iPower Inc

NASDAQ:IPW

Earnings Call Analysis

iPower's Q1 Performance: Revenue Decrease Amid Margin Improvements

iPower reported a revenue decline to $19 million from $26.5 million due to prior promotional activities. However, gross margin improved to 44.7% driven by effective supplier negotiations. Operating expenses fell by 14% to $11.2 million, showcasing better cost management. Despite a net loss of $2 million, total debt reduced by 45%, underscoring financial health. Looking forward, iPower anticipates sales growth from the SuperSuite platform, which currently accounts for 10% of revenue, while expanding U.S. sales channels including AliExpress, TikTok Shop, and Temu. They aim for sustained margin improvements as logistics costs decrease, positioning for competitive pricing in the market.

Navigating Revenue Challenges

In the first fiscal quarter of 2025, iPower reported total revenue of $19 million, down from $26.5 million in the same quarter last year. This decline was attributed mainly to heightened promotional activities aimed at depleting high-cost inventory from the previous period. However, growth in their SuperSuite supply chain offerings provided some offset. Analysts suggest that this $19 million figure could serve as a baseline for future revenues, given the absence of unusually high promotional activity seen in previous years.

Improvements in Gross Margins and Operating Efficiency

The gross profit for the quarter decreased to $8.5 million from $11.8 million year-on-year, but notably, the gross margin improved slightly to 44.7% from 44.4%. This improvement was driven by successful negotiations with suppliers and operational optimizations that have started to pay dividends. Operating expenses were reduced by 14%, down to $11.2 million from $13 million, reflecting decreased selling and fulfillment costs, further supporting the company's financial health.

Strategic Cost Management and Debt Reduction

Despite incurring a net loss of $2 million, or $0.06 per share, which is wider than last year’s net loss of $1.3 million, iPower has made strides in strengthening its balance sheet. Cash reserves stood at $2.6 million, a decrease from $7.4 million at the onset of the quarter, while total debt was reduced by an impressive 45% to $3.5 million. A renewed credit facility with JPMorgan Chase, extending maturity to November 2027, adds further financial flexibility.

Optimizing the Supply Chain

iPower has made significant progress in reducing inventory levels by approximately 18%, resulting from normalized lead times with international suppliers and overall healthier supply chain conditions. Additionally, the company has diversified its manufacturing base by partnering with suppliers in Vietnam, aiming for reduced production and logistics costs, which will support more competitive pricing and improved margins going forward.

SuperSuite Platform Growth and Market Expansion

The SuperSuite platform now accounts for about 10% of iPower's overall sales and continues to be a central focus for their growth strategy. Recent sales channel expansions, including partnerships with AliExpress, TikTok Shop, and Temu, are enhancing market access for their supply chain partners. The management believes SuperSuite is positioned to be the primary growth driver in the coming periods, as they work with an extensive pipeline of prospective partners to optimize their offerings.

Looking Ahead: Revenue and Margin Guidance

Management remains optimistic about the potential for SuperSuite to further expand revenue and improve margins. They anticipate that gross margins will maintain their mid to high 40s percentage, although margins may fluctuate as the SuperSuite model evolves. Looking forward, cost control measures and revenue growth from the SuperSuite platform are expected to bolster the overall financial performance as they navigate the changing market landscape.

Earnings Call Transcript 2025-Q1

[Operator]

Good afternoon, everyone, and thank you for participating in today's conference call to discuss iPower's financial results for its fiscal first quarter 2025 ended September 30, 2024. 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, Liz. Good afternoon, everyone. By now, everyone should have access to our fiscal first quarter 2025 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 on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the state of the economy and other future conditions.

Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside 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 today, November 14, 2024. 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 forward-looking statements.

With that, I'd now like to turn the call over to iPower's Chairman and CEO, Lawrence Tan. Lawrence?

[Chenlong Tan, executive]

Thank you, Kevin, and good afternoon, everyone. We maintained a solid momentum in the third quarter while continuing to define our cost structure, leading to year-over-year gross margin expansion and a reduction in operating expenses. Additionally, we made progress in expanding our SuperSuite supply chain platform. By onboarding key partners across the supply chain, we are enhancing our service capabilities, positioning SuperSuite as an increasingly valuable solution for our partners. We also broadened our sales reach by launching on AliExpress and further strengthened our presence on newer platforms such as TikTok Shop and Temu, aligning our offerings with a diverse and expanding customer base. In our SuperSuite business, we continued to work through a robust pipeline of prospective partners, integrating essential components across sales channels, marketing, merchandising, logistics, technology and data analytics to enhance our comprehensive service offerings.

By adding these components, SuperSuite is equipped to address today's complex supply chain needs with a seamless end-to-end solution for e-commerce, supply chain management and logistics. We are committed to strengthening each segment in the supply chain and sales, enabling our partner to navigate the market needs, scale effectively and better serve their customers. At the end of the quarter, we launched our SuperSuite supplier online platform, which is designed to optimize supplier interactions, streamline operational workflow and better align our partners with evolving market demand. This platform enables suppliers to gain valuable data insight, access multiple sales channels, submit product offers, optimize shipments and collaborate on merchandising plans among other key features. This SaaS platform represents a transformative step in unlocking SuperSuite's full potential, enabling more seamless and impactful engagement between our suppliers, our team and our clients.

As I mentioned earlier, we continued to expand our sales channel by launching on AliExpress, granting our supply chain partner access to another major U.S. marketplace. AliExpress joins our growing list of U.S. sales channels, which includes platforms such as Amazon Lender, Amazon 3P, Walmart.com, TikTok Shop and several others. We are committed to offering a robust multichannel solution that enables our partners to reach U.S. consumers more effectively and efficiently. Launching sales on AliExpress further underscore our dedication to enhancing market access and driving value across our entire platform. We continue to benefit from the optimizing initiatives implemented last fiscal year, which led to gross margin expansion and lower operating expenses for the quarter.

We are also benefiting from a healthier supply chain environment and no longer need to maintain elevated inventory levels as lead times with our international suppliers have normalized. It's also worth noting that with the growth of SuperSuite, we can operate our business with a lower level of inventories, leading to improved cash flow generation. As of September 30, 2024, we reduced our inventory levels by approximately 18% compared to June 30, 2024. As we mentioned before, we are firmly committed to optimizing our operations to maximize efficiency. To further this effort, we diversified our manufacturing base with a new partner in Vietnam, strengthening the resilience of our supply chain for both customers and partners. In September, we completed our first purchase order shipment from this new manufacturer, marking a significant milestone in our ongoing strategy to diversify our supply chain.

As products begin to arrive in the U.S. and commence sales, we anticipate benefiting from reduced production and logistics expense. These lowered costs will enable us to offer more competitive pricing while improving margins, an essential factor for long-term sustainable growth. Looking ahead, we will continue to bolster each aspect of SuperSuite platform to provide a market-leading solution that meets the evolving needs of e-commerce, supply chain management and logistics. By strengthening these areas, we are not only driving efficiencies, but also building a more resilient infrastructure that can adapt to market changes and support scalable growth. This holistic approach positions us to better serve our partners' need from inventory optimization to faster, more reliable fulfillment, further solidifying our role as a leader in e-commerce and supply chain innovation.

I will now turn the call over to our CFO, Kevin Vassily, to take you through our financial results in more detail. Kevin?

[Kevin Dean Vassily, executive]

Thanks, Lawrence. Unless referenced otherwise, all variance commentary is comparison to the year ago quarter. Total revenue in the first fiscal quarter was $19 million compared to $26.5 million. The decrease was driven primarily by higher promotional activity in the year ago period related to selling down inventory. This was partially offset by growth in our SuperSuite supply chain offerings. Gross profit in the fiscal first quarter of 2025 was $8.5 million compared to $11.8 million in the same quarter of fiscal 2024. As a percentage of revenue, gross margin increased 30 basis points to 44.7% compared to 44.4% in the year ago period. The increase in gross margin was primarily driven by improved pricing through key supplier negotiations and optimizations. Total operating expenses for fiscal Q1 improved 14% to $11.2 million as compared to $13 million for the same period in fiscal 2024.

The decrease in operating expenses was driven primarily by lower selling and fulfillment expenses resulting from a combination of lower marketing and promotional activity. This was partially offset by approximately $1.8 million in write-downs of certain inventory and credit loss reserves. Net loss attributable to iPower in the first quarter was $2 million or $0.06 per share compared to net loss attributable to iPower of $1.3 million or $0.04 per share in the same period of fiscal 2024. Moving to the balance sheet. Cash and cash equivalents were $2.6 million as of September 30, 2024, compared to $7.4 million at June 30, 2024. Total debt was reduced by 45% to $3.5 million as compared to $6.3 million as of June 30, 2024. Yesterday, we announced the renewal of our secured revolving credit facility with JPMorgan Chase, extending the maturity by 3 years to November 2027.

The new facility has a revolving commitment of $15 million with an accordion feature that would allow us to obtain additional lender commitments of up to $40 million. On a new agreement, the interest on borrowing will be SOFR plus 2.25% to 2.5%. We're pleased with the vote of confidence from a leading institution like JPMorgan Chase and look forward to growing our partnership as we execute on our goals. As Lawrence mentioned earlier, the work we've put in to optimize our cost structure is starting to bear fruit. It's reflected in this quarter's year-over-year gross margin expansion and reduction in operating expenses. We've also made further improvements to our balance sheet as we've reduced our total debt obligations by nearly $3 million in this fiscal first quarter in addition to our recently extended credit facility with JPMorgan Chase. We believe these actions, combined with the continued growth of our SuperSuite business and optimized cost structure will enable us to deliver on our goals for fiscal 2025.

With that, I concluded our prepared remarks. We'll now open it for questions.

[Operator]

[Operator Instructions] Our first question comes from Thierry Wuilloud with Water Tower Research.

[Thierry Wuilloud, analyst]

Maybe let me start with a couple of housekeeping items. You had some service income and service expenses. Can you give us some information as to what that related to?

[Kevin Dean Vassily, executive]

So we've got, as part of SuperSuite kind of 2 components of the business. One is our resale or wholesale agreements we have on the sales side with partners. And the other are fee-for-service related business lines. So the service fees are part of that fee-for-service business line. And because it was, I think, materially enough as part of the overall revenue, we decided to disclose that piece.

[Thierry Wuilloud, analyst]

The other household item was you had a $1.8 million inventory write-down. Does that go through the income statement? Or is it just a balance sheet adjustment?

[Kevin Dean Vassily, executive]

No, that goes through the income statement. So of the roughly $2.7 million, I think, that was in operating loss, $1.8 million of it was related to the write-downs.

[Thierry Wuilloud, analyst]

If we look at the top line, it feels like you're in the same range as you were in the last quarter. Is that a baseline we should think of going forward? Or you had some quarters where the top line was affected by different inventory strategies from your main online partner. Can you give us some color on, again, are we at a baseline there of $19 million a quarter? Or how should we think of it going forward?

[Kevin Dean Vassily, executive]

I think that's probably close to being a baseline. I think you rightly pointed out; our December quarter last year was extraordinarily seasonal relative to historical patterns. And so we're at least so far, not seeing that type of activity. We're only about halfway through the quarter at this point. So we don't at least now expect to see the same type of kind of seasonal downtrend. I think the other thing to point out here, too, is -- well, a couple of things. One, in comparison to last year, last year was an extraordinarily strong quarter, but I think it was impacted by pretty active promotional work that we did to move inventory so that we could get through the last stages of the high-cost inventory from that prior inventory buildup, one.

Two, we, as Lawrence was pointing out, have been in the process of negotiating with our supply chain, looking for more efficient manufacturing partners. And as part of that transition, we saw some delays in getting product over the summer. And so that had a bit of a dampening effect on the top line. There was demand. We just didn't have enough product to do that. We're through that transition, and we believe that it will no longer be a drag on the top line, but that had a little bit of an impact, too. So I think from the standpoint of is it a baseline number? I think that's a reasonable number to think about what the business can do without any of the other levers that we can pull. And then from there, we expect our ability to continue to grow the top line to resume.

[Thierry Wuilloud, analyst]

So just so I understand, you switched some production to Vietnam and maybe there was a little bit of delay there in getting some of that product over during the quarter?

[Kevin Dean Vassily, executive]

Well, a combination of the Vietnam new supplier coming on and switching to some new suppliers within China as well.

[Thierry Wuilloud, analyst]

Over the last 15 months or so, you've announced 3 new promising channels, Temu, TikTok and the Alibaba affiliate. Any of those 3 we should really pay attention to? Or you still kind of -- they're still equally at the beginning or equally attractive to you? I'm wondering if there's going to be a strong second channel for you beyond your main partner.

[Chenlong Tan, executive]

I think among the 3, Temu has the best potential. The platform fits more of our product portfolio and the marketing efforts they are putting together behind are probably the best and the strongest among 3 of them so far. AliExpress is pretty new. We're still working with their team. We got some orders in already, but they're small, but still working with their teams to adjust and working with their internal policies and strategies to adjust. Now TikTok, the fate of TikTok wasn't clear now with the new administration. I think it has a much, much better hope to continue the business. But again, Temu still fits our product portfolio better than the other 2. So if you want to put attention on 1 of the 3 options Temu will do.

[Thierry Wuilloud, analyst]

Can you give us an update on SuperSuite? I think you were maybe in the low teens in terms of revenue percentage there in the previous quarter. Is that the right trajectory? What are your expectations for SuperSuite going forward?

[Chenlong Tan, executive]

SuperSuite today accounts about 10% of our overall sales. The platform is a connector or central places to connect every aspect of successfully conducting the sales to the U.S. consumers, including online and in the future offline. Now by saying that, we have logistic partners. We have -- even though we didn't announce that publicly, we are testing 2 new logistic partners that joined on board. And we are having a partnership with Zyla, which is a subsidiary with Ant International, which will potentially have supply chain -- financing products into the SuperSuite platform, which is another benefit for suppliers to work with. Now for the supply chain side, our supply chain partners, we have made pretty good progress having them on board. But having the supply chain on board is one thing and having the sales to start to pick up is -- you start to see the selling growing snowballing like usually in a 3 to 6 months period of time after the supply chain get on board.

And we have a pipeline of them coming in, and we have partners that are helping growing the base of supply chains. And that platform, I'm pretty confident on its growth in the future. And that I believe will become the biggest growth driver in the future. And also having the supply chain partners on board will help us in 2 things. One is going to further reduce our cash need for stocking inventories. Now secondly, it will help us to prepare for the potential incoming tariff increase as we are not responsible for importing or purchasing or maintaining the inventories in the United States. So that will help. Together with the efforts we're getting manufacturers in other places other than China, and we are also researching and getting more potential partners in the United States. So I think the SuperSuite is not just for supply chains that are outside, It is also for the U.S. branded manufacturer supply chain as well. So the SuperSuite platform is the main focus for me, at least for the next foreseeable future.

[Thierry Wuilloud, analyst]

You mentioned potentially upcoming increases in tariffs. I'm wondering how you're looking at the whole situation. Would you try to move a greater percentage of your production to Vietnam or? I'm also wondering what kind of lessons you learned from the last time around when tariffs were introduced and consumers' reaction, competitors' reaction. I mean, you just passed along the price increase and nothing much else happens? Or how are you looking at the whole situation?

[Chenlong Tan, executive]

We have been preparing this for the last few years. Ever since that we had that impact of 25% increase, we started -- SuperSuite is one of the efforts. So my view on this is that now we have the supply chain partners, which -- not only just the ones that are working with us in the partnership, but also the ones who manufacture for us and we buy their inventories. Everyone has some plans for this particular event. So in the worst case, I believe our suppliers and the manufacturers, some of them already have a plan to manufacture alternatively outside China. The ones who evaluated and could not move out of China, everyone will face the same problem. And unfortunately, for those part of the product categories since no other countries could produce as effectively, we have no choices, but pass the cost to the consumers. Now in that case, it doesn't mean -- while raising the price is not a good event to have, but end of the day, since everyone has to be forced to do that, it still comes down to like who can effectively sourcing, who can be like more effectively doing the merchandising, marketing and fulfillment for the sales. Now that part, we do pretty well.

So what I mean is that for the ones that could avoid a huge tariff, people will act on it. It's not just us. For the ones that just no other countries can be substitutions to the China manufacturer, the price will increase, but it's going to be like whole market activity. We are not. End of the day, it will be the same, just everyone will raise the price. So as long as we do our part efficiently, effectively and quick and maintain a low inventory and be flexible, I think that's the most important thing to adapt to potential impact and prepare and be able to act quick and have strong partners. I mean change is not always bad. It suffers when it raise, but that's the worst case. Maybe China will have a good talk with Trump, who knows? But in case that doesn't talk well, I think our partners and ourselves, we are much better prepared than 4 years ago.

[Thierry Wuilloud, analyst]

Maybe a last question for Kevin. We talked about the baseline for revenue, and I'm looking at gross margins over the last 2 or 3 quarters, and you've been in the mid- to high 40s. Is that also a reasonable range going forward? I mean that's a nice pickup from where you were 12, 18 months ago.

[Kevin Dean Vassily, executive]

Yes, I think so. What you're seeing in that uplift is a function of the work we did over the last, let's call it, 1.5 years with our supply chain. Vietnam move will help that. The move that I referenced with a little bit of the supply issue, that move was made with the intent on bringing unit cost down as well. And so we feel good about where gross margins are on that side. So I think that should be the target. The one thing that could swing that is container costs. But right now, container costs are behaving quite nicely. So I would suggest people that are looking at the gross margin line to pay attention there. But the work that we can really control, I think we've set a higher bar now. So I think we feel good about where gross margins are and feel like that's a decent place for people to be targeting for modeling.

[Chenlong Tan, executive]

And one more thing I want to add on to it. If our SuperSuite start to take off, then the gross margin may be you will see that lower because for the SuperSuite model, it's different than our traditional in-house product model where we buy and sell. So you'll see a lot of expenses built in, in the purchase cost. But until then, I'll just give you more information.

[Operator]

That concludes today's question-and-answer session.

I'd like to turn the call back to Kevin Vassily for closing remarks.

[Kevin Dean Vassily, executive]

Thank you, everyone, for joining us on the call. We look forward to speaking with you again in the upcoming quarter. Have a good day. Bye.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.