Transcript
Good afternoon, everyone, and thank you for participating in today's conference call to discuss iPower's Financial Results for its Fourth Fiscal Quarter and Full Year 2024 Ended June 30, 2024. Joining us today are iPower's Chairman and CEO, Mr. Laurence Tan; and the Company's CFO, Mr. Kevin Vassily. Mr. Vassily, please go ahead.
Thanks, everyone. By now, everyone should have access to our fiscal fourth quarter and full year 2024 earnings press release, which was issued earlier today at approximately 4:05 p.m. Eastern Time. The release is available in the Investor Relations section of our website at meetipower.com as well. This call will also be available for a webcast replay on our website. Following our prepared remarks, we'll open the call for your questions. Before I introduce Laurence, I'd like to remind listeners that certain comments made on this conference call and webcast are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, state of the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the Company's filings with the SEC, including our annual report on Form 10-K, which was filed with the SEC on September 15, 2023. Do not place undue reliance on any forward-looking statements which are being made only as of the date of this call. Except as required by law, the Company undertakes no obligation to revise or publicly release the results of any revision to any forward-looking statements. Our presentation today also includes certain non-GAAP financial measures, including adjusted net income and EPS as supplemental measures of performance of our business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You'll find reconciliation tables and other important information in the earnings press release and Form 8-K we furnished to the SEC this afternoon. With that, I'd now like to turn the call over to iPower's Chairman and CEO, Lawrence Tan. Lawrence?
Thank you, Kevin, and good afternoon, everyone. I'm proud of our team's hard work in fiscal 2024 to drive record levels of gross margin, operating expenses reductions and another year of positive cash flow from operations. Throughout the year, we delivered on multiple strategic initiatives to lay the foundation for future growth and profitability. For example, we onboarded several high-quantity supply chain partners onto our SuperSuite services platform. We also strengthened the capabilities and resilience of our supply chain through partnerships with suppliers in Southeast Asia. Additionally, we expanded channel distribution by launching sales on new platforms like TikTok Shop and Temu. Throughout the year, we continued to evaluate our SuperSuite services platform by integrating key components from value-added partners across logistics, technology and marketing to enhance our service offerings. This collaborative approach has positioned SuperSuite as a leader in merchandising and sales, supply chain management and warehousing and performance, attracting a diverse array of new partners to our platform. As an example, in May, we announced a strategic partnership with the leading provider of comprehensive logistics solutions. Through this collaboration, we integrated the partner's fulfillment center network into the SuperSuite platform, enhancing our operational efficiencies and technology capabilities. This partnership not only added critical depth to our suppliers’ capabilities, but also opened the door to a new portfolio of prospective supply chain and brand partners. We also integrated Amazon Logistics services in June to bolster our last-mile delivery capabilities, enhancing a critical component of SuperSuite supply chain offerings. With this partnership, SuperSuite clients can deliver products with the speed, reliability and efficiency that Amazon is renowned for, adding further depth to the SuperSuite value proposition. As I mentioned earlier, in fiscal 2024, we deepened our online presence by launching sales on platforms like TikTok Shop and Temu. These additions align with our strategic vision to empower supply chain partners with diversified sales channels, poised for sustained long-term growth. We are pleased with the early results and will continue to explore additional sales channels that would further enhance our partner sales offerings. Regarding supply chain OpEx, the optimization initiatives we implemented earlier this year to drive improvements in our selling, marketing, and fulfillment operations are yielding results. With a healthier supply chain environment, we no longer need to maintain high levels of inventory, and the lead times with our international suppliers have normalized. It's also worth noting that with the growth of SuperSuite, our business can operate with lower levels of inventory, leading to improved cash flow generation. Additionally, we have sold through nearly all our high-cost inventory, enabling us to eliminate short-term warehousing expenses and enhance margins. As of June 30, 2024, we further reduced our inventory levels by almost 50% compared to December 31, 2023. We are deeply committed to optimizing our operation to maximize efficiency. To further this initiative, in June, we announced the addition of a new manufacturing supply partner in Vietnam. Expanding our manufacturing base will help mitigate future risk and strengthen the resilience of our supply chain. Looking ahead, we will be leaning into our core principles as a technology and data-driven company to enhance transparency and operational efficiencies between iPower and its supplier performance and channel partners. This approach will streamline processes, reduce costs, and improve information utilization across the supply chain to strengthen our customers' operations. We believe these initiatives, coupled with our optimized cost structure, will enable us to deliver on our growth and profitability objectives in fiscal 2025. I will now turn the call over to our CFO, Kevin Vassily, to take you through our financial results in more detail. Kevin?
Thanks, Lawrence. Unless referenced otherwise, all variance commentary is in comparison to the prior year quarter. So, diving right into the fiscal Q4 results. Total revenue in the fiscal fourth quarter was $19.5 million compared to $23.4 million in the prior year. The increase was primarily driven by higher promotional activity in the year ago period related to selling down inventory. This is partially offset by growth in our SuperSuite supply chain offering. Gross profit in the fiscal fourth quarter of 2024 increased 2% to $9.2 million compared to $9.1 million in the same quarter of fiscal 2023, and percentage of revenue gross margin increased 870 basis points to 47.4% compared to 38.7% in the year ago period. The increase in gross margin was primarily driven by improved pricing through key supplier negotiations as well as favorable product mix in the quarter. Total operating expenses for fiscal Q4 improved 34% to $8 million compared to $12 million for the same period in fiscal 2023. As a percentage of revenue, operating expenses improved 1,050 basis points to 41% compared to 51.5% in the year ago period. The decrease in operating expenses was driven primarily by lower selling and fulfillment expenses driven by both lower marketing and promotion costs, as well as some vendor credits from some of our key vendors. Net income attributable to iPower in the fiscal fourth quarter improved to $0.7 million, or $700,000, or $0.02 per share compared to a net loss attributable to iPower of $3 million, or a net loss of $0.10 per share in the same period in fiscal 2023. Adjusted net income attributable to iPower, which excludes legal fees to arbitration, net of their tax impact, improved to a little under $1 million at $900,000 or $0.03 per share in the fiscal fourth quarter of 2024 compared to an adjusted net loss attributable to iPower of $2.1 million, or a net loss of $0.07 per share in the year ago period. Moving to the balance sheet, cash and cash equivalents were $7.4 million at June 30 compared to $3.7 million at June 30, 2023. Note that this cash balance includes net proceeds of approximately $4.5 million from our previously announced registered direct offering in June. Total debt was reduced by 46% to $6.3 million compared to $11.8 million as of June 30, 2023. Cash flow from operations for fiscal Q4 was a little under $1 million at $960,000, and that's down a bit from our year ago period. As Lawrence mentioned earlier, our consistent optimization efforts have enabled us to materially expand our gross margin and achieve a consecutive quarter of profitability this fiscal. We also continue to make some improvements to our balance sheet, reducing our total debt by nearly half compared to fiscal 2023. We are pleased with the progress we've made this fiscal year and the foundation we built, and we look forward to delivering on our goals in fiscal 2025. This concludes our prepared remarks, and we'll now open it up for questions.
Our first question comes from Scott Fortune with ROTH Capital Partners. You may proceed.
I just want to unpack a little bit on the top line and where that growth is coming from. You're seeing, obviously, you had a big destocking and reordering from your large online partner last quarter. We've seen that probably drop off this quarter. But if you could just provide a little more color on the kind of revenue growth where that's coming from with your large online partner. And then you mentioned, obviously, ramping up Temu and TikTok on that side, too. And then outside that, last quarter, 10% of sales was coming from the SuperSuite just kind of a sense where that SuperSuite percentage of sales is on this quarter? Just kind of unpack the whole top line kind of $19.5 million for this quarter and going forward here, that would be great.
The top line, the new platform, the TikTok Shop and Temu, they are showing pretty good results initially. But in terms of the total percentage, they are still small compared to the overall sales. Our majority sales are still coming from the Amazon platform. In terms of the SuperSuite, we have seen pretty healthy growth, and we have onboarded multiple new partners over the last few months, which I believe will become a more significant part of our revenue. With the new platforms like TikTok Shop, Temu, and also, we signed up with Ali Express, which is kind of similar to Temu, but it’s from Alibaba, just this month, we onboarded and they are coming into the competition of the U.S. online retail market. We think it's a pretty beneficial situation for us, as sellers and services providers in online markets. I believe the competition between platforms will drive very interesting results in the coming year or two until it kind of settles down again, which is great. So forward-looking, I think with the momentum we have in the SuperSuite and the new partners we signed on board, we think it's a very great business line, and we'll continue to see growth even with the smaller platforms, but yet new platforms in this competitive marketplace will become a bigger share of our business.
That's great. Can we expand on the demand side from your large channel partner and discuss the return to normalized ordering? This is a significant point regarding the partner's growth since it comes from normalized ordering trends. I understand there may be seasonal fluctuations, but I would like to understand the ordering cadence moving forward from that online channel and how it is performing.
Right. Yes. So, as we had anticipated a bit, we thought there would be some kind of rationalization that might be a little strong, but some slowdown in kind of their order rate after such a strong rebound from them in March, which, again, for listeners who were privy to the last couple of calls. Our December quarter was well below our expectations in terms of demand, which was a function of seasonality and some inventory rationalization on the part of our largest channel partner. It was our belief that they had essentially over-rationalized their inventory and that they would snap back. We did see the snapback in the March quarter, but we were a little surprised by the strength of the snapback suggesting that they were still trying to find their bearings with our product suite over the next quarter. I think what we saw in this quarter was from a top-line perspective, that they took on enough inventory and worked through some of that while continuing to order. We're getting back to more normal order patterns. And so, I think we don't have a ton of additional color there. I think we're probably narrowing the amplitude of the ups and downs a bit with them after the December quarter. Hopefully, that's kind of what you were looking for.
Yes, just to add on to it. I mean, compared to what happened during the call when we had ups and downs in the inventory side. The ordering patterns now are much more normalized. We can safely say it's going back to the pre-COVID pattern, where we see steady growth and steady inventory turnaround, which, to us, is a very welcomed pattern for our operating business. We can continue to deepen the offering of our products, gain more market share with all supply chain partners. All of this while supporting mature existing channels like Amazon and Walmart, et cetera, and adding new sales platforms like TikTok and Temu at the same time, along with more supply chain partners. This is the model of growth I envision going forward.
Got it. Now a follow-up on the SuperSuite. You've done a really nice job of building out that robust supply chain offering of SuperSuite services, which drives higher margins. Can you provide some insight on potential new customer additions for 2025 now that the SuperSuite foundation is in place? What does the pipeline look like and what are the expectations for converting that into new customers for the SuperSuite in 2025?
Okay. We have got some pretty good partnerships from the supply chain side onto our SuperSuite. We have onboarded some pretty significant supply chain partners over the last few months including furniture and electronics in these categories as well. These partners have been pretty sizable, with their revenues being substantial. Additionally, we will start to expand partnerships into channel partners, where we will work with different channel partners to have their customers become our customers. We will use our SuperSuite capabilities to benefit their customer base, which will accelerate the onboarding process and the number of partners as SuperSuite becomes more mature. In the next month or two, we will start launching more online platform products to enable and reduce the complexity of onboarding new partners and opening up new channels for our existing partners to drive more customers our way. So, I hope that answers your question. We are working on the technologies to reduce complexity, thus prepare for a larger number of partners potentially to come forward through our business development channels.
Appreciate the color there. And then one last one for me. You mentioned you have now manufacturing in Vietnam, a partner there, and the savings you can see there moving forward, kind of what percentage of the sourcing do you think will come from Vietnam from that standpoint? And does that help hold and kind of keep the margin structure in place or continue to be more savings to pass through on a competitive pricing standpoint to drive volume there? Or how do you look at that gross margin side from all the OpEx things and rightsizing you've done here?
Right. It's a great start. It's part of our effort to diversify our supply chain outside of China. It's just beginning, but it will grow. In terms of gross profit and margin, it's definitely saving our cost of goods sold. We definitely see savings there, and I think that will generate more profitability for us as well as making our product more competitive.
Scott, just to be clear, too, we don't really have products out in the market yet from the transition. We pushed pretty hard to get that up and started, but the manufacturing time takes time to get things over. So, those benefits will accrue in future quarters. It's not reflected yet in our financials. So, we'll keep you posted on how that rolls out. I think the other thing that it's worth pointing out is while we are diversifying out of China, and we will never be completely out of China, but it's a strategic initiative on our part. Ongoing, we continue to rationalize and look for improvements within our existing supplier base in China as well as bring on other suppliers. We think that is one, important for keeping us continually cost competitive and also keeping our contract manufacturing partners accountable. We've been good partners for almost all of them over the last five years, but we still have expectations for them to deliver when we see areas for efficiency and improvement. Our supplier base is an ongoing optimization effort, and Vietnam and potentially other places in Southeast Asia over time is just a part of that ongoing strategy.
Yes. Just in addition to what Kevin mentioned, it doesn't mean that we are not optimizing while we are diversifying out of China. We have been optimizing our supply chain in China over the last few months as well, and we have seen significant reductions in costs. So, we will see receipts showing up later on.
Thank you. Our next question comes from Thierry Wuilloud with Water Tower Research. You may proceed.
Just following up on the activities in Southeast Asia in Vietnam. Are those new different contract manufacturers? Or are those people you worked with in China who are just moving operations with you at your request in Vietnam? I was curious about that.
That new manufacturer, that's a new manufacturer, yes. We have seen a lot of our suppliers in the process or already moved certain of their production lines outside China, including Vietnam, Mexico and other countries. Not all of them have reached a cost point where it's cheaper overall. So, we're still waiting for some of them to speed up and make the new manufacturing more efficient. But to answer your question about the specific ones in Vietnam, it's a new supply chain component.
And then maybe if you have some colors on how the specific categories were doing, you've had some movements, some categories are becoming more important. Others are becoming less. So, I'm wondering if you can give us a rough idea of where that's at? Is it about the same as the end of the March quarter? Or do you see areas where sales are growing and others where they might be slowing down or any color there?
Right. We continue to focus on the hard lines. In terms of the sales composition of different categories, the few top-selling categories like home goods, furniture, etc., are showing growth. The hydroponics line is no longer a significant part of the overall sales compared to a few years ago. The growth will continue to come in the future from home goods, furniture, pads, and electronics as well. We have seen quite a few partners onboard over the last few months in these categories. We are optimizing the existing supply chain network with a better quantity of products at lower costs and also expanding that network to different countries to make it more robust. We expect to see cost reductions from existing suppliers and will see more quantity partners coming on board through the SuperSuite platform.
Okay, well, you covered the ground with Scott. So, Kevin, did you have any other color to add?
Yes, I just wanted to kind of follow-on Lawrence's comment about hydroponics. It has become a much less meaningful portion of our overall sales. I don't think it's any secret that the demand environment more broadly for hydroponics has not been terribly good. When we look at our results relative to what we’ve seen in others selling consumer products in the marketplace, I think we are faring better, but it's still not a great demand environment for that. Luckily for us, we have restored the profitability of that business along with everything else we’ve done in the last 18 months. However, that is not an area that we expect a lot of growth from going forward, partly because we've got other categories and initiatives that will make more sense. Until the end market becomes a bit more robust, it's hard for us to see that the hydroponics piece will be a bigger portion of our overall revenues anytime soon. This aligns with the underlying weakness in that end market that we've been able to overcome with some of our other product offerings.
Yes. I mean that market is still there. It's not going away. We're still a leader on the online retail side. But our core strength came from the technology and the data and our platform, and we're building internal ERP systems, business intelligence reporting, and the SuperSuite products. This enables us to move quality products from any category to consumers. Joining this strength is where our future growth will come from by becoming efficient in merchandising and distribution and providing our partners with valuable services.
I would now like to turn the call back over to Kevin Vassily for any closing remarks.
Thank you, everyone, for your questions and for dialing in. I look forward to speaking with you again shortly for our fiscal first quarter results and potentially at some investor conferences over the next several months. Thanks again, and we'll talk again soon. Goodbye.
Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.