iPower Inc (IPW) 2025 Q1 法說會逐字稿

Good afternoon, everyone. And thank you for participating in today's conference call to discuss IP powers financial results for its fiscal first quarter, 2025 ended September 30th, 2024. Joining us today are IP Powers Chairman and CEO Mr Chenlong Tan and the company's CFO Mr Kevin Vassily, Mr Vassily. Please go ahead.

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 avail available in the investor relations section of our website at Meet I power dotcom.

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 1,995.

Forward-looking statements are neither historical facts nor assurances of future performance that they're 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 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 today on November 14th, 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 now like to turn the call over to IP Powers, Chairman and CEO Lawrence, Tan Lawrence.

Thank you, Kevin and good afternoon, everyone.

We maintained a solid momentum in the third quarter while continuing to refine our cost structure leading to year over year gross margin expansion and a reduction in operating expenses.

Additionally, we made progress in expanding our Super Sweet supply chain platform by onboarding key partners across the supply chain. We are enhancing our service capabilities, positioning super suite as a increasingly valuable solution for our partners.

We also broadened our sales switch by launching on AliExpress and further strengthened our presence on newer platforms such as TikTok shop and Timo aligning our offerings with a diverse and expanding customer base in our Super Sweet business, we continued to work through a robust pipeline of prospective partners integrating essential components across sales channels, marketing, merchandizing logistics technology and data analytics to enhance our comprehensive service offerings.

By adding these component Super Sweet is equipped to address today's complex supply chain needs with a seamless end to end solution for ecommerce supply chain management and logistics.

We are committed to strengthening each segment in the supply chain sales enabling our partner to navigate market needs scale effectively and better serve their customers.

At the end of the quarter, we launched our Super swift supplier online platform, which is designed to optimize supplier interactions, streamline operational workflow and better align our partners with involving market demand. This platform enables suppliers to gain valuable data insight access, multiple sales channels, submit product offers optimize shipment and collaborate on merchandizing plans among other key features.

This SARS platform represents a transformative step in unlocking Super Suite'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 US marketplace.

AliExpress joins our scrolling list of us sales channels which includes platforms such as Amazon vendor, Amazon 3P, Walmart.com, team (inaudible) shop and several others.

We are committed to offering a robust multichannel solution that enables our partners to reach us consumers more effectively and efficiently launching sales are express further underscore our dedication to enhancing market access and driving value across our entire platform.

We continue to benefit from the optimized, optimizing initiative 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 a super suite, we can operate our business with a lower level of inventories leading to improve the cash flow generation as of September 30th, 2024, we reduced our inventory levels by approximately 18% compared to June 32,024.

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 a 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 US and commence sales, we anticipate benefiting from reduced production and logistics expense.

These lower cost 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 Super Sweet 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 fulfilment. Further solidifying our roles 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.

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 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 super sweet 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 $44.7million compared to $44.4million 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 decrease in operating expenses was driven prior primarily by lower selling and fulfilment 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 that loss attributable to IP power in the first quarter was $2 million or $0.6 per share compared to net loss attributed to the power of 1.3 million or $0.4 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 JP Morgan Chase extending the maturity by three years to November 2027.

The new facility has a revolving commitment of $15 million with an accordion feature would allow us to obtain additional lender commitments of up to $40 million on a new agreement, the interest on borrowing will be so plus two and a quarter to 2.5, we're pleased with the vote of confidence from a leading institution like JP Morgan 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 year's or this quarter's year of your gross margin expansion and reduction in operating expenses. We've also made further improvements to our balance sheet as we reduced our total debt obligations by nearly $3 million in this fiscal first quarter.

In addition to our recently extended credit facility with JP Morgan Chase, we believe these actions combined with the continued growth of our super sweet business and optimized cost structure will enable us to deliver on our goals for fiscal 2025.

But that concluded our prepared remarks. We'll now open it for questions.

(Operator instruction)

[Terry Wlo], water tower Research.

Yes. Good afternoon. Maybe let me start with a couple of housekeeping items. You had some service income and service expenses I can, you can you give us some, some information as to what's that related to?

We've got as part of super sweet kind of two components of the business. One is, you know, kind of 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 a part of the overall revenue, we decided to, disclose that piece.

Okay, that's great. Let's, yeah, looking forward to seeing that number progress, the other HLE item was, you had a $1.8 million inventory write down. Does that, does that go through the income statement or is it just a balance sheet adjustment?

Yeah. No, that goes through the, the that goes through the income statement. So, you know, of the, of the roughly 2.7 I think that was, in kind of operating loss. 1.8 of it is related to the write downs.

Okay, great, great. If we look at the top line, it feels like you're kind of in the same, in the same range as you were in the, in, in the last quarter.

Are we, is that kind of a baseline? We should think of going forward or, you had some, you had some quarters where the top line was affected by, by different inventory, strategies from your main, from, from your main online partner. Can you give us some colour on again? Are we at a baseline there of $19 million a quarter or how should we think of it going forward?

Yeah. So, I think it's a, I think it's a good question. I think that's, that's probably close to being a baseline. I think the, you kind of rightly pointed out our December quarter last year was extraordinarily kind of seasonal relative to historical patterns. And so, you know, we're at least so far not seeing that type of activity. You know, 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, you know, that to point out here too is well, a couple things, one in comparison to last year, you know, 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, you know, kind of the last stages of the high-cost inventory from that prior inventory build-up. One two, you know, we you know, as K 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, you know, we, 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, 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 you know, is it a baseline number? I think that's a reasonable number to think about kind of you know, what the business can do kind of without any of the other levers that we can pull. And then from there, you know, we expect, you know, our ability to kind of continue to grow the top line to kind of resume.

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

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

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

Laurence, you take this one.

Yeah, sure. I, I think among three(inaudible) has the best potential. The, 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 three of the them so far. AliExpress is pretty new. We're still working with our, with our 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, it, the fate of TikTok wasn't clear at all with the new administration. I think it, it has a much, much better hope to, to continue the business.

But again, that, that, that team will still fits all of our, our product portfolio better than the other two. So if you want to put attention on one of the three optic team or two.

Okay, that's helpful. Can you give us an update on the Super suite, I think you were maybe in the low 10s in terms of revenue percentage there in the previous quarter. Is that the right trajectory? Is you know what your expectations for Super Suit are going forward?

Oh, sure. Can do we can we disclose the percentage of sales or is that, is that okay? Yeah, yeah, yeah, yeah, because we talked about it.

Yeah, so, we super Suite 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 US 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 two new logistic partners that joined on board and we are having a partnership with Xyla which is a subsidiary but with and international which will potentially lead have supply chain financial financing products into the Super suite platform which enables, which is another benefit for suppliers to work with.

Now, for the supplier, the supply chain side, our supply chain partners, we have made a pretty good progresses, having them on board. But having the sales, having the supply chain on board is one thing and having the sales to start to pick up as you will see, 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. So, and we have a pipeline of them coming in and we have partners that were helping growing the base of supply chains. And that platform, I'm pretty, pretty confident on its growth in the future.

And that II I believe will become the biggest growth driver in the future. And also having the supply chain partners on board will help us in two 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 don't, we don't, we are not responsibly for importing or purchasing or maintaining the inventories in the United States. So that will help together with the efforts we, you know, 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 Super Sweet is not just for supply chains that outside us is also for the US brand of manufacturer supply chain as well. So yeah, I mean this this is the Super Sweet Supply platform is the main focus for, for me, at least for the next for the future.

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

Right. That's, that's a great question. We have been preparing this for the last few years. Ever since that we had that impact of 25% increase. You know, we started super is one of the efforts. So, my view on this is that now we have the supply chain partners that we like. Not, not, not only just the ones that working with us in the partnership, also the ones that we manufacture for us and we buy their inventories, everyone has some plans to for, for this particular event.

So, in the, in the worst case, I believe our suppliers and manufacturers, they, some of them already have a plan to product, to manufacture alternatively outside China. The ones that who, who evaluated that could not move out of China, every everyone will face the same problem. So, and, and unfortunately for those part of the product categories, since no other countries could produce as effectively.

It's, it, we have no choices but pass the pass the cost to the consumers. Now, in that case, doesn't mean while the 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 it be like more effectively doing the merchandizing marketing and fulfilment for, for the for the sales. Now, that part we do pretty well.

So what I mean is that for the for the ones that could avoid the huge tariff people will act on it. It's not just us for the ones that, you know, no other countries can be substitutions to the China manufacturer, the price will increase but it it's going to be like whole market activity. We are not well end of the day will be the same. It just everyone will raise the price.

Yeah. Yeah. So as long as we do, yeah, I'm sorry, as long as we do our parts 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.

Yeah, I mean, change is always not always bad, it suffers when it raise, but that's the worst case you know, maybe China will have a good talk with Trump. Who knows?

But in case that doesn't talk well, you know, I think our partners and ourselves, we all have certain, we are much better prepared than four years ago.

Okay, good. Maybe a last question for Kevin. We, we talked about the kind of the baseline for revenue and I'm, I'm looking at gross margins over the last two or three quarters and you've been in the mid to high 40s, is that also kind of a kind of a reasonable range going forward? I mean, that's a, it's a nice pick up from where you were 12,18 months ago.

Yeah, I think so. The, what you're seeing in that uplift is a function of the work we did over the last let's call a year and a half with our, with our supply chain, you know, Vietnam move will help that, you know, the, the, the move that I referenced with, you know, a little bit of this, you know, supply issue.

You know, that move was made with the with the intent on bringing, you know, kind of unit cost down as well. And so, yeah, we feel good about where gross margins are on that side. So, yeah, I think that's, that should be the target, you know, the, the one thing that could swing that is container costs, but right, now, container costs are kind of behaving quite nicely. So, I would, I would suggest people that are kind of looking at kind of the gross margin line to, you know, pay attention there.

But the work that we can really control, we're, I think we've, set a higher bar now. So I think we feel good about where gross kind of margins are and feel like that's it a decent place for people to be kind of targeting for modelling.

Right? And, and 11 more thing I want to add on to it. If, if our Super Suite start to take off, then the gross margin, maybe you will see that lower because the for the Super Suite model is 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. So, but, but until then, you know, I just give you more information.

Great. That's helpful. Thank you very much.

That concludes today's question and answer session. I'd like to turn the call back to Kevin Vasili for closing remarks.

Okay. 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.

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