Ispire Technology Inc. Q1 FY2026 earnings call

• Shifted strategic focus to higher-quality customers and the higher-value nicotine sector.
• Substantially reduced total operating expenses by ~39% YOY, from $12.9M to $7.8M.
• Net accounts receivable decreased from $62.4M to $44.5M YOY.
• Net loss improved from $5.6M to $3.3M YOY, with non-GAAP EBITDA at $600,000 for Q1 2026.
• IKE Tech joint venture making progress with age-gating technology in Europe, SE Asia, and the Middle East.
• In-depth discussions with nicotine companies regarding proprietary G-Mesh technology solutions.
• Malaysian manufacturing facility build-out progressing, aiming to ramp up production from 6 to 80 lines when fully operational.

In the first fiscal quarter of 2026, total revenue was $30.4 million, a decrease from $39.3 million in the same period last year due to shifting away from the cannabis industry. Total operating expenses were reduced substantially by approximately 39% year-over-year, from $12.9 million in Q1 last year to $7.8 million in Q1 this year. Net accounts receivable decreased from $62.4 million in Q1 of fiscal 2025 to $44.5 million in Q1 of fiscal 2026. Net loss improved from $5.6 million in fiscal Q1 2025 to $3.3 million for Q1 fiscal 2026, and non-GAAP EBITDA was $600,000 for the quarter ended September 30, 2025. Gross profit reduced to $5.1 million from $7.7 million the prior quarter, with gross margins at 17% compared to 19.5% in the same period last year, primarily due to product mix changes.

• Expect reduced costs, improved P&L, and strengthened cash flow to continue through fiscal 2026.
• Anticipate ODM partnerships to contribute to revenue growth in future quarters.

• Uncertainties associated with forward-looking statements and factors that could cause actual results to differ materially.
• Geopolitical conflicts between the US and China affecting supply chain strategy.
• Dependence on regulatory approvals in Malaysia and other regions for manufacturing and technology adoption.

Q: Congrats on the quarter. First one for me, you mentioned the partnership and licensing opportunity. Some companies have partnered with JUUL or entered into licensing agreements to sell product here in the U.S. given JUUL's patent library. As some of these agreements expire, what's your sales pitch to potentially onboard these clients given your offering does not infringe on any of JUUL's patents?

A: Nick, thank you for the question. Yes, indeed, everybody is aware about the situation related to the JUUL patents. And our technology specific to not only the G-Mesh itself, but also to overall product design, we have our own patents, and we certainly are far away from JUUL's patents. So we are confident with that approach as we talk to the nicotine -- potential nicotine partners. And certainly, that is our angle because some of them are running on certain licensing agreement or royalty agreement with JUUL and some agreements are coming to the end of their life cycle. We are aiming to capture some such customers. I hope I answered your question, Nick.

Q: Second for me on the Malaysian license. You received the interim earlier this year. Just wondering if you could update us on the timing of when do you expect to receive the final license and just how that changes the discussions you're potentially having with these larger strategic partners.

A: Yes, great question there. Yes, we received our interim license and that interim license is valid until October 2026. So -- but interim license, while we can operate under the interim license, we are in the process of getting this, let's call it, permanent license. And we are making progress on that front. We just need to meet certain safety and compliance requirements from the Ministry of Trade and Ministry of Health. We are certainly making progress on that front, knocking down one requirement after another. So I am very confident either before the end of this year or right around the new year, we should receive the permanent license.

Q: If I could squeeze just one more in. You mentioned working with other countries to get this age-gating technology off the ground. What are the chances that these regions move before the U.S. does? And just what are you hearing from these other countries about potentially adopting the technology?

A: We -- our feeling and based on the conversations we have had with those other countries is those countries could well, I would say, ahead of the U.S. in adopting such technology. And in those countries, there is a strong tendency of making -- educating a mandate for all e-cigarettes sold in such countries. So FDA certainly will take its steps in assessing the component PMTA that we submitted back in May. And even though that will move, in our opinion, faster than standard PMTA, those other countries we have been in conversations with, I feel strongly they could move much faster. Their regulatory process and legislative processes are very different from the U.S. However, on the FDA side, I'm very optimistic about what's going to happen. Just last week, there was a conference held in Washington, D.C. attended by many key leaders from FDA, specifically the Center of Tobacco Products. And we all know that agency plays the single most important role in PMTA approval. And at the conference, everybody was talking about age-gating being the solution to solving the so-called flavor issue. From the speech, it sounded like FDA is embracing the idea of flavored e-cigarettes and the only concern they have is youth access to such products. So age-gating at point of use is widely discussed right now. So I hope that builds some tailwind for our technology, Nick.

Q: This is Helen on for Pablo. I have just two questions, more for the U.S. market. First question, given the potential for new recreational cannabis market in the U.S., in Virginia and in Pennsylvania and for Texas to be a large medical market, would you reconsider your U.S. strategy and become to focus more on the U.S. cannabis again?

A: Helen, thank you for the question. As far as the U.S. cannabis business, I think we all know, as an industry, we have waited and hoped for some federal level changes. And right now, we really don't see any immediate change to de-scheduling, rescheduling, federal legalization, stable banking, all those things. And the reason I mentioned all those things is because the industry is facing or has been facing cash flow challenges, whether we operate in California or New York, Michigan, Colorado, or I think ultimately, Texas, for example. So we are certainly very, very invested in the cannabis industry here. But until we see signs of financial support to the industry, we really are concerned about overall ability to be paid on a timely basis. So to put it bluntly, that's our #1 concern. So we will keep our eyes on the development on the cannabis side. On first sign of major change at the federal level, we will certainly double down and reinvest in this space. Until then, we will continue to take a cautious approach. We only will deal with, as we have been saying, high-quality customers, meaning customers who could actually pay on time. So obviously, cash flow is very important to us. So that's the #1 criteria for us. So we'll keep our eyes open. As more states legalize cannabis, and more importantly, as federal level changes takes place, we will double down, Helen.

Q: For our last question, I know this is hypothetical and -- but if the Supreme Court were to reverse President Trump tariff policy, how would that make you change your supply chain strategy in relation to the U.S. market?

A: Great question. If that indeed is overturned, we will certainly diversify our supply chain. However, one key thing we are mindful of is the geopolitical conflict between the U.S. and China will not get any better anytime soon. So that's another key consideration for ours. In addition to the consideration for tariffs, indeed, we already have contract factories in China. We now have our own factories in Malaysia. If the tariff situation improves, we certainly will try to leverage both locations. Whichever advantage we can exploit, we will, Helen.

Q: The -- I have not seen the full filing, but your press release discussed year-on-year changes, but also meaningful growth in sales and gross margin compared to the 1Q with the 4Q. So the Q-to-Q, there is significant meaningful growth, I mean. Can you discuss what drove that? Is it by product or by region?

A: Yes, by product is really the change in product mix, minimizing or reducing our reliance on the cannabis business. So that's a key change. However, on the other hand, on the mixing side, we did have -- of course, in the long past, our revenue came from our branded products. And over the course of the last few quarters, we onboarded ODM customers. I think that part of the revenue will only grow in the future quarters. So nicotine ODM customer, our partnerships will be a key focus for us going forward. But no matter what, from our point of view, we will continue to focus on quality revenue, and we will continue to focus on improving gross margin. And more importantly, we will continue to focus on controlling our cost so that our profitability picture will change. As you heard from Jay, we reduced our net loss significantly. And on a non-GAAP basis, we made over $600,000 in profit for the quarter. That's unprecedented, and we expect that trend to continue with improved cash flow, improved P&L, and of course, improved gross margin over time, Helen.