LightInTheBox Holding Co., Ltd. — FY2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018. The filing is an annual report, not a quarterly report; it does not provide standalone Q4 financial statements or clear Q4 financial values. Unless otherwise noted, amounts below are U.S. dollars.
Business context
LightInTheBox operates cross-border e-commerce websites and apps selling apparel and general merchandise, primarily to customers in Europe and North America. In December 2018 it acquired Ezbuy, expanding into South and Southeast Asia. Ezbuy’s results are consolidated from December 10, 2018.
Financial performance and liquidity
| Metric (USD millions, except percentages and per-share data) | FY2017 | FY2018 |
|---|---|---|
| Revenue | 319.9 | 227.5 |
| Gross profit / margin | 105.6 / 33.0% | 61.2 / 26.9% |
| Operating expenses | 115.8 | 98.7 |
| Operating loss / margin | (10.2) / (3.1%) | (37.5) / (16.5%) |
| Net loss | (9.5) | (59.6) |
| Net loss per ordinary share | (0.07) | (0.44) |
| Cash used in operating activities | (14.8) | (29.9) |
| Cash, cash equivalents and restricted cash at year-end | 70.0 | 39.8 |
- Revenue fell 28.9% year over year. Product sales declined 26.4% to $216.4 million; services revenue fell to $11.1 million from $25.9 million.
- Gross margin contracted by 6.1 percentage points. Product-sales gross margin declined to 27.8% from 35.4%.
- Operating expenses decreased in dollars but rose to 43.3% of revenue from 36.2%. Selling and marketing expense was $50.5 million, or 22.2% of revenue; general and administrative expense was $33.0 million, or 14.5%.
- Net loss included a $22.8 million non-cash loss from the fair-value remeasurement of Ezbuy acquisition convertible notes. Operating cash use was $29.9 million.
- At year-end, current assets were $55.6 million and current liabilities were $110.2 million, a $54.7 million net current liability position. Total liabilities were $111.4 million and shareholders’ deficit was $7.8 million.
- Current liabilities included $51.9 million of convertible promissory notes. The notes bear no interest, have an $85.55 million stated amount and mature 365 days after the December 10, 2018 acquisition. Capital lease obligations had a $1.5 million present value; operating lease commitments totaled $7.5 million.
- Ezbuy contributed $6.8 million of revenue and $0.4 million of net income from the acquisition date through year-end. Acquisition accounting recorded $27.5 million of goodwill.
Material changes and unusual items
- Management attributed the revenue decline partly to terminating or suspending loss-making revenue streams and reducing sales in certain loss-making markets beginning in 2018. Customer count fell about 40.8% and sales orders fell 26.9% from 2017; average order value increased 0.7%.
- The company shifted its product focus in Q4 toward categories it considered higher-margin, including home and garden, fast fashion, wedding and events, and sports and outdoor.
- The Ezbuy acquisition consideration is subject to potential share issuance: at least 22.2 million ADSs may be issued, with total potential issuance up to 44.4 million ADSs depending on the note’s conversion and compensation terms. The year-end fair value of the notes was $51.9 million, following a $22.8 million fair-value loss.
- The company adopted the new revenue recognition standard in 2018; management reported no opening retained-earnings impact. Prior-year results were not restated.
- Related-party transactions with Zall-affiliated entities included logistics fees and advertising charges; some amounts remained unsettled at year-end.
Outlook, risks and contingencies
- Management said it aims in 2019 to use LightInTheBox–Ezbuy synergies to reduce losses and regain growth, focus on higher-margin products, combine supplier and warehouse resources, improve customer retention and use LightInTheBox’s marketing capabilities in Ezbuy markets. Management also stated that operating net loss had narrowed and cash flow had improved beginning in Q4, but provided no Q4 figures or quantified guidance.
- The company reported recurring operating losses, negative operating cash flow and net current liabilities. It stated that year-end cash and restricted cash were expected to fund operations for at least 12 months. A February 2019 support letter from principal shareholder Zall committed additional financial support; the filing does not quantify that support.
- One material weakness in internal control over financial reporting—insufficient experienced financial-reporting and accounting personnel—made disclosure controls and internal controls ineffective at December 31, 2018. The weakness resulted in corrected and uncorrected audit misstatements. Planned remediation included hiring qualified staff and formalizing accounting policies and training; completion was not assured.
- The filing identifies substantial risks from competition, customer acquisition costs, supplier and courier dependence, foreign-exchange exposure without hedging, international trade restrictions, and operating across changing regulatory regimes. The PRC VIE structure also depends on contractual control arrangements that may be challenged or difficult to enforce.
- PRC subsidiaries and VIEs had not fully contributed to employee benefit plans. The filing discusses potential fines, but the financial-statement notes say the actual amount cannot be reasonably estimated; a separate risk disclosure cites potential exposure of up to $25 million. Prior individual income-tax withholding deficiencies were substantially paid voluntarily in 2013, though future penalties remain possible.
- Management said no currently pending legal or administrative proceeding was expected to have a material adverse effect. The company reported no business interruption, general third-party liability or general product liability insurance, and only limited warehouse coverage.
Important facts for investors to verify
- Whether the reported Q4 loss and cash-flow improvement continued, and obtain quarterly figures not included in this annual filing.
- Cash runway, the terms and availability of Zall’s promised support, and the company’s ability to address the $54.7 million net current liability position.
- The final settlement and dilution from the Ezbuy convertible notes, including any cash component and the number and timing of ADSs issued.
- Whether management’s margin recovery and integration plans deliver measurable results, given the sharp FY2018 revenue and gross-margin declines.
- Progress in remediating the material weakness and the status of potential employee-benefit penalties and other PRC compliance exposures.