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Operator
Good afternoon, everyone, and thank you for participating in today's conference call to discuss iPower's financial results for its fiscal third quarter 2024, ended March 31st, 2024. 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.
Vasily
Thank you, operator, and good afternoon, everyone. By now, you should all have access to our fiscal third quarter financial 2024 earnings press release, which was issued earlier today at approximately 4 or 5 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. 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. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only 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, 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. Our presentation today also includes certain non-GAAP financial measures, including adjusted net income and EPS, as supplemental measures of performance of our business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You'll find reconciliation tables and other important information in the earnings press release in Form 8-K, which we furnished to the SEC this afternoon. 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 on September 15, 2023. 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 forward-looking statements. With that, I would now like to turn the call over to iPower's Chairman and CEO, Mr. Lawrence Tan. Lawrence?
Lawrence
Thank you, Kevin, and good afternoon, everyone. We achieved the strong financial results in our fiscal third quarter as we generated double-digit revenue growth, record gross margins, and improved operating leverage, resulting in our return to profitability. We are also gaining momentum in our super-sweet supply chain business, which contributed to our top-line growth in the quarter and now accounts for approximately 10% of the total revenue. In fiscal Q3, our largest channel partner returned to a normalized inventory position and purchasing cycle, which led to stronger order volumes during the quarter. We are pleased with the demand from our largest channel partner and will ensure our product catalog is stocked with the high quantity offerings that our customers expect. Our super sweet business, as we have often stated, provides us with valuable insights that we can utilize to enhance our internal capabilities. The acceleration of revenue reflects the value we provide through our superior supply chain, fulfillment, and merchandising expertise. We will continue to invest in this new business as we work through our robust pipeline of prospective partnerships and believe this business will continue to take a greater share of revenue mix going forward. We have always placed a strong emphasis on diversifying revenue demonstrated by the launch of SuperSuite last fiscal year. We have also deepened our online presence with social e-commerce platforms like TikTok Shop, where we continue to see solid growth. In April, we expanded our sales channels by launching on Teemu and have seen promising early results in the kitchen, and categories. Over the last couple of years, we have purposely shifted our focus from hydroponics to prioritize our core competence as a data-driven consumer products and services company. More recently, we've begun to wind down our legacy commercial hydroponics business, where we sold directly to local commercial distributors. We are working through the remaining inventory now and expect to sunset this channel altogether in the coming months. Turning to OPEX, we continue to benefit from our internal initiatives to drive saving in our selling and fulfillment operations. With a healthier supply chain environment, we are no longer required to hold high levels of inventory as we have returned to normalized lead times. We have also sought through most of our high-cost inventory, enabling us eliminate short-term warehousing costs and improve margins. As of March 31st, we further reduced our inventory level by 25% compared to December 31st, 2023. We are also in the early stage of benefiting from third-party warehouse staffing and expect to realize additional savings in the future. Looking ahead, we are well-positioned close out fiscal 2024 on a strong footing between the strong demand from our largest channel partner, accelerating growth in SuperSuite, and expansion into new e-commerce channels such as Tmoo. I will now turn the call over to our CFO, Kevin Vasily, to take you through our financial results in more detail. Kevin.
Vasily
Thank you, Lawrence. Less referenced otherwise, all variance commentary is in comparison to the prior year quarter. Let me dive into our fiscal Q3 results. Total revenue increased 15% to $23.3 million compared to $20.2 million. The increase was primarily driven by greater product sales to our largest channel partner in addition to growth in our super sweet supply chain offerings. Gross profit in the third fiscal quarter of 2024 increased to 41% to 10.9 million compared to 7.8 million in the same quarter of fiscal 2023. As a percentage of revenue, gross margin increased 850 basis points to a record 47% compared to 38.5% in the year-ago quarter. The increase in gross margin was primarily driven by improved pricing through our key supplier negotiations as well as favorable product mix. Total operating expenses for fiscal Q3 were $9.3 million compared to $9.6 million for the same period in fiscal 2023. As a percentage of revenue, operating expenses improved 740 basis points to 40.1% compared to 47.5% in the year-ago period, reflecting the operating leverage in our business as well as lower selling and fulfillment costs, resulting from, among other things, some vendor credits. Net income attributable to iPower in the fiscal third quarter improved to $1 million, or $0.03 per share, compared to a net loss of $1.5 million, or a loss of $0.05 per share, for the same period in fiscal 2023. Adjusted net income attributable to iPower, which excludes legal fees for arbitration, net of tax impact, improved to $1.6 million, or $0.05 per share, compared to an adjusted net loss of $1.4 million, or a loss of $0.05 per share in the same period in 2023. Moving to the balance sheet, cash and cash equivalents were $2.7 million as of March 31st, 2024, compared to $3.7 million at June 30th, 2023. Total assets stood at $6 million, compared to $1.7 million at June 30th, 2023. Decreases driven by our continued efforts to pay down debt, which resulted in a 59% reduction in net debt to 3.3 million compared to 8.1 million of net debt as of June 30, 2023. Cash flow from operations was essentially neutral in fiscal Q3, largely driven by an increase in our direct import business with Amazon. which carries both higher operating margins but slightly longer payment terms. To summarize, we are beginning to realize the benefits of less high-cost inventory and internal optimization efforts, which drove our record gross margin and improved operating leverage for the quarter. We also continued to strengthen our balance sheet by reducing net debt by nearly 60% during the quarter compared to June 30, 2023. And as Lawrence touched on, we've got multiple additions in place to drive further growth as we look to fiscal Q4 and the year ahead. This concludes our prepared remarks and we'll now open it up for questions. Operator?
Operator
If you'd like to ask a question at this time, please press star 1 1 on your touchtone telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.
Lawrence
Our first question will come from the line of Scott Fortune with Roth MKM.
Scott Fortune
Yes, good afternoon, and thanks for the questions. Congratulations on the strong quarter, and it seems that a lot is driven from the strong order from, obviously, you've called out the largest channel partner as they return to more of a normalized inventory kind of purchasing cycle, but moving forward, How should we look at this kind of going forward? Can we kind of take historical kind of growth from years past as far as going forward with this, moving forward with them, and just kind of call out the products or the kind of industries that's driving a lot of this growth through that large channel partner? Because it seems like the consumer demand remains strong for your products, but what is your partner telling you as you look out for the rest of the year with them?
Vasily
Lawrence, why don't you take the second part of the question, the products and kind of the overall demand, and I can talk a little bit about kind of what this means kind of going forward.
Lawrence
Sure, sure. So the largest channel partners, they historically has, in the last couple of years, been at a similar position as us, like going through the high-cost overstock inventory. Now, we moved quite a bit faster than the industry. Now, our partner seems to work better than the rest of those comparable larger channels. So what this means, what I think is that going down the road, it has been returning to a steady, normal, healthy replenish mode. As for product mixed, since our products are focusing on value of the commercial, I'm sorry, consumer products, those products are pretty resilient to economical change. And what I think is that the demand will continue to grow. So even during the years where iPower has been trying to recover from the overstocking from the high-cost inventory, what we see is the demand is still there. Demand is still growing. And I believe this is going to be a trend going forward. As we introduce the Super Suite, we will add on more of these supply chain partners provide a good value product to the consumers in our network. Um, I believe the, uh, uh, going down the road, uh, we have pretty good, uh, a future to, to catch on.
Vasily
And then Scott, just on, uh, kind of how to think about kind of this quarter versus, you know, prior quarters, uh, I'll remind everyone we don't give, uh, specific guidance. Um, but what I'll say is, uh, we, anyway, I think we talked about this a little bit on the last quarter, the, the kind of order rates, uh, from our largest channel partner, uh, in the December quarter were really a reflection and probably a, a, uh, larger than we anticipated work on kind of their own inventory management, uh, and we did expect a bit of a rebound in this quarter, and we saw it. So I think, you know, some combination of historical kind of quarterly trends with, you know, some caution on our part because we want to make sure that, you know, we're not seeing kind of a bit of a bullwhip from that channel partner where, you know, they may have, you know, potentially brought a little bit of extra demand into this current quarter. But I think what Lawrence touched on is correct. We have multiple additional opportunities to work with partners on the super sweet side, all of which we can use that large channel partner as a sales avenue for them. So, you know, It's still a little early to say in this quarter, but we're very optimistic about where we're headed. So hopefully that's enough for you to kind of take to your model, and we can talk a little bit more if you've got other questions.
Scott Fortune
Yeah, that's helpful. I appreciate that color. And just following up with that, the super-suited services, that now accounts for, what, 10% of the business, but are you expecting expanding your existing partners there, or a lot of this came from the new kind of food industry partner that you're bringing on board. Just kind of step us through kind of the partnerships you have and kind of the growth from a capacity side and expense side to kind of you have enough room here without adding too much more on the expense side to continue to add and service new partners here, which will continue to drive the gross margin side, and just kind of remind us gross margins on service side business, and is that ticking up, or can the overall gross margins, as it helps for that gross margin improvement, just kind of more color on the service suite would be helpful.
Vasily
All right, so there were a lot of questions there. Let me try to do a couple of them one by one. I think we've said in the past that early on, as we bring new partners on, our gross margins... in particular, as we're using as our entree with a new partner, the sales and fulfillment service offering, those gross margins are going to be at or even slightly below our normalized gross margins. But as we grow those individual partners, I think we can get better than our kind of historical gross margin average. And I think we were seeing some of that in this quarter. I'll let Lawrence talk a little bit about some of the kind of opportunities that we have. Most of what we were doing in the quarter was growing our current partners. And so I think when I said as these partners mature with us, we can see better than than corporate average gross margins. I think you're seeing some of that show up in this quarter. I think it's important also to point out that over the last year, in addition to working hard to bring down inventory, remove the additional costs that we had, both from kind of the high freight burden, but as well as kind of excess costs costs associated with temporary warehouse space, we were working with quite a few of our suppliers at ways of taking additional costs out of the products that were being manufactured, such that we can then bring to market products that were carrying better gross margins. We're seeing the fruit of that as well. So I think we've been working hard on both the cost of goods sold as well as operating costs. And I think, you know, we're, you know, we're very pleased so far as to where we are and we, you know, we think we still have some work to do going forward. I will, I will remind, and I think we said this on the last call too, there still is some inventory that we actually in our fan business, which is strongest in the, in the, summer months that carry higher freight cost burdens than products that we're buying now in that category. So we're going to have to bleed that through. It's not a ton, and we don't think it will materially impact gross margin. But we're not selling any of that in the January to March period. As you might expect, people aren't buying a whole lot of fans when it's cold outside. Lawrence, maybe you could touch on just the kind of potential companies that we might be working with as we bring additional partners on in the SuperSuite business.
Lawrence
Sure, sure. So the super suite really come out of the internal capabilities we'll be developing as a retailer online. So with the logistics ability, the software and technology and business intelligence where we develop both internally and working with external technology suppliers enabled us to become a effective sales and merchandising platform and the fulfillment platform for supply chain brand. Now, we started to get inquiries from these partners a couple of years, starting a couple of years ago, about working together and marketing and merchandising their product. So where the super suite, that's where the super suite comes from, And the few categories we've been already working on, including electronics and home products, we'll probably share with more details in the coming short time to give more details to the market. The framework has been working internally for a while, and I do have quite a bit of down the road in the pipeline where we are actively working on and hopefully start to see good results going down the road. As for the gross margin, it actually depends on the product categories. Um, but, uh, um, what I see this is at our, our, uh, in-house products will continue to grow. Uh, it will still drive the business, uh, substantially, uh, for a period of time, um, until the super sweet start to explode, but the super sweet side can grow much, much faster than, uh, our in-house. parts of a business. So that's why we have a pretty good, we feel like that part might start to see much, much better growth rate than the in-house part. As for the gross margin, as it grows faster, it may carry It may not carry as high as the gross margin of the in-house product, but the revenue side is going to be a lot higher. That's what I tend to see down the road.
Scott Fortune
That's helpful. And Lawrence, real quick, just to follow up on that, you've had SuperSuite in play here for a little while. Are you seeing the pipeline looking to accelerate? Are you having more discussions kind of further down the road on bringing on new clients to the super suite? Just kind of help us understand kind of the expansion opportunity here near term. Obviously, long term is a pretty good opportunity, but kind of near term, where are you seeing from those discussions?
Lawrence
In near term, I'm working with both the brands or supply chain partner to bring on board as well as key strategical partnerships to bring on board. I tend to think that SuperSuite is kind of like an open platform where we can bring key partners into this platform and where they can bring more supply chain and brands into into the platform. So that's what I see down the road, and I've been working on it for a while.
Scott Fortune
I appreciate the call.
Lawrence
I'll jump back in the queue. Thanks. Our next question comes from the line of Thierry Bouloud with Water Tower Research.
Thierry Bouloud
Yeah, Lawrence, Kevin, good afternoon. Congratulations on the quarter. You covered quite a bit of ground, but maybe just a few questions. First, on the gross margin, is cost input a big factor? You get better pricing or lower cost on the input for your product? Is that what I'm reading?
Lawrence
Mr. Thierry, do you want to take this?
Vasily
I didn't hear the question.
Thierry Bouloud
There's two reasons for improved margin, favorable product mix, and then improved pricing. Does it mean the input costs have been going down or have been better than expected?
Vasily
Okay. Yeah, I heard that part now. Do you want me to take it, Lawrence, or do you want to take it? um you can take it that's fine yeah yeah yeah so uh it's both uh the every quarter you know i think i uh i try to emphasize this we given the size of our catalog now as well including the uh the super sweet partners that are utilizing our sales channel uh there is a distribution of, uh, of margins. They're not all at obviously, uh, sitting at 43%. Uh, and so, you know, the mix skewed towards our high market for sure. This thing that's been, uh, and I think I referenced this in my answer to Scott was that there, there have been a number of initiatives underway for the last year, with some of our largest contract manufacturing partners to take costs out of the products that they're manufacturing for us. That allows us to bring products to market with a lower cost of goods sold, and those efforts are starting to show up. So it's both, Terry. Okay.
Thierry Bouloud
Okay. In terms of a sales channel, you mentioned you started TEMU in April, so obviously that was not in that quarter's results, but can you give us a sense of which channels are developing the fastest besides Amazon? And if you're going to have any meaningful, maybe physical channel also?
Vasily
Lawrence, you want to take that?
Lawrence
Yeah, sure. Teemo is a very interesting channel. They approached us and we are working with them since April. So far, we've been seeing pretty good results already. And the platform is pretty value-centric. So it's more like very, very similar to Amazon where they're trying to bring the best value to the consumer and that fits our category and our catalog pretty well. So I think we're gonna do do well there on this channel. So so far, I think this channel is growing pretty fast. On the social media side on Tiktok shop, we've been seeing a steady growth and we've been working pretty well on there. But we all know that the uncertainty of Tiktok shop going down the road is uncertain. But fortunately, it's not a big part of our business so far. So we'll play and see. We already have the infrastructure developed. We already have the methodology. And so far, it's doing well. So we'll see. We've also been working on HomeDepot.com, Lowe's.com, Target.com. Those have pretty different model working with these platforms than the Amazon platform. give a comparison where we work with buyers and we work with product selections and we've been getting more product be improved. We're still working on that now. But a good thing about that is once we do well on the .com, we may get an opportunity to entering the physical stores. If that's what you've been asking. That's true.
Thierry Bouloud
Great. Okay, then maybe one last question. You mentioned that the business street business is helping you enhance your internal capabilities. And I'm kind of curious how that's working or, or what that means.
Lawrence
Okay, so along the way, where we working with our partners on the on the super speed platform, we also gain more knowledge is on end industry. different categories, and we're also enhancing our abilities of data software as well as fulfillment. So we think of that as an open platform where we not only just work with supply chain partners, we're also working with logistics partners as well and other technology partners. So Along the way, where we're working with everyone, we've been getting better and better enhanced capabilities, and we're sore about working with all these partners. So not only we services people, we also gain knowledges and expertise and other strengths along the way.
Thierry Bouloud
Great. Thank you, guys. Thank you, Terry.
Operator
That concludes today's question and answer session. I'd like to turn the call back to Kevin Nassily for closing remarks.
Vasily
Okay. Thank you, everyone, for joining us today. We look forward to either speaking with you when we report our fiscal Q4 and full year results for 2024 in September. and or seeing you or speaking with you at a conference in the interim. Thanks again, and we'll talk again soon. Bye-bye.
Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.
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