Michael Wang; Co-Chief Executive Officer, President of Aspire North America; Ispire Technology Inc
James Mccormick; Chief Financial Officer; Ispire Technology Inc
Philip Carlson; Analsyt; KCSA Strategic Communications
Nick Anderson; Analyst; Roth Capital Partners
Pablo Zuanic; Analyst; Zuanic & Associates LLC
Operator
Hello and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ispire Technology third-quarter 2025 earnings call. (Operator instructions)
I would now like to turn the conference over to Philip Carlson from KCSA. Please go ahead.
Philip Carlson
Hello everyone and welcome to Ispire Technologies earnings conference call for the third-quarter of fiscal 2025 ended March 31, 2025. At this time I'd like to inform you that this conference call is being recorded (Operator instructions)
Following the company's prepared remarks, we will be facilitating a question and answer session. Joining us today are Mr. Michael Wang, the company's Co-CEO; and Mr. Jim McCormick, the company's CFO.
To begin, Mr. Wang will recap the company's key fiscal third quarter financial results and recent corporate highlights, after which Mr. McCormick will discuss the company's fiscal third quarter financial results in more detail.
Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact in its announcement are forward-looking statements.
Forward looking statements are based on estimates and assumptions made by the company in terms of its experience and its perception of historical trends, current conditions, and expected future developments, as well as other factors that the company believes are relevant.
The forward-looking statements involve known and unknown risks and uncertainties, and many factors could cause the company's actual results of 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 statements to reflect subsequent or current events or circumstances or to changes in its expectation except as may be required by law.
I will now turn the call over to Mr. Wang. Mr. Wang, please go ahead.
Michael Wang
Thank you, Phil. And thank you to all who have joined us today. I'm glad to be here today to review our fiscal third quarter of 2025 results and the recent highlights. As a result, over the third quarter demonstrated, we have continued to deliver on our promises across much profiles of our business.
Our commitment to executing on our strategic road map is clear, as we strive towards becoming a leading manufacturer of precision dosing rating technology for global nicotine companies. We made significant progress throughout our fiscal third quarter.
One of our main priorities has been on managing all account receivables more tightly. I'm pleased to announce that during the quarter, we were able to reduce our account receivable by approximately $7.3 million from the previous quarter to approximately $60.4 million.
This includes a reduction in the underlying account receivable balance of approximately $2.6 million. Reversing the trend, we have seen with the increase in accounts receivable during previous quarters. This improvement was due to our team putting in place strict payment and collection policies and further demonstrates our commitment to enhancing our financial stability.
We expect to continue making more progress on reducing our account receivable in the coming quarters as we focus on higher quality and the larger customers, with improved payment terms. For the third quarter of fiscal 2025, we reported revenues of approximately $26.2 million compared to $30 million even for the same period in fiscal 2024.
The pending increase in tariffs on Chinese-made goods has impacted product pricing dynamics in the market. However, we expect to be less impacted given that we also manufacture our products in Malaysia, which I'll talk to shortly.
Moving forward, we are optimizing our pricing strategy by shifting more from landed pricing to FOB factory pricing, which will enhance our flexibility and strengthen our market position regardless of the tariff conditions affecting our growth margin.
Regarding our Malaysian operation, we have now secured our income nicotine product manufacturing license as promised on our last earnings call. Our growing business in Malaysia is a central part of our global business strategy of delivering leading, waiting, and age gating technology solutions to consumers.
The interim license allows us to officially begin marketing or nicotine manufacturing capabilities externally. We anticipate receiving our final manufacturer's license in the coming few months, which will complete our regulatory requirements in Malaysia.
Our Malaysian facility will soon feature 80 production lines, that's 80, significantly expanding our manufacturing capacity from the current six lines we are running now. This diversification of our production base is strategically important and the positions are advantageously in the global marketplace as it lowers the risk of a geopolitical factors that increase our pricing.
I'm also pleased to report that on May 1, we announced that Ispire LLC, a key joint venture, filed a component PMPA for its blockchain-based point of use age gating system with the FDA delivering on another key promise. This age verification component is a necessary step towards regulation in our industry.
As the traditional systems typically verify the user's age only once at purchase, which offers a lower bar of safety and security for underaged individuals looking for vaping products. This new and innovative platform requires continual real-time verification for device access.
This is the type of security that is needed, especially as we aim to curb the issue of the youth vaping you. Our joint venture Ispire requested an expedited review of the PMPA application, citing the system's potential to enhance public health.
Furthermore, Ispire will benefit from commercial sales of the component, as well as from the rights to integrate the technology into our own devices. These new revenue opportunities will further position Ispire as a leading innovator of a regulatory compliant precision dosing vaping technology.
As we discussed the last quarter, a plug and play component PMPA strategy through our Ispire joint venture as transformative potential for the entire nicotine delivery market. If approved, this would be the first component PMPA in FDA history, allowing for modular use in hundreds of end products.
In parallel, [Icebar] is also preparing to file its own park systems and the disposable vape PMPAs for flavored and products that will incorporate the ice tech ag gating system. We are planning to first introduce four flavored products with the potential to increase to between 6 and 10 flavors. If approved, this would provide adult consumers with safe, regulated alternatives, while effectively preventing youth access.
This is a much-needed change to the current market where consumers often endanger their health with risky unregulated products that continue to flat the marketplace. This technology represents a pioneering approach to expanding adult access to PMPA authorized flavored products, while setting new standards for industry safety and compliance.
Another exciting development during the third quarter was the launch of the [spout] developed in partnership with the raw garden, a leading California-based cannabis company. [Spout] is an advanced all in one canvas vapor device designed for purity, performance, and safety. [Spout] is specifically developed to optimize the nuisances and the intricacies of sophisticated cannabis oil while eliminating common industry flaws like plastic degradation, clogged airflow and inconsistent heating.
This ensures an experience for consumers, as clean as the plant itself. Initially, lunching with the raw garden, the [spout] technology is available to cannabis operators across the US. Our innovation with the [spout] product underscores our commitment to raising industry standards prioritizing material safety and putting consumer well-being first.
We continue to engage in discussions with several large global nicotine and tobacco providers who are looking to diversify their supply chain. While we are under NDAs and cannot reveal specific names at this time, we look forward to making announcements as soon as possible.
As you can see here, we have made significant progress on our strategic priorities. We have reduced our accounts receivable, secured our income Malaysian nicotine product manufacturing license, while the Ispire PMPA on schedule and positioned ourselves to capitalize on growing international opportunities.
We remain focused on driving a more profitable business model through our Malaysian manufacturing operations, as well as focusing on high quality customers (inaudible) driving innovative technology solution for the global vaping market.
With that, I'll turn the call over to our CFO, Jim Mccormick, to review our financial results in more detail. Jim.
James Mccormick
Thank you, Michael. As a reminder, I will refer to the fiscal third quarter 2025 as the three months ended March 31, 2025. All comparisons are to the prior year ended March 31, 2024, unless otherwise stated.
For the third quarter of fiscal 2025, total revenue decreased to $26.2 million, representing a change of 12.7% or $3.8 million compared to $30 million in the same period last year. Our revenue results were driven by the performance across our key geographical regions as follows.
European revenues of approximately $13.2 million in Q3 fiscal 2025 represented a slight decline of $0.3 million or 2.9% compared to $13.6 million in the same period last year.
Revenues from North America of approximately $8.8 million in Q3 fiscal 2025 represented a decline of $3.6 million or 28.9% compared to $12.4 million for the third quarter in fiscal 2024. This was largely driven by the new tariffs on China-made products, the impact of our transition of some manufacturing activities from China to Malaysia, and the effect of us on working only with larger and high quality customers such as multi-state operators.
Asia Pacific revenues of approximately $3 million represented a decline of $0.8 million or 21.4% compared to $3.8 million in the third quarter of last fiscal year. This was primarily the result of reduced demand in South Korea ahead of anticipated changes in the regulatory environment.
Revenues from Africa, $0.1 million were roughly flat compared to the revenue from the same period last year. For the nine month period ending March 31, 2025, revenues decreased by 6.3% to $107.4 million compared to the same period in fiscal 2024. Once again, this is tied directly to the focus on higher quality customers in Canada space foregoing revenue for higher levels of accounts receivable collection.
For the three months ending March 31, 2025, we reported gross profit of approximately $4.8 million compared to approximately $6.1 million for the same period in fiscal 2024. Goross margins for Q3 were down to 18.2% from 20.4% last year.
During the nine month period to March 31, 2025, gross profit increased to $20.2 million from $19.2 million for the same period last year. Gross margins for the nine month period to March 31, 2025 were up to 18.8% versus 16.8% for the same period last year. This was primarily due to changes in the product mix and generally improving gross margins in North America.
Total operating expenses for fiscal Q3 2025 were approximately $15.4 million versus approximately $11.8 million for the same period last year. Operating expenses over the nine month period to March 31, 2025 were $43.4 million, up from $29.7 million through the third fiscal quarter of 2024. This increase reflects higher stock-based compensation expense, bad debt expense, higher sales and marketing costs, and one-off severance costs related to the company's previously disclosed North American restructuring. It is worth noting that the benefits of this restructuring will begin to be realized in fiscal Q4 2025.
The net loss for the third fiscal quarter of 2025 was $10.9 million or $0.19 per share compared to a net loss of $5.9 million or $0.11 per share for the same period last year. As of March 31, 2025, Ispire held cash in cash equivalent of $23.5 million a reduction of $10.9 million versus the same previous quarter of last year.
With a working capital balance of negative $2.1 million, the reduction in cash equivalent is related to a reduction in standard and related party accounts receivable. The company fully expects to return to a positive working cash balance moving forward.
For the nine months ended March 31, 2025, net cash flow used by operating activities was $12.1 million compared to $16.9 million in the same period last year. Net cash used in investing activities for the nine months to March 31, 2025 was $1.7 million compared to $5.9 million provided by investing activities in the prior comparable period.
Net cash provided by financing activities for the nine months to March 31, 2025 was $2.3 million compared to $10.1 million used in the same period last year. That concludes our discussion of Ispire's fiscal third quarter 2025 financial results.
I will now turn the call back over to Michael.
Michael Wang
Thanks, Jim. In closing, I'm very pleased with the progress we made over the third fiscal quarter. As I stated previously, we achieved several significant milestones this quarter, securing our infant nicotine manufacturing license in Malaysia, restructuring our global operations to be more cost effective, Transitioning more of our manufacturing to Malaysia, filing of (inaudible) tech component PMPA with FDA on schedule and reversing the increasing trend of our account receivable.
In addition, our pricing strategy shift from landed to FOB factory pricing demonstrates our adaptability and the commitment to long-term profitability regardless of the external market conditions. There are several unique and exciting opportunities that exist for Ispire going forward.
In particular, receiving Malaysia's first federal nicotine manufacturer's license, our age gating technologies potential to revolutionize the electronic nicotine delivery systems, namely, ants, devices, worldwide and our ongoing discussion with global nicotine providers.
With our strategic focus on innovation, regulatory compliance and increased financial stability, we are well placed to capitalize on significant market opportunities while also being a leader in responsible industry practices.
Thank you again to our investors for their continued support and to everyone who joined us today for your time. We look forward to updating you further in the coming months. If you have any questions, please contact us through email at IR@ispiretechnology.com. This completes our prepared remarks, and we are now open to questions.
Operator, please go ahead.
Operator
(Operator instructions)
Nick Anderson, Roth Capital Partners.
Nick Anderson
Yeah, good morning and thanks for taking the questions and congrats on the quarter. First one for me, just on the FDA and the focus on port shopping, just help us understand what that could mean regarding the illicit vape supply in the US.
And I got two questions off this, do you expect a significant reduction in illicit product flow off this? And two, does this change the way you look at the growth opportunity in North America kind of near term here? Thank you.
Michael Wang
Nick, thank you. So, with the approval of this technology, we strongly believe, we will convert a lot of consumers from currently using gray or black market vaping products to actually more compliant and safer products, so they they can trust.
Right now, of course, from different estimate, you get different dollar amount. But by and large, the consensus is, the black market for vaping products, especially e-cigarettes accounts for anywhere between 5 times and 7 times of the legal market, which last year reached over $10 billion. So that means in the US, black market is anywhere between [5 and 50] to potentially even up to $70 billion in retail.
So those are products, we really don't feel comfortable enough to to use. We personally. So by allowing so many consumers, especially adult consumers use them. So, of course, far there hasn't been a reliable solution to age gate products for adult consumers to use and to prevent youth access to such products. But, finally with such solution, we are very optimistic about how how many percent of the consumers we can convert from black market to legal market. So that's number one.
Number two, I think in until our products are FDA approved, we of course, don't plan or cannot sell products in the US. So in the near term, in the US there is probably very little revenue from such products.
However, this technology could be used outside the United States. As we all know, most countries face the same challenge as we face here in the US that's uncontrolled youth access to flavored e-cigarette. So many governments are looking for solutions right now. In fact, we already spoke to a couple government in terms of regulation and tobacco control aspect.
There are encouraging opportunities outside the US, where the deployment of such technology could happen much faster than within the US. So in the near term, I think the opportunities are more outside the US when our own products are FDA approved, US represents an enormous market for us.
Nick, I did I answer your question completely?
Nick Anderson
Yeah, sounds perfect. Thank you. Second one for me, just wanted to follow up on the EU and the disposable vape bands taking place over the coming months here. Are there any countries in particular you're looking at and are excited about and are there any supply constraints that need to be addressed before kind of expanding your product offering overseas? Thank you.
Michael Wang
As far as, first of all, to address the EU market, as we all know, UK let the European market by banning disposables EU would follow suit. So obviously the industry will switch to what we know as number one, pod systems, where you only need to replace the pods that you use on your device.
And the other opportunity would be for some consumers to actually switch to open systems or refillable systems. So this is where Ispire's brand SR is super strong, largely so far our global nicotine or revenue comes from the European region. So, we strongly believe we will benefit from the ban for disposable, whether it's the UK or across the whole EU.
So the, now the second question -- is the second part of the question is, whether or not we will have any restriction or bottleneck in terms of supply chain manufacturing capabilities to support such initiative. We think we'll be in good shape, supporting that endeavor and support the change in the regulation.
As I stated, previously, with our Phase 2, factory, our second factory in Malaysia, we'll be able to build out up to 80 production lines in total. Of course, we are, on one hand, very excited about this manufacturing license for nicotine products. On the other hand, we are also very mindful for financial discipline and strategic use for cash.
So on that front, we are, as we continue our conversation with our potential customers and to support our own demand, we are also looking at whether certain product lines are better supported by more automated production process. So from an output point of view, we feel very confident with the 80 lines fully automated, we could pump out somewhere between 700 million pod devices in a year's time. So the capacity certainly will be able to support a significant growth in demand, whether it's from our own products or to support other brands, Nick.
Nick Anderson
Got it. Thanks for the call, Michael. Congrats on the quarter. I'll jump back in the queue.
Michael Wang
Thank you.
Operator
(Operator instructions)
Pablo Zuanic, Zuanic & Associates LLC.
Pablo Zuanic
Thank you and good morning, everyone here in the US. Just my question more in terms of cannabis. Can you talk about customer reactions in the US for your new hardware devices, your new innovation, how much, inroads are you making there?
And then related to that, of course we don't know what's going to happen with tariffs, it's on and off every day pretty much, but you know what alternatives do customers have really they need the vaping hardware, so we'll just have to pass it on to pricing to their customers, I suppose. But if you can if you can discuss that. Thank you.
Michael Wang
Thank you, Pablo. The first part of your question, specific to the [spout] product we talked about, that's just one of the recent innovations. The other product we launched the quarter before is what we call Volt platform, that's Volt platform, we shorten it for VLT. So essentially, with the Volt platform, we are providing a pub system that can become a new standard for the vaping industry.
As you recall a long time ago, and even to some degree today, the traditional battery plus S1 card configuration, it was very much a standard for the industry. But over time, consumer taste change and brands want more attractive looking devices. So, that's why two quarters ago we launched the Volt platform.
It offers alternative to traditional, individually designed pod system and traditional old battery stick approach, making the product easier to carry compact and good to look. And we launched that on industry basis. By that I mean, so all the brands could share the same battery part of the part system. They don't have to spend all the money to repurchase , resell such battery parts when a consumer already has a battery from another brand or a generic brand.
So we are trying to build a new essentially platform for the industry that was taking shape. Now with this new [sprout] product, this is really performance focused and the more, let's call it, specifically, designed for cannabis oil, especially with highly corrosive proteins. So this is setting a brand new safety standard for the industry.
And similar to the Volt platform I shared earlier, we would like to make this a new standard for the industry as well. So that's why we think our approach for trying to offer the industry a new platform, whether from performance or from safety point of view or from cost effectiveness point of view for consumers, those are all focus and we think both new platforms will be very attractive to MSOs.
They not only launch new and more innovative products, but also to, from that point of view to offer safer products to their consumers. So, that's my answer to your first part of your question.
As far as the second part, that's related to terror situation we are facing right now. As Jim stated in his part, as soon as President Trump was elected in November, he made it very clear he was going to raise tariff on imports, especially on Chinese-made products.
In this industry, literally 99.99% of vaping devices, up to say, two years ago were made in China. Today there is a little bit of diversification in terms of country of origin, but still, well over 90% of products are made in China. So, as soon as President Trump was elected, nearly all of our customers started almost a panic search for solution phase.
And we talked to most of them, we negotiated a lot of other customers brands were worried about the tariff level. They, just as a background, for most of the customers, cannabis, MSO or individual operators we had a business with, we generally would sign a supply agreement.
In the agreement we typically specify landed cost. As you heard me saying several times in my prepared remarks, we generally sold the product to the customers on a landed cost basis, meaning that's what they pay when they receive the product from us in the US. But given the uncertainty about regarding the tariffs, many brands wanted to almost get guaranteed landed price in the coming quarters and years ahead.
And of course, we could not agree to that because we couldn't control the tariffs or the level tariffs exposed, specifically upon this industry. So, since November, there have been, I would say a lot of conversations, negotiations on existing supply agreement. So to a degree, that directly affected our cannabis revenue from the US in the quarterly reported. That's a big reason for the decline in revenue there.
But, as of now, we have successfully renegotiated with most of our US cannabis customers. They, most of them agreed to switch to FOB factory price, whether the factory is in China or in Malaysia. Obviously, if they place order with our Malaysian factory, they they will enjoy lower tariff.
And we, obviously, from Malaysia and China both point of view, since Malaysia is still in the scaling phase, scaling up phase, our product costs slightly more in Malaysia than in China. But the differential is more than being offset by the current tariff difference between Chinese made goods and Malaysian made goods. So, no matter what, Malaysia is already more attractive to our customers.
But, over the next one to two quarters, we plan on moving most, if not 100% of the candidates hardware to our Malaysian operation to help our customers lower tariff on their end. But, in order to really prevent any further exposure to tariff risks, we have, as I said, successfully renegotiated most of the contracts were with our customers to FOB factory.
Pablo, sorry about the long rounded answer to your question.
Pablo Zuanic
No, that's very helpful. Very good color. If I may just one quick follow up. So, I know it's hard to know about your competitors, right? And there are several, especially in the cannabis vaping workspace, of course, also nicotine. But do you think that you have more flexibility because of the Malaysian facility than others of your competitors, or they have also been diversifying their supply chain, or it's just hard to know?
Michael Wang
I think, even though, first of all, even though the US and China reached a 90 day agreement on tariff now, on one hand, we still don't know what the picture looks like after 90 days. So even if we follow the current situation here, that is 30% tariff on Chinese-made goods in the next 30 days. It's still a significant tariff.
And on the other hand, as you are very aware, many of the Chinese factories have added some overseas manufacturing capabilities. I know our key competitor is in Indonesia. And some other competitors are also in Indonesia.
Indonesia products, according to President Trump's tariff chart are expected to be 35%, 45% and 35% for Indonesia, 45% for Vietnam, that's where a couple of competitors are trying to set up factory. So among those key locations for our competitive factories, our Malaysian set up is still advantageous because Malaysia, among all those countries I mentioned enjoys the lowest tariff rate so far. We strongly believe it will continue to have that edge over other countries in Asia, Pablo.
Pablo Zuanic
Understood. Thank you very much. That's very helpful. Thank you. Good color.
Operator
And that will conclude our question and answer session. I will now turn the call back over to Michael Wang for closing remarks.
Michael Wang
And thank you all again for joining us for the opportunity to share our progress with you. We look forward to reporting back more as we continue to make progress. So, I hope to talk to you again during our next quarterly call. Thank you.
Operator
This concludes today's call. Thank you all for joining. You may now disconnect.
