Ispire Technology Inc. Q1 FY2025 earnings call

• Strategic shift in U.S. market focusing on high-quality accounts to improve bottom line, with notable improvements in gross margin, payment terms, and accounts receivable management.
• International expansion momentum with state-of-the-art Malaysian facility driving margin expansion.
• Joint venture with Berify and Chemular on next-generation age verification technology for e-cigarettes, with a first discussion with FDA on this technology scheduled for November 13.
• Submitted PMTA application for a disposable ENDS product for four flavors and plan to submit PMTA application for Pod system in 2025.
• Unveiled I-80 vape filling machine at Benzinga Cannabis Conference, which redefines production efficiency.
• Expanded global reach with 5-Year Master Distributor Agreement with ANDS for Middle East and North Africa region and Global Duty-Free markets.

For the fiscal first quarter 2025, Ispire generated revenues of $39.3 million, a decrease of $3.5 million (8.2%) from the same period last year. European revenues were approximately $22 million in Q1 2025, an increase of $2.1 million (11%) from the previous fiscal year. North America Q1 2025 revenues were approximately $9.7 million, a decrease of $8.1 million (46%) from the same period last year. Asia Pacific revenues were approximately $3.9 million, a decrease of $1.2 million from the same period last year. Rest of the world revenues were $3.8 million, an increase of $3.7 million from the same period last year. Gross profit was approximately $7.7 million, an increase from $6.8 million in the same period last year, and gross margin grew to 19.5% from 16%.

• Believes U.S. cannabis-related revenue bottomed out in the first quarter with strategic repositioning.
• Confident in full-year revenue growth despite Q1 dip, with focus on global nicotine business.
• Aims to turn cash flow positive by the March quarter of fiscal 2025.

• Risks associated with forward-looking statements, where actual results may differ materially.
• Regulatory challenges related to PMTA submissions and age verification technology approval.
• Market uncertainties in the cannabis and nicotine industries affecting revenue and operations.

Q: Should we think the U.S. revenue bottomed in the fiscal first quarter and will start to recover in the second quarter or is it a longer period effect?

A: The U.S. cannabis-related revenue should bottom out, with repositioning strategy started the prior quarter, and strongly believe it has bottomed out with focus on top-20 accounts and assisted by I-80 filling machine.

Q: Do you still expect total revenue to grow in the 2025 fiscal year?

A: Still optimistic about full-year revenue growth, with global nicotine initiatives contributing to growth despite Q1 dip.

Q: What drove the gross profit margin decline from prior peak?

A: Lower gross margin relative to prior peak was due to initial inefficiencies in ODM relationship with European brand, but gross margin still increased YoY from cannabis/U.S. revenue with higher margin.

Q: When should we expect improvement in accounts receivable and operating cash flow?

A: Striving to turn cash flow positive by March quarter, with AR improvement continuing as U.S. strategy takes effect and global nicotine business normalizes.