Transcript
Good afternoon, everyone, and thank you for participating in today's Conference Call to Discuss iPower's Financial Results for its Fiscal First Quarter 2025 Ended September 30, 2024. Joining us today are iPower's Chairman and CEO, Mr. Lawrence Tan; and the Company's CFO, Mr. Kevin Vassily. Mr. Vassily, please go ahead.
Thank you, Liz. Good afternoon, everyone. By now, everyone should have access to our fiscal first quarter 2025 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. This call will also be available for webcast replay on our website. Following our prepared remarks, we'll open the call for your questions. Before I introduce Lawrence, 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 on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the 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 our control. Our actual results and financial condition may differ materially from those indicated in these 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-Ks, which was filed with the SEC today, November 14, 2024. Do not place undue reliance on any forward-looking statements, which are being made only as of this date. Except as required by law, the Company undertakes no obligation to revise or publicly release the results of any revision to forward-looking statements. 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. We maintained a solid momentum in the third quarter, while continuing to refine our cost structure, leading to year-over-year gross margin expansion and a reduction in operating expenses. Additionally, we made progress in expanding our SuperSuite supply chain platform. By onboarding key partners across the supply chain, we are enhancing our service capabilities, positioning SuperSuite as an increasingly valuable solution for our partners. We also broadened our sales reach by launching on AliExpress and further strengthened our presence on newer platforms such as TikTok Shop and Temu, aligning our offerings with a diverse and expanding customer base. In our SuperSuite business, we continued to work through a robust pipeline of prospective partners, integrating essential components across sales channels, marketing, merchandising, logistics, technology and data analytics to enhance our comprehensive service offerings. By adding these components, SuperSuite is equipped to address today's complex supply chain needs with a seamless end-to-end solution for e-commerce, supply chain management and logistics. We are committed to strengthening each segment in the supply chain sales, enabling our partner to navigate market needs, scale effectively and better serve their customers. At the end of the quarter, we launched our SuperSuite supplier online platform, which is designed to optimize supplier interactions, streamline operational workflow and better align our partners with evolving market demand. This platform enables suppliers to gain valuable data insight, access multiple sales channels, submit product offers, optimize shipments and collaborate on merchandising plans, among other key features. This SaaS platform represents a transformative step in unlocking SuperSuite's full potential, enabling more seamless and impactful engagement between our suppliers, our team and our clients. As I mentioned earlier, we continued to expand our sales channel by launching on AliExpress, granting our supply chain partners access to another major U.S. marketplace. AliExpress joins our growing list of U.S. sales channels, which includes platforms such as Amazon Vendor, Amazon 3P, Walmart.com, Temu, TikTok Shop and several others. We are committed to offering a robust multichannel solution that enables our partners to reach U.S. consumers more effectively and efficiently. Launching sales on AliExpress further underscores our dedication to enhancing market access and driving value across our entire platform. We continue to benefit from the optimizing initiatives implemented last fiscal year, which led to gross margin expansion and lower operating expenses for the quarter. We are also benefiting from a healthier supply chain environment and no longer need to maintain elevated inventory levels as lead times with our international suppliers have normalized. It's also worth noting that with the growth of the SuperSuite, we can operate our business with a lower level of inventories, leading to improved cash flow generation. As of September 30, 2024, we've reduced our inventory levels by approximately 18% compared to June 30, 2024. As we mentioned before, we are firmly committed to optimizing our operations to maximize efficiency. To further this effort, we diversified our manufacturing base with a new partner in Vietnam, strengthening the resilience of our supply chain for both customers and partners. In September, we completed our first purchase order shipment from this new manufacturer, marking a significant milestone in our ongoing strategy to diversify our supply chain. As products begin to arrive in the U.S. and commence sales, we anticipate benefiting from reduced production and logistics expenses. These lowered costs will enable us to offer more competitive pricing while improving margins, an essential factor for long-term sustainable growth. Looking ahead, we will continue to bolster each aspect of the SuperSuite platform to provide a market-leading solution that meets the evolving needs of e-commerce, supply chain management and logistics. By strengthening these areas, we are not only driving efficiencies but also building a more resilient infrastructure that can adapt to market changes and support scalable growth. This holistic approach positions us to better serve our partners' needs from inventory optimization to faster, more reliable fulfillment, further solidifying our roles as a leader in e-commerce and supply chain innovation. 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 comparison to the year-ago quarter. Total revenue in the first fiscal quarter was $19 million compared to $26.5 million. The decrease was driven primarily by higher promotional activity in the year-ago period related to selling down inventory. This was partially offset by growth in our SuperSuite supply chain offerings. Gross profit in the fiscal first quarter of 2025 was $8.5 million, compared to $11.8 million in the same quarter of fiscal 2024. As a percentage of revenue, gross margin increased 30 basis points to 44.7% compared to 44.4% in the year-ago period. The increase in gross margin was primarily driven by improved pricing through key supplier negotiations and optimizations. Total operating expenses for fiscal Q1 improved 14% to $11.2 million as compared to $13 million for the same period in fiscal 2024. The decrease in operating expenses was driven primarily by lower selling and fulfillment expenses, resulting from a combination of lower marketing and promotional activity. This was partially offset by approximately $1.8 million in write-downs of certain inventory and credit loss reserves. Net loss attributable to iPower in the first quarter was $2 million or $0.06 per share compared to net loss attributable to iPower of $1.3 million or $0.04 per share in the same period of fiscal 2024. Moving to the balance sheet. Cash and cash equivalents were $2.6 million as of September 30, 2024 compared to $7.4 million at June 30, 2024. Total debt was reduced by 45% to $3.5 million as compared to $6.3 million as of June 30, 2024. Yesterday, we announced the renewal of our secured revolving credit facility with JPMorgan Chase, extending the maturity by three years to November 2027. The new facility has a revolving commitment of $15 million with an accordion feature that would allow us to obtain additional lender commitments of up to $40 million. Under the new agreement, the interest on borrowing will be SOFR plus 2.25 to 2.5. We're pleased with the vote of confidence from a leading institution like JPMorgan Chase and look forward to growing our partnership as we execute on our goals. As Lawrence mentioned earlier, the work we've put in to optimize our cost structure is starting to bear fruit. It's reflected in this quarter's year-over-year gross margin expansion and reduction in operating expenses. We've also made further improvements to our balance sheet as we reduced our total debt obligations by nearly $3 million in this fiscal first quarter, in addition to our recently extended credit facility with JPMorgan Chase. We believe these actions combined with continued growth of our SuperSuite business and optimized cost structure will enable us to deliver on our goals for fiscal 2025. With that, this concludes our prepared remarks. We'll now open it for questions.
Our first question comes from Thierry Wuilloud with Water Tower Research.
Yes, good afternoon. Maybe let me start with a couple of housekeeping items. You had some service income and service expenses. Can you give us some information as to what's that related to?
Sure. So, we've got as part of SuperSuite kind of two components of the business. One is kind of our resale or wholesale agreements we have on the sales side with partners and the other are fee-for-service related business lines. So, the service fees are part of that fee-for-service business line. And because it was, I think, materially enough as part of the overall revenue, we decided to disclose that piece.
Okay. That's great. Yes, looking forward to seeing that number progress. The other household item was you had a $1.8 million inventory write-down. Does that go through the income statement? Or is it just a balance sheet adjustment?
Yes. That goes through the income statement. So, of the roughly 2.7%, I think that was in kind of operating loss, $1.8 million of it was related to the write-downs.
If we examine the top line, it seems to be in the same range as the previous quarter. Should we consider $19 million a quarter as a baseline moving forward? Or have there been quarters where the top line was influenced by varying inventory strategies from your main online partner? Can you provide some insights on whether we should view this as a baseline, or how we should approach it going ahead?
Yes, that's a good question. I believe that's likely close to being a baseline. As you pointed out, our December quarter last year was unusually seasonal compared to historical trends. So far this quarter, we haven't observed that type of activity. We're only about halfway through, so we don't currently expect the same seasonal downtrend. Additionally, last year's quarter was exceptionally strong, influenced by extensive promotional efforts to reduce inventory and manage high-cost stock from prior buildup. We've also been negotiating with our supply chain to find more efficient manufacturing partners, which caused some delays in product availability over the summer. This had a slight negative effect on our revenue, despite strong demand. We have now moved past that transition and believe it will no longer hinder our revenue. Thus, regarding whether this is a baseline number, it seems reasonable to consider it as such for what the business can achieve without additional factors. Moving forward, we anticipate our ability to grow revenue will resume.
So just so I understand, you switched some production to Vietnam and maybe there was a bit of a delay there in getting some of that product over during the quarter?
A combination of the Vietnam new supplier coming on and switching to some new suppliers within China as well.
Okay. Over the last 15 months or so, you've announced three new promising channels: Temu, TikTok and the Alibaba affiliate. Any of those three we should really pay attention to, or you're still kind of just kind of equally at the beginning or equally attractive to you? I'm kind of wondering, if there's going to be a strong kind of second channel for you beyond your main partner.
Lawrence, why don't you take this one?
Yes. Sure. I think about the three, Temu has the best potential. The platform fits more of our product portfolio, and the marketing efforts they are putting together behind are probably the best and the strongest among the three of them so far. AliExpress is pretty new. We're still working with our team. We got some orders in already, but they're small, but still working with their teams to adjust and working with their internal policies and strategies to adjust. Now TikTok, the fate of TikTok wasn't clear now with the new administration. I think it has a much, much better hope to continue the business. But again, that Temu still fits our product portfolio better than the other two. So, if you want to put attention on one of the three, I’ll pick Temu two.
Can you provide an update on SuperSuite? Last quarter, it was around the low teens in terms of revenue percentage. Is that still on track? What are your expectations for SuperSuite moving forward?
Sure. Kevin, can we disclose the percentage of sales or is that permissible?
Yes. Yes. Because we talked about that before.
The SuperSuite currently makes up approximately 10% of our total sales. It serves as a central hub for managing all aspects of sales to U.S. consumers, both online now and offline in the future. We have logistic partners and, although we haven't announced it publicly, we are testing two new logistics partners who have joined us. We are also collaborating with Zyla, a subsidiary of Ant International, which may introduce supply chain financing products to the SuperSuite platform, providing additional advantages for suppliers. We have made significant strides in onboarding suppliers and believe that as sales begin to increase, we should see growth trends, typically within three to six months after suppliers are integrated. We have a pipeline of new suppliers coming in and partners assisting in expanding our supply chain base. I am optimistic about the growth of this platform and foresee it becoming a major driver of growth in the future. Moreover, engaging with supply chain partners will help us in two ways: it will minimize our cash requirements for inventory stocking, and it will prepare us for potential tariff increases, as we won’t be responsible for importing or managing inventories in the United States. Additionally, we are actively seeking manufacturers outside of China and exploring more partnerships within the United States. The SuperSuite is intended not only for international supply chains but also for U.S. brands and manufacturers. Thus, the SuperSuite supply platform is my primary focus for the foreseeable future.
You mentioned potentially upcoming increases in tariffs. I'm kind of wondering, how are you looking at the whole situation? How much of your, I mean, would you try to move a greater percentage of your production to Vietnam or I'm also kind of wondering what kind of lessons you learned from the last time around when tariffs were introduced and consumers' reaction, competitors' reaction, I mean, you just passed along the price increase and nothing much else happens, or how are you looking at the whole situation?
That's a great question. We have been preparing for this over the last few years. Following the 25% increase, we started efforts like SuperSuite. I believe we have established strong relationships with our supply chain partners, not just those currently collaborating with us, but also others who manufacture for us and sell us their inventories. Each of them has plans for this situation. In the worst case, some of our suppliers and manufacturers already have alternatives in place outside of China. Those that cannot relocate will face the same issues, and for certain product categories, since no other countries can produce as effectively, we may have no choice but to pass on the costs to consumers. While raising prices is not ideal, it may become necessary since everyone will be compelled to do so. Ultimately, it will depend on who can source more effectively, as well as perform better in merchandising, marketing, and sales fulfillment. We excel in those areas. For suppliers who can avoid significant tariffs, they will act accordingly. Unfortunately, for those without alternatives to Chinese manufacturing, prices will rise, but this will be a market-wide phenomenon. In the end, everyone will increase their prices. As long as we operate efficiently, maintain low inventory, and remain adaptable, I think that is crucial for responding to potential impacts. Change isn't always negative. While challenges may arise, we're much better prepared now than we were four years ago.
Okay, good. Maybe a last question for Kevin. We talked about the kind of the baseline for revenue, and I'm looking at gross margins over the last two or three quarters, and you've been in the mid- to high-40s. Is that also kind of a reasonable range going forward? I mean, that's a nice pickup from where you were 12, 18 months ago.
Yes, I think so. What you're seeing in that uplift is a function of the work we did over the last, let's call it, year and a half with our supply chain. The Vietnam move will help that. The move that I referenced with a little bit of this supply issue. That move was made with the intent on bringing unit costs down as well. And so yes, we feel good about where gross margins are on that side. So yes, I think that should be the target. The one thing that could swing that is container costs. But right now, container costs are behaving quite nicely. So, I would suggest people that are looking at kind of the gross margin line to pay attention there. But the work that we can really control, I think we've set a higher bar now. So, I think we feel good about where gross margins are and feel like that's a decent place for people to be targeting for modeling.
Right. And one more thing I want to add on to it. If our SuperSuite starts to take off, then the gross margin may decrease because the SuperSuite model is different than our traditional in-house product model where we buy and sell. So, you'll see a lot of expenses built into the purchase cost. So, but until then, I'll just give you more information.
Great. That's helpful. Thank you very much.
That concludes today's question and answer session. I'd like to turn the call back to Kevin Vassily for closing remarks.
Okay. Thank you everyone for joining us on the call. We look forward to speaking with you again in the upcoming quarter. Have a good day. Bye.
This concludes today's conference call. Thank you for participating. You may now disconnect.