iPower Inc. (IPW) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for participating in today's conference call to discuss iPower's financial results for its fiscal third quarter ended March 31, 2022. 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.

Thank you, Charlie. Good afternoon, everyone. By now, everyone should have access to our fiscal third quarter 2022 earnings press release. which was issued earlier today at approximately 4:15 p.m. Eastern Time. The release is available in the Investors Relation section of iPower's website at meetipower.com. 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. These forward-looking statements are subject to certain known and unknown risks and uncertainties and as well as assumptions that could cause actual results to differ materially from those reflected 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. Do not place undue reliance on any forward-looking statements, which are being made only as 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. With that, I'd now like to turn the call over to iPower's Chairman and CEO, Lawrence Tan. Lawrence?

All right. Thank you, Kevin, and good afternoon, everyone. Our fiscal third quarter was another period of exceptional growth for iPower. Revenue was up 74% year-over-year to a record $22.9 million, which was driven by continued strong demand for our products and increased sales in our largest channel. As mentioned on previous calls, the sale of in-house products is always top of mind. In our fiscal third quarter, this make up roughly 82% of revenue. Throughout the quarter, we continued to introduce new SKUs in each of our product categories by working diligently with our partner, including recently acquired global co-engineering partner, DHS, while also retiring SKUs that are slower moving. Over the past few months, we have seen strong order volumes from our largest channel. We believe that this consistent increase in volume speaks to our product research and development as is directly aligned with consumer trends. Our investment into our businesses, specifically in R&D and merchandising will only push this momentum further as we roll out new in-demand products in the future. We continue to effectively navigate the choppy supply chain environment during the quarter, in large part due to our extensive network of supply products. This remains a key differentiator for iPower as our channel partners, and customers know that they can rely on us to deliver products in a timely manner and avoid many of the road blocks that other's face in the global supply chain. Now I'm going to talk about the initiatives over the quarter. Expansion into Europe and the U.K. This past January, we expanded our business into Europe and the U.K. with the completion of first order delivered for consumer abroad. This order contained trimming devices, air filtration, service systems, tents and other accessories that services the DIY hydroponics consumer. We continue to believe that the European market is still in its infancy and present a significant medium- to long-term opportunity for us as their consumer hydroponics market develops. And then the launch of e-commerce logistics JV, Box Harmony. So shortly upped our expansion into Europe, we partnered with strategical individuals at Titanium Plus Autoparts, one of the largest seller of our clinician related auto parts on eBay and Amazon to create a full-service e-commerce logistics company, Box Harmony. This JV provides us with a low-cost option to expand into e-commerce value chain services which is a natural fit for us, given our expertise in the online hydroponic equipment market. In fact, we already signed our first client, which happens to be a furniture brand, reflecting our interest into a vertical outside the hydroponics. Our JV will service logistics for the client at our Southern California facility for both B2B and B2C shipments. While it's early days, this JV is just beginning to ramp and we plan to carry this momentum going forward. And then we have the launch of a Global Social Media JV. This is our second JV, that's a partnership with social media, marketing and entertainment company to form a Global Social Media, social commerce platform. This JV was formed to combine our partner's social media marketing expertise with our own supply chain and e-commerce expertise to create a fully end-to-end solution for brand manufacturers looking to sell their products via social channels. We plan to utilize Global Social Media for new business as well as our own benefits to expand our global product awareness as a geographic exposure through various social media channels. And then we acquired the global co-engineering partner, Daheshou Shenzhen Information Technology, also knows as the DHS. During the COVID-19 pandemic and the recent volatile supply chain environment, we relied heavily on DHS to source consistent high-quality products in a timely manner. It was for this reason that we decided to acquire 100% interest in the company. This acquisition expands our current supply chain and e-commerce capabilities with in-house product sourcing, manufacturing network management, quality assurance processes and R&D expertise. Not only did we bring our key supplier and logistics partner in-house to benefit our businesses but also reduce the risk of a potential supply turnover. We plan to utilize DHS in tandem with our other resources to create a suite of offerings that will service a broader set of consumers and partners in the future. And for our own brands, as we continue to grow and execute our organic and inorganic initiatives, we felt it was necessary to invest our core image to properly showcase our business as well as the various components that made up of our brand. As such, we are in the process of completing a company rebrand that we expect to end later this summer. This development will enable us to optimize how we are perceived and positioned in the market as well as how we allocate our marketing dollars. Although we are proud of our success and strong momentum in our business, there is still plenty of movement to grow and improve. We plan to continue developing new in-house SKUs and also expand into additional markets while strengthening our current ones and all while continuing to deliver value for consumers and the channel partners along the way. I'll now turn the call over to our CFO, Kevin Vassily, to take you through our financial results in more detail. Kevin?

Thanks, Lawrence. As Lawrence mentioned, our fiscal Q3 was another strong period of growth for iPower Total revenue was up 74% to $22.8 million compared to $13.1 million in the year ago period, driven by greater product sales to our largest channel partner, as well as strong demand for our ventilation products, commercial fans and some of our new shelving products. As Lawrence mentioned, we continue to execute on prioritizing the sale of our in-house brands which accounted for approximately 82% of revenue in the quarter. Gross profit in the fiscal third quarter increased 59% to $9.2 million compared to $5.8 million in the year ago quarter. As a percentage of revenue, gross margin was 40.3% compared to 43.9% in the year-ago quarter, with the decrease driven by product mix as well as higher freight costs, it was also impacted by stronger orders in our direct import channel program, which carries lower gross margins, but better operating margins for us. Despite experiencing record high freight costs in addition to some higher input costs, we were able to maintain gross margins above 40%, thanks to our extensive supplier network overseas. Total operating expenses for fiscal Q3 were $7.8 million compared to $5 million for the same period in fiscal 2021. As a percentage of revenue, operating expense improved 360 basis points to 34.3% compared to 37.9% in the year ago quarter. The operating leverage was primarily driven by the positive impact of the aforementioned direct import program we have with one of our large channel partners. We were able to increase operating leverage despite higher costs from new warehouse capacity coming online this quarter as well as increased G&A costs associated with the DHS acquisition. Net income in the fiscal third quarter increased to $1.2 million or $0.04 per share compared to a net loss of $0.2 million or a loss of $0.01 per share for the same period in fiscal 2021. Moving on to the balance sheet. Cash and cash equivalents were $2.6 million at March 31, 2022 compared to $6.7 million in June of 2021. The decrease was attributed to the timing of accounts receivable, not an indication of any other business operating trends. As of March 31, 2022, total long-term debt stood at $13.4 million as compared to $0.5 million at June 30, 2021. This increase was also a function of timing as the company utilizes its revolving credit facility to manage working capital. And then finally, looking forward to the final quarter of our fiscal year, we plan to continue executing on our growth strategy and closed out the year on a strong note. As we've done in prior quarters, we plan to mitigate the impact of the supply chain environment where we can by managing channel product mix, channel program mix, in both procurement as well as larger production runs where prudent. We look forward to touching base with many of you this summer through various investor conferences and non-deal road shows to talk more about the company and its strategy going forward. And with that, this concludes our prepared remarks, and we'll now open it up for questions. Operator?

[Operator Instructions] Your first question comes from the line of Scott Fortune with ROTH Capital Partners.

Real quick, can you provide a little more color on the new sales channel initiatives? I know you're looking at progress with [indiscernible] big box retailers and going down those channels? Is there any update or opportunities as we look into the coming quarter or into next fiscal year for those big box retailers coming on board here?

Lawrence, [indiscernible]?

Yes, I'll take that one. We are actively working on it. But as you understand, the big box retailers, it happens a lot slower than the online channels. But we are actively working on it, and we are making pretty good progress. But I don't know if we're going to see large purchase orders before the end of the fiscal year. So it's a work in progress or in mid progress.

Got it. I appreciate the color there. And then really quickly, we've seen big headwinds and challenges on the consumer side of things and also on the commercial hydroponics industry with oversupply a significant slowdown from that industry. But it seems like you're doing yourself -- business remains very robust here. Can you unpack what is really driving the growth from a product standpoint? And the pickup in specific channels? You mentioned your large channel partners, but-- and then how much is coming from the new initiatives in Europe and the JVs and the M&A side, is that more of a next quarter and the next fiscal year, going forward, for those new initiatives here?

Sure. Sure. I'll answer those questions in 2 parts. So the fundamental of our company while we've been -- formally grow, we noticed like increasing share of our in-house products. We also had an extensive supplier network and we'd be able to navigate the supply chain issues pretty well, I think, well above the others. They all help but we also noticed the ventilation category continued to increase. So fundamentally, our business model, our ability to use data and analytics, be able to efficiently operate through our own internal healthy RP systems as well as I think we've managed the work flow pretty well. And that all fueled into the growth. Now as for the JVs and Box Harmony and Global Social Media, these are more midterm, more strategical so that we could -- combined with what we have -- ability what we have now, it will enable us to be able to grow at a fast pace without bottlenecks. Now the social media play, I'll say, we'll probably start to see something later this calendar year or beginning of next year but anticipating the growth, these are the moves ahead of time. We will start to see some revenue from the Box Harmony ones. But these -- I'm just trying to say that these 2 are strategically placed so that we can grow in the future in a relatively rapid pace without hitting the bottlenecks that it could be happening.

[indiscernible] Europe, I think we're hoping to see some follow-up orders and deliveries this quarter. We haven't seen them yet. So I think the bulk of our grant in Europe will start in the next fiscal year.