iPower Inc. (IPW) Earnings Call Transcript & Summary

[Audio Gap] Services piece, the services piece is really a reflection of the capabilities or core competencies that we have across the value chain of a product going from idea to fulfillment, via a customer purchase. And so we have been in business since 2010, the company has always been a captive or in-house products company first. And over the last 13 years, we've developed a certain number of what we think are like strong capabilities across that value chain. And our suppliers and contract manufacturers that we work with over that period of time, took notice of that. So we would get fairly frequently requests from some of our larger contract manufacturing partners to see if we could help some of their other customers. In some cases, they may be having trouble finding e-commerce outlets or sales channels for their products. They could be struggling with creating listings and merchandising that was attracting -- that would attract attention of the customers that are looking to get. It could be something as simple as, hey, they got kicked out of one of their primary warehouses in the U.S. might you have some additional capacity, you seem to be doing really well in terms of fulfillment. And so I think during the first year that we were public, we took note of most of those requests, but we're fairly busy on focusing on growing our in-house product line. The -- I think the thing we noticed, though, is that the request never really slowed down. And we thought maybe there was a business here that we could build where we took some of those capabilities that we feel like we execute on really, really well with our in-house products and offer them to companies, brands, products that weren't competitive with our current product line and create a revenue stream or a monetization stream from that. So that was really the genesis of it. And LTMATE was the actual first company that -- not the first one that approached this, but it's the first one where we entered into a real agreement with. And we're using that as a benchmark for how we want to roll this out over the next several years.

If we step back and think of the actual services, can you kind of just list the type of services that somebody could maybe contract with you?

Sure. So the primary one right now is sales channel. So we sell on a number of different kind of e-commerce platforms, the largest of which is Amazon. Our relationship with Amazon is primarily via their vendor central [ platform ], which is for lack of a better way to describe it, a wholesale relationship with Amazon. So we provide them our products. They buy them and then sell them as an Amazon seller and an Amazon kind of fulfiller. So I mean the way to think about that is Amazon being an e-commerce equivalent of a large bricks-and-mortar retailer like Walmart, Walmart take ownership of the product and sells them like a superstore. And I think a lot of people think of Amazon as a place for kind of third parties to sell products under their own name, which our products do show up as iPower. However, we we have that wholesale relationship. And I think there's quite a few companies, particularly ones of our size, who are essentially running out a storefront in the big Amazon Mall. And so we think that for probably the near term, the most attractive service we can provide is access to that whole sales channel via Amazon. Some of the other things that we'll do, though, is merchandising, creating listings for products on these online marketplaces, primarily on Amazon, That both are appealing, but also can generate the traffic necessary to create sales volume. And I think a lot of companies who are new to selling online really struggle at least early on with creating compelling listings. And so that's another service that we'll offer some very traditional services that may happen before we get product over to the U.S. could be quality assurance. So we have a really strong team over in Asia that focuses on QA, making sure that we're bringing product over here that meet all the regulatory as well as quality standards that we need to perform well on Amazon. We can help companies with sourcing. We work -- actually, I adjusted account several days ago as part of our kind of year-end audit. We work with over 150 suppliers in Asia. And so there are companies who are looking to take cost out of their current products. And with that large kind of network of suppliers that we work with, we're pretty confident that we can find someone to help them create a more streamlined and more cost-effective supply chain. And then finally, not finally. I mean one of the other ones that we think there will be interest in is our kind of product development pipeline. So I think on the podcast that we had a bit ago, we talked a little bit about how we use technology and data to drive our product development decisions. We collect terabytes of data on different products in the marketplace, particularly around features and benefits that consumers like. There is just a treasure trove of information that you can find in -- in the reviews of products online, both good and bad, and we use that data to ideate around the new either product type, product category, to make sure that we -- when we bring a product to market, we understand what consumers are looking for as well as avoiding the things consumers dislike. And I think that approach is very powerful and can be very helpful to to companies who are looking to enter into different categories. So any of those are fertile ground for us in terms of creating a new revenue stream. But back to what I said, I think, at the start, the primary or at least the initial interest right now is access to our kind of wholesale relationship with Amazon.

Okay. That's interesting. So your business uses a lot of data, and we've discussed how at every step of the value creation, you use data. Is that something that you can easily or that you can translate when you're in the business service line to companies that you would assess or consult with?

Yes. Absolutely, absolutely. The -- going back to the kind of last potential service offering, which is that product development potential service, all of our decisions upfront around what products to bring to market for our own in-house catalog, come from the data that we collect. But it also informs the amount of inventory we want to carry, what we think the volumes of that product are going to be, what's going to be necessary to get the attention of our channel partners. So yes, the data that we collect from the get-go, can be very powerful for the potential partners that we would work with on the services side absolutely.

So maybe the initial [hook] in most cases, might be your really strong relation with Amazon and then you might lay over more services. Is that the pattern you kind of expect?

Yes, yes.

Is that how it's shaping up with LTMATE? Is that -- you didn't specify the actual service that you're going to provide them, but maybe you can give us some color there?

Yes, that was -- that's the initial work we're doing with them. It's looking at their catalog and identifying the products and categories that are well suited for an e-commerce channel and then helping them with some of their kind of merchandising and listings to make sure that we can create that successful flywheel that happens in an ecosystem like Amazon, where they're seeing traffic sales are happening, people are responding to the products that they're buying by creating a positive reviews, and that cycle feeds on itself. We've demonstrated that with our own in-house products that cycle feeds on itself in a positive way. And so that really will be the primary work we do with them over the next probably 3 to 6 months. And then the relationship can expand from there based on kind of the success.

Okay. How will you be paid for that service? Is it going to be like a markup? Will you be buying product basically from LTMATE and reselling it on Amazon for them? Or -- do you get a fee for service? Or can you give us?

Yes, we haven't disclosed the monetization mechanism with them yet, partly because we're still -- we're still searching for -- or maybe search is that the right way. I think we have an idea where we think this is going to go. But we want to make sure that we're both responsive to them and creating a a good business for us. So I think when we're in a position to disclose it a little bit more fully, we will. But you touched on a couple of the ways that we can do it. And we've -- we're exploring both either fee-for-service or bringing product kind of through our - through our essentially through our income statement and balance sheet and then kind of reselling it to them. In both cases, the idea or the fee would roughly be or maybe the better way to say it, the kind of the revenue stream we collect would be equivalent, but we're still experimenting with them on the best way to do it.

So you indicated earlier that you were prompted by inbound request for -- for those types of assistance or services. Does it mean you have maybe a little bit of a pipeline of companies that maybe they approach you 6 months ago or 9 months ago. And do and you have [indiscernible] how close are you to having maybe a second client and more clients in that line of business?

Yes. So we actually already have a second client. We haven't disclosed the name yet. It's a different category electronics. And there's probably 8 to 10 others who we're talking to right now in various stages. And that's the subset of all the people that have approached us over the last 18 months. I think for us, we need to identify the right kind of partners. I mean I think what's probably the most important is the type of products that we think make the most sense given our capabilities have to be well suited for kind of e-commerce. And so the -- it's pretty important for us to be at least fairly selective early on. We don't want to ramp a business that's not a kind of long-term kind of profitable kind of business if we are looking at products, even if they're potentially fairly lucrative or the terms that the partner are willing to kind of offer us are attractive. These products have to have the right set of characteristics that make them suited for e-commerce distribution. So I think we're very optimistic that there's a lot of demand out there. We get incoming inquiries probably every week. So our challenge right now is to sort through those incoming inquiries and make sure that we quickly vet and then start a relationship with the ones that are -- have the highest likelihood to succeed in our ecosystem.

Will you have to staff up for this to take advantage of that opportunity? Or in the beginning, you can kind of handle them with the current workforce that you have? Or have you added people to the team to help with that?

So right now, a lot of what we do because of the tech infrastructure we put in place, we can run quite a bit of additional volume through our ecosystem without having to staff much, much more. And we have not added any additional head count. At least for these first two. I don't believe we're going to have to do much in the way of that until sometime after maybe potentially [customer 10], which is probably still a little ways out. So -- I mean the good news for us is that it will largely be an accretive proposition as we bring additional service customers online.

Right? So you can have a relationship that grows, for example, LTMATE, they can add more services and then you may be able to add more clients to that -- and those will be the two main ways of growing that new line of business.

Right.

Great. Well, I think that's a very interesting and astute way of leveraging your skill set. And hopefully, that can contribute. I think you've indicated in the last quarter conference call that you thought you would be able to go back to profitability at the EBITDA level in 2024 and maybe this can help you achieve that goal?

In the last 12 months, I think we're also a catalyst for us thinking more seriously about that part of the business. And yes, so we've started our fiscal year 2024 as of July 1. We're on a June fiscal year. And yes, our goal is to get back to the financial model that we had coming out of the IPO and for our first year as a public company. And I think this -- well, let's -- I think one way to think about it is like while we don't think we need this business, to do that. It will obviously -- if it takes off, make returning to that if not exceeding our kind of prior financial model, much easier. So there was clearly some motivation after the -- I think I called it the inventory [panic] of 2022 that prompted us to consider this as a business.

Great. Well, Kevin, this was a really good overview and very helpful.

Thank you.

Maybe do you have a rough idea of when you will be -- which week you will be reporting your fourth quarter, so people can get ready for that?

Yes. Right now, we'll report during the week of September 11th. This is our -- it's our year-end, and so we're -- this will be the 10-K, which I'm sure everyone understands it takes a little bit more time to put together than quarterly filings. So yes, it will be some time that we could September 11th.

Great. Kevin, this was, again, very helpful. I would like to thank you for your time I'd like to thank the audience, the live audience and the recorded audience. I think we might have missed a couple of disclosure at the outset. So I will remind people of those. The company has more forward disclosure on their website, which is meetipower.com, and there is an investor section there, too, that's very helpful. You can also find research on the company on our website Water Tower Research. We recently picked up Coverage. We have an initiation of Coverage Report there. And then also finally, we will get a transcript of this conversation and this will also be available on our website. Kevin, thank you very much for your time. Thank you to the audience for joining us, and we're looking forward to our next conversation.

Great. Thierry. Thanks so much.

Thank you. And this ends this session. Thank you. Goodbye, everyone.