Ispire Technology Inc (ISPR) 2026 Q2 法說會逐字稿

Good morning, and welcome to Ispire Technologies' earnings conference call for the second fiscal quarter of 2026.

I'll now hand the call over to Phil Carlson from KCSA Strategic Communications. Please go ahead, sir.

Hello, everyone, and welcome to Ispire Technologies' earnings conference call for the second fiscal quarter of 2026 ended December 31, 2025. 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 holding a question-and-answer session. With us today are Mr. Michael Wang, the company's Co-Chief Executive Officer, Mr. Jay Yu, the company's Chief Financial Officer.

Mr. Wang will start by discussing Ispire's second fiscal quarter financial results and recent corporate highlights. Mr. Yu will then discuss the company's financial results for the second fiscal quarter of 2026 in more detail.

Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 and its perception of historical trends, current conditions, and expected future developments as well as other factors that the company believes are relevant. 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.

Further information regarding this and other risk factors are included in the company's filings with the SEC. The company undertakes no obligation to update forward-looking statements to reflect subsequent or current events or circumstances or to changes in its expectation, except as may be required by law.

I will now hand the call over to Mr. Wang. Mr. Wang, please go ahead.

Thank you, Phil. And welcome to all of you joining us today. I'm pleased to share our financial results for the fiscal second quarter of 2026 and the recent corporate highlights.

This quarter represented an inflection point for Ispire after our year-long cost-cutting and customer quality rationalization efforts. And we believe future quarters will see top-line growth, consistent cash flow, and bottom-line improvement. We are confident we have laid a solid foundation for future success.

During the second fiscal quarter of 2026, we continue to fortify our financial position and strengthen our cash flow. Since late fiscal 2025, we have consolidated our customer base to prioritize high-quality clients. This aligned with our strategic focus on the higher-value nicotine sector and the shift away from the cannabis sector and from slower paying clients.

We have seen this translate to promising results across key measures, including improved accounts receivable. While our revenue declined in the second fiscal quarter, this was an expected outcome due to our delivery moved towards higher-quality nicotine sector customers and away from lower value clients who have difficulties meeting payment timelines.

Several key metrics, including accounts receivable, operating expenses and the net loss indicate how our efforts to solidify our financial stability are beginning to deliver improvements in these areas.

In addition, there were headwinds for the nicotine sector internationally with the e-cigarette volume declining with the pressure from Chinese manufacturers making an impact. It is worth noting that with China's cost base going up, this will benefit Malaysian producers, aligning with Ispire's strategic pivot to Malaysia, as e-cigarettes are no longer a preferred industry in China.

For the second fiscal quarter of 2026, our net accounts receivable improved to $37.9 million, down from $47 million at the end of fiscal 2025. Other measures demonstrating this progress include average payment terms and days sales outstanding, which have all improved.

In particular, cash collected versus revenue for calendar year 2025 was 116% versus 67% for calendar year 2024. Also, our average payment terms were shortened and the average day sales outstanding improved by eight days comparing to the second fiscal quarter of 2026 to the second fiscal quarter of 2025.

We were also able to reduce our net loss to $6.6 million from $8 million in the second quarter of fiscal 2025. And for the six months ending December 31, 2025, net loss was reduced by $3.7 million compared to the same period year over year.

One important item I would also like to highlight is that from April 2025 through the end of calendar 2025, we burned only $1 million in operating cash as we focused on our cost reduction and customer quality rationalization efforts. This is a significant measure. And combined with other financial metrics, shows that our stringent cost management and focus on financial discipline have yielded positive results.

And these are trends that we expect to continue through fiscal 2026.

The Ispire team progressed several significant projects over the second fiscal quarter, mostly related to our IKE Tech joint venture, G-Mesh technology, and building out our Malaysian facility. We continue to see increased traction worldwide for our groundbreaking age-gating technology joint venture with IKE Tech.

In the US, in particular, interest from and discussions with several major tobacco players have intensified over the last three months after the FDA indicated that age-gating technology is the only way to unlock the legal flavored e-cigarette market.

As we all know, the US nicotine vaping market is mainly dominated by illicit products. In other words, products that have not been authorized by the FDA. By various estimates, the US e-cigarette retail market is nearly $100 billion in size and more than 90% of it is illicit in nature.

Consumers want flavored e-cigarettes, but the legal market does not have FDA-approved flavored e-cigarette. As such, consumers can only purchase flavored products from the illicit market, potentially risking their health and life. We strongly support the FDA's initiatives to use age-gating technology to unlock the flavored market with the legally approved products to not only offer consumers the flavor that they want, but also to protect consumers from using dangerous products from the illicit market that are currently being sold across US illegally.

While there are several technology solutions out there, our technology stands out for its reliability and low friction nature. Our revolutionary technology uses a blockchain-based age verification chip and requires timely authentication at the point of use in order for the user to power it up.

This contrasts the existing systems that just rely on single verification only at the point of purchase, and therefore, ensures that only those can vape, not just purchase these products. We have been working with regulators globally across Europe, Southeast Asia, and the Middle East to institute age-gating technology as compulsory standard for the industry, and we have made material progress in getting these measures mandated in several countries across the world.

Also, recently, we were invited to participate in the FDA's Small Manufacturers Roundtable Session, with Steve Przybyla, our Chief Legal Officer, and IKE Tech Board member representing the company on the panel taking place next week.

While we welcome the US federal government's stringent enforcement mandate of the illicit trade update, we want to emphasize that this can only be effective when combined with the technology-based solutions that are able to secure devices before misuse occurs. This is where we are seeing macroeconomic tailwinds in our favor relating to the US FDA's stance on flavored end products and age-gating technology.

The FDA's explicit position is that you must have age-gating technology if you want flavored products approved. Our joint venture, IKE Tech, as most of you already know, has the leading and most low-friction technology in that space. And we look forward to capitalizing on this opportunity in due time.

Ispire and IKE Tech's first ever premarket tobacco product application, or PMTA, with FDA last year shows our commitment to advancing safety and compliance for consumers. It's no surprise that our age-gating technology is receiving a lot of attention from the big tobacco players globally.

Furthermore, we look forward to announcing a significant development deal around our IKE age-gating technology with a leading global nicotine company in the coming weeks.

Another area where Ispire is leading innovation is with our G-Mesh technology. G-Mesh vaping hardware is built with superconductive glass, which unlike traditional ceramic or cutting core provides higher purity, which enhances user safety.

As we mentioned on our last earnings call, G-Mesh is garnering attention from several medium- and large-sized nicotine companies who are interested in the opportunity that technology presents for their next-generation vaping devices. We are currently involved in discussions about these opportunities. We'll share an update on this in the coming months for a potential licensing and/or partnership agreement.

Lastly, an update on the progress of our manufacturing facility in Malaysia. The buildout is on track to ramp up production in fiscal 2026. The marked increase in capacity that the Malaysian facility could hold once finished, which will go to 80 production lines from the current 6 lines is a material improvement and aligned with our focus on Malaysia as a production center. We look forward to providing more updates on this in the coming quarters as well.

To sum up, we are excited about the innovations that our team is working on, and we are optimistic about upcoming developments over the coming quarters. Our focus on physical management and pivoting to quality nicotine sector customers is delivering results with improved net loss, operating expenses, and accounts receivable.

We expect these trends to continue through fiscal 2026 as well as a pickup in revenue generation as we move closer to profitability.

I will now hand the call over to our Chief Financial Officer, Jay Yu, to review our second-quarter financial results in more detail. Jay?

Thank you, Michael, and thanks to everyone with us on the call today as we discuss Ispire's key financial results for the second fiscal quarter of 2026.

To recap, I will refer to the second fiscal quarter of 2026 as the quarter ended on December 31, 2025. All comparisons are to the prior second quarter of fiscal 2025 ended December 31, 2024, unless stated otherwise.

For the second quarter of fiscal 2026, Ispire reported total revenue of $20.3 million, a decrease from $41.8 million in the second quarter of fiscal 2025. As Michael has discussed, this was largely due to our strategic realignment of the business away from lower value cannabis customer to high-quality nicotine customer with better payment profiles.

Gross profit for the second fiscal quarter of 2026 was $3.5 million declining from $7.7 million in the first fiscal quarter of 2026. Gross margins decreased to 17.1% in Q2 '26, down slightly from 18.5% in the second fiscal quarter of 2025. The decrease in gross margin was primarily due to changes in product mix with less higher-margin products being sold during the three months ended December 31, 2025.

As Michael has spoken to, in recent quarters, we have continued to improve our accounts receivable balance by focusing on quality customers in nicotine sector, which has allowed us to collect account receivables in a timelier manner.

As of December 31, 2025, our net account receivable balance was $37.9 million, down from $47 million at June 30, 2025. In addition, we were able to reduce operating expenses for the three months period to December 31, 2025, to $10.3 million from $15.1 million in the second fiscal quarter of 2025 million.

For Q2 '26, we also reduced net loss to $6.6 million compared to $8 million for the same period in fiscal 2025. On top of these results from April 2025 through the end of calendar 2025, we burned only $1 million in operating cash, which shows that we remain focused on expense management and reducing costs across our business. We expect this trend of declining cost and improved accounts receivable to continue through fiscal 2026.

Moving on to the balance sheet. As at December 31, 2025, Ispire held cash of $17.6 million versus $24.4 million June 30, 2025. Net cash flow used in operating activity was $5.2 million over the six-month period through December 31, 2025, versus $0.4 million provided by -- in the six months to December 31, 2024.

Net cash used in investing activity for the first half of fiscal 2026 was $0.9 million compared to $1.1 million used in investing activity for the same period last year. Net cash used in financing activities for the six months through December 31, 2025, was $0.7 million relative to nonused over the same period ending in December 31, 2024.

That ends the detailed recap of Ispire's financial results for the second quarter of fiscal 2026. I will now hand the call back to Michael for closing comments.

Thank you, Jay. In closing, the second quarter of fiscal 2026 marks an inflection point for Ispire, as our year-long cost-cutting and customer quality rationalization efforts are taking hold, and we believe future quarters will see top-line growth, consistent cash flow, and bottom-line improvement.

Furthermore, we have several exciting and game-changing opportunities that we continue to make significant progress on, which include our IKE Tech venture, G-Mesh Technology, and the Malaysian facility buildup. We have continued to strengthen our company's financial footprint by improving cash flow as well as cutting operating expenses, reducing our accounts receivable, and the net loss.

Our focus on higher quality customers in the nicotine sector is also delivering improvement in these areas. And we expect this to continue through fiscal 2026.

With the progress we have made over the past year, and our industry-changing technology and infrastructure, we continue to build up, the future is extremely bright for Ispire and we look forward to sharing our Q3 results on our next quarterly call.

Thank you all again to everyone joining us today. Investors can always e-mail ir@ispiretechnology.com with any questions.

This concludes our prepared remarks, and I will now ask the operator to open the line for questions.

(Operator Instructions) Nick Anderson, ROTH Capital Partners.

First one for me, just on US retail. Walgreens announced the reduction of selling vape products in January. Just curious what you've seen or heard from retailers regarding the category? And what that might mean for shelf space allocation moving forward? Assuming as we get regulatory clarity around flavored products, legal retailer adoption would closely follow. But just want to hear your thoughts.

Nick, thank you. The Walgreens situation is not an isolated case. Through our conversations with representatives of the retail space, there is a tremendous demand, number one, for e-cigarette. Number two, for flavored, especially.

Convenience stores like 7-Eleven or Circle K gas station network, those are typical retailers who really are desperate for flavored e-cigarettes. As we all know, even though cigarette and e-cigarette does not occupy that much shelf space in those retail stores, they represent tremendous revenue and foot traffic to the stores.

So they have seen a significant reduction in their retail traffic just because they control on flavor e-cigarette side as far as the FDA is concerned, because large chains are not going to risk any compliance issues by selling unauthorized.

So consequently, they are losing business. I strongly believe and we -- some players in the industry strongly believe there is a tremendous potential for retailers such as Walgreen to get into this game, especially as the enforcement efforts from the US. Customs and the FDA are intensifying, and consumers still need flavored e-cigarettes. So when flavored indeed gets authorized by the FDA, I think the dam will get wide open.

So on the other hand, enforcement and solution will have to go hand in hand. If there is not a solution that FDA and the consumers can depend on, enforcement effort will be very, very ineffective.

Nick, I hope I answered your question.

Yes, that's encouraging. Thanks for the color. Second one for me on IKE. Congrats on the Charlie partnership, but just wondering if you could provide a little more color on the deal? What the expected production numbers are? Regions you'll be focused on? And just whether or not this is driving more interest from other pipeline candidates as they look to integrate the age-gating process?

Yes. Charlie's deal is certainly a groundbreaking deal for us and for Charlie's. Charlie's has always positioned themselves as a consumer safety-oriented brand. And they have done a lot in that area. So certainly, I think many people -- because Charlie's is a publicly-traded company, many people are aware of their situation.

So from that point of view, they are launching a brand-new product. Initial volume, of course, this is based on customers' feedback and assessment. That would be somewhere between 2 million chips a month and 3 million chips a month, with the goal of selling up to 10 million devices, therefore, chips on a monthly basis over a 12-month period.

But of course, that's based on customers' feedback. With a few months of experience behind, I think we'll all have more confidence in indication with exactly where that's trended. This will be -- this is slated by Charlie's to launch in the next two months -- two to three months. So we don't expect to see a lift in terms of volume for IKE in the immediate quarter -- this current quarter, but we should start seeing results the next quarter, Nick.

As your second as your half question, yes, indeed, in the last year, we have talked to the MSOs and the large brands in the cannabis space. Every single company show the interest in introducing age-gated products on the regulated cannabis side. And they all have shared the same concern about the devices getting in the hands of youth.

So they have been embracing this technology and solution. We are in a rather deep conversation with a couple of players there. For the time being, even though there is immediate revenue potential there, we have spent most of our energy on the nicotine sector because of the potential volume available, Nick.

I appreciate that color. If I could squeeze just one more in on the Chinese imports. It looks like they've been curtailed in the first half of 2025 but then significantly grew in the second half of the year. Do you have any color as to what drove that spike?

And it looks like some states have implemented measures to combat this. Have any of these states seen any differences in illicit vape mix? Any color there would be helpful.

Yes. The surge in export late last year was partially driven by the expected policy change in China towards the manufacturing of e-cigarettes. As most of you are aware, effective April 1 this year, Chinese government will stop what they call the VAT refund initiative. Even though export is not for domestic consumption, generally speaking, the government shouldn't -- let's call it impose VAT on such product for export purpose.

However, the regulators there are saying, effective April 1 this year, the 13% VAT tax would also apply to e-cigarette export. So that means the cost base and the selling price would both go up effective April 1. So I think that was one reason a lot of the manufacturers really tried to rush before this new deadline to get as much product to the international market as possible.

I suspect the increase will continue into the current quarter. But of course, I expect a bit slowdown when April 1 kicks in. But so far, the feedback and the data we have gathered is the US state efforts and the initiatives have barely put a dent to the illicit market.

The general feedback is it's not affecting at all, even though enforcement activities took place across the country with the seizure of product and arrest of players, but it has not put a dent on the illicit market on the demand side. So that's why adequate solution like IKE's age-gating is so crucial to using FDA's term to unlock this flavored market to protect consumers at the same time.

So Nick, that's my answer to your question.

Pablo Zuanic, Zuanic & Associates.

Look, just first, Michael, a bit of a housekeeping question. Can you remind us of what percent do you own of the IKE Tech joint venture? And if that business begins to take off, how will you fund the expansion needed, the expansion capital? Is there a risk of dilution? Or would you want to take full control of that business? If you can just remind us of that.

Yes. Pablo, thank you. Yes, the joint venture was created almost two years ago, actually, 21 months ago. And very rapidly, we got on this mission for developing age-gated technology using the IP of our other joint venture partner, a company called Berify. So so far, a few key things I want to highlight.

Number one, in November 2024, we had a meeting with FDA and through that conversation, of course, with the suggestion and the guidance of FDA, we worked on the so-called component PMTA. And we did that work early last year, and we turned in the component PMTA in May last year.

And of course, as you have heard recently, especially in early November, the Acting Director of Center for Tobacco products made an opening remark at the Food and Drug Law Institute Conference that FDA clearly understood the consumers wanted demand flavored e-cigarettes. However, so far, there was no way of authorizing flavored market without some sort of safety mechanism.

So hence, the very concept of age-gating being the solution right now. So FDA, I think, is certainly embracing that. By all indications, they are going to review PMTA, whether with the products or in our case, component or solution PMTA in short order. We strongly believe with our technology advantage, we'll get a fair shake out of this review process.

So we are really optimistic about the potential, especially as I indicated in the last year and more importantly, in the last three months, activities involving discussions about our technology has really intensified.

So to answer the second half of your question, right now, the joint venture is operating on the technical, engineering, IP and business development contributions from the three joint venture partners, and as far as providing the financial funding for the day-to-day operation there.

With the Charlie's development and potentially a few other key significant development materialize in the coming months, Pablo, I strongly believe on one hand, we'll get strong interest from investors overall.

On the other hand, we will be at a point where we could use some additional working capital to really blow this thing up on global stage. As we all know, regulatory change requires a lot of efforts and resources. We are on a mission to fundamentally transform how age-gating can be used worldwide to protect consumers, both youth and adults because of the dangerous nature of the illicit market.

So Pablo, I hope I answered your question.

Yes. No, that's good. Thank you very much. Just a quick follow-up. Assuming that the FDA were to legalize flavored nicotine because you are happy with the age-gating technology, there's no one to be just one technology out there, right?

Different manufacturers will have their own technologies. You will have yours and you will supply it to me. Small, midsized, maybe large manufacturers. I'm just trying to understand, will there be different technologies out there? Or will, for example, the US only have one technology that will be only allowed, do we know --

Based on what we know, there are other solutions out there. However, as far as we know, no solution is as what we call frictionless. Of course, our solution is not 100% frictionless. But in comparison to what other people are developing, we have the least friction in our experience with the consumers using the technology of the product. So that we have strong confidence in.

And other key advantages, Pablo, include because we are using blockchain technology, we don't actually transmit detailed consumer personal information through the internet. Instead, we are just sending tokens back and forth between us and the back-end identity verification providers such as CLEAR or ID.me or Incode and so on.

So because the communication is through tokens only, there is no chance that consumer's information would be stolen by hackers. So that's another key advantage. As far as we know, all other solutions actually transmit consumer private information. So we all know, no matter how well protected the network, the system are, there is always risk to be hacked and to get the information stolen. So that's another advantage.

Third one, based on what we know of other products out there, for example, the initial identity verification process for our solution, it will take just over one minute. And for other solutions, it would take anywhere between 5 and 12 minutes.

So we all know the consumers cannot bear that. So that's why all the brands are mindful of the impact this age-gating solution would have on consumer ease for use side. So from that point of view, we know we stand out.

This is partially, Pablo, because all technology transmit only token and it's low bandwidth requirement and so on. And plus, the whole process is simpler than what other solutions would require.

For example, some solutions would even require the consumer to type in their social security number online to get verification. That's just -- let's call it unscalable. Not too many consumers would give up their social security number for that.

So I hope I answered your question. Of course, there are others, yes.

No. Good color. And I know there's a lot of detail there. But just going back to your prepared remarks, I think you said that some countries in Europe or the Middle East or Asia and/or have already mandated age-gating technology. I mean, I want to make sure I heard that right.

And if you can say which country specifically? And are they using your technology already? Or were you talking more in general about future plans in those countries? I'm just trying to understand if anyone has actually implemented this anywhere in the world right now.

No one has implemented it. That statement says, we have been working with those regulators in those countries to push for mandation. And the reception has been very positive because similar to the US, in addition to consumer safety and protecting youth from using e-cigarettes, there is another consideration.

Same is true in the US. The illicit market generally do not pay their share of sales tax. So that's sales tax or excise tax because that's where a government get their share of the trade. So illicit market generally avoid paying a lot of tax.

So some of those countries basically are saying, not only do we want to protect the adults in using vape devices, not only do we want to prevent youth from using the devices, we also want to collect sales tax, our revenue -- tax revenue. So with these three objectives in mind, many countries are looking at our technology. Some are even contemplating mandating all e-cigarettes sold in the countries must have age-gating.

So right now, I can't share under NDA, I can't, I guess, share their names with everybody. But two countries in Southeast Asia actually, one country in serious conversation in the Middle East, second one will start soon. And in Europe, we have been working with the UK regulators, lawmakers for just nearly a year in changing the requirement, especially we try to make difference to the upcoming UK Tobacco Bill, which is likely firmed up in the next two to three months.

But the support in the UK for this technology has increased tremendously over the 10-month period. And both from the parliament and the House floor and the executive branch, we are receiving support from every branch. So that's the indication for where this technology is going.

Certainly, FDA is the most important consideration for us now, but we know through our talks with regulators outside the US, there are increased interest in this technology outside the US as well. So we are trying to work in some countries, as we know, regulations and laws could be established in short order, unlike I'd say, heavily democratic countries like the UK and the US.

So we hope we would actually be able to launch the technology in other countries, potentially even ahead of the US, Pablo.

Right. Very last one. And just a short answer. I think I know you're going to make forward comments, but you talked about that you will be disclosing a new deal in the coming weeks. Is this something similar to a Charlie partnership? Or are we something -- are we talking about something much larger?

Can you just give some general context? And I realize that we cannot forward comment here, that's all.

Let's say, a much greater strategic and a financial impact.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Wang for any final comments.

Thank you all again. We really -- as I said a couple of times in my prepared remarks, we saw Q2 as an inflection point for us, not only financially but strategically as well. So I hope to have more advanced exciting development to share with you all in the coming weeks and months as they come about. Thanks again.

Operator?

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.