Q2 2025 Ispire Technology Inc Earnings Call
Hey.
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Speaker Change: Hello, everyone, and welcome to I-SPIRE Technology's earnings conference call for the fiscal second quarter of 2025, ended December 31st, 2024.
Speaker Change: At this time, I would like to inform you that this conference call is being recorded and that all participants are in a listen-only mode. Following the company's prepared remarks, we will be facilitating a question and answer session following the prepared remarks from the company.
Speaker Change: With us today are Mr. Michael Wang, the company's Co-CEO, Mr. Jim McCormick, the company's CFO. First, Mr. Wang will discuss the company's recent highlights, after which Mr. McCormick will review the company's second quarter 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 and Litigation Reform Act of 1995.
Speaker Change: All statements other than statements of historical fact in its announcement are forward-looking statements. Forward-looking statements are based on estimates and assumptions made by the company in terms of its experience.
Speaker Change: 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 BSEC.
Speaker Change: The company undertakes no obligation to update forward-looking statements, reflect subsequent or current events or circumstances, or to changes in its expectation except as may be required by law. I would now like to turn the call over to Mr. Wang. Mr. Wang, please go ahead.
Wang: Thank you, Phil, and thank you to everyone joining us this morning.
Wang: I'm pleased to report our second quarter 2025 results and provide an update on recent highlights.
Wang: We have continued to make solid progress advancing our strategy of growing internationally, as well as enhancing our financial stability.
Wang: For the second quarter of fiscal 2025, we generated revenues of $41.8 million.
Wang: This represents a slight increase of $100,000 or approximately 0.3% from the $41.7 million in the same period of last year.
Close margin for Q2.
increased to 18.5 percent up from 15 percent.
Wang: while gross profit was $7.7 million up from $6.3 million in the same quarter of fiscal 2024.
Wang: This increase in gross margin and gross profit is largely driven by our focus on transitioning toward a better quality of customers and a better quality of revenue.
Changes in product mix.
as well as the contribution sales from our expansion overseas.
Wang: As we have stated during recent quarters, we have made significant strides in improving our overall customer portfolio mix.
with higher quality accounts rather than simply quantity of accounts.
Wang: Combined with a focus on payment terms and account receivables, this has translated into enhanced financial stability and consistent revenue.
Wang: which contributed to our margin expansion in the second fiscal quarter.
Wang: We have seen increased momentum across our nicotine business, which accounted for $31 million of our overall revenue in the second fiscal quarter.
and is continuing to perform in line with the expectations.
Wang: We are pleased with ongoing progress in sales from this innovation as we expand and gain traction in new markets internationally.
We are particularly excited about our progress in Africa.
which has shown a solid contribution to sales.
Wang: Post-quarter end, we announced the successful launch of our breakfast nicotine products across South Africa and Nigeria.
Wang: This was a significant milestone, marking our fourth international nicotine license arrangement and product launch.
Wang: Our breakfast brand, co-created with a Grammy Award winner, Burna Boy.
has achieved strong early success.
Wang: In just a short period, we have established a presence in over 500 retail locations across South Africa and Nigeria.
including major chains such as Pay Can Pay,
four chords, and various orecca outlets.
The market response has exceeded our expectations.
Wang: And we are accelerating our expansion plans to reach more than 2,000 stores in the next six months through partnerships with additional retailers, including checkers, bars, and family stores.
Wang: To support this, we have implemented a comprehensive market activation strategy.
Wang: with brand ambassadors conducting daily events across major metropolitan areas in Cape Town and Johannesburg.
Wang: This hands-on approach has been instrumental in building strong relationships with both retailers and consumers.
Wang: The success we have already seen validates our strategy for entering new markets through strategic brand partnerships.
The South African market represents a significant opportunity.
Wang: with Statista projecting the revenue in the tobacco products markets to grow annually by over 5% between now and the 2029.
Wang: And the ice bar is well placed to leverage the squirrel.
Wang: I'm pleased to report significant progress in securing the necessary regulatory approvals as we have successfully obtained both nicotine import license and export license.
Wang: from the Malaysian government. Two critical milestones that advance our operational capabilities in the region. We are now in the final stages of obtaining our manufacturer's license.
Wang: which then will complete our regulatory requirements and allow us to fully activate our comprehensive operational expansion plan.
Wang: This operational expansion plan, combined with our progress in licensing, positions us to significantly scale our operations once we receive the final manufacturer's license.
At that point...
Wang: will have the complete regulatory foundation and physical infrastructure to import nicotine products manufactured in country with over 70 plus production lines in a new facility and export worldwide from Malaysia.
Wang: Another benefit of operating out of Malaysia is that it diversifies our production base, lowering the risk of a geopolitical impact on our pricing and competitiveness.
Looking ahead.
Wang: We are preparing to launch our eight-gated GMAX products in the UK market in the first half of the calendar, 2025.
Wang: This expansion into the UK represents another significant milestone in our international growth strategy and demonstrates our commitment to responsible market entry with appropriate age verification measures.
Wang: We believe these international initiatives position us well to capture a large share of the global nicotine product market, while maintaining our commitment to responsible distribution and consumer safety.
Wang: From a balance sheet perspective, we have taken important steps to further stabilize our financial position.
Wang: In January, we announced that our Board of Directors has authorized a stock repurchase program of up to $10 million.
Wang: of our outstanding common stock through January 2027 to be funded through existing cash on hand and operational cash flow.
Wang: This program was instituted due to our board's confidence in I-SPIRE's long-term vision and further demonstrates the company's belief that our equity is undervalued relative to the growth we expect in future quarters.
Wang: I would also like to take a moment to emphasize the transformative potential of our plug-and-play component PMTA strategy.
through our ICTAC joint venture.
Wang: We completed a successful pre-PMTA meeting with the FDA's Center for Tobacco Products on November 13, 2024.
Wang: where they indicated they would accept our component PMTA submission and consider our request for priority review.
Wang: If approved, our age verification technology would be the first component of PMTA in FDA history.
allowing for modular use in hundreds of end products.
to put this opportunity in context.
Wang: The legal market for electronic nicotine delivery systems in the U.S. is
Approximately $11 billion.
and is limited exclusively to tobacco and menthol flavors.
Wang: What most people don't realize is that menthol is the only flavor FDA has approved for lawful sale in Anne's product to date.
Wang: and that all other flavors sold in the market are being done.
So, illicitly.
Wang: Initial reports are that this is a potential $7 billion opportunity for iSPAR.
Wang: However, our research suggests the true market potential could actually be 3 to 7 times larger.
Wang: ICTAC is on track to submit the age-gating component PMPA in April 2025.
Speaker Change: iSpire will also be filing its own pod system PMPAs for flavored ENDS products.
using the ITAC age-gating system.
Our plan is to initially introduce four flavored products.
If authorized.
Speaker Change: This would provide adult consumers with safe, regulated alternatives while preventing youth access.
a stark contrast to the current market where consumers
risk their health with unregulated products.
Speaker Change: As we prepare to submit our application, we believe this technology represents a pioneering approach to expanding adult access to PMTA-authorized flavored products.
while setting new standards for industry safety and compliance.
Speaker Change: Before turning the call over to our CFO, Jim, I would like to discuss the company-wide cost savings initiatives that we recently instituted.
as we continue to increase our worldwide operations.
Speaker Change: It's imperative for the company to leverage the global resources and facilities that we currently have in the U.S., Malaysia, Hong Kong, and China.
Speaker Change: As such, we are currently in the process of moving certain functions and daily roles over to our Malaysian operations.
Speaker Change: which will help further streamline our overall business and significantly reduce our operating expenses.
Speaker Change: The cost savings we expect to generate from these strategic moves.
Speaker Change: By doing so, we can achieve an optimized cost structure for iSpire while moving the company toward becoming breakeven and cash flow positive.
Speaker Change: To sum up, we are pleased with the progress we are seeing across our business lines.
Furthermore, we continue to successfully execute.
Speaker Change: on our international expansion strategy while driving future sales growth and enhancing our overall financial stability.
Speaker Change: With that, I'll turn the call over to our CFO, Jim McCormick, who will review our financial results.
Jim Mccormick: Thank you, Michael. Before I review our key financial results for the fiscal second quarter 2025, please note that I will refer to the fiscal second quarter 2025 as the three months ended December 31st, 2024.
Jim Mccormick: All comparisons are to the prior year ended, December 31, 2023, unless otherwise stated.
Jim Mccormick: As Michael previously noted, we reported growth in both gross profit and gross margin in the quarter.
Jim Mccormick: Our total revenue for the fiscal second quarter increased to $41.8 million, representing a slight increase of 0.3% or $0.1 million compared to $41.7 million in the same period last year.
Jim Mccormick: Our revenue results were driven by the following performance across our key geographic regions.
Jim Mccormick: In Europe, revenues of approximately $24 million in Q2 2025 represented strong growth of $8.3 million or 53.2% versus the same period last year.
Jim Mccormick: This was driven by decreases in sales of our cannabis-basing products.
Jim Mccormick: This reduction is consistent with the company's effort to focus on higher quality customers in the region.
Jim Mccormick: Asia-Pacific revenues were approximately 3.6 million, a decline of 2.4 million or 39.6% compared to the prior comparable period.
Jim Mccormick: Revenues from Africa were $2.7 million, an increase of $2.6 million from the same period last year, as a result of our launch in South Africa, as previously mentioned by Michael.
Jim Mccormick: For the second fiscal quarter ended December 31st, 2024, we recorded gross profit of approximately $7.7 million compared to approximately $6.3 million for the same period last year.
Jim Mccormick: Gross margins for the second quarter were 18.5%, up from 15% last year. The increase in gross margin and gross profit was primarily due to changes in product mix and more higher margin products being sold in line with our selective customer strategy in North America.
Jim Mccormick: For Q2 2025, total operating expenses were approximately $15.1 million compared to approximately $10.2 million for the same period last year.
Jim Mccormick: This increase was primarily due to increased expenses in line with our strategic initiatives, including continued investment in our Malaysian production facility, expansion of our international nicotine business, and increased expenses related to our product development function.
Jim Mccormick: Our net loss of $8 million or $0.14 a share versus a net loss of $4 million or $0.07 per share in the prior comfortable fiscal period.
Jim Mccormick: At December 31st, 2024, our cash position was $34.4 million, with working capital balance of $6.1 million.
Jim Mccormick: For the six months to December 31st, 2024, net cash provided in operating activities was $0.4 million. This represented a significant improvement versus the same period last year where $20.2 million was used for operating activities.
Jim Mccormick: Net cash used in investing activities for the six months to December 31st, 2024 was $1.1 million compared to $1.9 million used in investing activities in the prior comparable period.
Jim Mccormick: No cash was used in financing activities over the six months ended December 31, 2024, compared to $700,000 being used for financing activities in the prior comparable period.
Jim Mccormick: With that, this concludes the review of iSPIRE's fiscal second quarter 2025 financial results. I will now turn the call back over to Michael.
Thanks, Jim.
Jim Mccormick: To close, I am proud of the progress we achieved over the second fiscal quarter in progressing our strategic priorities.
with continued momentum across multiple strategic initiatives.
Jim Mccormick: We grew revenue as well as margin, reflecting our successful transition to higher quality customer relationships and expanded global presence.
We achieved several significant milestones this quarter.
Jim Mccormick: including the successful launch of breakfast products in Africa with over 500 retail locations.
Securing key regulatory approvals in Malaysia.
Jim Mccormick: Additionally, our newly announced $10 million stock repurchase program demonstrates our confidence in iSpire's future and our commitment to delivering shareholder value.
Jim Mccormick: Looking ahead, we are excited about the many transformative opportunities, particularly with ICTAC's age-gating component PMPA submission planned for April and our expanding international presence.
Jim Mccormick: Our specific focus on technology innovation, regulatory compliance, and global expansion.
Jim Mccormick: position us well to capture significant market opportunities while promoting responsible industry practices.
Jim Mccormick: Thank you all again for your time today and to all our investors.
for your continued support.
Jim Mccormick: We look forward to updating you further in the coming quarters.
Jim Mccormick: If you have any questions, please contact us through email at ir at ispiretechnology.com.
Jim Mccormick: This completes our prepared remarks and we are now open to questions.
Operator, please go ahead.
Jim Mccormick: Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Jim Mccormick: You may press star 2 if you'd like to remove your question from the queue.
Jim Mccormick: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Our first question comes from the line of Nick Anderson with Roth Capital Partners. Please proceed with your question.
Nick Anderson: Yeah, good morning. Thanks for taking the questions. First one for me, just on the cannabis partnerships and the pipeline. You mentioned last quarter the cannabis business has bottomed out. Just looking for color on the pipeline and where you're at in terms of monetizing there. Any discussions around the I-80 technology would be helpful too. Thank you.
Nick Anderson: Part of the reason that we repivoted about six, no, seven months ago was to gear our business more toward the MSO or large SSO type of customers.
On that front, as we all know,
Nick Anderson: they have a more predictable future demand and much easier for us to plan around their demand versus just reacting to sporadic orders.
Nick Anderson: So, on that front, we have been successful in capturing and working with and partnering with three companies already.
Nick Anderson: The very first such customer was Average and followed by Raw Garden and Juicy.
Nick Anderson: In the pipeline, in the coming quarters, we are expected to close a couple more relationships.
Nick Anderson: But even with these three accounts, certainly predictable future demand would yield the pipeline that you are talking about. We feel...
These three large accounts alone can
provide roughly a third of our
Nick Anderson: We expect these three accounts' percentage or weight to be reduced as we continue to onboard new customers.
Nick Anderson: Next, I hope I answered your question. The second question is regarding the i80 drilling machine.
Nick Anderson: That's also an integral part of our re-pivoting last summer. The i80 given its high capacity obviously is more geared towards the high-volume MSOs and SSOs.
So on that front, the machine is continuing making progress.
in the eyes of our partners and customers alike.
Nick Anderson: So in addition to us providing such machine to our key accounts
We are also looking ahead.
Nick Anderson: to potentially partner with other machine manufacturers to make such solution available to their existing install base.
Nick Anderson: So on that front, IAD is generally speaking, gaining ground and gaining recognition as we
originally expected.
Speaker Change: I appreciate that color. Second one for me, just on Europe, that revenue is nicely up year over year. Can you dimensionalize the performance there? You have the leading open system, and we've seen some regulatory momentum around restricting closed systems or limiting their use in general. Just any color on what you're seeing over in Europe would be helpful. Thank you.
Thank you.
Speaker Change: In Europe, obviously, the most watched market is the UK market.
Speaker Change: and in the UK as of this June disposable devices would be completely banned.
Speaker Change: And as a result, the market will have just two main types of products, either a complete open system or in some cases, the so-called refillable part system.
Speaker Change: So, for the last year or so, we have been positioning ourselves for this day. We designed a series of refillable PUD devices in anticipation for the market and regulation change.
Speaker Change: and certainly our open system will continue to benefit from the shift in regulation there.
Speaker Change: So, you are correct. Part of our strength in Europe is because of our positioning in the UK towards the banning of disabled sports.
Speaker Change: We strongly believe this trend will continue across other European countries as well.
Speaker Change: So, from that point of view, our product portfolio and offerings will be perfectly in line with what's going on as far as the regulatory landscape goes.
Thank you. Thank you.
Speaker Change: Great. That's it for me. I appreciate the color. I'll pass it on.
Speaker Change: Thank you. Once again, as a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Bo Pei with U.S. Tiger Securities. Please proceed with your question.
Hi, good morning. Thank you for taking my questions.
Speaker Change: So my first question is on the cash flow, so given the company's operating cash flow is still inactive Can you just talk about a little bit about the
Speaker Change: rationale behind the $10 million Start Buy Back program. I believe last quarter you mentioned the company should break even and have cost operating capital in the March quarter. Is that still your expectation now? Thank you.
Thank you.
Speaker Change: The first question regarding cash flow and regarding the stock buyback program. First of all,
Speaker Change: The Stark buyback program that we planned for will cover a 24-month period.
Speaker Change: So, that gave us flexibility in when to decide to execute on it.
Speaker Change: Of course, we'll do so when the stock price is favorable for repurchase, but along the way, of course, we'll report to investors, shareholders.
as we make a new transaction on DEF CON.
Speaker Change: Now, specifically regarding our cash flow, as Jim indicated, last quarter, the December quarter, for the first time, cash flow
Speaker Change: generated from operating activities turned positive. This is actually a major change and shift in our cash flow position.
So, uh...
Speaker Change: To answer your other related question, previously we were hoping for a cash flow break-even in the March quarter. We are still hearing.
Speaker Change: in that direction. However, given that we just carried out some cost-saving initiatives worldwide to realign resources.
were caused
Speaker Change: savings mainly came from or will come from is actually from the U.S. operation, including some headcount reduction there.
We expect this quarter we'll have a little bit one-time
Speaker Change: expenses related to that initiative in cost reduction mainly from the US side as we shift functions to Malaysia and Hong Kong side.
Speaker Change: becoming cash flow positive this quarter will likely be pushed out a little bit due to that one-time charge.
Speaker Change: Thank you, Michael. And my second question is about regulation. So, is there any, do you see any upcoming or existing impact on our business from the U.S. tariff? And then also related to that, do you expect any deregulation in the cannabis or cigarette in the U.S. under the new Trump administration?
So, your first question,
Speaker Change: First, regarding President Trump's initiative for imposing more tariffs on imports.
Certainly, on that front, we expect
terrible increase for China-made products.
That is, I think, the way that I expect it.
Speaker Change: In late 2022, we started positioning our manufacturing operations more in the direction of Malaysia.
Speaker Change: really is to get around the number one geopolitical risk, number two, the uncertainty related to trade tariff against Chinese made products. So
I think certainly that part will affect us.
Speaker Change: to some degree, but we will certainly benefit from this relative to our competition.
as well.
Now, the other part of this executive order, and
Speaker Change: general, I would say, protection of U.S. companies and economy and consumers will come in the form of, I would say,
border protection and border control.
On that front, I think we...
I think in 2025 and beyond, we'll certainly have
Speaker Change: tightening up the inspection, the documentation review process at the border. As we all know, whether it's on cannabis side or nicotine side, in the last many years
Speaker Change: The market has been rather flooded with illegal products or unauthorized products. So I think it was this new change.
Speaker Change: in a policy that is tightening up the control at the border, or actually squeeze out bad characters and bad players and making legitimate professional operations.
Speaker Change: enjoy this compliance process more openly. Ultimately, that will benefit consumers, both from safety and certainty point of view. As far as
Cannabis
Speaker Change: So, I think at this point it's really hard for anybody to predict, given the...
fluid situation with the DOJ, HHS, and the FDA.
And, of course, DEA. So everything is relatively...
Speaker Change: in constant change right now until the dust is settled in a few months.
Speaker Change: It's really hard for anybody to predict whether we'll get cannabis legalized at federal level during this administration.
Thank you. Bye.
Speaker Change: Got it, got it. And my last question is on the modular PMTA opportunity. Can you just talk about more, you know, about this opportunity and then, and when should we start to see revenue contribution from this?
Speaker Change: Yes, the component of PMTA, as I stated earlier, is first such, I would say, a unique approach to PMTA approval.
Speaker Change: This is partially because in our meeting with the FDA, it's apparent this technology provides a
Speaker Change: you can say broad-based solution to solving the flavored e-cig issue in the United States.
Speaker Change: So far, only tobacco-flavored e-cigs are getting approvals on an ongoing basis. Only a couple of menthol-flavored products got approval in the last 12 months.
Speaker Change: That's not because that's what the consumers want. Consumers, by and large,
still want flavored e-cigarette.
Speaker Change: However, given that there is no method of preventing youth access, the FDA had no choice.
just banning flavored devices completely. So with this solution,
Speaker Change: Once we get FDA's sign-off, by being a component of PMTA, that means we can offer such a solution to others.
manufacturers and the brands.
Speaker Change: to use such technology and control use access for their own products.
So, on that front, there are going to be, obviously,
Speaker Change: a large number of opportunities for licensing this technology to other manufacturers.
Speaker Change: So that's what the component PMTA is really geared to work for, to make it a modular solution that can be added to other brands' products.
so that
All such products will have the age-gating function built in.
Speaker Change: Not only will we use such technology for our own part systems, as I indicated earlier, that we will apply for,
It's hard to put a number.
Speaker Change: But I think we all know currently the U.S. e-cig market is a largely illicit or black market.
Speaker Change: I think I saw the recent Juul estimate that says illegal market is anywhere between three and seven times of the legal market.
Speaker Change: billion U.S. dollars in the U.S. That truly represents the ultimate potential for such technology.
Speaker Change: Of course, we probably will never be able to completely eliminate the black market on that front.
Speaker Change: But just capturing a big chunk of that existing illicit market with age-gated devices will mean significant revenue.
Speaker Change: for the manufacturers as well as for us as we license technology. So I don't know if that was clear enough.
Speaker Change: Yes, sure, that's very helpful. Thank you so much, Michael. That's all my questions.
Speaker Change: Thank you. Ladies and gentlemen, there are no other questions at this time. I'll turn the floor back to Mr. Wang for any final comments.
Speaker Change: Okay, thank you, operator. And thank you, everyone, for your time today. We look forward to talking to you soon. Thank you. Have a great day.
Speaker Change: Thank you. This concludes today's conference call. You may disconnect your lines at this time.
Thank you for your participation.