Q3 2024 iPower Inc Earnings Call
Okay.
Okay.
Good afternoon, everyone and thank you for participating in today's conference call to discuss I powers financial results for its fiscal third quarter 2024 ended March 31 2024.
Joining us today are I powers, chairman and CEO, Mr. Lawrence Tan and the company's CFO, Mr. Kevin definitely.
Especially please go ahead.
Yes.
Thank you operator, and good afternoon, everyone.
By now you should all have access to our fiscal third quarter 'twenty 'twenty four earnings press release, which was issued earlier today at approximately 405 P M Eastern time.
The release is available in the Investor Relations section of our website at <unk> Dot com.
Speaker Change: The call will also be available for webcast replay on our website.
Following our prepared remarks, we'll open the call for your questions.
Speaker Change: 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.
Our plans and strategies projections anticipated events and trends.
State of the economy and other future conditions.
Forward looking statements relate to the future theyre subject to inherent uncertainties risks and changes in circumstances that are difficult to predict.
Many of which are outside of our control.
Actual results and financial condition may differ materially from those indicated in these forward looking statements.
Our presentation today also includes certain non-GAAP financial measures.
Adjusted net income and EPS are.
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, which we furnished to the SEC. This afternoon.
company: These forward looking statements are also subject to other risks and uncertainties that are described from time to time, the company's filings with the SEC.
Our annual report on Form 10-K, which was filed with the SEC on September 20 September 15th sorry 2023.
You should 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 forward looking statements with that I would now like to turn the call over to high power as chairman and CEO, Mr. Lawrence Dann Laurence.
Thank you Kevin.
And good afternoon, everyone.
We achieved strong financial results in our fiscal third quarter as we generated double digit revenue growth record gross margins and improved operating leverage resulting in our return to profitability.
We are also gaining momentum in our super Sweet supply chain business.
Which contributed to our topline growth.
Speaker Change: During the quarter and now accounts for approximately 10% off the total revenue.
In fiscal Q3, our largest channel partner returned to a normalized inventory position and the purchasing cycle.
Which led to a stronger auto volumes during the quarter.
Pleased with the demand from our largest channel partner and will ensure our product catalog.
Talked with the high quantity offerings that our customers expect.
Our Super suite business as we have often stated.
Buys us with valuable insights that we can utilize to enhance our internal capabilities.
The acceleration of revenue reflects the value we provide through our superior supply chain.
Fulfillment and merchandising expertise.
Speaker Change: We will continue to invest in this new business as we worked through our robust pipeline of prospective partnerships and believe this business will continue to take a greater share of revenue mix going forward.
We have always placed a strong emphasis on their bikes are buying revenue.
Speaker Change: Demonstrating that by the launch of Super Sweet last fiscal year.
We have also deepened our online presence with social commerce platforms like Pitcock shop, while we continue to see solid growth.
In April we expanded our sales channels by launching on Tmall and haven't seen promising early results in the kitchen and pilot categories.
Over the last couple of years, we have purposefully shifted our focus from hydroponics.
Two part highs our core competence as a data driven consumer products and services company.
More recently, we've begun to wind down our legacy commercial hydroponics business.
Where are we sold directly to local commercial distributors.
Speaker Change: We are working through the remaining inventory now and expect to Sunset. This channel altogether in the coming months.
Turning to Opex, we continue to benefit from our internal initiatives to drive savings in our selling and fulfillment operations.
Speaker Change: With a healthier supply chain environment, we are no longer required to hold high levels of inventory as we have returned to a normalized lead times.
We have also sought to most of our high image high cost inventory and.
They believe in us.
Eliminates short term warehousing cost and improve margins.
Speaker Change: As of March 31st we further reduced our inventory level by 25% compared to December 31 2023.
We are also in the early stage of benefiting from third party warehouse stocking and expect to realize additional savings in the future.
Looking ahead, we are well positioned to close out fiscal 2024 on a strong footing between the strong demand from our largest channel partner.
Celebrating grossing super Sweet and expansion into U e-commerce channels such as people.
Speaker Change: I would now turn the call over to our CFO Kevin Vasily.
Kevin Dean Vassily: Take you through our financial results in more detail Kevin.
Kevin Dean Vassily: Thank you Lawrence.
Kevin Dean Vassily: Yes referenced otherwise all variance commentary is in comparison to the prior year quarter. So let me dive into our fiscal Q3 results.
Kevin Dean Vassily: Total revenue increased 15% to $23 3 million compared to 22.
Kevin Dean Vassily: $2 million the.
Lawrence: The increase was primarily driven by greater product sales to our largest channel partner in.
Speaker Change: In addition to growth in our Super Sweet supply chain offerings.
Kevin Dean Vassily: Profit in the third fiscal quarter of 2024 increased to.
Speaker Change: 41% to 10.9 million compared to 7.8.
Speaker Change: 8 million in the same quarter of fiscal 2023.
Speaker Change: As a percentage of revenue gross margin increased 850 basis points to a record 47%.
Speaker Change: Compared to 38, 5% in the year ago quarter incur.
Company spokesperson: The increase in gross margin was primarily driven by improved pricing through our key supplier negotiations.
Speaker Change: Well as favorable product mix.
Speaker Change: Total operating expenses for fiscal Q3, or $9 3 million compared to $9 6 million for the same period in fiscal 2023.
Speaker Change: As a percentage of revenue operating expenses improved 740 basis points to 40.
Speaker Change: 0.1% compared to 47, 5% in the year ago period.
Company spokesperson: Selecting the operating leverage in our business as well as lower selling and fulfillment costs.
Company spokesperson: Resulting from among.
Speaker Change: Among other things some vendor credits.
I power: Net income attributable I power in the fiscal third quarter improved to 1 million or three cents per share compared to a net loss of $1 5 million or a loss of five cents per share for the same period in fiscal 2023.
High Power: Adjusted net income attributable to high power, which exclude legal fees for arbitration net of tax impact improved to one 6 million or five cents per share compared to an adjusted net loss of one 4 million.
Company spokesperson: Or a loss of $5 per share in the same period.
Company spokesperson: In 2023.
Company spokesperson: The balance sheet cash and cash equivalents were $2 7 million as of March 31 2024.
Company spokesperson: <unk> to 3.7 million at June <unk>.
Company spokesperson: Okay.
Company spokesperson: Total.
Company spokesperson: Okay.
Company spokesperson:
Company spokesperson: Okay.
Speaker Change: The decrease was driven by our continued efforts to pay down debt, which resulted in a 59% reduction in net debt to $3 3 million compared to $8 1 million of net debt as of June 32023.
Company spokesperson: Cash flow from operations was essentially neutral in fiscal Q.
Speaker Change: Q3, largely driven by an increase in our direct import business with Amazon, which carries.
Company spokesperson: Both higher operating margins, but slightly longer payment terms.
Company spokesperson: To summarize.
Speaker Change: We are beginning to realize the benefits of less high cost inventory and.
Speaker Change: Turtle optimization efforts, which drove a record gross margin improved operating leverage for the quarter.
Speaker Change: We also continue to strengthen our balance sheet by reducing debt by nearly 60% during the quarter compared to June 32023.
Lorence: Is lorence touched on we've got multiple editions are in place to drive further growth as.
Lorence Touched: As we look to fiscal Q4 and the year ahead.
Lorence: This concludes our prepared remarks, and we'll now open it up for questions.
Speaker Change: Later.
Speaker Change: If you'd like to ask a question at this time. Please press star one one on your Touchtone telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question will come from the line of Scott Fortune with Roth and Cam.
Scott Thomas Fortune: Yes, good afternoon, and thanks for the questions.
Scott Thomas Fortune: Gratulation on the strong quarter and it seems that a lot is driven from the strong order from obviously, you've called out the largest channel partner as they return to more of a normalized inventory kind of purchasing cycle, but moving forward.
Speaker Change: How should we look at this going forward. He can we cant take historical kind of growth from years past.
Speaker Change: Going forward with this moving forward with him or and just kind of call out the product set.
Speaker Change: Or that kind of the industry, that's driving a lot of this growth through that large channel partner because it seems like the consumer demand remains strong for your products, but what is your partner in telling you as you look out for.
Speaker Change: For the rest of the year with him.
Speaker Change: Okay.
Mark: Mark why don't you take that.
Mark: The second part of the question the products and kind of the overall demand and I can talk a little bit about kind of.
Speaker Change: What this means kind of going forward.
Mark Smith: Sure sure.
Mark: So so the the the largest channel partners.
Mark: He historically has been in the last couple of years being.
Speaker Change: In a similar position as us like going through the high cost overstocked inventory now.
All Partner: We moved a quite a bit faster than the industry now our all partner seems to work.
Speaker Change: Better than the rest of that.
Speaker Change: Those comparable larger partner channels.
Speaker Change: Channels. So what this means.
Speaker Change: What I think is that going down the road. It has been returning to a steady normal healthy.
Speaker Change: Replenish mode.
Speaker Change: As for our product mix.
Speaker Change: Since our products are.
Speaker Change: Focusing on value after the commercial Oh I'm sorry.
Speaker Change: Tumor products those products are pretty resilient to economic hole change and.
Speaker Change: When I, what I think is that it will the demand will continue to grow so even during the years, where we I power has been trying to.
Speaker Change: Recover from the Overstocking from the high cost inventory, what we see is the demand is still there as demand is still cold.
Speaker Change: And I believe this is gonna be a train going forward as we introduced the Super Sweden will add on more of the supply chain partners to provide a good value product to the consumers in our network I believed going down the road we have pretty.
Super Sweden: Our future to casual.
Speaker Change: Yeah.
Speaker Change: And then Scott just on kind of how to think about kind of this quarter versus prior quarters.
Speaker Change: I'll remind everyone, we don't give specific guidance.
Speaker Change: But what I'll say is.
Speaker Change: Uh huh.
Speaker Change: We.
Scott Thomas Fortune: And we I think we talked about this a little bit on the last quarter that the.
Speaker Change: The kind of order rates.
Speaker Change: From our largest channel partner.
Speaker Change: In the December quarter.
Speaker Change: We're really a reflection and probably.
Speaker Change:
Speaker Change: Larger than we had anticipated work on kind of their own inventory management.
Speaker Change: Uh huh.
Speaker Change: And we did expect.
Speaker Change: A bit of a rebound in this quarter.
Speaker Change: And we saw it.
Speaker Change: So I think some combination of historical kind of quarterly trends.
Speaker Change: With you now.
Speaker Change: Some caution on our part because we want to make sure that.
Speaker Change: Uh huh.
Speaker Change: We're not seeing kind of a bit of a bowl web from that channel partner, where they may have.
Channel Partner: Potentially brought a little bit of extra demand into this current quarter.
Channel Partner: But I think what lorence touched on it is correct.
Channel Partner: We have multiple additional opportunities to work with.
Channel Partner: Our.
Lorence Touched: Partners on the Super Sweet side, all of which we can use that large channel partner as a sales avenue for them.
Channel Partner: So.
Channel Partner: It's still a little early to say in this quarter, but we're very optimistic about where we're headed so hopefully that's enough for you to.
Speaker Change: To kind of take to your model and.
Channel Partner: We can talk a little bit more if you've got other questions.
Channel Partner: Yeah. That's helpful. I appreciate that color and just following up with that the Super suite of services.
Channel Partner: Then now accounts for about 10% of the business that are you expanding your existing partners there.
Speaker Change: Or will you have a lot of this came from new client food industry partner that you're bringing on board just kind of step us through kind of the partnerships you have and kind of the grow for from a capacity side on the expense side to kind of you have enough room here without adding too much more on the expense side to continue to add.
Speaker Change: And service New partners here, which will continue to drive the gross margin side, and just kind of remind us gross margins on the services business.
Speaker Change: Ticking up or can the overall gross margins as it helps for that gross margin improvement just kind of more color on the service suite would be helpful.
Channel Partner: Alright, so there were a lot of questions. There, let me try to do a couple of them one by one I think we've said in the past that early on.
Channel Partner: As we bring new partners on our gross margins.
Channel Partner: Uh huh.
Channel Partner: In particular as we're using.
Speaker Change: As our entre with a new partner.
Channel Partner: The sales.
Speaker Change: In fulfillment.
Speaker Change: Service offering.
Speaker Change: Those gross margins are going to be at or even slightly below.
Speaker Change: Normalized gross margins, but as we.
Speaker Change: Grow those individual partners I think we can get.
Speaker Change: Better than our kind of historical gross margin average and I think we're seeing some of that.
Speaker Change: In this quarter.
Speaker Change: The.
Speaker Change: I'll, let Lawrence talk a little bit about some of the.
Lawrence: He kind of opportunities that we have most of what we.
Lawrence: We're doing in the quarter was growing.
Lawrence: Was growing our current.
Lawrence: The partners and so I think.
Lawrence: When I said as these partners mature with us we can see better than.
Lawrence: Than our corporate average gross margins I think youre seeing some of that show up in this quarter I think it's important also to point out that.
Lawrence: Over the last year in addition to working hard to bring down inventory.
Lawrence: Remove the additional cost that we had.
Lawrence: Both from kind of the high freight burden, but but as well as kind of excess.
Speaker Change: Costs associated with temporary warehouse space, we were working with quite a few of our suppliers.
Speaker Change: Ways of taking additional costs out of the products that were being manufactured such that we can then.
Speaker Change: Uh huh.
Speaker Change: Bring to market products that we're carrying better gross margins, we're seeing the fruit of that as well.
Speaker Change: So I think we've been working hard on both the cost of goods sold as well as operating costs.
Speaker Change: We're we're very pleased so far as to where we are and we think we still have some work to do.
Speaker Change: Going forward I will I will remind and I think we said this on the last call too that there still is.
Speaker Change: Yeah some inventory.
Speaker Change: That we.
Speaker Change: Yeah.
We: Our fan business, which is strongest in the Ah.
Speaker Change: In the <unk>.
Speaker Change: Summer months.
Speaker Change: Kerry.
Kerry: Higher freight cost burden then.
Kerry: Products that we sell are buying now in that category. So we're gonna have to bleed that through its not a ton, but we don't think it will.
Kerry: Materially impact gross margin.
Kerry: But we were not selling any of that in the January to March period, as you might expect people aren't buying a whole lot of fans when it's cold outside.
Kerry: Or if maybe you could touch on.
Speaker Change: Just the kind of potential companies that we might be working with.
Speaker Change: We bring additional.
Speaker Change: [noise] partners on in the Super Sweet business.
Speaker Change: Sure sure.
Speaker Change:
Speaker Change: Super sleep really come out of the internal capabilities would be developing as a.
Retailer: Retailer online.
Retailer: So with the logistics software and technology.
Retailer: Business intelligence to why are we do better both internal now and working with external technology suppliers enabled us to become a.
Retailer: Factors.
Speaker Change: Sales and marketing merchandising platform and fulfillment platform for supply chain brand now.
Retailer: We started to get inquiries from these partners.
Speaker Change: And a couple of years, starting couple of years ago.
Speaker Change: About working together, our marketing and merchandising that product so.
Speaker Change: Where are the Super Swede, that's where the supercuts, we come from and the few categories would be already working all including electronics.
Speaker Change: And home products.
Speaker Change: We will probably.
Speaker Change: Share with more details.
Speaker Change: Coming short time to see to.
Speaker Change: This will give more details to the market.
Speaker Change: What I want.
Speaker Change: The framework has been working all by internally for a while.
Speaker Change: And I do see.
Speaker Change: Do have a quite a bit upside down the road in the pipeline why are we are.
Speaker Change: Actively working on.
Speaker Change: And hopefully start to see the results coming down the road.
Speaker Change: As for the gross margin it is.
Speaker Change: Actually it depends on the product categories.
Speaker Change: But.
Speaker Change: What I see this is at.
Speaker Change: Our our.
Speaker Change: <unk> products will continue to grow.
Speaker Change: It will still drive the business.
Speaker Change: Substantially.
Speaker Change: For a period of time.
Speaker Change: Until the Super Sweet start to explore but the super Sweet side.
Super Sweet: Can grow much much faster than.
Super Sweet: Our in house.
Super Sweet: Parts of that business. So that's why we have a pretty good.
Super Sweet: We feel like that part might start to see.
Super Sweet: Much much better.
Speaker Change: Our growth rate.
Speaker Change: Then the in house part score that.
Speaker Change: The gross margin.
Super Sweet: In.
Speaker Change: As a grow faster.
Speaker Change: In may.
Speaker Change: It may not carry as high as the gross margin was the in house product, but the revenue side.
Speaker Change: B.
Speaker Change: Uh huh.
Speaker Change: Be a lot higher.
Speaker Change: That's what I tend to see down the road.
Speaker Change: That's helpful and real quick just to follow up on that.
Speaker Change: <unk> had super Sweet in play here for a little while are you seeing the pipeline looking to accelerate are you having more discussions kind of further down the road on bringing on new clients to the Super Sweet just kind of help us understand the expansion.
Speaker Change #103: Expansion opportunity here near term, obviously long term.
Speaker Change #104: A pretty good opportunity to kind of near term what are you seeing from from those discussions.
Speaker Change: <unk>.
Speaker Change #101: I am in.
Speaker Change #100: Near term I'm.
Speaker Change #105: Working with both the.
Speaker Change #102: Our brands are supply chain partner to bring onboard as well as key strategic partnerships.
Speaker Change #110: To bring onboard I tend to.
Speaker Change #107: Think that's to pursuing is kind of like open open.
Speaker Change #112: Open platform, where we can bring partners into this platform, where they can bring more supply.
Speaker Change #113: Supply chain and brands into.
Speaker Change #102: <unk> dot.
Speaker Change #114: Platform. So that's that's what I see it down the road and not being working on it for a while.
Speaker Change #106: I appreciate the color I'll jump back in the queue. Thanks.
Speaker Change #111: Our next question comes from the line of Jerry you allude with water Tower research.
Speaker Change #111: Yeah.
Speaker Change #119: Good afternoon, congratulations on the quarter.
Jerry Allude: You covered quite a bit of ground, but.
Speaker Change #115: Maybe just a few questions.
Jerry Allude: First.
Speaker Change #116: On the gross margin.
Speaker Change #109: Cost input.
Speaker Change #117: A big factor you get better pricing.
Speaker Change #121: Low cost on the input for your for your for your products is that what I'm reading.
Speaker Change #122: And the theory, you had wanted to take this.
Speaker Change #120: I didn't hear the question.
Speaker Change #117:
Speaker Change #118: One is.
Speaker Change #123: There's two reasons for improved margin favorable product mix and then improved pricing in the input costs have been have been going down or had been better than expected.
Speaker Change #118: Okay.
Speaker Change #118: Yeah, I heard I heard that part now do you want to take it Lawrence or do you want to take it.
Lawrence: You can take it that's fine yeah, yeah, yeah. So it's.
Lawrence: It's both.
Lawrence: The.
Lawrence: Every quarter I think.
Lawrence: I tried to emphasize this we given the size of our catalog now.
Speaker Change #124: As well, including the.
Speaker Change #124: Uh huh.
Speaker Change #130: The Super Sweet partners that are utilizing our sales channel.
Speaker Change #125: There is a distribution of <unk>.
Speaker Change #131: Margins, they're not all obviously sitting.
Lawrence: Sitting at <unk>.
Lawrence: 43%.
Super Sweet: And so the mix skewed towards our higher margin product for sure.
Lawrence: Thing that.
Lawrence: And I think I've referenced this in my answer to Scott.
Lawrence: Was that.
Lawrence: There.
Speaker Change #126: There have been a number of initiatives underway for the last year.
Speaker Change #133: With some of our largest.
Speaker Change #128: Our contract manufacturing partners to take costs out of.
Speaker Change #127: The the products that.
Speaker Change #136: Their manufacturing for us.
Speaker Change #136: That allows us to bring products to market with a lower cost of goods sold and those are those efforts are starting to show up so it's both the theory.
Speaker Change #127: Okay.
Speaker Change #127: Yeah.
Speaker Change #129: In terms of sales channel you mentioned you started in April. So obviously there was nothing in the quarter as a result.
Speaker Change #129: Can you give us a sense of the.
Speaker Change #138: Which switched channel.
Nozomi: Developing the fasteners besides nozomi.
Speaker Change #134: And if youre going to have any meaningful maybe physical channel also.
Lars: Lars do you want to take that yeah sure.
Lars: So.
Lars: Mike.
Speaker Change #129: Yes.
T mobile: T mobile is it is it isn't very interesting channel they approached us and we are working with them since April.
Mike: So far we've been seeing pretty good results already all in the platform.
Mike: Is pretty value centric, so it's more like very similar to Amazon.
Mike: We're trying.
T mobile: Trying to bring the best value to the consumer and that fits our category and our catalog pretty well so I.
Speaker Change #142: I think we're going to do well there.
Speaker Change #142: This channel is so so far I think this channel is growing pretty fast.
Speaker Change #140: On the social media side I'll take top shop.
Speaker Change #140: We've been seeing a steady growth and we've been working pretty well I'm there but.
Speaker Change #140: But we all know that the uncertainty uptick talk to shop or going down the road.
Speaker Change #140: Okay.
Speaker Change #140: Fortunately, it's not a big part of our business. So far so we'll play them see we already have the infrastructure divide up that we already have a methodology.
Speaker Change #143: And so far it's doing well so we'll see.
Speaker Change #146: We also been working on home depot Dot com low stock comp target Dot com where are we.
Speaker Change #141: Those have pretty different model working with these platform then.
Speaker Change #141: Amazon.
Speaker Change #144: Give a comparison when we work with buyers and we work with work with does product selections and we'll be getting more product be improved we are still working on that now, but I could say about that is once once we do well on the dot com.
Speaker Change #155: We may get an opportunity to entering Dol.
Speaker Change #147: The physical stores.
Speaker Change #148: What are you doing.
Speaker Change #148: Asking.
Speaker Change #144: Sure.
Speaker Change #144: Right.
Speaker Change #163: And then maybe one last question you mentioned that.
Speaker Change #145: The business trade business is helping you enhanced your internal capabilities and I'm kind of curious how thats working well and what that means.
Speaker Change #145: Okay. So along the way where are we working with our.
Speaker Change #154: Partners on.
Speaker Change #145: The Super Sweet platform, we also gain more knowledge as an industry.
Speaker Change #145: A different kind of categories and we're also enhancing our abilities of our data software as was fulfillment.
Speaker Change #145: So we.
Speaker Change #145: Think of that as it is.
Speaker Change #145: As a open platform, where we not only just work with supply chain partners. We are also working with logistics partner as well.
unknown: And also technology partners. So along we are.
unknown: Along the way where are we working with.
Speaker Change #153: Everyone we'd be.
Speaker Change #156: Getting better and better enhanced capabilities.
Speaker Change #153: And we will absorb and working with all these partners.
Speaker Change #153: So not only we services.
Speaker Change #157: People we also.
Speaker Change #145: <unk>.
Speaker Change #160: Knowledge and expertise in.
Speaker Change #145:
Speaker Change #150: Other strengths along the way.
Speaker Change #161: Great. Thank you guys.
Speaker Change #149: Thank you Terry.
Speaker Change #152: That concludes today's question and answer session I would like to turn the call back to Kevin NASA Lee for closing remarks.
Speaker Change #152: Okay.
Speaker Change #159: Okay. Thank you everyone for joining us today, we look forward to speaking with you when we report our fiscal Q4 and full year results.
Speaker Change #159: For 2024 in September <unk>.
Speaker Change #152: <unk>.
Speaker Change #152: Seeing you are speaking with you at <unk>.
Speaker Change #152: Conference.
Speaker Change #162: In the interim thanks, again, and we'll talk again soon bye bye.
Speaker Change #158: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change #158: Okay.
Speaker Change #158: [music].
Speaker Change #158: Okay.
Speaker Change #158: [music].