Q4 2023 iPower Inc Earnings Call
Speaker 2: Good afternoon, everyone, and thank you for participating in today's conference call to discuss iPowers financial results for its fiscal fourth quarter and full year 2023, ended June 30, 2023. Joining us today are iPowers Chairman and CEO , Mr. Lawrence Tan and the company's CFO , Mr. Kevin Vasily. Mr. Vasily, please go ahead.
Speaker 2: Good afternoon, everyone, and thank you for participating in today's conference call to discuss iPowers financial results for its fiscal fourth quarter and full year, 2023, ended June 30, 2023. Joining us today are iPowers Chairman and CEO , Mr. Lawrence Tan, and the company's CFO , Mr. Kevin Vasily. Mr. Vasily, please go ahead.
Speaker 3: Thank you, operator, and good afternoon, everyone. By now, everyone should have access to our fiscal fourth quarter and full year 2023 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.
Speaker 3: This call will also be available for webcast replay on our website. Following our prepared remarks, we'll open the call for your questions.
Speaker 3: 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. These 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, and those reflected in these forward-looking statements.
Speaker 3: 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.
Speaker 3: do not place undue reliance on any forward-looking statements which are being made only as of the date of this call. Except for what is required by law, the company undertakes no obligation to revise or publicly release the results of any revision to any forward-looking statements.
Speaker 3: With that, I would now like to turn the call over to iPowers Chairman and CEO , Lawrence Tan. All right.
Speaker 4: Thank you Kevin and good afternoon everyone.
Speaker 4: fiscal 2023 marked our third consecutive year of double digit revenue growth reaching record sales of almost 19 million
Speaker 4: This was driven by the consistent, strong demand for our in-house products and continued expansion of our non-hydroponics portfolio.
Speaker 4: Throughout the year, we continue to prioritize our in-house brands, which made up more than 90% of the revenue, demonstrating our ability to research, develop, and market high demand products.
Speaker 4: We are seeing particularly strong momentum in our home category, which includes shelving and fans, as well as our category as some of our older SKU gained the market share.
Speaker 4: Additionally, we experienced incremental gains from new SKU introduced throughout the year.
Speaker 4: We will continue to invest in the development of new innovative segments to create even greater value for our customers.
Speaker 4: As we have mentioned on past conference calls, hydroponics has become a smaller portion of our business today as we've placed a strong emphasis on diversifying our product mix outside the category. For fiscal 2023, non-hydroponic sales made up more than 75% of the revenue.
Speaker 4: Despite growing other categories within our portfolio, we will continue to offer high-quality hydroponics products and invest in the vertical economy as that market evolves.
Speaker 4: Since launching our Business Services program earlier in the year, we have begun to see promising attractions with both current and prospective partners.
Speaker 4: For those who are unfamiliar, our goal is to leverage our superior supply chain, water housing, and merchandising expertise to drive sales growth for partners.
Speaker 4: that have innovative product portfolios.
Speaker 4: Since the inception, we have partnered with companies that operate in home goods and electronic categories.
Speaker 4: We are still in the early stages but encouraged by the initial feedback and sales momentum.
Speaker 4: We look forward to sharing updates as the segment grows, and I expect it to offer our services, help more brand new partners grow their businesses.
Speaker 4: As I mentioned on our last conference call,
Speaker 4: We have been ramping sales and marketing to work through higher price imagery.
Speaker 4: During the fiscal fourth quarter, we sold most of the remaining higher cost goods, which we expect will improve gross margins moving forward.
Speaker 4: We also don't have to carry as much inventory on hand given the improved supply chain.
Speaker 4: which will reduce our operating expenses in fiscal 2024 as we save our warehousing expenses.
Speaker 4: Now, looking ahead into fiscal 2024, we no longer have the burden of short-term warehousing leases, high-cost inventory, or the need for access of promotional spend.
Speaker 4: We will continue to focus on diversifying our sales mix while adding new cutting-edge offerings to our in-house product portfolio.
Speaker 4: All of this coupled with an improved supply chain, normalized inventory levels, and continued strong demand for our in-house products.
Speaker 4: We are well-equipped to deliver on our growth and profitability initiatives in the year ahead.
Speaker 4: I will now turn the call over to our staff, old Kevin Vesely.
Speaker 4: to take you through our financial results in more details. Kevin, please.
Speaker 3: Yeah, thanks, Lawrence.
Speaker 3: Unless referenced otherwise, all variance commentary is versus the prior year quarter.
Speaker 3: Unless referenced otherwise, all variance commentary is versus the prior year quarter. So let me get into the fiscal Q4 results.
Speaker 3: Total revenue increased 6%, 23.4 million compared to 22.1 million.
Speaker 3: The increase was primarily driven by greater product sales to our largest channel partner.
Speaker 3: Gross profit in the fiscal fourth quarter remained flat at $9.1 million compared to the year ago quarter. As a percentage of revenue, gross margin was 38.7% compared to 41.2%. The decrease in gross margin was primarily driven by higher costs of goods sold related to inventory that previously incurred higher freight charges.
Speaker 3: as well as normal variations in product and channel mix. With the normalization of freight rates, we expect gross margin to improve in fiscal 2024.
Speaker 3: Total operating expenses for fiscal Q4 were 12 million compared to 10.6 million for the same period in fiscal 2022. The increase was driven in part by non-core expense related to legal and arbitration proceedings.
Speaker 3: as well as higher selling, fulfillment, and marketing costs related to the sale of inventory built up in prior quarters.
Speaker 3: Net loss attributable to iPower in the fiscal quarter was $3 million or $0.10 per share compared to a net loss of $1.3 million or $0.05 per share.
Speaker 3: The decline was driven in part by the aforementioned higher operating expenses.
Speaker 3: I'm quickly turning to our full year of fiscal 2023 results.
Speaker 3: Total revenue for fiscal year 2023 increased 12% to 88.9 million compared to 79.4 million in fiscal 2022.
Speaker 3: The increase was primarily driven by greater product sales to our largest channel partner.
Speaker 3: as well as strong demand for our non-hydroponic and in-house product portfolios.
Speaker 3: Gross profit for the year increased 5% to $34.8 million, compared to $33.2 million, with gross margin percentage of 39.1%, compared to 41.8% in fiscal 2022.
Speaker 3: The decrease in gross margin percentage was driven primarily by the aforementioned higher cost of goods sold related to inventory that incurred.
Speaker 3: those higher freight charges.
Speaker 3: Net loss attributable to I-power in fiscal 2023 was 12 million.
Speaker 3: uh 40 cents per share compared to net income of 1.5 million or six pence per share.
Speaker 3: The fiscal 2023 period included approximately 3 million related to goodwill impairment incurred earlier in the fiscal year.
Speaker 3: as well as some core non-operating expenses related to legal and arbitration proceedings.
Speaker 3: Moving to the balance sheet, cash and cash equivalents were $3.7 million at June 30, 2023, compared to $1.8 million as of June 30, 2022.
Speaker 3: Total debt stood at $11.8 million compared to $16 million as of June 30, 2022.
Speaker 3: The decrease was driven by our strong debt pay down which resulted in a 43% reduction in net debt to 8.1 million compared to 14.2 million at June 30, 2022. Cash flow from operations for fiscal year 2023.
Speaker 3: It proved significantly to $9.2 million compared to cash used of $16.6 million in the prior fiscal year.
Speaker 3: The increase was primarily driven by our planned reduction of inventory and associated improvement in working capital.
Speaker 3: As Lawrence mentioned earlier,
Speaker 3: We do not need to carry as much inventory going forward, given the normalized supply chain that we currently see. As of June 30, we've successfully brought down our inventory by 33% to approximately 20 million, as compared to the...
Speaker 3: forward given the normalized supply chain that we currently see. As of June 30, we've successfully brought down our inventory by 33% to approximately 20 million as compared to the...
Speaker 3: inventory as of June 30, 2022, and we expect to reduce this further in the coming months. Between the warehousing savings, the lower cost of goods to improve gross margins, coupled with the demand that we're seeing for in-house products.
Speaker 3: We feel we are well positioned to execute on our growth and profitably objectives in fiscal 2024.
Speaker 3: With that, this concludes our prepared remarks, and we'll now open it up for questions. Operator? Did it fit?
Speaker 2: As a reminder, to ask a question, you will need to press star one one on your telephone. Once again, that's star one one on your telephone to ask a question.
Speaker 2: To remove yourself from the question queue, please press star 11 again.
Speaker 2: Please stand by while we compile the Q&A roster.
Speaker 2: Thank you for standing by.
Speaker 2: Our first question.
Speaker 2: comes from the line of Scott Fortune of RothMKM.
Speaker 4: Hi, good afternoon and thanks for the questions. Just want to get a sense for the cadence moving forward here in the past quarter. You mentioned looking to return to normalize growth, annual growth of the high teams to 20 percent levels. Can you step us through kind of different business segments and the growth drivers to achieve kind of more of that normalized higher?
Speaker 4: Top line growth that you're looking for and just want to get sense for how much a new service segment is part of that driving growth into 20 fiscal year 24 here.
Speaker 5: Kevin, you want me to take this question?
Speaker 3: Yeah, you can take it and I can add to it.
Speaker 3: I can add to it kind of after you're finished.
Speaker 4: Sure. The services are early stage, but we have been working on it for a while. This definitely takes time to set up the partnership to get a product physically moved, set up a sales channel and growth. But we have seen some pretty good results initially. While it hasn't yielded as much of the
Speaker 4: in terms of percentage of our sales, we believe it will grow to, I'm not sure, like,
Speaker 4: the cells we believe it will grow to like
Speaker 4: a recognizable
Speaker 4: chunk like later, earlier this fiscal year. So we'll keep you updated on the progress, which I'm pretty delightful to see how it goes right now. And in terms of categories, all of our categories other than hydroponics has been growing pretty healthily, including home, pads, and some of the new categories we introduced through our partnership with electronic manufacturers done by this main platform.
Speaker 4: later, earlier this fiscal year. So we'll keep you updated on the progress, which I'm pretty delightful to see how it goes right now. And in terms of categories, all of our categories other than hydroponics has been growing pretty healthily, including home, pads, and some of the new categories we introduced through our partnership with electronic manufacturers and of course our option for immunocompromised immun smile on the Chond Gospel Mohammed or the Ma gang
Speaker 4: I think both the product category expansion, more market share and sales growth on existing SKUs as well as the new partnership will all contribute to the revenue growth in the coming fiscal year.
Speaker 3: Yeah, and Scott, I'll add a couple other things there. So there are a couple sources of...
Speaker 3: acceleration that we're hoping to
Speaker 3: to tap into this fiscal year. The biggest of which is kind of the resumption of the...
Speaker 3: have normalized inventory levels with our biggest channel partner, which I'm sure you know who that is.
Speaker 3: The predominant sales model we have with them is a wholesale sales model.
Speaker 3: the predominant sales model we have with them is a wholesale sales model.
Speaker 3: the slowdown in our year-to-year sales.
Speaker 3: was largely a function of...
Speaker 3: that channel partner across the board, not just with us.
Speaker 3: but across the board.
Speaker 3: normalizing their inventory and You know we think they're pretty close
Speaker 3: if not done with that, which means we can start...
Speaker 3: we can start seeing kind of
Speaker 3: sales to them that match end-to-man. And there has been a mismatch of that probably for the last several quarters. So that's one and I think we're pretty close to that.
Speaker 3: The second piece would be some of the new channels that we're working on.
Speaker 6: We're now.
Speaker 3: engage very early on with Lowe's.
Speaker 6: We have a number of other.
Speaker 3: offline relationships as well that are starting to
Speaker 3: that are starting to get some momentum. And so any of those will be completely incremental sales for us.
Speaker 3: that you obviously didn't have in prior years. So we're pretty optimistic that those will start to get some traction. In between the two of those, you know,
Speaker 3: setting aside whether or not we can generate incremental sales yet from the services business.
Speaker 3: We're reasonably comfortable that that can get us back.
Speaker 6: to
Speaker 3: some of our historical growth trends.
Speaker 3: I think Lawrence, you had one other thing you wanted to mention as well.
Speaker 4: Yeah, yeah, I mean, as you mentioned about like extra channels, we have actually been successfully launching our business on TikTok shops, where we sell directly to TikTok viewers. We are one of the very early participated sellers on TikTok platform got approved. And so far we have been running properly and I think that's on track.
Speaker 4: And we haven't mentioned anything about it because the sales volume, even though it's been growing fast, it's insignificant as of June . But we have been seeing pretty heavy growth on that. And once it reaches to a point where it becomes something that we think is worth mentioning, we'll definitely let you know. And I think that should be certain.
Speaker 7: I appreciate that color. That's helpful. Can we dig into the next question? Dig into a little bit. I know you have robust product development pipeline and you're driving new product designs and new channels, like you said, but just kind of step it through again, the initial service partnerships in place. Obviously, you know, the ramping of that over the year and do you have to put in new staffing or cost to really ramp that? Just kind of step us through kind of how we should look at the service offering.
Speaker 7: the initial ramps and initial categories, and at what size would that require to ramp up more costs from your site's support?
Yeah, in terms of like, I would actually more describe this as partnership instead of servicing. Now, in terms of personnel, we do not participate, at least at the early stage, we do not participate in product development. That's solely on our partner. We provide human resources, all merchandising, warehousing, and logistics mostly. So that while it doesn't add a new type of labor cost on us, it does require the same amount of work as if we brought on.
our own new in-house product like additional SKUs. Yeah, no structure changes, but more SKUs, more new SKUs means more work.
Got it. And just kind of follow up on that, the opportunities out there, I know you targeted electronics and home goods, but you're seeing a lot of potential partners here that could use the kind of consulting, the merchandising, the warehousing, and even your e-comm expertise.
What's the key there? How open is this to you and what's the key for these guys coming on with you with the service offering?
Most of the guys who we currently partner with have shared similar characteristics where they are both manufacturers and they are also online retailers. Most of these manufacturers have been trying to do online with their in-house teams and yield not so satisfied results. And in turn, they came to us because we have better merchandising skills, we have better knowledges and deeper channel integrations. They consider us as expertise in this side. So we work together. That's why they came to us. They tried.
while they have pretty good products, a lot of times they can't sell better than competitors who have, you know, not as... Our portfolio is not as competitive than theirs. So they realize that they need help. They need to partner with somebody like us.
That's perfect. I appreciate Lawrence for that color. Thanks for all the answers to the questions.
All right, cool. Thanks, Scott. All right.
Thank you.
Please stand by for our next question.
Our next question comes from the line of theory of water tower research.
Hey, good afternoon, Lawrence. Good afternoon, Kevin. Thanks for taking the call. Scott has covered a lot of ground, but you mentioned with the business services, you mentioned home goods and…
and electronics and does that mean you have a second client or a second relationship there already? You've announced one so far.
Yes, we are already starting like computer bonuses with our partners online as of today as we're speaking. update over these slides we have our own a call center online and find the link to our website there is one of those options linked to Spirit
Okay, so we just haven't announced the.
name as of yet.
When we get to a position where we're comfortable and they're comfortable, we...
But as of this point, we haven't announced who they are yet.
Okay, well, it's great to see a second partnership there. Any comments on the pipeline in terms of where do you expect to end at the end of the first quarter in terms of how many partners you might be working with?
The numbers of a partnership will not be many. Even going forward will not be many, but we are partnering with companies who are at Dillingbauers revenue scale. So while the number of partners are at Dillingbauers revenue scale, we are partnering with companies who are at Dillingbauers
unlimited. The sales are probably not going to be limited. So the key here is like how much revenue we'll get and what will be through that partnership. Are we going to be the top three or the best sellers in that category? I think that's more of my goals.
limited. The sales are probably not going to be limited. So the keys here is like how much revenue we'll get and what will be through that partnership. Are we going to be the top three of the best sellers in that category? I think that's more of my goals.
are probably not going to be limited. So the keys here is how much revenue we'll get and what will be through that partnership. Are we going to be the top 3 of the best sellers in that category? I think that's more of my goals.
Great, that's helpful. Maybe one more question. You mentioned in the prepared remarks and I think on the press release that you are well positioned to execute on your profitability objectives in fiscal 2024. Any commentaries as to what those profitability objectives are? I'm not sure how much detail you want to give us but maybe...
some rough numbers at the gross margin level and maybe whether you think you'll be positive at the net income level? Yeah, I'll take that one. So we don't.
We don't give guidance for guidance just partly given the nature of the business partly given the fact that we're
Still a pretty small company.
in different forums is that you
Now that we are back to a more normalized environment.
We believe that we can...
where we should be able to achieve.
the
kind of profitability profile that we had.
prior to the big inventory build that we have.
So, you know, we were clearly EBITDA positive, we were clearly that income positive.
We had gross margins in the 42 to 45 percent range, and that was the fluctuation there was largely a function of...
the large product category and some of the multiple channels that we sell through, and that kind of multivariate mix.
can create some changes quarter to quarter.
But that would be a...
that would be an achievable profile.
to get to at some point during the fiscal kind of 2024 year.
that does not include contribution from the services business.
And we think that that is likely a reasonably a creative business.
think that that is likely a reasonably a creative business for us going forward.
You know, we don't want to give a timetable, but we're pretty comfortable that we're back.
we're looking into a next period of time for us where
given the normalized supply chain that our prior levels of
You know gross margin and EBITDA and that income margin should be achievable.
gross margin and EBITDA and that income margin should be achievable. So hopefully that's helpful.
Yeah, that's very helpful. Thank you very much. Maybe one last question. In terms of the business services, can you give us a sense as to that will show up as a, how are you compensated for that service that you provide? Is it going to be at a revenue level and you'll buy and sell the product or are you just going to get a...
a net margin, how should we think of that? At this moment, since these partners are pretty sizable ones, I won't expect every single one to follow the same exact template. But so far, the ones that we set up is running in a term where we cut purchase order to the partners. So it will be like a buy-sell relationship at the very basic. So it's not a
commission model, not for a... And it won't really be like inventory risk or anything of that nature for you.
What we set up so far is that we help providing services on logistics and warehousing while the inventory ownership doesn't transfer unless we have a sales from our like a subsequent channels. So there will be the risk of inventory really end of day falls on the partners and not us.
What we set up so far is that we help providing services on logistics and warehousing while the inventory ownership doesn't transfer unless we have a sales from our like a subsequent channels. So there will, the risk of inventory really end of day falls on the partners and not us. Okay.
Great, hey thanks for the thanks to take my questions and looking forward to a good 2024. Thank you. Thank you.
Thank you. I would now like to turn the conference back to Kevin Vasily for closing remarks. Sir.
Yeah, thank you, operator. Thanks everyone for joining for our fiscal Q4 and year-end earnings call. We look forward to speaking with you again next quarter. Have a good day.