Ispire Technology Inc. Q2 FY2025 earnings call

• International growth and financial stability: Continued progress in growing internationally and enhancing financial stability, with revenue slightly up, gross margin and profit increasing due to better customer mix and overseas expansion.
• Nicotine business: Nicotine business accounted for $31M in Q2 revenue, successful launch of BrkFst in South Africa and Nigeria with over 500 retail locations, plan to reach 2000 stores in 6 months via partnerships.
• Malaysian operations: Secured nicotine import and export licenses, nearing manufacturer's license, with operational expansion plan to scale operations.
• Stock repurchase: Board authorized a $10M stock repurchase program through Jan 2027 using existing cash and operational cash flow.
• PMTA strategy: IKE Tech joint venture completed pre-PMPA meeting with FDA, age-gating component PMTA submission planned for April 2025, plan to file pod system PMTAs for flavored ENDS products.
• Cost savings: Moving functions to Malaysian operations to reduce operating expenses by over $8M annually.

For the fiscal second quarter of 2025, total revenue was $41.8 million, a slight increase of 0.3% from the prior year. The nicotine business accounted for $31 million of the revenue, which is approximately 74.2% of the total. Europe had revenues of approximately $24 million, a 53.2% increase year-over-year. North America had revenues of approximately $10.9 million, a 45.3% decline. Asia Pacific had revenues of approximately $3.6 million, a 39.6% decline. Africa had revenues of $2.7 million, a 260% increase from the prior year. Gross profit was $7.7 million (up from $6.3 million) with a gross margin of 18.5% (up from 15%).

• Revenue saw a slight year-over-year increase. - Board authorized a $10M stock repurchase program. - PMTA age-gating component submission planned for April 2025. - Expecting to close more cannabis partnerships in coming quarters. - Cash flow progress but onetime expenses may delay the expected cash flow break-even in the March quarter.

• Geopolitical risks: Potential impact of U.S. tariffs on China-made products and geopolitical factors affecting manufacturing. - Regulatory uncertainties: Uncertainties in U.S. cannabis regulation under the new administration and evolving policies. - Illicit market: Difficulty in completely eliminating the illicit market despite PMTA efforts, though technology aims to capture a portion of it.

Q: On cannabis partnerships and the pipeline, including I-80 technology.

A: Repivoted to work with MSO/large SSO customers, partnered with 3 companies (Aperage, Raw Garden, Juxi) with more partnerships expected in coming quarters. I-80 machine making progress, geared towards high-volume MSOs/SSOs.

Q: Europe revenue growth and regulation.

A: Positioned for UK disposable vape ban, refillable pod devices benefit from regulatory shift towards open systems.

Q: Cash flow and stock buyback.

A: Stock buyback program is flexible, cash flow made progress but onetime expenses related to cost-saving initiatives may push back the expected cash flow break-even in the March quarter.

Q: U.S. tariff and regulation impact.

A: Tariffs on China-made products expected, but manufacturing in Malaysia helps mitigate risk. Tightening border control benefits legitimate operations. Cannabis regulation under new administration is uncertain.

Q: Modular PMTA opportunity.

A: Component PMTA allows licensing technology to other manufacturers for age-gating in their products, with large potential in the illicit U.S. e-cigarette market.