Q1 2024 iPower Inc Earnings Call

Okay.

Good afternoon, everyone and thank you for participating in today's conference call to discuss our towers financial results for its fiscal year first quarter 2024 in the September 30th 2023, joining.

Yesterday, our towers, chairman and CEO, Mr. Lawrence Chin and the company's CFO, Mr. Catching Boselli. Mr. Maselli. Please go ahead.

Thank you operator, good afternoon, everyone by now everyone should have access to.

Our fiscal first quarter 2024 earnings press release, which was issued earlier today at approximately four Oclock P M Eastern time.

The release is available in the Investor Relations section of our website.

Power Dot com.

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 Lauren.

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.

All 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 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.

And circumstances that are often difficult to predict.

And maybe outside of our control.

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-K, which was filed with the SEC on September 15th 2023.

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 any forward looking statements.

With that I'd like to turn the call now over to <unk>, Chairman and CEO Lawrence Dann Laurence.

Thank you, Kevin and good afternoon, everyone.

During the quarter, we continued to generate revenue growth overcoming a record and a year ago period.

This was due to in part to the continuing strong demand for our high quantity products.

As material growth in our Super Sweet supply chain partnerships.

We're just now generating approximately $7 billion.

<unk> run rate revenue.

Sales of our in house products, where our resilience and once again wrapped present over 90% of our revenue.

Deeper we delivered strong results across the categories of fans shelving and outdoor patio furniture.

On previous calls we have stated our desire to diversify our product sales mix beyond the hydroponics.

And the physical Q1 marked the second consecutive quarter that now hydroponics accounted for over 75% off the total revenue.

That said, we remain committed to providing high quantity hydroponics product and we'll continue to invest in the space as dictated by the consumer demand.

We also began to tap into social commerce channels to fortify our brand reputation while fostering our workforce our ecosystem.

Content driven traffic to our product.

For example, we are approved.

Approved et cetera.

Short form video platform.

Which will allow us to leverage tick tock feed algorithm.

To present, our product to the right users based on their activity.

The short form videos, featuring our products present by Influencers in the program will not only drive high quantity impressions, but it will also build a repertoire of our trusted a review and testimonials.

As I mentioned earlier, we are pleased with the ramp up of our Super Sweet supply chain partnerships.

Which is now generating approximately 600000 in monthly revenue.

As a reminder goal of our Super Sweet supply chain partnership offering is to add value to strategic partners with innovative product portfolio that could benefit from our rich expertise in supply chain.

Government and merchandising.

The Super Sweet businesses, gaining solid momentum and we are working with us through grow topline offer prospective partnerships.

We are pleased with the early results from these efforts as well as invaluable insights that we're gaining from this accelerating area of our business.

Turning to Opex, we continue to make hot wait with our reduction of warehousing and inventory expenses.

We are also now beginning to realize the benefits of our efforts to reduce our level of higher cost inventory through gross margin expansion.

That said at the operating levels, we have begun to see a shifting of demand between sales programs at one of our key sales platforms.

Which is having a impact on operating margin.

We are working through various action items and have several levers to pull to offset these fees moving forward.

As we look to calendar 2020 for consumer demand is resilient for our portfolio of high quantity affordable product.

We are taking the right spots to diversify our revenue mix achieved great greater operational efficiencies.

And have made material improvements to our balance sheet.

Which Kevin will highlight shortly.

Well positioned to capitalize on prospective acquisition opportunities as well.

As we continue executing our profitable growth initiatives.

I'll now turn the call over to our CFO, Kevin Beverly and take you through our financial results in more detail Kevin.

Thanks Laurence.

Unless reference otherwise all variance commentary as compared to the prior year quarter.

Let me dive into our fiscal Q1 results.

Total revenue increased 2% to $26 5 million compared to $26 million in the prior year. The increase was driven in part by growth from our Super Sweet supply chain offerings as well as strong sales from our in house product portfolio.

As Lawrence mentioned earlier the year ago quarter was an all time record sales for the company. So we're proud to have continued to drive growth on a year over year basis.

Gross profit in the fiscal first quarter of 2024 increased 18% to $11 8 million.

Care to $10 million in the same quarter of fiscal 2023 as.

As a percentage of revenue gross margin increased 600 basis points to 44, 4%.

Compared to 38, 4% in the year ago period. The increase in gross margin was fiber excuse me, primarily driven by more favorable product mix as.

As well as having worked through much of our higher priced inventory.

Total operating expenses for fiscal Q1 improved 11% to $13 million compared to $14 6 million for the same period in 2023 deep.

Decrease was driven primarily by a $3 1 million decrease in impairment loss on goodwill.

Offset by increased selling and fulfilling expenses.

Net loss attributable to high power in the fiscal first quarter improved $1 3 million or loss of <unk> <unk> per share compared to a net loss of $4 2 million or loss of <unk> 14 per share for the same period in fiscal 2023.

The improvement in net loss was driven by the aforementioned higher gross profit and lower operating expenses.

Moving to the balance sheet cash and cash equivalents were $2 7 million.

As of September 30th.

2023, compared to $3 7 million.

On June 32023.

Total debt.

So that $7 million compared to $11 8 million as of June 32023.

The decrease was driven by our continued efforts to pay down debt.

It resulted in a 48% reduction in net debt to $4 3 million as compared to $8 1 million as of June 32023.

Cash flow from operations for fiscal Q1 improved significantly to $4 million compared to less than 400000 in the prior fiscal year.

The increase was primarily driven by improving supply chain conditions that have allowed us to run the business with lower levels of inventory.

As Lawrence mentioned earlier, our inventory levels are in better alignment with what we view as a stable state.

As of September 30, we've successfully brought down our inventory by 26% to approximately $15 million.

Compared to June.

At June 32023.

The warehouse savings lower cost of goods sold to improve gross margins coupled with we think is continued strong demand for our.

The portfolio of in house products.

As well as a promising start to our Super Sweet business, we feel like we've got a strong foundation in place to continue to drive growth.

In 2024 and return us.

Profitability.

This concludes our prepared remarks, and we'll now open it up for questions.

Thank you at this time, if you would like to ask a question. Please press star one on your telephone.

If you would like to remove yourself from the queue. Please press star. One again, we also ask that you. Please wait for your name and company to be announced before you proceed with your question.

Okay. Our first question will be coming from Scott Fortune.

Ross.

K M. Please go ahead.

Hey, Good afternoon. This is Nick on for Scott Congrats on a good quarter first question for me just on Tech talk can you just talk through kind of what you've seen as a seller in that platform just in the early days and what products are maybe taking hold on that platform and if you could just provide a little more color on the economics of selling on tech talk that'd be helpful. Thank you.

Okay.

Not many centers right now, but while I think tictoc is ramping up really quickly on growth.

Pretty.

Big growth over our last.

Six months tick tock.

Why.

We sell the Paas is the home and kitchen goes on textile why would the platform have mixed sales coming from fashion and beauty home.

Kitchen and the other categories.

Hopefully that's.

The answer to your question.

Yeah, and Nick on the economic side.

Lease right now.

The margins, that's kind of at a kind of a normalized margin for.

For products sold there are going to be.

More attractive.

As <unk> ramps the platform.

So they're kind of.

Let's call them the equivalent of the <unk>.

And our merchant account fees that we would pay in somewhere.

Like Amazon they are equivalent is lower at this point, we're also subsidizing.

Shipping on initial orders, which is also attractive so.

Well, they haven't really given guidance on how long kind of that attractive kind of economic model will be in place.

I think.

We believe that they intend to make this a formidable platform in the U S and so that these.

Uh huh.

Particularly the subsidized shipping on initial orders in the more attractive merchant fees are going to be in place for some time.

We're going to try to push to the extent, we can to continue to drive traffic.

From tick tock, because the economics are compelling.

At least from our perspective for the foreseeable future.

Yes.

Last for a while.

To compete with T Mo and Amazon Facebook alignment.

Later.

I don't think it will go away anytime soon.

No that makes sense I appreciate that and then second for me just on the gross margin side is the highest print in several quarters.

Help us understand the cadence there you called out mix and kind of the services business ramping just assuming is that tied ramps you should see ongoing accretion just your sense of the margins moving forward here into the balance of 2024.

Yes, Lawrence I'll take that one so.

Iterate what I.

Say every quarter, which is good.

Given the size of our product catalog.

And.

Yeah.

The just the number of Skus.

The gross margin calculation is a multi variable equation.

So one thing Thats happened.

And.

Is benefiting us for sure is that we worked through quite a bit of the higher cost inventory.

We started accumulating last year.

So.

When were burdening.

Those product with.

Container costs or freight costs those costs are much lower than they were when we built inventory last year. So that's certainly helping.

But the other thing I would say is that in.

Any given quarter.

The mix.

Product sales as a function of end customer demand and while.

What we've said in the past is that.

On average.

Uh huh.

Steady kind of state environment, our gross margins.

Our above 40%.

What sells in any given quarter can skew that up or down.

This quarter we were.

Fortunate that a lot of our kind of individual skus with gross margins higher than 45%.

So we are at a faster clip.

<unk>.

So.

I think that Youll still continue to see some fluctuation over the next several quarters for sure, but what I would say is.

What I would say is that.

We think that in a steady state environment gross margins.

Should stay above 40%.

All things being equal and so that's what we will.

You need to work towards.

But the market will dictate in any given quarter, what products are selling and what those individual gross margins are hopefully thats helpful.

Yes, no that helps.

That's it for me I'll pass it on thank you.

Thank you.

Our next question.

Our next question will be coming from theory.

We'll allow a water tower research your line is open.

Yes.

Good afternoon, congratulations on the quarter.

We're struck by the gross margin I think.

I appreciate the explanation you gave you mentioned in the release and in your prepared comments that you were getting some invaluable insights from the Super Sweet.

This activity.

I'm curious what you mean is it you're getting great you're getting additional data are you getting inside in other businesses and can you give us some comment what would that mean.

Sure.

During during.

Working with <unk>.

Hi chain partners.

On the Super site.

Business side.

We.

We successfully launching a couple of partners.

We started to learn sort of data how the supply chain punter upgrades.

Functionally.

And their organization how they.

React with the market. So it's more on the on the partnership side like the supply chain behavior, and how they react with the external environment.

Facilitating us to work with that better so that we can utilize our strengths.

To help each other to success in different fuels.

Those are the data data points, we collected.

The internal model, where we can.

Spanned the side of the business in the future more successful more successfully.

Great.

You mentioned the products that are selling well on Tictoc is I'm curious if it.

Is it push of Paul are you are you are you.

Are you identifying products in your portfolio and reaching out to influencers or or is it influencers as well.

Selecting products, how does that process work.

Initially we placed our products based on our understanding of the market and based on very limited data.

Datasets, we can find on our platform and then and then.

We launched after we launched the product for a while and some some product become very successful.

They are a category become a top performer and and initially we look out for the Influencer now we have influenced actively contacting us.

So I feel like that process has become both way now instead of like.

We have already passed.

Very initial start.

Pierre.

Yeah.

Okay, and then finally, you mentioned the Super Sweet deal on the $7 million annualized run rate.

But are you planning on adding more partners this year or can you give us any thoughts there.

Yes, there are pipelines of.

Prospective partners to at all.

It's our plan to continue to expand that category and naturally if we made made success in in that services business will attract more partners to start work with US and these partners will be very high quantity partners to work with.

Okay.

Okay. So we might end up higher than $7 million for this year some debt some of that business.

I will I think will only go go.

Growth and so it probably won't go down.

Yes, yes, okay, great that does it for me. Thank you very much great quarter.

Thank you thanks Terry.

Thank you. This concludes the Q&A session I would like to turn the call back over to Catherine for closing remarks.

Okay. Thank you operator, thank you everyone for dialing in and participating.

On our Q1 earnings release look forward to speaking.

To you all again.

Q2 rolls around thank you.

Thank you for joining today's conference call you may all disconnect.

Okay.

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