iPower Inc

NASDAQ:IPW

Earnings Call Analysis

Earnings Call Transcript 2024-Q4

[Operator]

Good afternoon, everyone, and thank you for participating in today's conference call to discuss iPower's financial results for its fourth fiscal fourth quarter and full year 2024 ended June 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]

Thanks, Josh. Good afternoon, everyone. By now, everyone should have access to our fiscal fourth quarter and full year 2024 earnings press release, which was issued earlier today at approximately 4:05 p.m. Eastern Time. Releases available in the Investor Relations section of our website at meetipower.com as well.

This call will also be available for a 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 in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in 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 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 any forward-looking statements. Our presentation today also includes certain non-GAAP financial measures, including adjusted net income and EPS 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 we furnished to the SEC this afternoon.

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. I'm proud of our team's hard work in fiscal 2024 to drive record levels of gross margin, operating expenses reductions and another year of positive cash flow from operations. Throughout the year, we delivered on multiple strategic initiatives to lay the foundation for future growth and profitability. For example, we onboarded several high-quantity supply chain partners onto our super suite services platform.

We also strengthened the capabilities and resilience of our supply chain through partnerships with suppliers in Southeast Asia. Additionally, we expanded channel distribution by launching sales on new platforms like TikTok Shop and Temu. Throughout the year, we continued to evaluate our SuperSuite services platform by integrating key components from value-added partners across logistics, technology and marketing to enhance our service offerings.

This collaborative approach has positioned SuperSuite as a leader in merchandising and sales, supply chain management and warehousing and performance, attracting a diverse array of new partners to our platform. As an example, in May, we announced a strategic partnership with the leading provider of a comprehensive logistics solutions. Through this collaboration, we integrated the partner's fulfillment center network into the SuperSuite platform, enhancing our operational efficiencies and technology capabilities.

This partnership not only adds critical depth to our sales capabilities, but also opens the door to a new portfolio of prospective supply chain and brand partners. We also integrated Amazon Logistics services in June to bolster our last-mile delivery capabilities, enhancing a critical component of SuperSuite supply chain offerings. With this partnership, SuperSuite clients can deliver products with the speed, reliability and efficiency that Amazon is renowned for, adding further depth to the SuperSuite value proposition.

As I mentioned earlier, in fiscal 2024, we deepened our online presence by launching sales on platform like TikTok Shop and Temu. These additions align with our strategic vision to empower supply chain partners with diversified sales channels, poised for sustained long-term growth. We are pleased with the early results and will continue to explore additional sales channels that would further enhance our partner sales offerings.

In regarding to supply chain and OpEx, the optimization initiatives we implemented earlier this year to drive the improvements in our selling, marketing and fulfillment operations are yielding results. With a healthier supply chain environment, we no longer need to maintain high level of inventory and the lead times with our international suppliers have normalized. It's also worth noting that with this growth of SuperSuite, our business can operate with lower levels of inventory, leading to improved cash flow generation.

Additionally, we have sold through nearly all our high cost inventory, enabling us to eliminate short-term warehousing expenses and enhanced margins. As of June 30, 2024, we further reduced our inventory levels by almost 50% compared to December 31, 2023.

We are deeply committed to optimizing our operation to maximize efficiency. To further this initiative, in June, we announced the addition of a new manufacturer supply partner in Vietnam. Expanding our manufacturing base will help mitigate future risk and strengthen the resilience of our supply chain. Looking ahead, we will be leaning into our core principal as a technology and data-driven company to enhance transparency and operational efficiencies between iPower and its supplier performance and channel partners.

This approach will streamline processes, reduce cost and improve information utilization across the supply chain to strengthen our customers' operation. We believe these initiatives, coupled with our optimized cost structure will enable us to deliver on our growth and probability objectives in fiscal 2025.

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 in comparison to the prior year quarter. So diving right into the fiscal Q4 results. Total revenue in the fiscal fourth quarter was $19.5 million compared to $23.4 million in the prior year. increase was primarily driven by higher promotional activity in the year ago period related to selling down inventory. This is partially offset by growth in our SuperSuite supply chain offering.

Gross profit in the fiscal fourth quarter of 2024 increased 2% to $9.2 million compared to $9.1 million in the same quarter of fiscal 2023. Percentage of revenue gross margin increased 870 basis points to 47.4% compared to 38.7% in the year ago period. The increase in gross margin was primarily driven by improved pricing through key supplier negotiations as well as favorable product mix in the quarter.

Total operating expenses for fiscal Q4 improved 34% to $8 million compared to $12 million for the same period in fiscal 2023. As a percentage of revenue, operating expenses improved 1,050 basis points to 41% compared to 51.5% in the year ago period. The decrease in operating expenses was driven primarily by lower selling and fulfillment expenses driven by both lower marketing and promotion costs as well as some vendor credits from some of our key vendors.

Net income attributable to iPower in the fiscal fourth quarter improved to $0.7 million or $700,000 or $0.02 per share compared to a net loss attributable to iPower of $3 million or a net loss of $0.10 per share in the same period in fiscal 2023. Adjusted net income attributable to iPower, which excludes legal fees to arbitration, net of their tax impact, improved to a little under $1 million at $900,000 or $0.03 per share in the fiscal fourth quarter of 2024 compared to an adjusted net loss attributable to iPower of $2.1 million or a net loss of $0.07 per share in the year ago period.

Moving to the balance sheet. Cash and cash equivalents were $7.4 million at June 30 compared to $3.7 million at June 30, 2023. Note that this cash balance includes net proceeds of approximately $4.5 million from our previously announced registered direct offering in June. Total debt was reduced by 46% to $6.3 million compared to $11.8 million as of June 30, 2023. Cash flow from operations for fiscal Q4 was a little under $1 million at $960,000, and that's down a bit from our year ago period.

As Lawrence mentioned earlier, our consistent optimization efforts have enabled us to materially expand our gross margin and achieve a second consecutive quarter of profitability in this fiscal. We also continue to make some improvements to our balance sheet, reducing our total debt by nearly half compared to fiscal 2023. We are pleased with the progress we've made in this fiscal year and the foundation we built and we look forward to delivering on our goals in fiscal 2025.

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

[Operator]

[Operator Instructions]

Our first question comes from Scott Fortune with ROTH Capital Partners.

[Scott Fortune, analyst]

Just want to unpack a little bit on the top line and where that growth is coming from. You're seeing, obviously, you had a big destocking and reordering from your large online partner last quarter. We've seen that probably drop off this quarter. But if you could just provide a little more color on kind of revenue growth where that's coming from with your large online partner. And then you mentioned, obviously, ramping up Temu and TikTok on that side, too. And then offset that, last quarter, 10% of sales was coming from the SuperSuite just kind of a sense where that super suite percentage of sales is on this quarter? Just kind of unpack the whole top line kind of $19.5 million for this quarter and going forward here, that would be great.

[Chenlong Tan, executive]

Okay. The top line, it's -- the new platform, the TikTok shop and Temu, they are showing pretty good results initially. But in terms of the total percentage, they still little compared to the overall sales. Our majority sales are still coming from Amazon platform. And in terms of the SuperSuite, we have seen a pretty healthy growth, and we have onboarded multiple partners, new partners over the last few months, which I believe it will becoming more and more part of our revenue.

And with the new platforms like TikTok Shop, Temu, and also we signed up with Ali Express, which is kind of similar to Temu, but its from Alibaba just this month, we onboarded and they are coming into the competition of the U.S. online retail market, which we think it's a pretty beneficial things for us, like the sellers and services providers for online markets.

I believe the competitions between platforms will drive very interesting results in the coming year or 2 until it's kind of settled down again, which is great. So forward casting, I think with the momentum we have in the SuperSuite and the new partners we signed on board, we think it's a very great business line, and we'll continue to see the growth and the smaller platforms, but yet new platforms some of these competitive marketplace will become a bigger share of our business.

[Scott Fortune, analyst]

That's great. Can we just expand, Kevin, prevents color on the demand side from your large channel partner and kind of the return to normalized ordering that this kind of big point here is kind of for that partner is from a normalized ordering growth. I know things can be seasonal, but I just want to get a sense for kind of that ordering cadence moving forward from that online channel and how that challenge is doing?

[Kevin Dean Vassily, executive]

Right. Yes. So as we had kind of as we kind of anticipated a bit, we thought there would be some kind of rationalization might be a little strong, but some slowdown in kind of their order rate after such a strong rebound from them in March, which, again, for kind of listeners who weren't privy to the last couple of calls. Our December quarter was well below kind of what we expected in terms of demand, which was a function of seasonality some inventory rationalization on the part of our largest channel partner. And was our belief that they had essentially kind of over rationalize their inventory and that they would and that they would snap back.

We did see the snapback in the March quarter, but we were a little surprised of the strength of the snapback suggesting that they were still trying to find their bearings with our product suite over the next quarter and so. So I think what we saw in this quarter was from a top line perspective, kind of that they took on enough inventory and they work through some of that while continuing to order.

We're getting back to more normal kind of order patterns. And so I think we don't have a ton of kind of additional color there. I think we're kind of probably narrowing the amplitude of the ups and downs a bit with them after the December quarter. Hopefully, that's kind of what you were looking for.

[Chenlong Tan, executive]

Yes, just to add on to it. I mean, we have -- compared to what -- so compared to what happened in the -- like during the COVID, which we have up and down in the inventory side. And I think the ordering patterns now is much more normalized. So we'll -- we can safely say it's like it's going back to the like pre-COVID pattern, where we'll see steady growth and steady inventory turnaround, which, to us, is very welcomed patterns of our operating businesses, and we can continue to deepen the offering of our products, getting more market share and add on supply chain -- more supply chain partners.

And all of this by dragging like mature existing channels like Amazon, Walmart, et cetera, et cetera, and adding new sales platforms like TikTok and Temu shop at the same time, adding more supply chain partners. So we have more sales channels, better market shares on existing product categories and adding new supply channels. So -- and supporting this are our in-house proprietary ERP systems, and our business in BI platforms. So that's the model of growth going forward that I envision.

[Scott Fortune, analyst]

Got it. Now a follow-up on the SuperSuite. You've done a really nice job of building out that robust supply chain offering of those SuperSuite services. which drives higher margins. But just can you provide -- I know you have 3 existing partners or customers there, as part of the business, but can you just provide a little color on potential new customer adds in the outlook in 2025 now that you have the foundation that SuperSuite in place kind of what that pipeline is like and kind of expectations for that converting to new customers on that SuperSuite for '25 here.

[Chenlong Tan, executive]

Okay. The we have got some pretty good partnerships from supply chain side onto our SuperSuite. Going down, and we have got a few pretty significant really great supply chain partners on board over the last few months. including furniture, electronics in these categories as well. Now these partners so far has been pretty big ones, like their revenues are pretty big.

Going down, we also will start to expand partners into like channel partner side, where we will work with different channel partners to have their customers to become our customers. So we use our SuperSuite capabilities to benefit their customers, which will accelerate the onboard process and the number of partners as the SuperSuite become more and more mature.

So in the next month or 2, we'll start to launching more online, like platform side of products to enable and reduce the complexity of onboarding new partners and opening up the channels for our channel partners to help driving more customers to our way. So hopefully, that answers your question. Basically, we are working on the technologies to reduce complexity, thus prepare for bigger number of partners potentially to come in and through our business development channels with our partners.

[Scott Fortune, analyst]

Appreciate the color there. And then one last one for me. You mentioned you have now manufacturing in Vietnam, a partner there and the savings you can see there moving forward, kind of what percentage of the sourcing do you think will come from Vietnam from that standpoint? And does that help hold and kind of keep the margin structure in place or they continue to be more savings to pass through on a competitive pricing standpoint to drive volume there? Or how do you look at that gross margin side from all the OpEx things and rightsizing you've done here.

[Chenlong Tan, executive]

Right. It's a great start. It's an effort of us like a diversify our supply chain outside China. It's just beginning, but it will grow. Now in terms of gross profit and margin, it's definitely saving our cost of goods sold. So we definitely see savings there. And I think that will become -- generate more profitability for us and as well as making our product more competitive.

[Scott Fortune, analyst]

[indiscernible] go ahead.

[Kevin Dean Vassily, executive]

Scott, just to be clear, too, we don't really have product out in the market yet from the transition. We push pretty hard to get that up and started, but the manufacturing time takes time getting it over. So those benefits will accrue in future quarters. It's not reflected yet in kind of our financials as we speak. So we'll keep you posted on kind of how that rolls out. And I think the other thing that it's worth pointing out is while we are diversifying out of China, and it will never be completely out of China, but it's a strategic kind of initiative on our part.

On an ongoing basis, we continue to rationalize and look for improvements within our existing supplier base in China as well as bring on other suppliers. We think that is one, important for keeping us continually cost competitive and also keeping kind of our contract manufacturing partners kind of honest. We've been good partners for almost all of them over the last, let's call it, 5 years. But we still have expectations that they need to deliver when we see areas for kind of efficiency and improvement. So our supplier base is an ongoing optimization effort. And Vietnam and potentially other places in Southeast Asia over time is just the part of that ongoing strategy.

[Chenlong Tan, executive]

Yes. Yes. Just in addition to what Kevin's mentioned, it doesn't mean that we are not optimizing we are dishing China. It's not like that. We have been optimizing our supply chain in China over the last few months as well. And we see -- we have seen significant cost down from there. So we will see receivings showing up later on.

[Operator]

Our next question comes from Thierry Wuilloud with Water Tower Research.

[Thierry Wuilloud, analyst]

Just following up maybe on the activities in Southeast Asia in Vietnam. Are those new different contract manufacturers? Or are those people you work with in China and they're just moving operations with you at your request in Vietnam. I was curious about that.

[Chenlong Tan, executive]

That new manufacturer. That's new manufacturer. Yes. Though, we have seen a lot of our suppliers in the process or already moved certain of the production lines outside China, including Vietnam, Mexico and other countries. Not all of them has reached a cost point where it's cheaper overall. So we're still waiting for some of them to speed up and make the new manufacturer more efficient. But to answer your question, the specific ones that we are talking about in the Vietnam where we started, it's a new supply chain comment.

[Thierry Wuilloud, analyst]

And then maybe if you have some colors on how the specific categories we're doing, you've had some movements some categories are becoming more important. Others are becoming less. So I'm kind of wondering if you can give us a rough idea of where that's at? Is it about the same as the end of the March quarter? Or do you see areas kind of where the sales are growing and others where they might be slowing down or any color there?

[Chenlong Tan, executive]

Right. We continue to focus on the hard lines. In terms of the sales compensation of different categories, the few top-selling categories so on a home pad furniture, et cetera, the hydroponics line is no longer a significant part of the overall sales as compared to a few years ago. And the growth will come in the future, I believe, home furniture pads and electronics as well. So these are the categories that we think will continuously see growth on. We have seen quite a few quantity partners on board over the last few months in these categories.

We also are, like I mentioned earlier with Kevin, optimizing the existing supply chain network with better quantity of products and lower cost and also expanding that network to different countries to make it more robust. So we'll continue to see the cost down from existing suppliers. We also will see more quantity partners coming on board through SuperSuite platform, but mostly hydroponics.

[Thierry Wuilloud, analyst]

Okay. Well, you covered a lot of ground with Scott. So Kevin, did you have any other color to add?

[Kevin Dean Vassily, executive]

Yes, I just wanted to kind of follow on Lawrence's comment about hydroponics. It has become a much less meaningful portion of our overall sales. And I don't think it's any secret that kind of the demand environment more broadly for hydroponics has not been terribly good.

I think when we look at our results, relative to what we've seen in kind of others who are selling consumer-ish products in the marketplace. I think we are faring better, but it's still not a great demand environment for that. And so I mean, I think the -- luckily for us, we have restored kind of the profitability of that business along with everything else that we've done in the last 18 months. But that is not an area that we expect a whole lot of growth for us going forward, partly because we've got other categories and other initiatives that will make them a sense.

But until that end market becomes a bit more robust, it's hard for us to see that the hydroponics piece be a bigger portion of kind of our overall revenues anytime soon. So I think that color pretty consistent with, I think, what other people are seeing. I think there's some underlying weakness in that end market that we've been lucky enough to overcome with some of our other product offerings.

[Chenlong Tan, executive]

Yes. I mean that market is still there. It's not going away. We're still a leader on the online retail side. But our core strength came from the technology and the data and our platform will build like our ERP systems internally, we build the business intelligent platforms reporting as well as the SuperSuite products we build, which enable us to moving quality products from any categories to the consumers. So joining that's the strength, and that's where the growth will come from by become efficient merchandising and distribution and sellers online, providing all these great services to all of our partners, and move the best value product to the consumers. That's where the foundation comes from. And I believe that's a business model where we focus on would expand in the future pretty quickly.

[Operator]

I would now like to turn the call back over to Kevin Vassily for any closing remarks.

[Kevin Dean Vassily, executive]

Thank you, Josh. Thanks, everyone, for your questions and for dialing in. Look forward to speaking with you again shortly for our fiscal first quarter results and potentially at some investor conferences over the next several months. Thanks again, and we'll talk again soon. Bye.

[Operator]

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.