iPower Inc. Q1 FY2024 earnings call

• Continued revenue growth despite a record comp in the year-ago period due to strong demand for high-quality products and growth in super suite supply chain partnerships.
• Non-hydroponics products accounted for over 75% of total revenue for the second quarter in a row.
• Tapped into social commerce channels, including being an approved seller on TikTok, leveraging its algorithm to reach users and build brand reputation.
• Made progress in reducing warehousing and inventory expenses, and began to see benefits from reducing higher-cost inventory, though a shift in demand at a key sales platform impacted operating margin, with efforts underway to address it.

Total revenue for Fiscal Q1 2024 was $26.5 million, an increase of 2% compared to $26 million in the prior year. Gross profit increased 18% to $11.8 million, with gross margin rising to 44.4% from 38.4% in the prior year. In-house products account for over 90% of revenue. Non-hydroponics products made up over 75% of total revenue for the second consecutive quarter. The super suite supply chain partnerships are generating approximately $600,000 in monthly revenue, with an annualized run rate of around $7 million.

• Confident in consumer demand for the portfolio of high-quality, affordable products.
• Taking steps to diversify revenue mix, achieve operational efficiencies, and improve the balance sheet.
• Well-positioned to capitalize on prospective acquisition opportunities while executing profitable growth initiatives.

• Forward-looking statements are subject to inherent uncertainties, risks, and changes in circumstances beyond control. Actual results may differ materially from forward-looking statements. Risks and uncertainties are described in the company's SEC filings, including the annual report on Form 10-K.

Q: Can you step through what you’re seeing as a seller on TikTok, what products are taking hold, and the economics of selling on TikTok?

A: Home and kitchen goods sell well on TikTok. TikTok has attractive economics with normalized margins being more favorable, subsidized shipping on initial orders, and lower merchant fees compared to some platforms.

Q: Help us understand the cadence of the gross margin, especially with mix and the services business ramping?

A: Gross margin improvement is due to favorable product mix and working through higher-priced inventory. There will still be fluctuation in the next several quarters, but in a steady state, gross margins should stay above 40%.

Q: What insights are you getting from the SuperSuite business activity?

A: Learning about supply chain partner behavior, how they operate and react to the market through data collected, which helps in working with them better to expand the business.

Q: How does the product selection process work on TikTok, is it push or pull?

A: Initially placed products based on market understanding, now influencers actively contact, so the process is both ways now, having passed the cold-start period.

Q: Are you planning to add more partners to the SuperSuite, and will the run rate go higher?

A: There are pipelines of prospective partners, plan to expand the category, and the run rate is likely to only grow as the business succeeds and attracts more high-quality partners.