This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
spk04: Good afternoon, everyone, and thank you for participating in today's conference call to discuss iPower's financial results for its fiscal fourth quarter and full year ended June 30th, 2022. Joining us today are iPower's chairman and CEO, Mr. Lawrence Tan, and the company's CFO, Mr. Kevin Vasily. Mr. Vasily, please go ahead.
spk02: Thank you, Lateef. Good afternoon, everyone. By now, everyone should have access to our fiscal fourth quarter and full year 2022 earnings press release, which was issued earlier today at approximately 4.05 p.m. Eastern Time. The release is available in the investor relations section of our website at meetipower.com. This call will also be available for webcast replay on our website. Following our prepared remarks, we'll open the call for your questions and 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, 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 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. With that, I would now like to turn the call over to iPower's Chairman and CEO, Morris Tan.
spk00: Morris? Thank you, Kevin. Good afternoon, everyone. Fiscal 2022 was a record year of growth and profitability for iPower, highlighted by an almost 50% increase in revenue, over 40% gross margins and a positive net income, all in excess of the guidance we issued for the year. Throughout the year, we focused on prioritizing our in-house product mix, which accounted for over 80% of revenue, compared to approximately 73% in fiscal 2021. More recently, we have begun to strategically diversify our product offerings into categories outside hydroponics, with products such as commercial fans, shelving equipment, and chairs, to name a few. Our non-hydroponics business nearly doubled in the fourth quarter and accounted for about half of all sales in fiscal 2022. This reflects both our ability to leverage data to identify new fast-moving product categories, as well as our ability to utilize extensive supply network to create products that can fill gaps in the market and bring greater value to customers. Looking back at the year, we delivered multiple strategic initiatives, including the expansion of our business to Europe and closing our first M&A transaction. At the start of 2022, we launched our business into Europe and the UK. With the completion of our first order delivery for consumers abroad, which including trimming devices, air filtration systems, tents, and other accessories, that service the DIY hydroponics market. As we have previously mentioned, we believe European market presents a medium to long-term opportunity for us as that market develops. During the fourth quarter, we extended our geographical reach with sales to Asia and South America as well. Although our business in these markets is nascent, we are keen on expanding our geographical presence. as we are able to leverage our global supply chain expertise to effectively enter this market. We acquired a global co-engineering partner, DHS, from China, and with the volatility in the supply chain over the last past year, we relied heavily on our global partner to source consistent, high-quality products in a timely manner. For that reason, we made the strategical decision to acquire 100% interest in the company. The acquisition expanded our supply chain and the e-commerce capabilities with in-house product sourcing, manufacturing network management, quantity assurance process, and R&D expertise. As mentioned on the last conference call, we are in the process of revamping our core image to properly showcase our business, as well as the various components that make up the iPower brand. This rebranding initiative will enable us as well as our product portfolio to optimize how we are perceived and positioned in the market. We expect to launch our rebrand in the coming weeks and look forward to going to market with a more consistent image and branding. Given the broader macro pressures in the market, including supply chain challenges throughout a year and inflationary impact on consumer wallets, I'm incredibly proud of the team for executing our plan and delivering exceptional financial results in the face of these challenging market conditions. We continue to increase our in-house product mix, expanded our geographic presence, and diversified our product portfolio to include several new categories beyond hydroponics. We are excited to build on this momentum. and deliver another strong year of results in fiscal 2023. I'll now turn the call over to our CFO, Kevin Lashley, to take you through our financial results in more details. Kevin?
spk02: Thanks, Lawrence. As Lawrence mentioned, our fiscal Q4 was another strong period of growth for the company. Total revenue was up 50% to $22.1 million compared to $14.7 million million in the year-ago period, driven by greater demand for iPower's non-hydroponic product portfolio, including commercial fans, shelving products, chairs, among other products. iPower's non-hydroponic portfolio accounted for approximately 54% of revenue in the fiscal fourth quarter, compared to approximately 37% in the year-ago quarter. Gross profit in the fiscal fourth quarter decreased to $9.1 million compared to $6.5 million in the year-ago quarter. As a percentage of revenue, gross margin was 41.2% compared to 44.4% in the year-ago quarter, with the decrease in gross margin driven by both product and channel mix, as well as elevated freight costs, which were partially offset by our decision to increase purchases and add to our inventory. Total operating expenses for fiscal Q4 were $10.6 million in the quarter compared to $6.3 million for the same period in fiscal 2021. As a percentage of revenue, operating expenses were 48% compared to 42.8% in the year-ago quarter. The increase in operating expenses were primarily driven by additional warehouse selling and fulfillment costs. Net loss in the fiscal fourth quarter of 2022 was $1.3 million per or $0.05 per share, compared to a net loss of $1.9 million, or $0.08 per share, for the same period in fiscal 2021. Although our net loss improved year over year, it's worth noting that we had less direct import business with our largest channel partner during the June quarter compared to earlier in the fiscal year, which had an impact on operating margins. Moving to the balance sheet, Cash and cash equivalents were 1.8 million as of June 30, 2022, compared to 6.7 million on June 30 of 2021. Decrease was attributed to our strategic decision to add inventory to offset some of the supply chain risk and volatility that we had seen earlier in the year and effectively fulfill customer demand. We saw the benefit of this approach so far in July and August, where we've recorded some of our straw good months of sales in company history. As of June 30, 2022, total long-term debt spended around $14.1 million compared to $500,000 in the same period ending June 30, 2021. This increase was attributed to the note associated with the acquisition of our global engineering partner, DHS, as well as a function of timing as we utilize our revolving credit facility to better manage working capital. As we look to the rest of fiscal 2023, we plan to continue driving significant growth in the business while remaining prudent with our capital allocation and expense management. That said, it's no secret that the global landscape has shifted fairly materially so far in 2022. Additional business risk driven by supply chain challenges and inflationary pressure has created a level of uncertainty in projecting exactly what our business will do in the next 12 months. We always strive to provide useful and accurate depiction of our business each quarter. However, we at this point decided to hold off on providing specific financial guidance for fiscal 2023 until visibility on the macro improves. That said, we do want to be clear here, you know, that we have expectations of continuing to drive meaningful growth in the business as well as profitability. And we think that we're in a really good position to execute on all of our growth objectives for the year. With that, we will now open the call for questions. Operator, please queue them up.
spk04: Thank you. As a reminder, to ask a question, you will need to press star 1 1 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Scott Fortune of Raw. Your line is open. Please go ahead, Scott Fortune.
spk03: Revenue product mix. You know, you said we reached the 54%, Can you unpack that segment a little bit and provide a little more color on what is driving the growth of that mix? And looking out into fiscal 2023, can you provide a little bit of expectations of the non-hydroponics versus kind of hydroponic mix as we look out to the coming year here from that standpoint? That'd be great.
spk02: Yeah, Scott, we didn't quite get all of the first part of your question, but I think we got most of it. Lawrence, you want me to take this real quick? Yeah, sure. Yeah, so, you know, answering the second part of your question first, I don't think we're in a position to predict kind of what that mix is going to look like. The way that I would kind of characterize, and I think, you know, we've talked with you and others about how we go about product development and product extensions, et cetera. I think the best way to think about a lot of our non-hydroponic business is that they are extensions of not only what we've learned in the product development and merchandising and kind of sales execution side of hydroponics, but then we saw that there were natural use cases for quite a few of the products beyond hydroponics. So maybe two really easy examples would be in kind of the ventilation segment where quite a few of what we were selling for kind of hydroponics kind of fan applications could be used for non-hydroponics, home use, commercial warehouse use, et cetera. And we saw an opportunity to extend that product line to include or go beyond wall fans for floor fans and stand fans as an example. where we saw through our data opportunities in the market that weren't being addressed with the same kind of price point and potential quality that we thought it could be serviced with. Same thing for some of the shelving products that we offer, which were originally developed for applications inside a growing project. Those shelving units with some modifications could be targeted and marketed to non-hydroponics applications. And again, through the work that we do in identifying categories where we see there's opportunity, it was a natural extension for us. So given our margin profiles in both those areas, they seemed like really right areas to go and we did very well in providing that product that had appropriate value for customers who were looking for that. We're as happy as we could be at this point for how well those have taken off. There are probably some other categories where we can do that, but we still see a lot of growth in those areas as well. Does that help, Scott?
spk03: Yeah, no, I appreciate the color. That's really good. Obviously, you put initiatives that extend beyond the hydroponic side, and that's playing out. But can you provide a little more color on the new sales channel initiatives kind of on the hydroponic side, more specifically looking into the big box kind of partners from that standpoint, JVs, kind of a little bit more color? as you look after 2023 with different new sales channel initiatives coming on for you going forward here?
spk02: Yeah, Lawrence, maybe you want to take that one.
spk00: Go ahead. Yeah, sure. We have been working on a new sales channel, and I'm pretty delightful with the program. So we'll start to see some good development in new sales channels. As for hydroponics product line, we have shown pretty good performances why the whole market is not in a very favorable situation for the last couple of years. And I think we did that by grab more market share, provide pretty good value products to consumers. We also, going down the road, will not only recover as the hydroponics market recovers as a whole, but also be having new products that we developed ourselves, both hardware and software as a solution that offers to the market. So we'll start to see some interesting applications on the hydroponics product line. compared to the non-hydroponics product lines. And all of these new products or SKUs will be good for both online and offline applications.
spk02: Yeah, and Scott, one other comment on that front. So we have, as Lawrence mentioned, initiatives to develop kind of channel relationships with the big box retailers that you might expect. We can't really talk about them specifically at this point, but I think most people would recognize the people that we are engaged with and beginning to work with. One thing I think we can say is that Without mentioning the name, we got our first small set of orders from a fairly well-known channel partner that once we're in a position to announce, will be recognizable by kind of anybody who shops at these types of places. So as you know, getting into Biggest Box Retail is a much different is a much different proposition than selling online. And so we've put a fair amount of effort and work in the last six months to begin that process, and we're just starting to see the early benefits of that. And so the way that we like to think about it is that we achieved kind of this really, really strong growth this year without having significant additional channel partners at our disposal. So all of that is really kind of in the future for us. And we're cautiously optimistic that we'll start to see some momentum in 2023. Great.
spk03: I appreciate the color. And thanks and congrats on the quarter. Thank you.
spk04: Thank you. Our next question comes from Michael Baker of D.A. Davidson. Please go ahead, Michael Baker.
spk01: Okay. Thanks, guys. So a couple questions here. One, you know, understanding you're not giving guidance for sales growth in 2023, but can you talk about, so you said July and August are some of the strongest sales months you've had. Is that in terms of dollars or growth? Just trying to put that in context to the fourth quarter growth, which was 50%. versus your long-term plan that you've said in the past, I think 25% to 30%. So how should we think about one Q within that range with you saying that they're two of the strongest months you've ever had?
spk02: Yeah, that comment was with regard to dollars. September's not done yet, so I don't want to comment too specifically on Q1, but... Remember, I think last September was a reasonably strong quarter for us. And I think maybe the best way to say it is we're going to be off to a better start in fiscal 2023 coming out of the gate than we were in the first quarter of fiscal 2022. But the comment specifically in the press release was about absolute dollar levels. They were just both really strong, which was part of the reason we wanted to have a fair amount of inventory kind of on hand exiting the June quarter for some of the steps that we were starting to see.
spk01: Okay, well, so let me follow up on the inventory part of that answer. How should we think about working capital uh in 2023 you understanding you know the the reason to to increase inventory and and that is helping sales but you know your net cash is way down versus a year ago um one of the different your debt is way up do you start to work that down now uh your receivables are pretty high so does that working capital start to get worked down now and you start to generate some cash from that inventory or you know does the inventory still go up from here
spk02: Yeah, I don't think it'll go, at least in the near term, it shouldn't go up from here. I think part of what was happening for us as we kind of worked our way through the June quarter is anybody who's watching the news or reading the news knows China was continuing to go through a fair amount of volatility relative to citywide lockdowns, and there was a fair amount of concern that if we could get our hands on product to avoid any impact, given that we felt that we were still seeing really strong demand trends, we were going to do it. I think some of the things that have changed since the beginning of that June quarter is that I think we're starting to see the lead times for both be able to get product, but also kind of shipping times go down, which means to support similar levels of sales, or if we kept sales equal, our ability to kind of get product faster and turn that inventory faster improves. And so in an ideal world, we'll be able to bring that inventory level down, yet still meet the sales targets that we have. So I think working capital will change. We should be in a less cash-consuming stance probably sometime after we exit the September quarter, and then we'll just have to see from there. But I think it's likely that we saw, again, relative to inventory turns, the high watermark for the company.
spk01: Okay. And then a couple more. Again, I'm saying you're not giving guidance, but just thinking about 2023. Your profitability on the EBIT line was down this year versus last year. The margin, I calculate, 2.9% versus 5.4% last year. So I guess if I ask you if that's going up next year, I suppose that's giving guidance. But what can you say about your operating margin How does the mix into non-hydroponic products or doing more overseas impact that margin? Is the long-term margin closer to that 5.4 or the 2.9? Like as the business has changed, that it's going to be less profitable than it was a year ago?
spk02: No, I don't think it's changed. I think what's changed over that 12-month period is was that kind of lead times to get product extended. So that's one. There was some volatility there. Two, during that period, that 12-month period that ended this past June, we had a significant spike in freight costs, which have to flow through kind of our cost of goods sold as well. And then there are some, I hate to use the word transitory, but costs that we had to incur, particularly in the June quarter, that to support some of the inventory that we wanted to hold, we needed some temporary space to house that inventory, and so carrying that space beyond what our warehouses could hold for a short period of time was an incremental cost above what we would normally have to pay if we either had our own space and or didn't want to carry that inventory for that kind of short period of time. I think as supply chains normalize, and that includes the comments I made earlier about lead times to get product across the Pacific shortening, but also the cost of containers coming across the Pacific, which is now heading back down to levels we saw pre-pandemic, that we'll get some just natural lift in the business, all other things being equal, such that we can be headed back in the right direction. The other thing I would say, too, that stood out in the June quarter was the amount of business that we pushed through the direct import program that we have with Amazon was lower than it was in prior quarters. We're optimistic that that will change, too, that we'll get a higher level of that in the In the future, although, you know, there's no guarantees of that, but if we're able to, you know, improve from where we were in the June quarter, that's a, you know, that's an upward lift to operating margins because, you know, a lot of the costs, particularly on the sales and fulfillment side and on the freight costs, you know, are carried by Amazon in that program. So, you know, that's a better... That's a better EBIT environment for us, and it was a low number relative to prior quarters for us. So as we look at the business, to us it feels like a lot of the things that became headwinds in June can shift to tailwinds as we progress through 2023. Okay.
spk01: Fair enough. That's encouraging. One more, if I could, maybe more for Lawrence, bigger picture. Describe this new branding a little bit more. So is this sort of branding away from hydroponics or, I don't know, or Zenhydro or anything you could flesh out on that? And then what's the goal of that? Well, two things. I presume that's aimed to drive more sales. So if you could talk about the goals or how we measure the success of the rebranding and what is the cost of that going to be? Is all of a sudden they're going to be like a big expense incurred on a marketing line or something along those lines?
spk00: Yeah. Hey, the rebranding is for us to actually better present iPower as not only just a hydroponic company. We now have more lines. different brand names and different subcategories, not just hydroponics. So we want people to understand that we are beyond just one hydroponic company. We are an e-commerce company. We also have services capabilities. So we've been working on rebranding iPower so that we can show everybody what iPower really is. and what's inside iPower's organization, the rebranding won't cost us that much as we are not reprinting logos or even if we need to do that, it will be step by step. It won't be an overall change all the market material. So that's very much controlled. But I think rebranding will be
spk04: making uh the broader public understand eye power beyond just hydroponics understood all right thanks for all the time appreciate it thank you thank you thank you at this time i'd like to turn the call back over to kevin vasily for any closing remarks sir
spk02: Great. Well, thanks, everyone, for joining us for our year-end earnings call. We look forward to speaking with you guys again soon as we're rapidly approaching the end of our fiscal Q1. So we'll be talking to everyone again in November. Thanks again. Thank you. This concludes today's conference call.
spk04: Thank you for participating. You may now disconnect.
Disclaimer