Ispire Technology 2027 Q1 Earnings Call

Please go ahead. Good morning, and welcome to Ispire Technology's First Quarter 2027 Earnings Conference Call.

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. These forward-looking statements involve known and unknown 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 to reflect subsequent or current events or circumstances or changes in expectation, except as may be required by law. Further, management's remarks today will include certain non-GAAP financial measures. These measures are calculated by management and do not have any standardized meaning under U.S. GAAP. These non-GAAP measures supplement GAAP measures, but should not be viewed as substitutes for GAAP measures. A reconciliation of the most directly comparable GAAP financial measures to these non-GAAP financial measures is available in the company's earnings press release. I will now turn the call over to Steven Przybyla, President of Ispire Technology.

Steve, you may begin. Thank you, James, and good morning, everyone.

Thank you for joining the call today and giving us the opportunity to discuss our first quarter fiscal 2027 results, our operational progress, and the strategic initiatives we believe can position the company for long-term growth. First quarter revenue was $27.5 million, up 3.2% sequentially from $26.7 million in the fourth quarter of fiscal 2026. Adjusted EBITDA was approximately $136,000 for the quarter, an improvement of $2.4 million from the fourth quarter, and our net loss narrowed significantly. We continue to build on the turnaround successes of Q4 2026 with incremental revenue growth, greatly reduced accounts receivable, reduced operating expenses, and quarter-over-quarter EBITDA growth. In addition, gross margin has returned to historical levels after the one-time inventory impairments and return charges taken in Q4 2026.

Net accounts receivable are now $13.5 million, a decrease of 80% from peak levels in fiscal Q2 2025, representing a multi-year commitment from the company to strengthen its customer credit standards, payment terms, and collections actions. The company is committed to finishing its AR rationalization in fiscal year 2027, meaning no further write-downs or major credit loss accounting are planned for future fiscal years. We believe this will lead to a dramatic positive effect on our GAAP operational performance. Also of note, the company received a $3.4 million judgment against a former customer in mid-October. We believe this customer is fully collectible and have begun efforts to enforce the judgment. Net cash used in operating activities in the quarter was $1.6 million. This included $3 million used to pay down aged payables to our related party manufacturer under our flexible payment arrangement.

If we exclude this payment, operating activities would have generated approximately $1.4 million in cash for the quarter, showing potentially significant underlying profitability from operations. We continue our efforts to advance strategic initiatives that we believe position the company for long-term success and profitability. Our focus remains on strengthening our balance sheet, expanding company-owned production in Malaysia, and developing additional growth opportunities through our proprietary technology initiatives and our expansion into adjacent product categories. We believe this work is translating into commercial traction, stronger operating performance, and long-term shareholder value. Malaysia remains one of the most important near-term catalysts for our business. Fiscal 2027 is our first full year of vapor and nicotine pouch production at our company-owned factories in Malaysia.

Beyond the added capacity, Malaysia gives us a meaningful cost advantage, including approximately 25% tariff advantage over China-based production on exports to the U.S., and it allows us to serve customers who want to diversify their supply chains outside of China. In April 2027, the Chinese government will end VAT reimbursement for e-cigarette exports from China. The elimination of the 13% export VAT rebate is expected to increase cost pressures on Chinese e-cigarette manufacturers, potentially further enhancing our cost competitiveness and strategic positioning of our Malaysian operations. As previously discussed, the company has received significant interest from global, regional, and local Southeast Asian brands regarding our e-cigarette and nicotine pouch production capabilities in Malaysia. We are in the closing stages of securing a major OEM and ODM deal from a well-known regional e-cigarette brand in Southeast Asia.

This deal would include immediately leveraging our G-Mesh technology, substantial production in Malaysia, and development of new and innovative ODM products for the Southeast Asian marketplace. We believe securing this relationship would increase both top and bottom line results for the company and gain a tangible foothold in a very desirable regional market. We hope to officially announce this relationship in January 2027 and begin production shortly thereafter. We're also expanding our presence in the nicotine pouch category through our joint venture with Jincheng Pharma, which we announced in May. Combined with the nicotine pouch production license we received in our Malaysian facility, we believe this joint venture gives us a credible entry point into a high-growth nicotine pouch market. We also have some exciting updates related to our IKE Tech joint venture, in which, as a reminder, we hold a 40% ownership interest along Chemular and Berify.

IKE's component PMTA remains under review with the FDA, and we are optimistic to see movement on this application in the current fiscal year. IKE is also in talks with multiple companies regarding potential supplemental PMTA filings using its age-gating technology as an additional avenue for FDA authorization of IKE technology. As I mentioned last quarter, our strategy with IKE is broader than any single regulatory pathway, and IKE continues to pursue commercial partnerships with large international brands and manufacturers. In September, IKE Tech launched IKE 2.0, delivering on the timeline we discussed on our last call. IKE 2.0 is a major upgrade to the IKE point-of-use age-gating platform.

Its upgrades include a dramatically improved user experience, AI agents to assist with onboarding and device access, a web-based app that allows for brands and manufacturers to fully customize and brand the user experience for their age-gated products, in addition to a suite of additional features related to device control, gamification, customer rewards, and user privacy controls. Finally, IKE 2.0's age-gating platform will be going live in the United States through a collaboration with Charlie's Holdings. Charlie's Holdings has over 800 PMTA applications pending with the FDA or under administrative stay. Under the guidance promulgated by FDA in May 2026, companies that have products in the scientific review stage of the PMTA process may commercialize these products without risk of FDA enforcement.

IKE has agreed to allow Charlie's Holdings to use the IKE 2.0 point-of-use age-gating technology in a test pilot using certain SKUs of its PACHA disposable flavored e-cigarette products. The initial pilot is expected to launch through Smoker Friendly before year-end 2026. We expect that the results of the pilot will be used to update a number of Charlie's Holdings flavored ENDS PMTAs to incorporate IKE's age-gating system. We also believe this pilot on the PACHA devices will make IKE's age-gating system the first age-gating system to be commercially available in the United States to consumers, a truly exciting milestone for our joint venture and for public health. Taken together, these initiatives give Ispire several pathways to growth: our manufacturing platform in Malaysia, vapor OEM and ODM, nicotine pouches, and our IKE joint venture.

Our job this year is to convert these opportunities into commercial results while continuing to improve on the operating performance of the business. I will now turn the call over to Jay for a more detailed view of our financial results.