Ispire Technology Q1 2025 Earnings Report

Ispire Technology EPS Results

• Actual EPS: -$0.10
• Consensus EPS: -$0.10
• Beat/Miss: Met Expectations
• One Year Ago EPS: -$0.04

Ispire Technology Revenue Results

• Actual Revenue: $39.34 million
• Expected Revenue: $45.60 million
• Beat/Miss: Missed by -$6.26 million
• YoY Revenue Growth: N/A

Ispire Technology Announcement Details

• Quarter: Q1 2025
• Date: 11/11/2024
• Time: Before Market Opens
• Conference Call Date: Monday, November 11, 2024
• Conference Call Time: 8:00AM ET

Ispire Technology (NASDAQ:ISPR) researches, develops, designs, commercializes, sales, markets, and distributes e-cigarettes and cannabis vaping products worldwide. The company was founded in 2019 and is based in Los Angeles, California. Ispire Technology Inc. operates as a subsidiary of Pride Worldwide Investment Limited.

Ispire Technology Q1 2025 Earnings Call Transcript

Key Takeaways

• In Q1, total revenues were $39.3M, down 8.2% year-over-year due to a strategic shift in the U.S. cannabis hardware business toward high-quality, financially stable accounts.
• Gross profit rose 12.1% to $7.7M and gross margin expanded to 19.5% from 16%, driven by a favorable product mix and operational efficiencies at the Malaysian facility.
• Ispire’s international growth accelerated via its state-of-the-art Malaysian facility and a joint venture with Verifi/Kemular on blockchain-based “edge gating” vape technology, with a fast-tracked FDA meeting scheduled for November 13.
• Post-quarter, the company unveiled the I-eighty vape filling machine, capable of filling 4,000 half-gram devices per hour—up to 10× faster than manual systems—to drive production efficiency and customer adoption.
• Ispire secured a landmark 5-year master distribution agreement with ANDS for the Middle East, North Africa, and global duty-free markets, expanding the reach of its Hidden Hills Club nicotine portfolio.

Presentation

[Operator]

Hello, everyone, and welcome to today's conference call to discuss Ispire's financial results for the fiscal Q1 2025 ended September 30th, 2024. At this time, I would like to inform you that this conference is being recorded and that all participants are in listen-only mode. We will be facilitating a question-and-answer session following the prepared remarks from the company. Joining us today are Mr. Michael Wang, the company's co-CEO, and Mr. Jim McCormick, the company's CFO. First, Mr. Wang will brief you on the company's key highlights, and then Mr. McCormick will review the company's financial results. 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.

[Operator]

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 would now like to turn the call over to Mr. Michael Wang. Mr. Wang, please go ahead.

[Michael Wang, Co-CEO at Ispire Technology]

Thank you, Operator, and thank you all for joining us this morning. For the quarter, we generated revenues of $39.3 million. This represents a decrease of $3.5 million or 8.2% from the same period of last year. This was partially impacted by delayed shipments as well as our careful and measured ramp-up in our global nicotine business. However, the number one driver for the decrease in revenue is due to the shift in our U.S. strategy. As we reported previously, our U.S. hardware business is 100% from the cannabis industry. As all of you know, the key challenge facing this industry is cash flow, largely due to the Internal Revenue Code Section 280E and the general lack of banking services available to the industry. In the last two quarters, we have focused our U.S.

[Michael Wang, Co-CEO at Ispire Technology]

Business operation on enhancing our overall customer portfolio of high-quality accounts and strong financial stability, which we believe will ultimately lead to better bottom lines for Ispire. In other words, we have focused more on the quality of customers and the quality of revenue rather than quantity. As a result, we saw a decrease in U.S. revenue from the same period last year. However, we also have started seeing strong fundamentals in our U.S. operations, with notable improvements in gross margin, payment terms, and account receivable management. We believe this approach of focusing on gross margin, better payment terms, and better account receivable will lead to a more sustainable long-term financial performance. While our top-line revenue saw a dip this quarter, we expect this dip to be temporarily in nature, and I'm particularly pleased to report that fiscal Q1 2025 delivered substantial improvements in our key profitability metrics.

[Michael Wang, Co-CEO at Ispire Technology]

We achieved a notable 12.1% year-over-year increase in gross profit to $7.7 million and expanded our gross margin to 19.5% from 16% in the same period as the previous year. This is a significant step in the right direction, and what is especially encouraging is that we were able to deliver higher gross profit and a higher gross margin with lower revenue, which directly reflects the success of our strategic focus on high-quality accounts and enhanced operational efficiency, including the improvements we are seeing through the use of our Malaysian facility. We believe these results validate the strategic initiatives we have taken as our innovative vaping technology and precision dosing solutions continue to resonate with consumers. Our international expansion continues to build momentum, which is highlighted by our state-of-the-art Malaysian facility.

[Michael Wang, Co-CEO at Ispire Technology]

This best-in-class asset continues to help drive margin expansion as we look to increase our global footprint in the international nicotine market while further driving down operating costs. This quarter, we continued to make significant progress through our joint venture with Berify and Chemular on creating a next-generation point-of-use age verification technology for e-cigarettes that will prevent youth access and improve user experience. As we have stated previously, this is a cutting-edge vape hardware innovation using blockchain technology as we understand the critical needs for safety and security in this industry. I am particularly excited to share that we will have our first discussion with the FDA regarding this transformative age technology this Wednesday, that is November 13th. We look forward to updating investors on the outcome of that meeting and the continued advancement of this initiative.

[Michael Wang, Co-CEO at Ispire Technology]

We are also maintaining our strong regulatory posture as we recently submitted a PMTA application for a disposable end product for four flavors, again, four flavors. We are on track to submit a PMTA application for pod system in 2025 as we are close to finalizing the age verification technology. This is an important step for the company as we aim to further capitalize on the approximately $80 billion in U.S. nicotine market. As we look ahead, we remain confident in our strategic direction and ability to capture the significant opportunities in front of us as we take a thoughtful approach to scaling our global nicotine business. Additionally, subsequent to quarter end, we announced the unveiling of our revolutionary I-80 vape filling machine at the Benzinga Cannabis Conference in Chicago in early October.

[Michael Wang, Co-CEO at Ispire Technology]

The industry-changing machine will redefine production efficiency as it is able to fully fill and seal 4,000 half-gram vapor devices per hour. In contrast to current methods being used, the I-80 is up to 10 times faster than traditional systems and twice as fast as current automated systems. The I-80 also eliminates the need for device capping, which helps to boost overall workflow efficiency by up to 1,000% compared to manual methods and 100% over current automated systems. Current users in the industry see the I-80 as a must-have device given the significant improvement in productivity and cost savings they are seeing. The I-80 fits in perfectly with our overall objective of being the world's leading provider of best-in-class vape technology and precision dosing solutions.

[Michael Wang, Co-CEO at Ispire Technology]

Also, post-quarter end, we have expanded our global reach through a landmark five-year master distributor agreement with ANDS for the Middle East and the North Africa region and for the global duty-free markets. This partnership will enable us to bring our Hidden Hills Club nicotine portfolio to new markets, offering adult consumers innovative, harm-reduced alternatives to combustible cigarettes. We are confident that this collaboration will position Ispire for continued growth and success as we advance our mission of providing industry-leading vaping technology worldwide. With that, I will turn the call over to our CFO, Jim McCormick, who will review and comment on our financial results.

[Jim McCormick, CFO at Ispire Technology]

Thank you, Michael. I'd like to take this opportunity to summarize our key financial results for the fiscal Q1 2025. In my comments, I will refer to the fiscal Q1 2025 as the three months ended September 30, 2024. All comparisons are to the prior year ended September 30th, 2023, unless otherwise stated. As Michael mentioned, we achieved higher gross profit and improved margins even with lower revenue. Overall, our total revenue for the fiscal Q1 decreased slightly to $39.3 million or by 8.2% compared to the same period last year. This revenue was driven by the following performance across our key regions. European revenues of approximately $22 million in Q1 2025 increased by $2.1 million or 11% over the previous fiscal year. This was primarily as a result of increased sales of Aspire vaping products in the region.

[Jim McCormick, CFO at Ispire Technology]

In North America, Q1 2025 revenues of approximately $9.7 million represented a decrease of $8.1 million or 46% compared to the same period last year. The decline was driven by a decrease in cannabis vaping hardware sales in the U.S., as Michael mentioned previously. Asia-Pacific revenues were approximately $3.9 million, a decrease of $1.2 million compared to the same period last year. For the rest of the world, revenues were $3.8 million and increased to $3.7 million from the same period last year due to an increased level of sales in South Africa of $2.9 million. During the three months ended September 30, 2024, our gross profit was approximately $7.7 million compared to approximately $6.8 million for the same period last year. Over this same period, our gross margin grew to 19.5% from 16%.

[Jim McCormick, CFO at Ispire Technology]

The increase in gross profit and gross margin was primarily due to favorable changes in product mix, with higher margin products being sold during the fiscal Q1 ended September 30, 2024. Total operating expenses for the fiscal Q1 ended September 30, 2024, were approximately $12.9 million compared to approximately $7.7 million for the same period last year. This increase was primarily due to an increase in expenses to support the expanded business footprint in the areas of payroll, contract wages, sales and marketing, professional fees, as well as increased stock-based compensation. As a result of these activities, our net loss was $5.6 million or $0.10 a share compared to a net loss of $1.3 million or $0.02 a share for the fiscal Q1 ended September 30, 2023.

[Jim McCormick, CFO at Ispire Technology]

As of the end of the fiscal Q1 2025, the company's cash position was $37.7 million, with a working capital balance of $12.1 million. Net cash provided in operating activities was $3.6 million for the three-month period ended September 30, 2024, compared to $13.1 million used for operating activities in the same period last year. Net cash provided by investing activities was $0.9 million compared to $0.8 million used in investing activities for the same period last year. There was no cash used in financing activities in the first fiscal quarter compared to $0.7 million used for financing activity in the first fiscal quarter of 2024. With that, this concludes the review of Ispire's fiscal Q1 2025 financial results. I will now turn the call back over to Michael.

[Michael Wang, Co-CEO at Ispire Technology]

Thanks, Jim. As we close this quarter, I'm pleased that we have continued to make significant progress across our global business lines. While our revenue softened slightly due to the shift in U.S. strategy and the timing of shipments, we were still able to achieve major growth in our gross margin, reflecting the strength of our innovative product portfolio. Our strategic focus on higher quality customer relationships, as well as the use of our state-of-the-art Malaysian facilities, and efficient global operations. We also reached an important milestone in our joint venture to develop transformative age verification technology, securing a fast-tracked meeting with the FDA to discuss this critical industry initiative. We remain committed to our operational excellence and profitability as we build on the momentum from the transformative fiscal year 2024.

[Michael Wang, Co-CEO at Ispire Technology]

As we move forward into the Q2 of fiscal 2025, we are confident our strategic investments and continued innovation position us well for sustained profitable growth. I would like to thank you all again for your time today, and we look forward to sharing our continued progress in the quarters ahead. If you have any questions, please contact us through email at ir@ispiretechnology.com. Operator, this completes our prepared remarks, and we are now open to questions. Please go ahead.

[Operator]

We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Bo Pei with US Tiger Securities. Please go ahead.

[Bo Pei, Senior Equity Research Analyst at US Tiger Securities]

Hi, Michael. Hi, management. Thanks for taking my questions. So my first question is about our strategic shift in the U.S. market. So should we think about that, I guess, the fiscal Q1, is it more like a bottom in our U.S. revenue? So meaning it will start to recover starting in the Q2, or is it more like a longer period effect? Thank you.

[Michael Wang, Co-CEO at Ispire Technology]

Thank you. The U.S. cannabis-related revenue, I would say the Q1, meaning the last quarter reported, should bottom out. Our repositioning of the strategy really started the quarter before. The recent quarter financial reflected the effect of that decision. We strongly believe we have bottomed out as we have completely repositioned our U.S. strategy and shifted toward, let's just say, with our primary focus on the top 20 accounts. Certainly, we are entertaining next year, but the primary focus is the top 20 accounts. This is going to be much assisted by the introduction of the I-80 filling machine. As I previously reported, all customers who have tested our self-sealing product line, that's Ispire One line, really love the hardware because of the efficiency, the simplicity involved in filling and packing the device.

[Michael Wang, Co-CEO at Ispire Technology]

However, for the last six months, we have been working on a higher capacity filling machine. First-generation machine had only one needle. So even though each device could be filled within 10 seconds, still, you can only fill one device at a time. So we then moved to a three-needle machine that much improved the production efficiency. And finally, we launched the 80-needle device or machine, hence the name I-80. So with 80 needles, filling 80 devices on a single tray in two minutes, you can just imagine how fast that whole process is, especially without the need of capping the device. So after we launched it, certainly, it sped up our conversations and negotiations with several MSOs and large accounts that have been waiting for this machine for a while. So on one hand, prior MSO or large accounts have accelerated their reordering.

[Michael Wang, Co-CEO at Ispire Technology]

Additionally, with the new accounts signing up, we strongly believe in the coming few quarters, revenue on the U.S. side will only increase.

[Bo Pei, Senior Equity Research Analyst at US Tiger Securities]

Thank you, Michael. That's helpful and good to hear that. And then my second question is, with the shift in the strategy in the U.S., do you still expect total revenue to grow in the 2025 fiscal year? Maybe can you talk about the total revenue and also the U.S. revenue?

[Michael Wang, Co-CEO at Ispire Technology]

Yeah. For overall revenue, we are still very optimistic about the year. Even though the Q1 saw a dip, we are very, very confident that the full-year result will still be very encouraging in terms of growth rate. Of course, we are striving to grow at the same pace as last year, and we are confident with that endeavor. Specifically to the U.S., U.S. revenue, I think, given the three quarters to go still in the year, we are, of course, striving to meet or exceed last fiscal year. But overall, global revenue should come more from our global nicotine initiatives.Bo?

[Bo Pei, Senior Equity Research Analyst at US Tiger Securities]

Got it. And then the gross profit margin, I mean, our total revenue actually grew a little bit sequentially from fiscal Q4 2024, but our gross margin declined quite a bit from 27.8% to less than 20%. Can you talk about the driver there? Is it about the U.S. strategy shift? And then how should we think about the gross profit margin going forward, or maybe just for this fiscal year?

[Michael Wang, Co-CEO at Ispire Technology]

Yeah. So I will break down into two parts. On one hand, U.S. revenue and its corresponding gross margin have continued to increase. So from that point of view, our strategy, our execution are still on track. Relative to the peak of a gross margin, like you mentioned a couple of quarters back, 19.5% seems to be lower than before. That is mainly because last quarter was the beginning of our ODM relationship with a European brand. And because this is a new customer of ours, as you can imagine, there is a great deal of initial learning involved. And in picking up any large accounts with ODM relationships, there will be some inefficiency early on.

[Michael Wang, Co-CEO at Ispire Technology]

And then over time, as we do more and more of the same work, efficiency certainly should increase, both from labor side as well as from supply chain price negotiation and the leverage point of view. So I would say that is a key contributor to the, relatively speaking, like you pointed out, lower gross margin from the peak quarter a couple of quarters back. But relative to the same quarter last year, we still saw an increase in gross margin. That was indeed driven by the cannabis/U.S. revenue with a higher margin. Bo?

[Bo Pei, Senior Equity Research Analyst at US Tiger Securities]

Got it. And my last question is about our accounts receivable. So now with the strategy shift in the U.S., when should we expect to see an improvement in the accounts receivable line on the balance sheet related to that? Also, the cash flow statement, when should we see some improvement in the operating cash flow activities?

[Michael Wang, Co-CEO at Ispire Technology]

Yeah. This is a much bigger question that you ask. I think I'll break down into two parts. I'll actually answer your second part of the question first as far as the cash flow. Cash flow-wise, we are striving to turn cash flow positive by not the current quarter, by the March quarter. That, of course, is a result of not only AR improvement, but more importantly, by then, we strongly believe our global nicotine business will start a normal cycle and will get into a more normalized operation. Right now, we are still in the early phase of a global nicotine initiative. As you know, anytime you attack a new market, you enter a new channel. There is rather heavy lifting before everything gets into a normal flow. So that's why we strongly believe with our strategy and execution, we'll turn cash flow positive the March quarter.

[Michael Wang, Co-CEO at Ispire Technology]

Now back to the AR side. As you saw, AR actually increased only about $4 million this recent quarter versus the quarter before. With the total revenue of $39.5 million and AR increasing only by $4 million, it's an indication that on one hand, our U.S. strategy is having effect. On the other hand, it's also a reflection that the team has worked diligently on a broader base in collecting AR, reinforcing the payment agreements we have with customers. We think that progress on the AR side will continue this quarter and all the way into the next quarter as well. From our point of view, I think the rapid increase has slowed, and now we are hoping to get into a healthy cadence. Bo?

[Bo Pei, Senior Equity Research Analyst at US Tiger Securities]

Thank you, Michael. That's all my questions.

[Operator]

As a reminder, if you would like to ask a question, please press star, then one to be joined into the question queue. This concludes our question and answer session. I would like to turn the conference back over to Michael for any closing remarks.

[Michael Wang, Co-CEO at Ispire Technology]

Thank you. And once again, I want to thank you all for your time today. We look forward to the next call. In the meanwhile, if you have any questions, please feel free to reach out. Thanks again.

[Operator]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Michael Wang, Co-CEO
• Jim McCormick, CFO

Analysts

• Bo Pei, Senior Equity Research Analyst at US Tiger Securities