Q1 2025 Ispire Technology Inc Earnings Call
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Speaker Change: Hello everyone and welcome to today's conference call to discuss I-SPIRE's financial results for the fiscal first quarter 2025 and it's September 30th 2024.
Speaker Change: At this time, I would like to inform you that this conference is being recorded and that all participants are in listen-only mode. We will be facilitating a question-and-answer session following the prepared remarks from the company.
Speaker Change: Joining us today are Mr. Michael Wang, the company's co-CEO, and Mr. Jim McCormick, the company's CFO.
Speaker Change: First Mr. Wang will brief you on the company's key highlights and then Mr. McCormick will review the company's financial results.
Speaker Change: Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Speaker Change: All statements other than statements of historical fact in its announcement are forward-looking statements.
Speaker Change: Forward-looking statements are based on estimates and assumptions made by the company in terms of its experience and its perception of historical trends, current conditions, and expected future developments, as well as other factors that the company believes are relevant.
Speaker Change: These forward-looking statements involve known and unknown risks and uncertainties and many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward-looking statements.
Speaker Change: Further information regarding this and other risk factors are included in the company's filings with the SEC.
Speaker Change: The company undertakes no obligation to update forward-looking statements, to reflect subsequent or current events or circumstances, or to changes in its expectation except as may be required by law.
Speaker Change: I would now like to turn the call over to Mr. Michael Wang. Mr. Wang, please go ahead.
Speaker Change: Thank you, operator, and thank you all for joining us this morning.
For the quarter, we generated revenues of $39.3 million.
Speaker Change: This represents a decrease of $3.5 million, or 8.2% from the same period of last year.
This was partially impacted by delayed shipments.
Speaker Change: as well as our careful and measured ramp-up in our global nicotine business.
Speaker Change: However, the number one driver for the decrease in revenue is due to the shift in our U.S. strategy.
Speaker Change: As we reported previously, our U.S. hardware business is 100% from the cannabis industry.
Speaker Change: As all of you know, the key talent facing this industry is cash flow.
Largely due to the Internal Revenue Code Section 280E.
Speaker Change: and the general lack of banking services available to the industry.
Speaker Change: In the last two quarters, we have focused our U.S. business operation on enhancing our overall customer portfolio of high-quality accounts and strong financial stability.
Speaker Change: which we believe will ultimately lead to better bottom line for ISPAR.
Speaker Change: In other words, we have focused more on the quality of customers and the quality of revenue rather than quantity.
Speaker Change: As a result, we saw a decrease in U.S. revenue from the same period last year. However, we also have started seeing strong fundamentals in our U.S. operation.
with notable improvements in growth margin.
payment terms and account receivable management.
Speaker Change: We believe this approach of focusing on gross margin, better payment terms, and better account receivable will lead to a more sustainable long-term financial performance.
Well, our top line revenues are dipped this quarter.
We expect this dip to be temporarily in nature.
Speaker Change: And I'm particularly pleased to report that fiscal first quarter 2025 delivered substantial improvements in our key profitability metrics.
We achieved a notable 12.1% year-over-year increase in gross profit.
to $7.7 million.
Speaker Change: and expanded our gross margin to 19.5% from 16% in the same period of previous year.
This is a significant step in the right direction.
Speaker Change: And what is especially encouraging is that we were able to deliver a higher gross profit and a higher gross margin with a lower revenue.
Speaker Change: which directly reflects the success of our strategic focus on high quality accounts and enhanced operational efficiency.
Speaker Change: including the improvements we are seeing through the use of our Malaysian facility.
Speaker Change: We believe these results validate the strategic initiatives we have taken as our innovative vaping technology and precision dosing solutions continue to resonate with consumers.
Our international expansion continues to build momentum.
which is highlighted by our state-of-the-art Malaysian facility.
Speaker Change: This best-in-class asset continues to help drive margin expansion as we look to increase our global footprint in the international nicotine market while further driving down operating costs.
This quarter, we continued to make significant progress.
Speaker Change: through our joint venture with Verify and Camular on creating a next-generation point of use.
Speaker Change: AIDS verification technology for e-cigarettes that will prevent you access and improve user experience.
Speaker Change: As we have stated previously, this is a cutting-edge BAPE hardware innovation using blockchain technology as we understand the critical needs for safety and security in this industry.
Speaker Change: I am particularly excited to share that we will have our first discussion with FDA regarding this transformative age-gating technology this Wednesday, that is, November 13.
Speaker Change: We look forward to updating investors on the outcome of that meeting and the continued advancement of this initiative.
Speaker Change: We are also maintaining a strong regulatory posture as we recently submitted a PMP application for a disposable end product for four flavors.
Again, four flavors.
Speaker Change: We are on track to submit a PMTA application for the POD system.
in 2025.
as we are close to finalizing the aid-gating technology.
Speaker Change: This is an important step for the company as we aim to further capitalize on the approximately $80 billion U.S. dollars in U.S. nicotine market.
Speaker Change: As we look ahead, we remain confident in our strategic direction and ability to capture the significant opportunities in front of us.
Speaker Change: as we take the thoughtful approach to scaling our global nicotine business.
Speaker Change: Additionally, subsequent to quarter end, we announced the unveiling of our revolutionary I-80.
Speaker Change: vape-filling machine at the Benzinga Cannabis Conference in Chicago in early October.
The industry changing machine will redefine production efficiency.
Speaker Change: as it is able to fully fill and seal 4,000 half-gram vapor devices per hour.
in contrast to current methods being used.
Speaker Change: The i80 is up to 10 times faster than traditional systems and twice as fast as a current automated system.
Thank you very much.
The IAT also eliminates the knee.
for device capping.
Speaker Change: which helps to boost overall workflow efficiency by up to 1000% compared to manual methods.
and 100% over current automated systems.
Speaker Change: Current users in the industry see the i80 as a must-have device.
Speaker Change: Given the significant improvement in productivity and cost savings they are seeing.
Speaker Change: The I-80 fits in perfectly with our overall objective of being the world's leading provider of best-in-class vape technology and precision dosing solutions.
Speaker Change: Also, post-quarter end, we have expanded our global reach through a landmark five-year master distributor agreement with ANDS.
Speaker Change: for the Middle East and North Africa region, and for the global duty-free markets.
Speaker Change: This partnership will enable us to bring our Hidden Hills Club nicotine portfolio to new markets.
offering adult consumers innovative, harm-reduced alternatives to combustible cigarettes.
Speaker Change: We are confident that this collaboration will position iSpire for continued growth and success as we advance our mission of providing industry-leading vaping technology worldwide.
Speaker Change: With that, I will turn the call over to our CFO, Jim McCormick, who will review and comment on our financial results.
Jim Mccormick: Thank you, Michael. I'd like to take this opportunity to summarize our key financial results for the fiscal first quarter 2025.
Jim Mccormick: In my comments, I will refer to the fiscal first quarter 2025 as the three months ended September 30, 2024.
Jim Mccormick: All comparisons are to the prior year ended September 30, 2023, unless otherwise stated.
Jim Mccormick: This revenue was driven by the following performance costs are key reasons.
Jim Mccormick: European revenues of approximately $22 million in Q1 2025 increased by $2.1 million, or 11%, over the previous fiscal year. This was primarily as a result of increased sales of Ace Fire vaping products in the region.
Jim Mccormick: In North America, Q1 2025 revenues of approximately $9.7 million represented a decrease of $8.1 million or 46% compared to the same period last year.
Jim Mccormick: The decline was driven by a decrease in cannabis vaping hardware sales in the U.S. as Michael mentioned previously.
Jim Mccormick: Asia-Pacific revenues were approximately $3.9 million, a decrease of $1.2 million compared to the same period last year.
Jim Mccormick: For the rest of the world, revenues were $3.8 million, an increase of $3.7 million from the same period last year due to an increased level of sales in South Africa of $2.9 million.
Jim Mccormick: During the three months ended September 30, 2024, our gross profit was approximately $7.7 million compared to approximately $6.8 million for the same period last year.
Jim Mccormick: Over this same period, our gross margin grew to 19.5% from 16%.
Jim Mccormick: The increase in gross profit and gross margin was primarily due to favorable changes in product mix, with higher margin products being sold during the fiscal first quarter ended September 30, 2024.
Jim Mccormick: Total operating expenses for the fiscal first quarter ended September 30, 2024, were approximately $12.9 million, compared to approximately $7.7 million for the same period last year.
Jim Mccormick: This increase was primarily due to an increase in expenses to support the expanded business footprint in the areas of payroll, contract wages, sales and marketing, professional fees, as well as increased stock-based compensation.
Jim Mccormick: As a result of these activities, our net loss was $5.6 million, or $0.10 a share, compared to a net loss of $1.3 million, or $0.02 a share for the fiscal first quarter ended September 30, 2023.
Jim Mccormick: As of the end of the fiscal first quarter 2025, the company's cash position was $37.7 million with a working capital balance of $12.1 million.
Jim Mccormick: Net cash provided in operating activities was $3.6 million for the three-month period ended September 30, 2024, compared to $13.1 million used for operating activities in the same period last year.
Jim Mccormick: Net cash provided by investing activities was 0.9 million compared to 0.8 million used in investing activities for the same period last year.
Jim Mccormick: There was no cash use in financing activities in the first fiscal quarter compared to 0.7 million used for financing activity in the first fiscal quarter of 2024.
Speaker Change: With that, this concludes the review of I-SPIRE's Fiscal First Quarter 2025 financial results. I will now turn the call back over to Michael.
Thanks, Jim.
Michael Wang: As we close this quarter, I am pleased that we have continued to make significant progress across our global business lines.
Michael Wang: While our revenues softened slightly due to the shift in U.S. strategy and the timing of shipments,
Michael Wang: We were still able to achieve major growth in our growth margin, reflecting the strength of our innovative product portfolio.
Our strategic focus is on higher quality customer relationships.
as well as the use of a state-of-the-art Malaysian facility.
and the Efficient Global Operations.
Michael Wang: We also reached an important milestone in our joint venture to develop transformative age-gating technology, securing a fast-tracked meeting with FDA to discuss this critical industry initiative.
Michael Wang: We remain committed to our operational excellence and profitability as we build on the momentum.
from the transformative fiscal year 2024.
Michael Wang: As we move forward into the second quarter of fiscal 2025, we are confident our strategic investments and continued innovation position us well for sustained profitable growth.
Michael Wang: I would like to thank you all again for your time today and we look forward to sharing our continued progress in the quarters ahead.
Speaker Change: operator. This completes our prepared remarks and we are now open to questions.
Please go ahead.
We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your touchtone phone.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question today comes from Bo Pei with U.S. Tiger Securities. Please go ahead.
Thank you for watching!
Speaker Change: Hi Michael, hi Manjim, thanks for taking my questions. So my first question is about our strategic shift in the U.S. market. So should we think about that a I guess the fiscal first quarter, is it like a bottom in our U.S. revenue so meaning it will start to recover starting in the second quarter or is it more like you know a longer period in fact?
Thank you
Thank you.
Speaker Change: I would say the first quarter, meaning the last quarter, reported
Speaker Change: should bottom out. Our re-positioning of the strategy really started the quarter before.
so
Speaker Change: So within a quarter, financial reflected the effect of that decision.
We strongly believe we have bottomed out as we have
completely repositioned our U.S. strategy.
Speaker Change: and shifted toward let's just say with our primary focus on the top 20 accounts certainly we are entertaining
Speaker Change: next year, but the primary focus is the top 20 accounts.
Speaker Change: And this is going to be much assisted by the introduction of the i80 fitting machine. As I previously reported,
All customers who have tested are
self-sealing product line, that's I-SPIRE 1 line.
Speaker Change: really love the hardware because of the efficiency, the simplicity involved in filling and packing the device.
Speaker Change: However, for the last six months, we have been working on a higher capacity
filling machine. The first generation machine had only one needle.
So, even though each device could be filled within...
Ten seconds.
Speaker Change: you can only fill one device at a time. So we then moved to a three needle machine that much improved the production efficiency. And finally, we launched the 80,
Thank you.
needle device or machine, hence the name I-80.
Speaker Change: So with 80 needles filling 80 devices on a single tray in two minutes, you can just imagine how fast that whole process is, especially without the need of a capping device.
Speaker Change: So, after we launched it, certainly it sped up our conversations and negotiations.
Speaker Change: that have been waiting for this machine for a while. So, on one hand, prior MSO are larger counts.
Wow.
Thank you, Michael.
Speaker Change: That's helpful and good to hear that. And then my second question is with the shift in the strategy in the U.S., do you still expect total revenue to grow in the 2025 fiscal year? Maybe can you talk about the total revenue and also the U.S. revenue?
yeah
We are, overall, revenue, we are.
Speaker Change: still very optimistic about the year, even though the first quarter saw a dip.
Speaker Change: We are very, very confident that the four-year result will still be very encouraging.
in terms of the growth rate.
Speaker Change: Of course, we are striving to grow at the same pace as last year, and we are confident with that endeavor.
Speaker Change: Specifically to the U.S. U.S. revenue I think given three quarters to go still in the year we are of course striving to meet or exceed last fiscal year.
Speaker Change: But overall, global revenue should come more from our global nicotine initiatives.
Go.
got it and then
a gross profit margin
Speaker Change: I mean, total revenue actually grew a little bit sequentially from fiscal fourth quarter of 2024, but gross margin declined quite a bit from 27.8% to less than 20%. Can you talk about the driver there? Is it about the U.S. strategic shift? And then how should we think about the gross profit margin going forward, or maybe just for this fiscal year?
Yeah, so I will break down into two parts.
Speaker Change: On one hand, the U.S. revenue and its corresponding gross margin have continued to increase.
Speaker Change: So from that point of view, our strategy, our execution are still on track.
Speaker Change: Relative to the peak of a growth margin, like you mentioned a couple of quarters back,
Thank you. Thank you.
19.5%
Speaker Change: seems to be lower than before. That is mainly because last quarter was the beginning of our ODEM.
relationship with a European brand.
because this is a new customer of ours.
Speaker Change: As you can imagine, there is a great deal of initial learning.
Speaker Change: involved, and in picking up any large accounts with ODM relationships, there will be some inefficiency early on. And then over time, as we do more and more the same work, efficiency certainly should increase.
Speaker Change: both from labor side as well as from supply chain price negotiation and a leverage point of view.
Speaker Change: So, I would say that is a key contributor to the relatively speaking, like you pointed out, lower gross margin from the peak quarter.
Speaker Change: a couple of quarters back, but relative to the same quarter last year, we still saw an increase in gross margin.
Speaker Change: that's what indeed is driven by the cannabis slash US revenue with a higher margin.
Speaker Change: Got it. And my last question is about our accounts receivable. So now with the strategic shift in the U.S., when should we expect to see improvement in the accounts receivable line on the balance sheet? You know, related to that also the cash flow statement, when should we see some improvement in the operating cash flow activities?
Speaker Change: Yeah, this is a much bigger question that you ask. I think from, I'll break down into two parts.
Speaker Change: I will actually answer the second part of the question first, as far as cash flow. Cash flow-wise, we are striving to turn cash flow positive by
not the current quarter, but the March quarter.
Speaker Change: That, of course, is a result of not only AR improvement, but more importantly, it's by then, we strongly believe, our global nicotine business will survive.
Starre
a normal cycle.
Speaker Change: and we'll get into a more normalized operation. Right now, we are still in the early phase of a global initiative, as you know, anytime.
Speaker Change: you attack a new market, you enter a new channel. There is rather heavy lifting before everything gets into a normal flow. So that's why we strongly believe with our strategy and execution.
will turn cash flow positive in March quarter.
Speaker Change: And now back to the AR side. As you saw, AR actually increased only about $4 million.
Speaker Change: just the race in the quarter versus the quarter before. So with the...
total revenue of $39.5 million.
Speaker Change: and AR increasing only by 4 million. It's an indication that...
On one hand, our U.S. strategy is having an effect.
on the other hand.
Speaker Change: It's also a reflection that the team has worked diligently on a broader base in collecting AR, reinforcing the payment agreements we have with customers.
Speaker Change: So, we think that progress on the AR side will continue this quarter and all the way into the next quarter as well. So, from an AR point of view, I think the...
Speaker Change: rapid increase has slowed and now we are hoping to get into a healthy cadence.
Thank you, Michael. That's all my questions.
Speaker Change: As a reminder, if you would like to ask a question, please press star then 1 to be joined into the question queue.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Michael for any closing remarks.
Michael Wang: Thank you. And once again, I want to thank you all for your time today. We look forward to the next call. In the meanwhile, if you have any questions, please feel free to reach out.
Thanks again.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.