Ispire Technology Inc. Q4 FY2025 earnings call

• Strategic pivot from cannabis to higher-value nicotine sector, with intentional shift to focus on quality customers and reduce expenses.
• Invested strategically in Malaysian manufacturing, scaling up production with capacity for up to 80 production lines, diversifying production base and derisking from geopolitical factors.
• Undertaken cost optimization measures, reducing annual expenses by an estimated $10.2 million, including reducing general and administrative expenses and net accounts receivable.
• Breakthrough technologies like IKE Tech and G-Mesh gaining traction with interest from major tobacco companies.
• Strengthened leadership team with appointment of Jie Yu as CFO.

Fiscal year 2025 revenue declined to $127.5 million from $151.9 million in fiscal 2024. European revenue was approximately $74.5 million, an increase of $8.8 million or 13.6% compared to fiscal 2024. North American revenue was approximately $32.6 million, down from $63.1 million in fiscal 2024. Asia Pacific revenue totaled approximately $12.3 million, down from $17.6 million in fiscal 2024. Revenue from other countries was $8.5 million, an increase of $2.6 million compared to $6 million in fiscal 2024. Gross profit declined to $22.7 million from $29.8 million in fiscal 2024, with gross margins at 17.8% compared to 19.6% in fiscal 2024.

• International nicotine ODM business gaining momentum with over $18 million in pipeline revenue.
• Continued expansion of Malaysian manufacturing capabilities, with plans to build out facilities to meet growing demand.
• Expectation of revenue growth from expanding ODM partnerships and regulatory progress with PMTA for breakthrough technologies.

• Geopolitical factors affecting operations due to production base diversification.
• Regulatory uncertainties surrounding PMTA approval for breakthrough technologies.
• Cash flow challenges in the cannabis industry due to ongoing uncertainty and financial challenges for players.

Q: Can you tell us about the key milestones to look for in the age gating technology over the next few months or years, and the realistic target date for approval?

A: The age gating technology filed a component PMTA in late-April and received FDA acceptance within 4 weeks. Next step is FDA issuance of a deficiency letter, but timing is uncertain. Other countries are also moving fast on the technology. We have patents protecting our IP in this space.

Q: There was a big provision of $22 million in receivables. Can you give more color?

A: High amount of account receivable was driven by cash flow challenges of cannabis customers. We pivoted due to cash flow issues in the cannabis industry. There's continued opportunity in cannabis but cash flow challenges make it difficult in the near term.

Q: What do you expect in terms of onboarding larger clients and has that changed the expansion road map for the Malaysian facility?

A: Many companies are diversifying supply chains, and we're preparing for large ODM projects. We're considering a third facility in Malaysia, but expansion is timed by regulatory approvals. Malaysian operation was scaled carefully with regulatory approval in mind.

Q: Would the 4Q cannabis revenue number be a more realistic run rate going forward, and would rescheduling change the view on U.S. cannabis?

A: Q4 2025 was the bottom for cannabis revenue, and we expect to start gaining new customers and launching new products. If rescheduling happens, we would evaluate re-investing in the cannabis sector.