick-and-mortar focused wholesaler, New Classic is a perfect strategic fit for GigaCloud to further diversify our business and reach beyond e-commerce. As many of you know, GigaCloud ecosystem has historically been more concentrated towards e-commerce of big and bulky. This acquisition represents our strategic move to recalibrate our focus, making brick-and-mortar wholesale a more significant and complementary part to our ecosystem, an area we see tremendous opportunities in.

We have already proven the viability of our marketplace. The next step of evolution naturally is to bridge the digital and the physical world. For truly channel, agnostic ecosystem that empower buyers and sellers to trade seamlessly with unparalleled reach and flexibility. Executing this next phase of evolution in the current economic climate is a deliberate choice.

While no company is immune to macro pressures, our focused execution, strong balance sheet and use of diversification as a hedging strategy allows us to navigate this turbulence more effectively than most, securing competitive advantages today that will fuel our next chapter of growth.

To that end, I will now turn the call over to Iman, who will provide more detailed update on the progress we continue to make against our key operational goals.

Thank you, Larry. Hello, everybody. Our marketplace continues to gain momentum, delivering another strong quarter of growth. For the trailing 12 months ending September 30, 2025, marketplace GMV rose approximately 21%, reaching nearly $1.5 billion, underscoring the scalability and resilience of our platform.

Our active 3P seller base continues to expand, up 17% year-over-year to 1,232 with GMV for this cohort climbing more than 24% on a trailing 12-month basis to over $790 million. Buyer growth also accelerated, increasing 34% to 11,419 as more businesses looked for new efficiencies and risk optimization in a challenging environment.

Our global revenues increased by 10% in the third quarter on a year-over-year basis. While the domestic U.S. market faced headwinds, our international markets acted as a powerful hedge, driving growth and offsetting domestic softness. Diversification and having a balanced portfolio is a core tenet of our strategy, ensuring we are not overly reliant on any single market.

Europe continues to be a powerful growth engine with year-over-year revenues up 70% to a record $100 million, making a major milestone in our global expansion. Our diversification efforts, however, is not limited to geographical expansion. We're also looking to create a more dynamic marketplace supported by a broader range of product offerings and distribution channels.

To accelerate this strategy, we leverage M&A to acquire key capabilities. Our playbook has a two-pronged approach, deepening our core capabilities through acquisitions and leveraging our ecosystem to make the acquired assets more efficient, competitive and profitable. Our 2023 acquisition of Noble House is a prime example. It's not just an addition, but a strategic integration that deepens our product catalog and capabilities.

We have made substantial progress with our Noble House portfolio optimization. Since last quarter, we have introduced another 2,300 new SKUs and retired 1,100 underperforming SKUs, shaping a more streamlined, high-performing portfolio built to scale.

As shared earlier this year, our SKU rationalization efforts have successfully returned the portfolio to profitability, while temporarily impacting our top line. I am pleased to report that in Q3, this disciplined approach has paid off with the portfolio not only maintaining its profitability, but also returning to growth. We have effectively reset our foundation and now reigniting growth from a much healthier foundation.

Looking ahead, we plan to build on this momentum. Our strong balance sheet positions us to be highly active and disciplined in pursuing inorganic opportunities that align with our long-term strategic goals, and our pending acquisition of New Classic is a great example of the type of value-creating asset we are looking for.

New Classic is a well-respected, long-standing U.S. wholesaler with deep roots in the brick-and-mortar furniture space. The company has over 1,000 primarily brick-and-mortar retailer relationships, over 2,000 active SKUs, a high-performing team and a wide network of vendors that specialize in products tailored for this specific channel.

The acquisition is strategically targeted to dramatically widen our distribution and channel reach. By pairing New Classic's network with GigaCloud's marketplace ecosystem and logistics capabilities, we can accelerate growth and unlock new efficiencies. We expect to close the transaction early in the first quarter of 2026 and expect 4 to 6 quarters of strategic initiatives to be reflected in our financial performance.

Now I'll turn things over to Erica for a discussion of third quarter financials.

Thank you, Iman, and hello, everybody. A quick note before we get into our results. All figures I cover today are rounded and unless otherwise noted, comparisons are against the same period last year.

Now let's take a look at this quarter's results. We delivered a great quarter, including double-digit growth revenue of 10% to $333 million, a new quarterly high. Now let's break this down by revenue streams. Our service revenues declined 2% year-over-year, primarily driven by reduced U.S. ocean shipping and drayage revenues. The uncertainties seen in recent months has resulted in significant declines in the demand for ocean shipping services to the U.S. for many industries.

Lower demand has suppressed ocean spot rates, which translates to lowered ocean service revenues for us. U.S. revenue pressures were partially offset by strong year-over-year growth in similar services delivered to our European market sellers. Service margin came in at 9.1%, down 2.3% sequentially, primarily driven by higher last-mile delivery costs in the U.S. following pricing adjustments implemented by some of our ground transportation fulfillment partners.

In response, we are actively recalibrating client pricing to reflect these updated cost structures. Total product revenue grew 16% year-over-year, driven by our strong performance of 69% growth in Europe. Growth was partially offset by a 5% decline in the U.S., which is reflective of the challenging macroeconomic pressures in the region. But more importantly, it is a direct outcome of our disciplined strategy.

As communicated last quarter, we have implemented targeted price increases to address rising tariff costs. Our strategy is to prioritize margin integrity over pure volume, ensuring the growth we deliver is sustainable and valuable. Our commitment to margin integrity was put to the test this quarter and proved effective. We faced a significant margin headwind from the sale of products sourced in Q2 under tariffs exceeding 100%, which we successfully navigated with strategic price increases, protecting our baseline profitability.

Beyond this mitigation, we delivered a sequential product margin expansion of 70 basis points to 29.9% as we grew our higher product margin channels and benefited from lowered ocean shipping costs. For GigaCloud as a whole, gross margin was 23.2% for the third quarter, a 70 basis point sequential decline from the second quarter of 2025.

Operating expenses declined 1.7% sequentially to 11%, primarily driven by lower G&A expenses. This is a reflection of lower stock-based compensation this quarter as most stock-based comp is granted and vested in the second quarter of each year.

Selling and marketing expenses remained flat sequentially at 8% of sales. This brings net income to $37 million or 11.2% of revenue, an expansion of 50 basis points sequentially. I am also pleased to report a new record for quarterly EPS of $0.99 per share, driven by our team's focused execution and amplified by our ongoing share repurchase efforts.

For the third quarter, we generated operating cash flows of $78 million, ending the quarter with total liquidity, which includes cash, cash equivalents, restricted cash and short-term investments of $367 million. We remain debt-free and continue to execute on our capital allocation strategy of pursuing strategic acquisitions such as New Classic, while simultaneously returning capital to shareholders through buybacks.

Since the announcement of our $111 million share buyback plan in August, we have executed approximately $16 million in buybacks to date or 15% of our latest plan limit. This brings our cumulative buyback total to $87 million as of date, since our IPO in 2022, and we plan on continuing to execute opportunistically using buybacks as a flexible tool to return value to our shareholders.

Finishing with our fourth quarter outlook, revenue is expected to be between $328 million and $344 million. Operator, we are now ready to begin the Q&A session.

[Operator Instructions] Your first question today comes from Tom Forte from Maxim Group.

Congratulations on the quarter. I have 1 question and 1 follow-up. So you talked about a new M&A acquisition. Can you talk about your thoughts on additional M&A acquisitions? Recently, you've talked about looking for opportunities to expand in Europe and then also looking for opportunities, I think, to add technology, perhaps on the software side, things of that nature. So that's my first question.

Yes. We'll keep looking on different opportunity by focusing on any opportunity that can bring us more product or the fulfillment capability. But right now, I think we're more focusing on concluding -- the closing of New Classic. But our team is definitely concurrently looking for new opportunity, but it's unlikely that this can happen in the coming few months because we'll be focusing on new classes at this moment.

Okay. And then for my second question, thank you, Larry, for the answer on that one. The good news for the housing market is that the Fed has now had multiple rate cuts. I recognize that the housing market is still very challenged. Do you think any of these rate cuts are starting to translate into greater interest in home merchandise and then the possibility for some sort of sales catalyst over the next 12 months?

Yes. That's -- obviously, this is Larry. We were hopeful about the bouncing back of the housing market, but we're trying to keep ourselves more focused on the execution on a micro level, because we do have the toolbox of more diversified revenue avenue that we can really enjoy the [indiscernible] ability to avoid any kind of reliance on any of the macro positive other factor to happen to really provide the opportunity to grow that we are trying to deliver the growth regardless of what the macroeconomic is doing.

Your next question comes from Joseph Gonzalez from ROTH Capital Partners.

It's great to see you guys kind of transform Noble Health. I want to see, if you guys can unpack that here a little bit. Is there any chance you can just give us a cadence of how the quarter went and kind of the drivers for that growth there in 3Q?

Thanks, Joseph. Yes, Q3, I think, overall went really well. The main drivers here are Noble Health outperforming in the U.S. and also Europe, it's nothing new, continuing to perform very strongly.

Got it. And as it pertains to your core business -- like excluding Noble House, any drivers there you'd like to unpack for us as you come out with about double-digit growth in the fourth quarter through your guidance. Just kind of what you guys are seeing in your early innings of 4Q and the confidence there?

I think as of today, we're seeing kind of Q4 going well kind of as expected, and this is reflected in the guidance that we gave just now. And this is, of course, inclusive of the expectation of Europe, which is mostly -- it is entirely organic, continuing to perform strongly, Noble House and then, of course, our original non-acquired parts of the business, all 3 combined.

It's good to hear you guys are able to navigate during a dynamic environment. We'll go ahead and leave it there.

Thank you. There are no further questions at this time. And with that, that does conclude our question-and-answer session. This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Welcome to GigaCloud Technologies Second Quarter 2025 Earnings Conference Call. Joining us today from GigCloud are the company's Founder, Chief Executive Officer and Chairman, Larry Wu; its President, Iman Schrock; and its Chief Financial Officer, Erica Wei. Larry will begin with some opening remarks. Iman will discuss the company's operational progress and Erica will review financial results. After that, we will open the call [indiscernible] Materially. Additionally, today, the call will include the discussion of 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 the press release issued today by Giga Cloud as well as on the company's website. I would now like to turn the call over to Larry. Please go ahead, sir.

Thank you, operator, and welcome, everyone, to our call today. Let me start by saying what the eventful quarter we had between supply chain disruption from tariff hikes, a challenging industry backdrop and the continued execution of our SKU rationalization initiatives. We have a few curve balls yet despite it all, we delivered strong results. revenue increased by 4% year-over-year, exceeding our own expectations. And more importantly, we drove a greater share of that growth into bottom line performance, which grew 28% year-over-year. A few highlights on the key events of this quarter before we dive into details. We started this quarter facing heightened tariff on our key sourcing countries including Vietnam, China and Malaysia. With the rapid changes that followed by a followed shortly after the initial announcement, the unprecedented level of uncertainty quickly led to disruptions in the overall ecosystem. A number of our 3P partners holded shipping for several weeks, adopting the wait-and-see approach, and we had to act quickly to ensure our own competitive sourcing. Despite this challenge, we saw marketplace GMV grew by 31% on a trailing 12-month basis.

Rather than a setback, I see this band as a proving ground for the marketplace and the supplier for fuel retailing or SFR model 1 design to bring agility and the efficiency to global trade. As I said, last quarter, but Bars repeating, our marketplace powered by SFR model, is an adaptive channel-agnostic ecosystem purpose built to allow participants to pivot quickly by creating new path forward when an become hindered. In today's environment, where efficiency and flexibility aren't just advantages, but necessities, our value proposition is critical. Momentum in Europe continued to build with the GMV up 59% year-over-year to support that demand, we recently opened an additional fulfillment center in Germany, which is quickly becoming a key part of our global network.

We're also seeing growing interest from our 3 suppliers looking to diversify beyond the U.S. market, especially in light of a recent trade tariff, a clear sign that Europe is shaping up to become more than just a growth market for us. Looking internally, our SKU rationalization effort for the Nova House portfolio are advancing as we continue to purposely streamline our product portfolio by phasing out the low-margin SKUs by replacing them with high-performing profit driving product offering. Iman will share more details on this sale. As we have communicated before, we have been and always will be focused. Now I will turn the call over to Iman to provide an update on our key operational goals.

Thank you, Larry. Despite continued market uncertainty, our marketplace once again delivered impressive results. For the trailing 12 months ending June 30, 2025, GMV increased over 31%, surpassing $1.4 billion. As both sellers and buyers of large parcel goods capitalize on the advantages of our flexible SFR model. Our active 3P seller base continues to expand, standing at 1,162, up about 25% from last year. GMV from this group rose roughly 32% year-over-year on a trailing 12-month basis to $758 million. Our active buyer base maintained strong momentum surpassing 10,000 for the first time to almost 11,000, an increase of approximately 51% year-over-year. As we continue to welcome a growing number of new buyers to our platform, we see a slight dip in average spend since newcomers typically start small before scaling up their activity over time.

Europe continues to be one of our strongest growth areas. GME in the region grew 59% year-over-year in the second quarter. While our 1P sales there remain robust. We are particularly excited about a noble and recent surge in interest from the 3P seller partners to enter this market. Historically, 3P activity has been largely focused on the U.S. domestic market. But just in the past couple of months, we have seen a meaningful shift with 3P sellers now actively seeking expansion into Europe and other international markets as means to diversify their channels and better navigate evolving trade dynamics. Our platform and infrastructure empower our partner to scale quickly and efficiently without the burden of heavy capital commitments while remaining agile in a rapidly evolving environment. We are honored to be the partner they trust to facilitate this expansion and proud to play a role in their growth journey.

This expansion of 3P Europe is yet another example of Giga Cloud's proven playbook. We go first. We enter new markets first through 1P, validate scalability, profitability and only then do we bring in 3P partners. By taking the lead, we ensure our partners step into a proven framework for success without the time investment risk or the risk associated with trial and error. Europe is emerging not only as a growth region, but as a strategic pillar of our global expansion. To support these demands, in July, we opened an additional fulfillment center in Germany, our sixth in the country. bringing our global footprint to approximately 11.2 million square feet. Germany is now a vital hub for fulfillment across Europe. With more sellers looking to expand beyond the U.S., we are scaling thoughtfully. Over time, we see Europe as having the potential of becoming a business of comparable scale and significance to our domestic U.S. operations in the years ahead.

Turning our attention to recent SKU rationalization efforts, as we shared in our previous earnings, the legacy Noble House operations have now been fully integrated into Giga Cloud with everyone working as one team. Once operational processes have been successfully streamlined, we turned our attention to the product portfolio. When we first acquired Noble House out of bankruptcy, we inherited a portfolio of over thousand SKUs that have been stalled for more than a year, posing a significant challenge to profitability. Since then, our team has worked diligently to develop new SKUs that align with today's market demands. I am proud to share that as of today, we have retired 3,800 outdated SKUs introduced approximately 1,200 new ones and continue to carry around 3,000 original SKUs with plans to expand further throughout the year. In addition to new product offerings, we've also gained significant efficiencies by embracing the marketplace with this portfolio and benefiting from the differentiating advantages brought to us by the SFR business model.

The strengthened SKU lineup, coupled with lean execution enabled by our marketplace has significantly improved the margin profile of Noble House portfolio, now just 3 points behind legacy GigaCloud. We remain focused on disciplined execution. And by next summer, we expect portfolio to settle into a more stable Rhythm, shifting from a full overhaul to a balanced ongoing cadence of SKU refreshes and retirements as is typical for any healthy product portfolio. Now I'd like to turn things over to Erica for a discussion of our second quarter financial results.

Thank you, Iman, and hello, everybody. A quick note before we dive in. All figures I cover today are rounded, and unless otherwise noted, comparisons are against the same period last year. With that, let's take a look at this quarter's results. Total revenues grew 4% to $323 million as a result of increased market recognition and scale of our Giga Cloud marketplace. We will now break this down across our product and service revenue streams. Starting with products. Total product revenue grew by approximately 5% year-over-year to $226 million, largely outpacing our expectations. Our main growth contributor this quarter was international momentum, once again led by Europe's impressive 59% year-over-year revenue growth. With this performance, Europe now represents roughly 1/4 of our global revenue, underscoring its critical role in our diversified growth strategy. The strong growth seen in Europe was partially offset by an 11% decline in U.S. domestic product sales.

Of this decline, approximately 5% was attributable to our proactive SKU rationalization efforts and 6% was due to broader industry headwinds felt in the U.S. Notably, our outperformance was largely due to the legacy Noble House portfolio. While we had initially modeled a larger year-over-year decline of revenue as we went through SKU rationalization, performance for this portfolio pleasantly surprised us and contributed a little under 25% to our global product sales. Product margin improved by 174 basis points sequentially to 29.2%. The main driver of this improvement was our recent efforts for the legacy Noble House portfolio. Over the last 12 months, we have focused on introducing new products and SKUs that better align with customer demand while simultaneously benefiting from the efficiencies brought by the marketplace and our large network of suppliers. These efforts are now paying dividends, and we expect further benefits as we refine execution.

Moving on to services. Service revenue grew modestly year-over-year at approximately 1%, reaching $97 million for the second quarter of 2025, driven by strong 3P GMV growth. Growth brought by overall volume increase was offset by lower ocean freight revenue as we saw market spot rates decline compared to prior periods, and ocean shipping volume declined due to temporary disruptions in April and May as many of our 3P suppliers halted shipments while waiting for policy clarity. Service margin came in at 11.4%, down sequentially by 4.5%, largely reflecting the impact of lowered ocean spot rates and lower warehousing utilization during the quarter due to the temporary April and May supply chain disruptions discussed earlier. After the temporary slowdown in shipping demand driven by tariff-related uncertainty we have since seen volume largely return to their normal levels.

On a company-wide basis, gross margin was 23.9% for the second quarter a 50 basis point sequential expansion from the first quarter of 2025. Total operating expenses were 13% of total revenue, roughly in line with the first quarter but substantially lower than 16% from prior year quarter. The year-over-year decrease was mainly a result of lower stock-based compensation in the current year. As you may recall, stock-based compensation is provided to most employees once a year and vest upon grant. As such, expense amount directly correlates with share price at the time of grant, which was lower than that of prior year. This year, we also adjusted our annual bonus structure by shifting from 100% stock-based bonus payments to a 50% stock and 50% cash bonus. This change was designed to reduce cell pressure from team members due to taxes while still aligning incentives with company long-term performance.

Net income grew to $35 million for the second quarter with net margin of 10.7%. We ended the second quarter with liquidity of nearly $300 million which includes cash, cash equivalents, restricted cash and short-term investments. To date, in 2025, we generated operating cash flows of $48 million, executed $46 million in share buybacks and made net purchases of liquid investments consisting of treasuries and deposits of approximately $20 million. And even with all that capital deployment, our liquidity position has remained largely steady compared to end of last year, which speaks to the strength of our cash generation and disciplined approach. We will be coming up on our 3-year anniversary as a public company soon on August 18. I would like to take this as an opportunity to reflect on how we have deployed capital over the last 3 years. We received gross proceeds of $41 million from our IPO in 2022.

Since then, we have executed $71 million in share buybacks and and $87 million in strategic acquisitions to create value. We remain focused on this disciplined approach to support long-term growth strategies and returning shareholder value. Turning to our outlook for the third quarter. Total revenue is expected to be between $295 million and $310 million. I would like to take a moment to discuss how recent tariff developments may impact the coming quarters. As we all know, April saw a short-lived but sharp spike in tariffs. While these tariffs have since stabilized, this resulted in cost increases for products procured during that period, which as discussed last quarter, will largely cycle through our Q3 sales. As a result, we expect an around 2.5% gross margin headwind in the coming quarter. While we anticipate offsetting these cost pressures through targeted price increases, the supply chain will require some time to fully absorb and adjust to these changes. As a result, we may still see temporary near-term impact before normalization occurs. Thank you all for your time and attention today. With that, I will turn it over to the operator for Q&A.

[Operator Instructions] Your first question comes from Tom Forte with Maxim Group.

So one question and one follow-up. So congratulations on the quarter. Can you give a little more details on Noble House's performance in the June quarter and then where you stand on your SKU rationalization efforts as we enter the second half of 2025 as it pertains to Noble House?

Thank you, Tom. So I think we've made pretty good progress with the SKU rationalization efforts overall. Like Iman talked about earlier, we've since introduced 1,200 new SKUs and also trimmed down the overall portfolio to kind of remove a lot of the older ones that weren't contributing positively. So the results of these efforts, combined with kind of working that in with the marketplace and leveraging the efficiencies have really, I think, performed quite well in Q2. And overall, I think our project is a little bit ahead of schedule, and it's kind of meaningful margins a little earlier than we expected during the peak season of outdoors in Q2. Moving ahead, the SKU rationalization efforts will be continued. And hopefully, by next Q2, which is the coming -- the next peak sales season for outdoors, is when we expect the portfolio to reach kind of a stabilized stage where there's just a normal stable amount of SKUs being retired and introduced rather than an entire overhaul.

And my follow-up, we're hearing from suppliers that with the dynamic tariff environment, sometimes you're seeing things, for example, go from China and the Southeast Asia, so -- and then successfully capture a lower tariff rate but then face a higher build cost. So as it pertains to the where your items are sourced from? How should we think about not just the tariff impact inside and outside China, but the relative sourcing costs.

So I think the key here is really flexibility, especially during times where things seem to change quite rapidly. And even though things are a little calmer now, there still is a decent amount of uncertainty. This is kind of what we have always focused on and one of the things we do best is maintaining strong relationships with a very, very large network of suppliers and having a dynamic portfolio that allows us to react quickly based on what the current policies are and where we need to be sourcing from.

Your next question comes from Matt Koranda with ROTH Capital.

Just on the second quarter curious where like sort of the upside to your initial guidance and from maybe do you want to discuss sort of how things progress through the quarter and what surprised you to the upside that drove the strong execution in the second quarter.

Yes. Thank you, Matt. So the big surprise for us was Noble Health. Originally, when we gave Q1 guidance, we were modeling in a larger year-over-year decline because of the SKU rationalization. We might have been a little bit conservative in our estimate, given this is the first outdoor seasons that we've had the opportunity to try out all of our new SKUs and the performance was better than expected.

Okay. And then the tariff impact that you mentioned towards the end of the prepared remarks, 2.5%, I assume that's gross margin headwind. Is that unmitigated so that you have essentially levers at your disposal to pull to offset some of that 2.5% to 2.5% is bad as it will get? Maybe just talk a little bit about the mitigation efforts.

Yes, that's right. That's unmitigated. So the strategy is to moving down the line, have targeted price increases on certain products where market allows. But naturally, this isn't something that I think is the entirety of the supply chain just adjust to and and digest overnight. It will likely take a bit of time. And we don't know if the levers will allow us to absorb the 2.5% estimated headwind right away 100%.

There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.