Q4 2022 iPower Inc Earnings Call
Good afternoon, everyone and thank you for participating in today's conference call to discuss our power its financial results for its fiscal fourth quarter and full year ended June 30th 2022 joining us today are I powers Chairman M. C E O.
Mr. Lawrence Chan and the company's CFO , Mr. Kevin Vasily.
There are absolutely. Please go ahead.
Yeah.
Thank you Latif.
Good afternoon, everyone by now everyone should have access to our fiscal.
Fiscal fourth quarter and full year 2022 earnings press release, which was issued.
Really today at approximately four O five P M eastern time.
The release is available in the Investor Relations section of our website at meet high power Dot 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.
Four 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 I'd like to know.
95 <unk>.
Forward looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results.
To differ materially from those reflected 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.
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.
Results of any revisions to any forward looking statements.
With that I would now like to turn the call over to <unk>, Chairman and CEO Lawrence Dann Morris.
Thank you Kelly and good afternoon, everyone.
Call. It 2022 was a record year of growth and profitability firepower.
Highlighted by almost 50% increase in revenue over 40% gross margins in a positive net income.
In excess of the guidance, we issued for the year.
Throughout the year, we focused on prioritizing our in house product mix, which accounted for over 80% of revenue compared to approximately 73% in fiscal 2021.
More recently, we have begun to strategically diversify our product offerings into categories outside hydroponics.
Products, such as commercial guys sharpening equipment.
<unk> to name a few.
In fact, our Nam hydroponics business nearly doubled in the fourth quarter and accounted for about half of all sales in fiscal 2022.
This reflects both our ability to liberate data.
Find new parts of the building product categories as was our ability to utilize <unk> extensive supplier network to create products that can fill gaps in the market.
A greater value to customers.
Looking back at the year, we delivered multiple strategic.
Initiatives, including the expansion of our business to Europe and closing our first M&A transaction.
At the start of 2022, we launched our business into Europe , and the U K with the completion of our first order delivery for consumers abroad, which including tremor.
Tremor attribute the biases al filtration systems tense and other accessories that service.
Why hydroponics market.
We have previously mentioned, we believe European market preference or medium to long term opportunity for us.
As that market develops.
During the fourth quarter, we extended our geographical reach with sales to Asia, and South America as well.
Although our business in these markets is nascent we are keen on expanding our geographical presence as we are able to leverage our global supply chain expertise to cost effectively enter these markets.
We acquired global quite generic partner DHS from China.
And with the volatility in the supply chain over the last past year.
We rely heavily on our global partner to source consistent high quality products in a timely manner.
For that reason, we've made the script P. J coal decision to acquire 100% interest in the company.
The acquisition expanded our supply chain and e-commerce capabilities with in house product sourcing manufacturing network management quantity assurance process and R&D expertise.
As mentioned on the last conference call. We are in the process of revamping our core image to properly showcase our business as well as the rice components that make up the high power Brad.
The rebranding initiative will enable us as well as our product portfolio to optimize how we are perceived and position in the market.
We expect to launch our rebrand in the coming weeks and look forward to go into market with a more consistent image and branding.
Given the broader macro pressures in the market, including supply chain challenges throughout the year and inflationary impact on consumer wallet.
I'm incredibly proud of the team for executing our plan and delivering exceptional financial results in the face of these challenging market conditions.
We continue to increase our in house product mix expanded our geographic presence and diversified our product portfolio to include several new categories beyond in hydroponics.
We are excited to build on this momentum and deliver another strong year of results in fiscal 2023.
Now ill turn the call over to our CFO Kevin Bradley.
Take you through our financial results a more details Kevin.
Yes.
Thanks, Laurence as Lawrence mentioned, our fiscal Q4 was another strong period of growth for the company total revenue was up 50% to $22 1 million.
Dollars compared to $14 7 million in the year ago period, driven by greater demand for high powers, non hydro product product portfolio, including commercial fans shelving products chairs among other products.
Power's non hydroponic portfolio accounted for approximately 54% of revenue in the fiscal fourth quarter.
Third to approximately.
37% in the year ago quarter.
Gross profit in the fiscal fourth quarter increased 39% to $9 $1 million compared to $6 5 million a year ago quarter as a percentage of revenue gross margin was 41, 2% compared to 44, 4% in the year ago quarter with the deep accretion gross margin driven by both product and channel mix as well.
As elevated freight costs, which were partially offset by our decision to increase purchases and add to our inventory.
Total operating expenses for fiscal Q4 were $10 6 million in the quarter compared to $6 3 million for the same period in fiscal 2021.
As a percentage of revenue operating expenses were 48% compared to 42, 8% in the year ago quarter. The increase in operating expenses were primarily driven by additional warehouse selling and fulfillment costs.
Net loss in the fiscal fourth quarter of 2022 was $1 3 million or <unk> <unk> per share compared to a net loss of $1 9 million or <unk> <unk> per share for the same period in fiscal 2021.
Although our net loss improved year over year, it's worth noting that we had less direct import business with our largest channel partner during the June quarter.
Third to earlier in the fiscal year, which had an impact on operating margins.
Moving to the balance sheet cash and cash equivalents were $1 8 million as of June 32022, compared to $6 7 million.
On June 30 of 2021.
Decrease was attributed to our strategic sorry.
Strategic decision to add inventory to offset some of the supply chain risk and volatility that we had seen earlier in the year and effectively fulfill a customers.
<unk>.
We saw the benefit of this approach so far in July and August where we've recorded some of our strongest months of sales in company history.
As of June 32022, total long term debt stood at around 14.
$1 million compared to.
$500000.
In the.
In the same period ending June 32021. This increase was attributed to the note associated with the acquisition of our global engineering partner DHS.
Well as a function of timing as we utilized our revolving credit facility to better manage working capital.
As we look to the rest of fiscal 2023, we plan to continue driving significant growth in our business, while remaining prudent with our capital allocation and expense management.
That said, it's no secret that the global landscape has shifted fairly materially so far in 2022.
Additional business risk driven by supply chain challenges and inflationary pressure has created a level of uncertainty in projecting exactly what our business will do in the next 12 months.
Always strive to provide useful and accurate depiction of our business each quarter.
At this point decided to hold off on providing specific financial guidance for fiscal 2023 until visibility on the macro improves.
That said, we do you want to be clear here.
We have expectations of continued to drive meaningful growth.
In the business.
As well as profitability and we think that.
We're in a really good position to execute on all of our growth objectives.
For the year.
With that.
We will now open the call for questions operator, please queue them up.
Thank you.
As a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.
Our first question comes from the line of Scott Fortune Roth.
Your line is open. Please go ahead Scott Fortune.
Couponing revenue product mix, you said reached a 54%, but can you and tag that segment, a little bit and provide a little more color on what is driving the growth of that mix and looking out into fiscal 2023.
Four can you provide a little bit kind of expectations are nine non hydroponics versus kind of the hydroponics mix as we look out to the.
Coming year here from that standpoint that would be great.
Yes, Scott we didn't quite get all of the first part of your question, but I think we got most of it large you want me to take this real quick.
Yes sure.
Yes so.
No.
Answering the second part of your question first I don't think were in a position to predict.
What that mix is going to look like.
The way that I would kind of characterize and I think we've talked with you and others about how we go about product development and product extensions et cetera, I think the best way to think about a lot of our non hydroponic business is that they are extensions of not only what we've learned.
In product development, and merchandising and kind of sales execution side is hydroponics, but then we saw that the word natural use cases for quite a few of the products Dion hydroponics. So maybe two real easy examples would be in kind of the ventilation.
Segment, where quite a few of what we were selling for kind of.
Hydroponics.
Fan applications could be used for non hydroponics home use commercial warehouse use.
Et cetera, and we saw an opportunity to extend that product line to include or go beyond wall fans for floor fans and stand fans. As an example, where we saw through our data opportunities in the market that was being addressed with the same kind of price point.
And potential quality that.
Yes.
Thought.
It can be serviced with same thing for some of the shelving products that.
We offer which were originally developed for applications.
Inside a growing project.
But those are.
Shelving units with some modifications could be targeted market too man.
Hydroponics applications and you know.
Again through the work that we do in identifying kind of.
Categories, whereas we see their offers theres opportunity it was a natural extension for us so.
And given our margin profiles in both those areas. They seemed like really ripe areas to go and we did very well and providing products that.
Had appropriate value for our customers are looking for that so.
Yes.
As happy as we could be at this point for how well those have taken off and we.
There are probably some other categories, where we can do that but we still see a lot of growth in those areas as well is that does that help Scott.
No I appreciate the color that's really good yeah, obviously, you've put initiative to extend beyond the hydroponics Heidi.
Playing out but can you provide a little more color on the new sales channel initiatives kind of in the hydroponics side more specifically looking gain into the big box kind of.
Partners from that standpoint, <unk> will be.
For more color.
You look at the 2023 with different new sales channel initiatives coming on for you going forward here.
Yeah, Laurence maybe take that one go ahead.
Yes sure sure.
We have been working on a new sales channel and.
I'm, a pretty dry for what the.
Program.
So we'll start to see some.
Good development.
New sales channel.
That's where our hydroponics product line.
We are we have shown a pretty good job.
Performance is why the whole market.
It is not in a very favorable situations for the last couple of years.
And I think we did that by.
Grab more market share provide pretty good value products to consumers.
So going down the road.
We'll not only recover as well.
They'll hydroponics market recovers as a whole, but also be having new products that that we.
<unk> developed our solve.
Both hardware and software.
As a solution that offers to the market. So we'll start to see it.
Here's some interesting applications all the hydroponics product lines.
Comparing to the mountain hydroponics.
<unk> lives so.
All of these new product or excuse.
Won't be good for both online and offline applications.
Yes, and Scott one other.
Comment on on that front, so we have as Lawrence mentioned initiatives.
To develop kind of channel relationships with.
The big box retailers that you might expect we can't really talk about them.
Specifically at this point, but.
Most people would recognize the people that we are.
Engaged with at the beginning.
To work with one.
One thing I think we can say is that we've got.
Matching name, we got our first small set of orders from a fairly well known.
Our channel partner that once we're in a position to two.
Announce will be recognizable by kind of anybody who shops at.
These types of places so.
As you know getting into bigger blocks retail is much different.
So the much different proposition than selling online and.
So we put a fair amount of effort and work in the last six months to begin that process and we're just starting to see.
The early benefits of that and so the way that we like to think about it is that.
We achieved this really really strong growth this year.
Without having significant additional channel partners at our disposal. So all of that is really kind of in the future for us.
Cautiously optimistic that we will start to see some momentum in 2023.
Great I appreciate the color and thanks, and congrats on the quarter.
Thank you thank.
Thank you. Our next question comes from Michael Baker of D. A Davidson. Please go ahead Michael Baker.
Okay.
Thanks, guys.
<unk>.
A couple of questions here, one understanding you're not giving guidance for sales growth in 2023, but.
Can you talk about July and August some of the strongest sales month, you've had does that in terms of dollars or growth just trying to put that in context to the.
The fourth quarter growth, which was 50%.
Versus your long term plan, what you've said in the past I think 25% to 30%. So how should we think about one Q within that range with.
With you, saying that there are two of the strongest months you've ever had.
Yes, that's what that comment was with regard to dollars.
<unk>.
September is not done yet so I don't want to comment.
Comment too specifically on Q1, but.
Remember I think last September was a.
We are reasonably strong quarter for us.
And I think we're maybe maybe the best way to say it is.
We're going to be off to a better start in fiscal 2023 coming out of the gate than we were in.
The first quarter of fiscal.
The 2022.
But the comment specifically in the press release was about.
Absolute dollar levels. They were just both really strong which was part of the reason we wanted to have.
A fair amount of inventory on hand.
Exiting the June quarter.
For some of the stuff that we're starting to see.
Okay.
So let me follow up on the inventory.
Part of that answer.
How should we think about working capital.
In 2023.
Standing.
The reason to increase the inventory and that is helping sales, but your net cash is way down versus a year ago.
We have a different view of that is way up do you start to work that down now your receivables are pretty high. So does that working capital starts to get worked down now and you start to generate some cash from that inventory or.
At the same story still go up from here.
Yeah, I don't think it will go at least in the near term it Shouldnt go up.
From here.
Think part of what was happening for us as we kind of worked our way through the June quarter is.
Is anybody who's watching the news or reading the news knows.
China was continuing to go through a fair amount of volatility relative to citywide lockdowns and there was a fair amount of concern that if we could get our hands on product to avoid.
Any impact given that we felt that we were still seeing really strong demand trends, we were going to do it.
I think some of the things that have changed since the beginning of June .
June quarter is that.
I think we're starting to see the lead times for both.
<unk> product, but also kind of the shipping times go down.
Which means to support similar levels of sales or we kept sales equal our ability to kind of get product faster and turn that inventory faster.
Improves and so.
In an ideal world.
We will be able to bring that inventory level down yet still meet sales targets that we have.
So.
Think working capital will change we should be in it.
Less cash consuming Steve.
Stance.
Probably sometime after we eggs.
Exiting the September quarter, and then we will we will just have to see from there but.
Think it's likely that we saw again relative to inventory turns of the high watermark for.
For the company.
Okay.
And then couple of more.
Again, I'm, saying, you're not giving guidance, but just thinking about 2023.
Your profitability on the EBIT line was down this year versus last year that the margin I calculate two 9% versus five 4%.
Last year, So I guess, if I ask you if that's going up next year I suppose I was giving guidance, but what can you say about your operating margin.
How does the mix into non hydroponic products are doing more overseas.
Impact that margin and you know what.
What sort of again I don't know if those guys. What's the right long term margin closer to that 500 for the or the two nine.
The business has changed that is going to be less profitable than it was a year ago.
No I don't think it's I don't think it's changed I think what's changed.
Over that 12 months period.
Is that kind of lead times to get product extended.
So thats one there was some volatility there too.
During that period.
Yes.
The 12 month period that ended.
This.
Past June we had a significant spike in freight costs.
Which have to flow through.
Our cost of goods sold as well.
And then there were some.
There are some.
I hate to use the word transitory but.
Cost that we had to incur particularly in the June quarter that.
To support some of the inventory that we wanted to hold.
We needed some temporary space.
How does that inventory and so.
Procuring that space beyond those are.
Our houses could hold for a short period of time.
Incremental cost.
Above what we would normally you have to pay if we either had that our aerospace <unk>.
Didn't want to carry that inventory for that kind of short period of time.
I think as supply chains normalize and that includes the comments I made earlier about lead times to get products across the Pacific shortening but also.
The cost of.
Containers coming across the Pacific, which is now heading back down to levels, we saw pre pandemic.
That we will get some just natural lift in the business all all other things being equal such that.
He headed back in the right direction I think the other thing I would say to that stood out in the.
In the June quarter.
Does the amount of business that we pushed through.
The direct import program that we have with Amazon was lower than it was in prior quarters.
We're optimistic that that will change to that we'll get a higher level of that in the.
In the future, although there's no guarantee of that but if we're able to improve from where we were in the June quarter.
Yes.
That's an upward lift to operating margins because.
Uh huh.
A lot of the cost, particularly on the sales until fulfillment side.
And on the freight costs are carried by Amazon in that program. So that's a better answer.
Better EBIT environment for Us and.
It was a low.
It was a low.
Number relative to prior quarters for us.
Yes.
As we look at the business to us it feels like.
A lot of the things that became headwinds in June .
Can shift a tailwind as we progress through 2023.
Okay Fair.
Fair enough Thats encouraging.
One more if I could maybe maybe more for Laurence bigger picture to describe this new branding a little bit more.
So is this sort of branding away from hydroponics or I don't know if at all or is that hydro or any anything that you could you know.
Flesh out on that and then what's the goal of that well two things.
I presume that's aimed to drive more sales. So if you can talk about the goals are how we measure the success of the <unk>.
What is the cost of that going to be as all of a sudden they're going to be like a big expense incurred on our marketing line or something along those lines.
Yeah, Hey, the rebranding is for for Us too.
Two actually.
Better present I power at not only just a hydroponic company, we we now have.
More lines.
A different brand names and different categories, not just hydroponics. So we want people to understand that we are beyond just about hydroponic company, where E Commerce company <unk>.
We also have our services.
Abilities. So so so we've been working on rebranding I power so that we can show.
Uh huh.
The body, what I power really really is and whats inside.
<unk>.
I powered organization.
The rebranding won't cost us that much as we are not.
Printed the logos are all event, we need to do that it will be step by step.
It won't be a overall that change all the marketing material. So so.
That's very much controlled.
But I think the rebranding will be making a broader public I understand high power.
Beyond just hydroponics.
Understood Alright, thanks for all the time I appreciate it.
Thank you. Thank you.
Thank you at this time I would like to turn the call back over to Kevin Vaseline for any closing remarks, Sir.
Great well, thanks, everyone for joining us for our year end earnings call, we look forward to.
Speaking of speaking with you guys again soon as we are rapidly approaching the end of our.
Fiscal Q1, so we'll be talking to everyone again in <unk>.
Thanks again.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial.
One one.
[music].
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Yes.