Ispire Technology Inc. Price & Performance (ISPR)

These forward looking statements involve known and unknown risks and uncertainties, and many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward looking statements. Further information regarding this and other risk factors are included in the company's filings with the SEC. The company undertakes no obligation to update forward looking statements reflect subsequent or current events or circumstances or to changes in its expectation except as may be required by law. I would now like to turn the call over to Mr. Wang. Mr. Wang? Please go ahead. Thank you, Phil. And thank you to everyone joining us this morning. I'm pleased to report our second quarter twenty twenty five results and provide an update on recent highlights. We have continued to make solid progress advancing our strategy of growing internationally. As well as enhancing our financial stability. For the second quarter of fiscal twenty twenty five, we generated revenues of $41,800,000 This represents a slight increase of $100,000 or 70.3% from the $41,700,000 in the same period of last year. Gross margin for Q2 increased to 18.5%, up from 15% while gross profit was $7,700,000 up from $6,300,000 in same quarter fiscal twenty twenty four.

This increase in gross margin and gross profit, is largely driven by our focus on transitioning toward a better quality of our customers and a better quality of revenue. Changes in product mix as well as contribution sales from our expansion overseas. As we have stated during recent quarters, we have made significant strides in improving our overall customer portfolio mix. With higher quality accounts rather than simply quantity of accounts. Combined with the focus on payment terms and account receivable, this has translated into intense financial stability, and consistent revenue. Which contributed to our margin expansion in the second fiscal quarter. We have seen increase momentum across our nicotine business which accounted for $31,000,000 of our overall revenue in the second fiscal quarter. And is continuing to perform in line with expectations. We are pleased with ongoing progress in sales from this division as we expand and gain traction. In new markets internationally. We are particularly excited about our progress in Africa. Which has shown a solid contribution to sales. Post quarter end, we announced the successful launch of our breakfast nicotine product across South Africa and Nigeria. This was a significant milestone. Marking our first international nicotine license arrangement and product launch.

Our breakfast brand cocreated with the Grammy Award winner, Burnaby, has achieved strong early success. In just a short period, we have established a presence in over 500 retail locations, across South Africa and Nigeria. Including major chains such as Pick n Pay, [indiscernible] and various [indiscernible] The market response has exceeded our expectations. And we are accelerating our expansion plans to reach more than 2,000 stores in the next six months. Through partnerships with additional retailers, including Checkers, bar, and family stores.

To support this, we have implemented a comprehensive market activation strategy with brand ambassadors conducting daily events across major metropolitan areas in Cape Town, and Johannesburg. This hands on approach has been instrumental in building strong relationships with both retailers and consumers. The success we have already seen validates our strategy for entering new market through strategic brand partnerships. The South African market represents a significant opportunity With Statista, projecting the revenue in the tobacco products markets, to grow annually by over 5% between now 2029. And Ice Bar is well placed to leverage this growth. Turning now to an update on our Malaysian operations. Which continue to be a key component of our global business strategy of providing innovative vaping and edge gating technology solutions. To consumers. I'm pleased to report significant progress in securing the necessary regulatory approvals as we have successfully obtained both nicotine import license and export license. From the Malaysian government Two critical milestones that advance our operational capabilities in the region. We are now in the final stages of obtaining our manufacturer's license. Which then will complete our regulatory requirements and allow us to fully activate our comprehensive operational expansion plan.

This operational expansion plan combined with our progress in licensing, positions us to significantly scale our operations. Once we receive the final manufacturer's license. At that point, we'll have the complete regulatory foundation and physical infrastructure for imported nicotine products manufacturing country with over 70 plus production lines in a new facility and export worldwide from Malaysia. Another benefit of our operating out of Malaysia is that it diversifies our production base lowering the risk of a geopolitical impact on our pricing and competitiveness. Looking ahead, we are preparing to launch our eight gated [indiscernible] in The UK market in the first half of calendar. 2025. With expansion into The UK, represents another significant milestone in our international growth strategy and demonstrates our commitment to responsible market entry. Was appropriate age verification measures We believe these international initiatives to capture a large share of the global nicotine product market. While maintaining our commitment to responsible distribution and consumer safety. From a balance sheet perspective, we have taken important steps to further stabilize our financial position. In January, we announced that our Board of Directors has authorized [indiscernible] repurchase program of up to $10,000,000 of our outstanding common stock through January 2027, to be funded through existing cash on hand and operational cash flow.

This program was executed due to our Board's confidence in iSpire's long term vision and further demonstrates the company's belief that our equity is undervalued relative to the growth we expect in future quarters. We believe this program represents another step in our commitment to creating sustainable and long term shareholder value. I would also like to take a moment to emphasize the transformative potential plug and play component PMTA strategy. Through our IXTECH joint venture, We completed a successful pre PMPA meeting, with the FDA's Center for Tobacco Products on November 13, 2024, where they indicated they would accept our component PMTA submission and consider our request for priority review. If approved, our age verification technology would be the First, component PMTA in FDA history. Allowing for modular use in hundreds of ends [indiscernible] To put this opportunity in context The legal market for electronic nicotine delivery systems in The U. S. Is approximately $11,000,000,000 and is limited exclusively to tobacco and month of What most people don't realize is that Mentor is the only flavor FDA has approved for lawful sale in Ann's product to date. And that all other flavors sold in the market are being done so illicitly Initial reports are that this is a potential $7,000,000,000 opportunity for iSpark.

However, our research suggests the true market potential could actually be three to seven times larger. IQ Tech is on track to submit the eight gating component PMPA in April 2025. Highspot will also be filing its own part system PMPAs. For flavored ENDS products Using the IPTAC edge gating system, Our plan is to initially introduce four flavored products with the potential to expand to between six and ten offerings.

If authorized, this would provide adult consumers with a safe regulated alternatives while preventing youth [indiscernible] a stark contrast to the current market where consumers risk their health with unregulated [indiscernible] As we prepare to submit our application, we believe this technology represents a pioneering approach to expanding adult access to PMTA authorized flavored products. While setting new standard for industry safety and compliance, Before turning the call over to our CFO, Jim, I would like to discuss the company wide cost savings initiatives that we recently instituted. As we continue to increase our worldwide operation, It's imperative for the company to leverage the global resources and the facilities that we currently have. In The U. S, Malaysia, Hong Kong and China. As such, we are currently in the process of moving certain functions and daily roles over to our Malaysian operations.

Which will help further streamline our overall business and significantly reduce our operating expenses. The cost savings we expect to generate from these strategic moves will be over $8,000,000 annually By doing so, we can achieve an optimized cost structure for iSpot while moving the company toward becoming breakeven and cash flow positive. To sum up, we are pleased with the progress we are seeing across our business lines. Furthermore, we continue to successfully execute on our international expansion strategy. While driving future sales growth, and enhancing our overall financial stability. With that, I'll turn the call over to our CFO, Jim McCormick. Will review our financial results. Thank you, Michael.

Before I review our key financial results for the fiscal second quarter twenty Please note that I will refer to the fiscal second quarter twenty twenty five as the three months ended 12/31/2024.

All comparisons are to the prior year ended 12/31/2023 unless otherwise stated, As Michael previously noted, we reported growth in both gross profit and gross margin in the quarter. Our total revenue for the fiscal second quarter increased to $41,800,000 representing a slight increase Our key geographic regions. In Europe, revenues of approximately 24,000,000 In quarter two twenty twenty five, represents strong growth of 8,300,000.0 or 53.2% versus the same period last year. Revenues from North America in quarter two twenty twenty five of approximately This reduction is consistent with the company's effort to focus on higher customers in the region. Asia Pacific revenues approximately $3,600,000 a decline of 2,400,000.0 or 39.6% compared to the prior comparable period. Revenues from Africa were 2,700,000.0 an increase of $2,600,000 from the same period last year. As a result of our launch in South Africa, as previously mentioned by Michael. For the second fiscal quarter ended 12/31/2024, we recorded gross profit of approximately $7,700,000 compared to approximately 6,300,000.0 for the same period last year. Gross margins for the second quarter were 18.5% up from 15% last year. The increase in gross margin and gross profit was primarily due to changes in product mix and more higher margin products being sold in line with our selective customer strategy in North America.

For Q2 twenty twenty five, total operating expenses were compared to approximately $10,200,000 for the same period last year. This increase was primarily due to increased expenses in line with our strategic initiatives including continued investment in our Malaysian production facility, expansion of our international nicotine business and increased expenses related to our product development function. Our net loss was 8,000,000 or $0.14 a share versus a net loss of $4,000,000 or $0.07 per share in the prior comparable [indiscernible] At 12/31/2024, our cash position was $34,400,000 with working capital balance of $6,100,000 For the six months to 12/31/2024, net cash provided in operating activities was 400,000.0 This represents a significant improvement versus the same period last year where $20,200,000 was used for operating activities. Net cash used in investing activities for the six months through 12/31/2024 was $1,100,000 compared to $1,900,000 used in investing activities in the prior comparable period. No cash was used in financing activities over the six months ended 12/31/2024, compared to 700,000 being used for financing activities in the prior comparable period. With that, this concludes the review of iSpire's fiscal second quarter twenty twenty five financial results. I will now turn the call back over to Michael.

Thanks, Jim. To close, I'm proud of the progress we achieved over the second fiscal quarter in progress in our strategic priorities With the continued momentum across multiple strategic initiatives, We grew revenue as well as margin. Reflecting our successful transition to higher quality customer relationships, and expanded global presence. We achieved several significant milestones [indiscernible] Including the successful launch of breakfast products in Africa, with over 500 retail locations. Securing key regulatory approvals in Malaysia, and completing a productive pre PMTA meeting with the FDA for our innovative eight gating technology. Additionally, our newly announced $10,000,000 stock repurchase program demonstrates our confidence in iSpire's future. And our commitment to delivering shareholder value. Looking ahead, we are excited about the many transformative opportunities. Particularly with iTech's edge gating component PMPA submission, planned for April and our expanding international presence. Our strategic focus on technology innovation, regulatory compliance, and global expansion position us well to capture significant market opportunities while promoting responsible industry practices. Thank you all again for your time today. And to all our investors, for your continued support. We look forward to updating you further in the coming quarters. If you have any questions, please contact us through e mail at highspiretechnologies dot com.

This completes our prepared remarks and we are now open to questions. Operator? Please go ahead. [indiscernible] Our first question comes from the line of Nick Anderson with ROTH Capital Partners. Please proceed with your question.

Yes, good morning. Thanks for taking the question. First one for me, just on the cannabis partnerships and the pipeline. You mentioned last quarter the cannabis business has bottomed out. Looking for color on the pipeline and where you're at in terms of monetizing there. Any discussions around the i-eighty technology would be helpful too. Thank you. Nick, thank you.

As far as our cannabis business, Part of the reason that we pivoted about six now seven months ago was to hear our business more toward the MSO or large SSO type of customers. On that front, as we all know, they have more predictable future demand. And much easier for us to plan around their demand. Versus just reacting to sporadic orders.

So on that front, we have been successful in capturing and working with and partnering with three companies already The very first such customer was April, and followed by Raw Garden and In the pipeline, in the coming quarters, we are expected to close a couple more relationships [indiscernible] But even with these three accounts. Certainly predictable future demand would you would say pipeline that you are talking about?

We feel these three large accounts alone can provide roughly a third of our revenue in the foreseeable couple of quarters. So obviously, as we continue to getting new partnerships in place, with other MSOs and SSOs We expect this three accounts percentage or weight to be reduced. As we continue to onboard new customers. I hope I answered your question. [indiscernible] regarding second question is regarding the i-eighty filling machine. That's also integral part of our re pivoting last summer. Obviously, is more geared towards the high volume MSOs. And SSOs. So on their plant machine is continuing making making progress. In the eyes for partners and the customers alike. So in addition to us providing such machine to our key accounts, we are also looking ahead to potentially partner with other machine manufacturers to make such solution available to the existing installed base. So on that front, [indiscernible] and gaining recognition as we originally expected. [indiscernible] I appreciate that color. Second one for me, just on Europe.

That revenue was nicely up year over year. Could you dimensionalize the performance there? You have the leading open system. We've seen some regulatory momentum around restricting closed systems or limiting their use in general. Just any color on what you're seeing over in Europe would be helpful. Yes. In Europe, obviously, it's the most watched market is The U. K. Market. And in The UK, as of this June, disposable vape devices would be completely banned And as result, the market will have just two main types of products, either a complete open system or in some cases the so called [indiscernible] So for the last year or so, we have been positioning ourselves for this day We designed a series of refillable parts devices in anticipation for the market and the regulation change. And certainly, our open system will continue to benefit from. The shift in regulation there. So you are correct. Part of our Sprint in Europe is because of our positioning in The UK, towards the banning of these sponsors. We strongly believe this trend will continue across [indiscernible] European countries as well. So from that point of view, our product portfolio and offerings will be perfect perfectly in line with what's going on as far as regulatory landscape goes.

Nick? Great.

That's it for me. I appreciate the color. I'll pass it on. Thank you. Our next question comes from the line of Bo Pei with U. S. Tiger Securities. Please proceed with your question. [indiscernible] So my first question is on the cash flows given the company's operating cash flow is still negative, can you just talk about a little bit about rationale behind the $10,000,000 stop buyback program. I believe last quarter you mentioned the company should breakeven and has positive operating cash flow in the March quarter. Is that your expectation now?

Thank you. So the first question regarding cash flow and regarding the stock buyback. [indiscernible] First of all, the stock buyback program that we [indiscernible] will cover a twenty four month period So that will give us flexibility in when decide to execute on it. Of course, we'll do so when the stock obviously is stock price is favorable for repurchase. But along the way, of course, we'll report to investors shareholders.

As we make any transaction on that front. Now specifically regarding our Cash flow as Jim indicated, last quarter, the December, for the first time, cash flow generated from operating activities turned Positive. This is actually a major change and shift. In our cash flow position.

So answer your other related question, previously, we were hoping for cash flow breakeven in the March. We are still gearing in that direction. However, given that we just carried out some cost saving initiatives worldwide to realign resources Resources [indiscernible] savings mainly came from or will come from is actually from The U. S. Operation.

Including some headcount reductions there. So we expect this quarter, we'll have a little bit one time Expenses related to that initiative. In cost reduction, mainly from The U. S. Side. As we shift functions to Malaysia and So I think that because of that one time expense, this quarter, as we will for sure continue to make progress with our cash flow this quarter. I expect the original expectation for becoming cash flow positive this quarter. Will likely be pushed out a little bit. Due to that one time charge. So Thank you, Michael.

And my second question is about regulation. So is there any you see any upcoming or existing impact on our business from The U. S. Tariffs? And then also related to that, and do you expect any deregulation in the cannabis or new cigarette in The U. S. Under the new Trump administration?

So your first question, first regarding the President Trump's initiative for imposing more tariff on import Certainly, on that front, we expect tariff increase for China made products That is, I think, widely expected. The only question is by how many percent? So on that front, This is exactly why we [indiscernible] late twenty twenty two, we started positioning our manufacturing operations more in the direction from Malaysia. Really, it's to get around the number one, geopolitical risk. Number two, the uncertainty related to trade tariff against Chinese made products So I think certainly that part will affect us. To some degree, but we will certainly benefit from this relative to our competition. As well. Now the other part of this executive order and general I would say protection of U. S. Companies and the economy and the consumers will come in the form of, I would say, border protection.

And border control. On that front, I think we as a company as operator in this Ispire. Will actually benefit from what's coming. What's coming is between FDA and broader protection and border agency is I think in 2025 and beyond, will certainly tightening up the inspection the documentation review process at the border. As we all know, whether it's on cannabis side or nicotine inside. In the last many years, The market has been larger flooded with illegal products or unauthorized products So I think with this new change, in policy That is tightening up the control at the border will actually squeeze out bad characters. And bad players and making legitimate professional operations [indiscernible] enjoy this compliance process more openly. Ultimately, that will benefit consumers both from safety and certainty point of view.

As far as cannabis So I think at this point, it's really hard for anybody to predict Given the fluid situation with the HSS and the FDA. And of course DEA. So everything is relatively in constant change right now until the dust is settled in a few months. It's really hard for anybody to predict whether we will get cannabis legalized at federal level this administration. Well, Got it. Got it. And my last question is on the modular PMTA of Can I just talk about more about this opportunity And then and when should we start to see revenue contribution from this?

Yes. The component PMTA [indiscernible] I would say unique approach to PMTA approval. This is partially because in our meeting with FDA, it's apparent This technology provides a you can say, broad based solution to solving the flavored eSift issue in The United States.

And so far, only tobacco flavored e cigs are getting approvals on an ongoing basis. Only a couple of months of flavored products got approval in the last twelve months. And that's not because that's what the consumers want. Consumers By and large, still want flavored e cigarette. However, given that there's no method of preventing youth access FDA had no choice but Just banning flavored devices completely. So with this solution, once we get FDA sign off, By being a component of PMTA, that means that we can offer such solution to other manufacturers and the brands to use such technology and control youth access for their own products. So on that front, are going to be obviously large number of opportunities for licensing this technology to other manufacturers. So that's what the component PMTA is really geared towards for to make a modular solution that can be added [indiscernible] brands [indiscernible] So that all such products will have the edge gating function built in [indiscernible] not only will we use such technology for our own part systems. As I indicated earlier, that we will apply for We will for certain license such technology to manufacturers or companies interested in such solution.

And it's hard to put a number together in terms of say licensing revenue per se, But I think we all know currently The U. S. E cig market is largely illicit or black market I think I saw the recent JUUL estimate that says illegal market is anywhere between three and seven times legal market So I think [indiscernible] CSC indicates the e label market today is anywhere between 30 percent and $60,000,000,000 in The U. S. That fully represents ultimate potential for SaaS technology Of course, we probably will never be able to completely eliminate the black market on that front. But just capturing a big chunk of that existing illicit market with edge gated devices mean significant revenue. For the manufacturers as well as for us. As we license technology. So I don't know if that was clear enough Yes, sure. That's very helpful. Thank you so much, Michael. That's all my questions.

Thank you. Ladies and gentlemen, there are no other questions at this time. Turn the floor back to Mr. Wang for any final comments.

Okay. Thank you. Operator.

And thank you, everyone, for your time today. We look forward to talking to you soon. Thank you. Have a great day.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.