Good afternoon, everyone and thank you for participating in today's conference call to discuss iPower's Financial Results for Fiscal Second Quarter Ended December 31, 2021. Joining us today are iPower's Chairman and CEO, Mr. Lawrence Tan; and the company's CFO, Mr. Kevin Vassily. Mr. Vassily, please go ahead..

Thank you, Justin. Good afternoon, everyone. By now, everyone should have access to our fiscal second quarter 2022 earnings press release, which was issued earlier today at approximately 4:05 p.m. Eastern Time. The release is available in the Investor Relations section of iPower's website at ipower.com.

This call will also be available for webcast replay on our website. Following our prepared remarks, we'll open the call for your questions.

Before I introduce Lawrence, I'd like to remind listeners that certain comments made on this conference call and webcast are considered forward-looking statements under the Private Securities Litigation Reform Act 1995.

These forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements.

These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements which are being made only as of the date of this call.

Except as required by law, the company undertakes no obligation to revise or publicly release the results of any revision to any forward-looking statements. With that, I'd like to turn the call now over to iPower's Chairman and CEO, Mr. Lawrence Tan.

Lawrence?.

All right. Thank you, Kevin, and good afternoon, everyone. Our fiscal second quarter was our strongest period of revenue growth since our IPO last year. Revenue was up 52% year-over-year, driven by continued strong demand for our in-house products. We are now realizing the benefit of having more of our own products available to sell.

Over the course of 2021, we introduced the new SKUs in multiple lines, and each of these introductions were very intentional as they were based on the RAF data points that address consumer needs and product shortfalls from other brands in the market.

In addition to having more of our own products, we also continue to benefit from our deep channel partnerships, which have only strengthened in recent months. Our ability to deliver products on a timely basis, despite global chain -- supply chain headwinds, has not gone unnoticed and have served as a vital asset to our partners.

During the quarter, we introduced our first ever nutrient product line called Flourish and initial customer feedback has been excellent. These advanced nutrient products include both nutrients and fertilizer, ranging from cloning gels and plant supplements to plant and vegetable fertilizer among others.

Nutrient and fertilizer sales have historically accounted for approximately 20% of our total revenue, which means this new in-house product introduction will provide us with a very strong opportunity for both revenue growth and margin expansion going forward.

We have begun to step up our sales and the marketing efforts around this new line of product, but it will take time to realize the full benefit. Subsequent to the quarter, we officially began our expansion into European market with the completion of our first delivery of iPower products.

This sale was accomplished through our largest channel partner, Amazon in the U.K. and Germany. The purchase order included various in-house branded products such as trimming devices, air filters; grow bags, tents and other accessories.

We believe that European market is in its early stages of growth and present a medium- to long-term expansion opportunity for iPower to take the early market share. Over the last couple of months, we have announced two new joint ventures. First, the launch of our new e-commerce logistics joint venture, Box Harmony.

This partnership was formed, in large part, with Titanium Plus Autoparts, one of the largest seller of collision-related auto parts on eBay and Amazon. Box Harmony will provide iPower with a low-cost option to expand into e-commerce value chain services, which is a natural fit for us given our global supply chain expertise.

This joint venture will provide iPower with additional supply chain efficiencies and offer logistics services for international brands looking to grow their respective business in the United States. And just announced this morning, we recently launched a joint venture to create a social commerce platform, Global Social Media.

Combining the marketing expertise of our joint venture partner and our proven ability to provide a supply chain and e-commerce support, we will create a full end-to-end solution for brand manufacturers looking to sell their products via social channels.

For iPower, we plan to utilize the joint venture to drive global brand and product awareness through TikTok and other media platforms as our partners grow their influencer network.

Looking at our core consumer demographic with new recreational cannabis markets coming online such as New Jersey, we expect our addressable market to continue to increase going forward.

Although we would not expect to see the same inflection of growth as commercial cannabis operator in the garden state, we do expect a positive impact to our business as new DIY consumers are introduced to the market. As you can see, it has been a very busy few months for us at iPower, and we are just getting started.

We plan to continue executing on our various organic and inorganic growth initiatives and look forward to delivering another strong year of execution ahead. I'll now turn the call over to our CFO, Kevin Vassily, to take you through the financial results in more detail.

Kevin?.

Thank you, Lawrence. So we had another solid quarter of performance in our fiscal Q2. Total revenue was up 52% from the year-ago period to $17.1 million, driven by greater in-house product sales and increased demand for our ventilation products in particular. We continue to execute on selling more of our in-house brands.

These increased approximately 72% year-over-year to $15 million and accounted for 87% of sales, compared to 75% in the year ago quarter. As we previously stated, gross margins for our in-house products are generally 20 to 25 percentage points higher than the third-party products that we carry.

So we will continue to invest and emphasize this portion of our business. However, I do want to make clear here that we're not abandoning sales and distribution of third-party products. We will continue to be opportunistic in distributing those products where we see market demand.

Gross margin for the quarter was 44.1% compared to 44% in the year ago quarter, with a small increase driven by the greater mix of in-house product sales, partially offset by higher freight and input costs in the quarter.

Total operating expenses for our fiscal second quarter were $6.4 million, compared to $4.1 million for the same period in fiscal 2021. As a percentage of revenue, OpEx was 37.5% compared to 36.4% in the prior year quarter.

The increase was primarily driven by higher sales volumes, increased advertising to support launch of our new products as well as increased headcount for new channel sales initiatives. We continue to believe additional sales channels, including offline sales present solid new avenues for growth and brand awareness for iPower.

We don't expect an immediate benefit to our results as it will take time to ramp new partnerships in our channel strategy. However, we are looking forward to capitalizing on the additional growth opportunity in the upcoming quarters.

Net income in the quarter increased to $0.8 million or $0.03 per diluted share, compared to net income of $0.6 million or $0.03 per diluted share for the same period in fiscal 2021. Moving on to the balance sheet. Cash and equivalents were $1 million on December 31, compared to $6.7 million at the end of our June quarter 2021.

The decrease was attributed to the timing of receivables with our largest channel partner, not an indication of any business or operating trends. During the quarter, we entered into a three year $25 million secured revolving credit facility with JPMorgan Chase, which has an accordion feature that will allow us to take it up to $50 million.

This new facility was an important addition to our capital structure as it provides us with the flexibility to fund our growth initiatives and strategic plans.

As of December 31, 2021, long-term debt stood at $7.4 million, compared to $0.5 million at June 30, 2021, with the increases entirely attributable to utilization of our new credit facility to increase working capital, particularly our inventory as we stocked up for the popular Chinese New Year holiday.

Looking to the balance of our fiscal year, we remain confident in our growth strategy and our financial targets. We are continuing to navigate a very volatile supply chain environment, which has not materially improved since our last quarterly update, despite signs of a recovery last fall.

As mentioned in our press release earlier today, freight costs have actually increased thus far in our fiscal Q3.

However, we plan to continue mitigating this cost volatility as we've done in the past, leveraging our diversified network of partners overseas, capitalizing on both procurement opportunities when we get them and running larger production runs, when we can.

Despite the supply chain volatility, we think 2022 is setting up to be another exceptional year of growth for iPower. So that concludes our prepared remarks. We'll now open it up for questions.

Justin?.

[Operator Instructions] And our first question comes from Michael Baker from D.A. Davidson. Your line is now open..

Hi guys, this is Jeffrey Walter on for Michael Baker. Congrats on another solid quarter. My question was around, Kevin, in your remarks, you talked about new sales channel initiatives, and we're hoping to get some more color around those..

Sure. So currently, we've got two primary external sales channels with Amazon and Walmart, and we actually have 1/3 with eBay as well. And then our kind of direct-to-consumer channel is our captive website, zenhydro.com. So we've got two things underway.

The first thing is to add additional e-commerce sales channels that make sense given our product lineup, and I think we've discussed in the past, the home and garden kind of retail channels, such as Lowe's, such as Home Depot or Natural Fits [ph] on the e-commerce side.

At the same time, we brought out additional headcount to pursue it and investigate kind of sales channels that are more traditional bricks and mortar, very early in that process. However, I think the same channels that would make sense online, if they have offline distribution, could make some sense. Again, we're in the early stages.

But I think the home and garden ecosystem is our first stop, and without disclosing any other names, I think these are names that you guys may even cover and are familiar with..

Thank you..

And, thank you. And I'm showing no -- our next question comes from Scott Fortune from ROTH Capital Partners..

Thank you and thanks for the questions. A real quick one to kind of dig in to the in-house products, now at 87% revenue, a big jump from 70% plus level there.

Can you impact that a little bit and color, with still the nutrients are primarily third-party sales? You mentioned nutrients are anywhere from 20% of your overall sales, but that's still primarily a third-party sales going forward? Is that -- now where can we see the nutrient side move from an in-house type of brand side of things as the overall sales here?.

Yes. Lawrence, maybe you could give some color around kind of how we see timing around that..

Yes, sure. Nutrient as a consumable -- actually, the most important consumable product category, for our hydroponics will always maintain its relative market share among all the equipment or supplies. So we don't see that trend change.

So -- but for our in-house brand, and like what we mentioned, we just launched it, and there are a lot of work for us to realize the full potential. So it takes time. We know that, and we're prepared to do that, and we know how to do that, but it just takes a little time.

So the most of the sales from the third party, I don't have the numbers in front of me, but I don't believe there are any structural changes in the past three months compared to before. So what I'm saying is that our new trend line will continue marking it. We also work with third-party brands because each brand, they have different products.

It's a really, really big category, and each brand of the product have their distinct feature and are needed by different people. So, the market is big enough also to fit more than just one brand. I don't see any structural changes. We'll continue to add more products to our nutrient line after we get our first batch of products popularized.

So yes, it's too early to say what we have achieved so far, but we are solidly on the track..

And then, a follow-up here. Obviously, we've seen a lot of softness on the hydroponic demand, especially in the commercial side. You even break out kind of the commercial percent of overall revenues.

What kind of color are you seeing on the commercial side and kind of the strength continuing into 2022 as we start your third quarter here, on the DIY side of things, especially with new states coming onboard here in the second half of 2022?.

Yes, I think the -- what we see is that the commercial side of the market is pretty weak over the last two quarters and that's our industry partners also mentioned, but everybody is believing is having a bounce later on this year. We certainly hope that's the case.

But to us, that's not our -- where our major business is coming from, and we do believe our retail market is more stable and also have -- it does not like directly correlated into the commercial market, which are much more influenced by the factors, like a couple of factors that does not so much influence on the retail market.

We continue to see a strong growth trend on our sales, and we believe this is something that we will have a strong year. This is what we -- based on what we're seeing today..

Scott, following up on that. Just as kind of percentage in the quarter was below 10%. Commercial contribution to revenue was below 10%..

Right. Okay. And then last question here. Obviously, supply chain issues, it sounds like that you're not really seeing that alleviating here any time -- near term here from that standpoint.

But it sounds like your inventory levels and the capacity levels remain elevated in good positions to be able to sell through your different product categories? Are there further supply chain or higher costs that you're going to start passing through to the end markets? Or how are you looking at these continuing supply chain issues and higher inventory or higher inflation costs coming on board here?.

Right. We have been dealing with issues for the past year or 2. Everybody got the experiences, and we already put the tools into places to help us better mitigate the risk and deal with any issues that may come up. While we don't see an immediate resolve of this issue, I think we do have a pretty good experience and a track record to deal with it.

And for the cost, at certain stage, I think we'll have to partially pass on to the retail market as we are trying to do at the moment, honestly speaking. And we're trying to absorb and make more -- make our operation more efficient so that -- I do actually see this an opportunity for growth for us.

If we can deal with the issue as [ph] -- because everybody is facing better than others, better than a competitor on the market. So it's not totally negative. It's also opportunity. I think we're doing pretty well on that regard..

Thanks. I will jump back in the queue. Congrats..

Thank you..

Thank you. And I'm showing no further questions. I would now like to turn the call back to Kevin Vassily for closing remarks..

Yes. So we just want to thank everyone for joining us on the call today, and we look forward to talking to you again when we report our March quarter numbers sometime in late April or early May. Thanks, again..

This concludes today's conference call. Thank you for participating. You may now disconnect..