iPower Inc

NASDAQ:IPW

Earnings Call Transcript 2024-Q1

[Operator]

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

Joining us today are iPower's Chairman and CEO, Mr. Lawrence Tan; and the company's CFO, Mr. Kevin Vassily. Mr. Vassily, please go ahead.

[Kevin Dean Vassily, executive]

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 4.05 p.m. Eastern time. The release is available in the Investor Relations section of our website at meetipower.com. This 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 Lawrence, I'd like to remind listeners that certain comments made on this conference call and webcast are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. 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, 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, maybe outside of our control. Our 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 15, 2023.

Do not 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 iPower's Chairman and CEO, Lawrence Tan. Lawrence?

[Chenlong Tan, executive]

Thank you, Kevin. And good afternoon, everyone. During the quarter, we continued to generate revenue growth overcoming a record comp in the year ago period. This was due to in part to the continued strong demand for our high-quality products as well as material growth in our super suite supply chain partnerships, which is now generating approximately $7 million in annualized run rate revenue.

Sales of our in-house products were resilient and once again, present over 90% of our revenue. Diving deeper. We delivered strong results across the categories of fans, shelving and outdoor pergola furniture. On previous calls, we have stated our desire to diversify our product sales mix beyond hydroponics, and fiscal Q1 marked the second consecutive quarter that non-hydroponics accounted for over 75% and of the total revenue. That said, we remain committed to providing high quantity hydroponics products and will 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 a virtuous ecosystem of content-driven drive to our product. For example, we are an approved seller of TikTok's short-form video platform, which will allow us to leverage TikTok's 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-quality impressions but will also build a repertoire of our trusted review and testimonials.

As I mentioned earlier, we are pleased with the ramp of our super suite supply chain partnerships, which is now generating approximately $600,000 in monthly revenue. As a reminder, the goal of our super suite 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, fulfillment and merchandising. The super suite business is gaining solid momentum and we are working with us through a growth pipeline of prospective partnerships. We are pleased with the early results from these efforts as well as invaluable insights that we are gaining from this accelerating area of our business.

Turning to OpEx. We continue to make headway with our reduction of warehousing and inventory expenses. We are also now beginning to realize the benefit 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 shift in demand between sales programs at 1 of our key sales platforms, which is having an 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 2024, consumer demand is resilient for our portfolio of high-quality, affordable product. We are taking the right steps to diversify our revenue mix, achieve greater operational efficiencies and have made material improvements to our balance sheet, which Kevin will highlight shortly. We are 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 Vassily, and take you through our financial results in more detail. Kevin?

[Kevin Dean Vassily, executive]

Thanks, Lawrence. Unless referenced, otherwise, all variance commentary is compared to the prior year quarter when we 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 suite supply chain offerings as well as strong sales from our in-house product portfolio. 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 compared to $10 million in the same quarter of fiscal 2023. 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 is primarily driven by more favorable product mix 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. Decrease was driven primarily by a $3.1 million decrease in impairment loss on goodwill, partially offset by increased selling and fulfilling expenses.

Net loss attributable to iPower in the fiscal first quarter improved $1.3 million or a loss of $0.04 per share compared to a net loss of $4.2 million or a loss of $0.14 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 30, 2023, compared to $3.7 million on June 30, 2023. Total debt stood at $7 million compared to $11.8 million as of June 30, 2023. The decrease was driven by our continued efforts to pay down debt, resulted in a 48% reduction in net debt to $4.3 million as compared to $8.1 million as of June 30, 2023.

Cash flow from operations for fiscal Q1 improved significantly to $4 million compared to less than $400,000 in the prior fiscal year. 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 30, 2023.

Between the warehouse savings, lower cost of goods sold to improve gross margins, coupled with we think is continued strong demand for our portfolio of in-house products as well as a promising start to our super suite business, we feel like we've got a strong foundation in place to continue to drive flow in 2024 and return us to profitability.

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

[Operator]

[Operator Instructions] Our first question will be coming from Scott Fortune of ROTH MKM.

[Unknown Analyst]

This is Nick on for Scott. Congrats on a good quarter. First question for me, just on TikTok. Can you step through kind of what you're seeing as a seller on 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 TikTok, that would be helpful.

[Chenlong Tan, executive]

Okay. There are not many sellers right now. But while I think TikTok is ramping up really quickly and will have a pretty big growth over the last 6 months on TikTok. What we sell the best is the home and kitchen goods on TikTok, while the platform have a mixed sales coming from fashion and beauty, home, kitchen and other categories. Hopefully, that's -- that answers your question.

[Kevin Dean Vassily, executive]

Yes. And Nick, on the economic side, at least right now, we -- the margins that's kind of in a normalized margin for products sold there are going to be more attractive as TikTok ramps the platform. So they're kind of let's call them the equivalent of the merchant account fees that we would pay in some like Amazon, their equivalent is lower at this point. They're also subsidizing shipping on initial orders, which is also attractive.

So while 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 -- particularly, the subsidized shipping on initial orders and the more attractive merchant fees are going to be in place for some time, and we're going to try to push to the extent we can to continue to drive traffic from TikTok because the economics are compelling, at least from our perspective for the foreseeable future.

[Chenlong Tan, executive]

They will last for a while to compete with Tmall and Amazon, Facebook alignment. They -- I don't think it will go away any time soon.

[Unknown Analyst]

No, that makes sense. I appreciate that. And then second for me, just on the gross margin side. It's the highest spread in several quarters. Just help us understand the cadence there. You called out mix and kind of the services business ramping. Just assuming as that side ramps, you should see ongoing accretion, just your sense of the margins moving forward here into the balance of 2024.

[Kevin Dean Vassily, executive]

Yes. Lawrence, I'll take that one. So I'll reiterate what I say every quarter, which is given the size of our product catalog and the -- just the number of SKUs, the gross margin calculation is a multivariable equation. So one thing that's happened and is benefiting us for sure, is that we've worked through quite a bit of the higher cost inventory that we started accumulating last year. So we're burdening those products 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 in product sales is a function of end customer demand. And while what we've said in the past is that on average, a steady kind of state environment, our gross margins are 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% sold at a faster clip.

So I think that you'll still continue to see some fluctuation over the next several quarters, for sure. But 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 continue to work towards. But the market will dictate in any given quarter, what products are selling and what those individual gross margins are. Hopefully, that's helpful.

[Operator]

Our next question will be coming from Thierry Wuilloud of Water Tower Research.

[Thierry Wuilloud, analyst]

Yes. Congratulations on the quarter. I was 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 suite business activity. I'm curious what you mean. Is it you're getting additional data? Are you getting insight in other businesses? Can you give us some comment what that means?

[Chenlong Tan, executive]

Sure. During working with the supply chain partners on the super suite business side. We -- as we successfully launching a couple of partners, we started to learn through the data, how the supply chain partner operates functioning within their organization, how they react with the market.

So it's more on the partnership side, like the supply chain behavior and how they react with the external environment that facilitating us to work with them better so that we can utilize our strengths to help each other to success in different fields. Those are the data points we collected and formed the internal model where we can expand this side of the business in the future more successfully.

[Thierry Wuilloud, analyst]

Great. And you mentioned the products that are selling well on TikTok. I'm curious if it's -- is it push or pull? Are you are you identifying products in your portfolio and reaching out to influencers? Or is it influencers who are selecting products? How does that process work?

[Chenlong Tan, executive]

Initially, we placed the products based on our understanding of the market and based on very limited data sets we can find on the platform. And then we launched -- after we launched the product for a while and some products become very successful on their category and become the top performer.

And initially, we look out for the influencers. Now we have influenced actively contacting us. So I feel like that process has become both way now, instead of like we already passed the very initial cold-start period.

[Thierry Wuilloud, analyst]

Okay. And then finally, you mentioned the super suite is on a $7 million annualized run rate. But are you planning on adding more partners this year? Or can you give us any thoughts there?

[Chenlong Tan, executive]

Yes. There are pipelines of prospective partners to add on. It's our plan to continue to expand that category. And naturally, if we made success in that services business, we'll attract more partners to work with us. And these partners will be very high-quality partners to work with.

[Thierry Wuilloud, analyst]

Okay. So we might end up higher than $7 million for this year from that business?

[Chenlong Tan, executive]

I will -- I think we'll only go growth, probably -- it won't go down.

[Operator]

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

[Kevin Dean Vassily, executive]

Okay. Thank you, operator. Thank you, everyone, for dialing in and participating on our Q1 earnings release. We look forward to speaking to you all again when Q2 rolls around. Thank you.

[Operator]

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