Image source: The Motley Fool.
iPower (IPW 6.00%)
Q4 2021 Earnings Call
Sep 27, 2021, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Thank you for standing by, and welcome to the iPower Q4 2021 earnings conference call. [Operator instructions] I would now like to turn the conference over to your host, Mr. Kevin Vassily, chief financial officer. Sir, you may begin.
Kevin Vassily -- Chief Financial Officer
Yes, thanks, Valerie. Good afternoon, everyone. By now, everyone should have access to our fiscal fourth quarter and full-year 2021 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 www.meetipower.com. This call will also be available for webcast replay on the company's website. Following management remarks, we will open the call for your questions. Before I introduce our CEO, Lawrence Tan, I would 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 of 1995.
These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well 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 of these forward-looking statements which are being made only the day 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.
Today's conference call will also include certain non-GAAP financial measures, including non-GAAP net income and EPS, supplemental measures of performance of iPower's business, all non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You will find reconciliation charts and other important information in the earnings press release and Form 8-K furnished by iPower to the SEC today. With that, I'd like to turn the call over to iPower's Chairman and CEO, Lawrence Tan.
Lawrence Tan -- Chief Executive Officer
Thank you, Kevin, and good afternoon, everyone. Fiscal year 2021 was a very good year for iPower, highlighted by strong revenue growth of more than 35% and gross margin expansion due to a growing mix of in-house product sale. The growing demand for our in-house products, which made up around 70% of the sales in fiscal year 2021 compared to 55% in fiscal year 2020. That is a testament to our superior product research, design, and merchandising expertise.
We were able to grow our proprietary product revenue over 70% plus in fiscal year 2021. The design and build products, where the data tell us we have real market share opportunity. In fiscal year 2021, we clearly have the right products with the right features to address the needs of our target customers. During our fiscal fourth quarter, we utilized the growth capital raised from our IPO to make significant investments and lay the groundwork for continued growth in the coming years.
This included increasing advertisements on new products launched in the second half of the fiscal year 2021, the expansion of our fulfillment infrastructure, and multiple new programs with our co-engineering and supply chain logistic partners. I am particularly happy with our proprietary product catalogue. In fiscal year 2021, we continued to introduce new proprietary SKUs into the market. Most notably, roughly two-thirds of those SKUs launch in the last 6 months of this year.
So we are still in the early stages of capturing the full potential. Although I'm incredibly pleased with our progress as a company, we are still in the early days of capitalizing our unique model in the hydroponics industry. And I want to give the credit to our fantastic iPower staff, whose hard work and dedication allowed us to perform at a level we did this past year. We look forward to another year of strong execution ahead.
I'll turn the call back to our CFO, Kevin, take us through our financial results.
Kevin Vassily -- Chief Financial Officer
Thank you, Lawrence. So diving into the financials. Overall, we were pleased with our fiscal fourth-quarter financial performance. Total revenue was in line with our expectations and slightly up from a year-ago period at $14.7 million.
Recall that our fiscal fourth quarter of 2020 benefited from heightened e-commerce demand due to the COVID-19 stay-at-home mandate. So it was a very, very challenging comp for us. For the full-year fiscal 2021, revenues grew 35.4% year over year, which is at the high end of our historical organic growth range of 25% to 35%. As we've stated in the past, we continue to emphasize selling more of our in-house brands.
During the quarter, in-house products accounted for approximately 71% of sales compared to 65% in the prior-year quarter. For the full year, in-house products made up approximately 70% of total sales versus 55% in the prior fiscal year. And sales of in-house products were up nearly 80% over fiscal 2020. From a channel perspective, roughly 90% of our sales were through our e-commerce and third-party partners, with the remainder being our offline wholesale business.
Amazon remains far and away our largest and most important channel partner. Gross margin for the quarter was essentially flat at 44.4% compared to 44.7% in the year-ago period. Our focus on selling more in-house brands benefited margins during the quarter. As we've stated in the past, gross margins for our in-house products on average are around 20 to 25 percentage points than the third-party products that we carry.
Our margins can still fluctuate based on a number of factors including sales mix, channel program mix, product input costs, and freight costs. For the full fiscal year, gross margin was 42.2%. That was up from 37.9% the prior year. Total operating expenses for our fiscal fourth quarter were $6.3 million compared to $4.8 million for the same period in fiscal 2020.
The increase was primarily driven by several factors, including higher merchant fees related to our channel program mix, increases in advertising, particularly around new SKUs that were launched in the second half of our fiscal year that ended June 2021, and some catch-up spending with our co-engineering partners to accelerate our product development. We do not think operating expenses as a percentage of sales this quarter represents a new watermark for us going forward. Some of this expense was specific to the circumstances of this quarter. Net loss in the quarter was $1.9 million or $0.08 a share, compared to net income of $1.2 million or $0.06 per share for the same period in fiscal 2020.
Non-GAAP net income, which excludes certain one-time and non-cash items, was $0.6 million or $600,000 or $0.02 per share during our fiscal fourth quarter compared to $1.2 million or $0.06 per share in the year-ago period. The decrease was driven by the higher merchant fees and increased advertising and partner spend. Moving on to the balance sheet. Cash and cash equivalents were $6.5 million at the end of June 2021 compared to $1 million at the end of June 2020.
The increase attributed to the proceeds raised from our IPO earlier this year. Net inventories were just over $13 million versus $5.7 million, and total debt was $0.7 million compared to $1.8 million in the prior-year period. Before we take questions, I want to give just a quick word on guidance for fiscal 2022. As referenced in our press release earlier today, we are very comfortable with setting a baseline for growth expectations, which should be at a minimum 25% organic revenue growth for the year.
However, from a margin and cost perspective, the supply chain environment remains quite volatile, particularly in and around input costs and freight costs. So we believe it's prudent to avoid forecasting specific margin targets at this point. What we can say is that we have a number of ways to push back in some of the supply chain and input cost pressures that exist in the marketplace. These include channel program mix, some bulk procurement, some of which we did actually in this last quarter, as well as larger production runs with some of our contract manufacturing partners.
In addition, we will continue to emphasize a greater mix of in-house product sales and introduce new proprietary SKUs, including our own in-house developed nutrient line, which we hope to launch by the end of this calendar year. We expect all of these initiatives to provide positive benefits to margin and profitability over the course of the year. So at this point, that concludes our prepared remarks. And now, we will open it up for any questions that you might have.
Operator?
Questions & Answers:
Operator
[Operator instructions] Our first question comes from Mike Baker of D.A. Davidson. The line is open.
Michael Baker -- D.A. Davidson -- Analyst
OK. Hi. Thanks, guys. A number of questions here we could ask.
Let's start with this one. Can you talk about your in-stock levels? Your inventory is obviously up, but it's been hard for a lot of companies, even big companies to get products in from Asia. Did that impact your quarter at all? In other words, were there areas that you would have liked even more inventory? And so that's the June quarter. Has it impacted the September quarter at all as well? You're about 95% through this quarter, so you should have some visibility while that's picking up.
Thanks.
Kevin Vassily -- Chief Financial Officer
Right. Lawrence, maybe you should take a shot at kind of how we're dealing with kind of supply right now?
Lawrence Tan -- Chief Executive Officer
Sure. Let me repeat the question because it was a little bit broken up. But the question was that the [Technical difficulty] the logistics and supply chain, does it have an impact on our quarter for last 2020 to '21 and the September quarter that we currently ending. Is it right?
Kevin Vassily -- Chief Financial Officer
OK. Yes, you're breaking up a little bit, Mike. I think that's right, Lawrence. I think that's the question.
Lawrence Tan -- Chief Executive Officer
OK, great. OK. So for June quarter one of the interruptions we saw is that our Amazon partner, they had to pull back, or as far as I remember, probably is that they had a very little direct import purchase orders in the April, May, June month compared to other times of the year and also historically. We believe it's due to their logistic problem.
But then we saw recovering in the July, August, September quarter. So I believe the problem had been resolved by them. So we did see interruptions in Q4 of 2021. But I believe that problem had been resolved, either resolved or mostly recovered.
So in terms of our own logistics, supply chain, and logistics, we had like a mission before that we have an extensive manufacturer network in Southeast Asia, mostly in China. Those manufacturer has been working with us for years. We have really good leadership, and we have a pretty good planning. So we tend to help, work with our partners to further extend our cooperation deeper into their supply chain to mitigate and forecast the inventory need and mitigate the risk of interruptions.
So we did all that work. We don't see our supply chain has any capacity issue to supply the products. We have been able to secure enough transportation power to get the products for ourselves. But it does have -- we are facing the difficulties of longer-than-before or longer-than-usual transportation time as a lot of higher transportation costs from overseas.
Operator
Thank you. Our next question comes from Scott Fortune of ROTH Capital. Your line is open.
Scott Fortune -- ROTH Capital Partners -- Analyst
Thanks for taking the questions. Real quick, can you provide a channel mix kind of post-COVID and seasonality around the do-it-yourself hobbyists and tough comp coming up here in third quarter? And we're seeing number of hydroponic competitors have seen maybe growth here in the commercial side in third quarter. A little color on your commercial business, if you can provide kind of what you're seeing on both those segments and the channel mix here.
Kevin Vassily -- Chief Financial Officer
Right. So yes, let me take that real quick. So from a mix perspective, we didn't see much change from our last quarter, or the mix that we had kind of coming into the IPO. The commercial side of our business is still roughly 10%.
And when I say commercial that's offline wholesale. The rest of it is e-commerce, a combination of our website, which still remains very small and kind of future opportunity for us. The largest channel partner remains Amazon. They are kind of running at about the same kind of percentage of sales as we saw kind of earlier in the year and kind of what we've published in and around the IPO.
So there wasn't really much change in mix. Some of the things that did change, and I think Lawrence reference this in his answer to the question that Mike Baker asked is that within our third-party channel relationships, there are a number of different programs for each of them. And so the program mix definitely changed a bit. I think Lawrence referenced as it pertains to like our largest partner.
There was a lot more drop ship from our inventory that took place in the fourth quarter, than is normal. And we're seeing a normalization back to kind of our more traditional mix. And in fact, it might be pushing a little bit more in the other direction where we're doing a lot more direct import. But from a seasonality standpoint, we didn't -- and again, I think we're still in early days of trying to figure out if there is a new seasonality to the business, but we didn't notice anything in this quarter and we haven't noticed anything kind of for the current quarter, which is our first fiscal quarter of FY 2022 that suggests anything, or any kind of pattern that's meaningful.
I think our biggest potential growth propeller is our ability to have products. And as you look at our balance sheet, we added a lot of inventory since the end of our fiscal Q3. So it was a pretty meaningful move and a pretty big move up from last year. So we feel pretty good about where we are going into the next fiscal year.
Did I get all your questions, Scott?
Scott Fortune -- ROTH Capital Partners -- Analyst
Yes. I appreciate the color there.
Kevin Vassily -- Chief Financial Officer
Oh, you asked -- sorry, you asked about commercial business. Yeah. Lawrence, you might want to answer that one. I think you're a little closer from a kind of sales standpoint.
Lawrence Tan -- Chief Executive Officer
So what's the question for commercial business? I was going to chip in a few segments on the parts that you just referenced on.
Kevin Vassily -- Chief Financial Officer
So yes, actually, why don't you answer those first, and then we can come back to the commercial, the wholesale business.
Lawrence Tan -- Chief Executive Officer
OK. Right. So we were like 85% plus to the retail business. So that hasn't seen very much roughly a retail B2C healthcare.
So the challenges we were facing today, generally that the commercial business, I believe they are softening a bit. Everybody, like two of the things I wanted pointed out. So one, that we sell mostly our in-house products. That consists of 70% more -- more than 70% of our total sales.
So we have a much, much better control of our own supply chain versus some of our competitors on the market. I won't name them for now, but like, they sell mostly 3P parts. So by saying that, we have a much, much better control on supply chain, especially during a period of time where everybody is facing external challenges. And since we had successfully executed the IPO in May, we had more resources to work with our partners to strengthen our supply chain even further.
And like we mentioned, we secured a new warehouse space in Los Angeles county, that's 100,000 square feet compared to 70,000 total we have now. That's more than doubling what we have because we realized early in the year that in order to be able to execute in such a tough environment of today, spacing, efficiency, and logistics and supply chain, these are very important essentials. That's why we could still, and based on our whole internal data, data for capability, we can quickly react to if there is a problem from anywhere. Like Q4 when Amazon stopped importing, we had enough parts in the United States to like mostly compensate for where they left off.
So we have been prepared, and we are pretty strong at doing all this kind of work. So these two, like, the very strong execution, operation, with data-backed decision making and in-house products, that's majority of our sales, I think these two help a lot for us to navigate through this tough environment. Now in terms of commercial business, they are softening. We all get signals and data in the industry that they are quoting down a bit.
That had been particularly because there was a lot of hype going on in the industry for the second half of 2020 calendar year and first half of 2021. People are getting to more like kind of normal, but with more space going opening up, I think there's still a lot of opportunities from there.
Scott Fortune -- ROTH Capital Partners -- Analyst
I appreciate that, that's great color. That's kind of obviously we're hearing in the space on the commercial side. A lot of softening there, but you're online and you definitely offset that with the strengths. And just a follow-up question kind of you mentioned in-house products made up about 72% of sales in 2021.
Due to 100 new SKUs coming on board here in the second half, you had a ramp-up in advertising in the second half. How can we view, kind of continuing to expect in-house products to continue to increase? Can we look at it as maybe 100 basis points a quarter continued increase? Or do you have to continue that ramp-up in SKUs in advertising to keep it at that level? How can we look at that cadence going forward?
Kevin Vassily -- Chief Financial Officer
So you're asking mix not margin, right?
Scott Fortune -- ROTH Capital Partners -- Analyst
Yes, mix of 72% of the in-house products.
Kevin Vassily -- Chief Financial Officer
Yes. Yes, yes, yes.
Scott Fortune -- ROTH Capital Partners -- Analyst
And I know you guys have targeted getting up to higher than that. But how should we look at that cadence with the --
Kevin Vassily -- Chief Financial Officer
Yes, I mean -- right. So every quarter has its own kind of puts and takes. Our goal is definitely to continue to drive that number up. I think we're comfortable as we go out over the next several years wanting to get that to an 80% to 85% range.
So I don't know if it necessarily makes sense to think about it inching up quarter to quarter to quarter to quarter. We tend to think of our business in terms of full year. But there's no doubt that we will be introducing a host of new proprietary SKUs over the course of the year. I referenced we have our own in-house nutrients brand that will be -- that we hope will be launched and -- well it's launched, I should say, that we will start to generate revenue by the end of this calendar year.
And so the direction should be up. Is it 100 basis points a quarter? Hard to know. We're also at the mercy of our customers, including our largest channel partner. One thing I would say, though, too, is one opportunity that we have that could really help is in that commercial business.
Our wholesale business is offline. We still largely sell third-party products there. And so the penetration of our products into that part of the market still represents an opportunity to keep driving that percentage up.
Scott Fortune -- ROTH Capital Partners -- Analyst
OK. That's great. Go ahead.
Lawrence Tan -- Chief Executive Officer
I have a couple of things here. Yes. So we all know that in-house products are very, very important for any of the retailers or brand owners or distributors. But at the same time, I want to point it out.
Even though these have higher gross margins, the 3P products, they contribute. They are very important parts of our business. We will never -- like, we don't see them and we see that they are our friends. So they help us getting better customer experiences.
So we want to carry more and more 3P parts. So we're going to see is that you will see our in-house product growth with new SKU and you will see the 3P products grow as well. So both of these parts will grow. So whether it becomes 80%, 85%, or stay at 75%, it really depends on what makes sense.
We're already at a very, very dominated position where, like, we continue to add great products, including nutrients, and we're going to do more. We continue to invest into that front line. But I want to -- what I want pointed out is that, it doesn't necessarily mean that 85% is better than 80%, right? And maybe because we have partnered with a grade 3P, like for example, fertilizer line, right? And then it become a huge selling category for us that we didn't capture before. It may happen.
I just gave an example, it doesn't mean that we -- I'm just giving an example saying that, OK, these products are our friends. They are not our enemy. So we got to invest into both. And for in-house products, most of the new SKU we introduced, we're going to be providing better value to customers.
So we're going to be increasing on the SKU and introducing new SKU through innovation and through advanced in technology, through better customer experiences. So that's how I look at it. And I think, like Kevin mentioned, when commercial business opens up, it doesn't mean that we will just sit there and look at it. We're going to take an opportunity.
So there may be chances that our 3P products start to have a boost. So in terms of the percentage, I never really set a goal myself to achieve certain as like in-house sales products, but I think we're already at a pretty good position. And my best estimation is continue going up. I don't know where it will end up, but it's going to be going up from here.
And that's my best guess.
Scott Fortune -- ROTH Capital Partners -- Analyst
Got it. Thank you for detailed answers. I will jump back in the queue.
Operator
Thank you. [Operator instructions] Our next question comes from Mike Baker of Davidson. Your line is open.
Michael Baker -- D.A. Davidson -- Analyst
And this time, I'm on a landline, so it should sound better. So I have a couple questions. And obviously, I got cut off last time so I'll jump them all together here. One, you mentioned, Kevin, that some of the costs incurred this quarter won't be -- we shouldn't consider ongoing or more sort of one-time if that's the right term in nature.
Could you sort of quantify that a little bit? Secondly, can you talk about the 25% plus growth you expect this fiscal year? Should we assume that that will be more back-end loaded just given the comparisons? And again, I don't know if you're comfortable talking about this, but September quarter, it's September 27th, any additional color and how we should think about growth for this quarter. And then lastly, that nutrient business, can you remind us how big that is for you? And what percent of that do you think could become private label? Thank you.
Kevin Vassily -- Chief Financial Officer
OK, let's start with -- let me start with the last one first since that's fresh on my mind. So Lawrence, correct me if I'm wrong, but I think nutrients is around 20%, 15% to 20% of our total sales. And that is all right now, third-party products that we sell. We don't have revenues generated from in-house.
So the opportunity for us is quite large both from a kind of revenue standpoint. but more importantly, from a kind of margin standpoint. The nutrient business is very gross margin rich business. And it's a natural place for us to play given the other products that we have.
Do I have that mix, right? Is it around 15% to 20%, Lawrence?
Lawrence Tan -- Chief Executive Officer
You are right. You're right.
Kevin Vassily -- Chief Financial Officer
OK. OK. As it pertains to the cost, let me just give a little bit of color. So one of the biggest quarter-to-quarter and quarter-over-quarter changes was some of the fees that we pay.
We call the merchant account fees to our channel partners. In this quarter, they were significantly higher. And this was really a function of program mix. I don't want to get into too much detail, but Lawrence referenced, what clearly was supply chain distress that our biggest partner was having in the period April to June.
Lawrence Tan -- Chief Executive Officer
That's our [indiscernible].
Kevin Vassily -- Chief Financial Officer
Yes, they tend to -- they have a mix of business they do with us that includes direct import from our partners in overseas, as well as shipping from our inventory, our warehouse, here in the U.S. We could speculate as to why it happened, but they were and needed to ship almost exclusively from our inventory in our warehouses. So that's us dropshipping on their behalf. And the programs that were kind of supporting that were some of the higher merchant account fee programs.
So that was probably the highest mix of that type of business we've had. It just so happened that it generated higher-than-normal fees. We think that is not going to -- going forward that mix, where we have no direct import, and all dropship from our locations won't continue. And as such, those fees will come down.
So that's one. Two, on the advertising side, we, essentially, because we were waiting for the IPO to happen, had held off on advertising for a lot of the new products that got introduced in the first half of the year, largely because we were capital constrained. And once the IPO was complete, we went and ramped that fairly quickly. Now that, again, was meant to play some catch-up.
I think we had anticipated in earlier in the year kind of IPO completion. And then lastly, we had some catch-up spending to do with our, we call them co-engineering partners to get our product development back up to speed. So some of that will come down as well. But we were long overdue to getting that in the queue with them.
So again, the biggest part was the merchant account fee that was driven by program mix. And I think that is back to a more normal environment this quarter. And then, I think you had some -- you had one question about the outlook and kind of the cadence of revenue for the year. Is that right, Mike?
Michael Baker -- D.A. Davidson -- Analyst
Yes, exactly.
Kevin Vassily -- Chief Financial Officer
Yeah. So I want to kind of avoid specific quarter-to-quarter color or commentary. But I think -- maybe the best way to answer it is, yes, we do have the benefit of seeing kind of much of the first three months of this fiscal year, which gave us more than enough comfort to say that our floor for growth should be 25% for this year. How it exactly plays out, I think I'd rather refrain from speculating.
But we're in good -- let's just put it this way, we're in good shape as we kind of close out this quarter, and we have some puts and takes on the way that we work with our channel partners to kind of close that actual number. But it helps we have inventory. It helps that we're able to get product and have it available when people want it. So we feel good about where we are.
Michael Baker -- D.A. Davidson -- Analyst
OK. Thanks, Kevin. That's helpful. I appreciate it.
Kevin Vassily -- Chief Financial Officer
Sure.
Operator
Thank you. I'm showing no further questions at the time, so I'd like to turn the call back over to management for any closing remarks.
Kevin Vassily -- Chief Financial Officer
Great. Well, I want to thank everyone for joining us today. And we look forward to talking to you about our fiscal Q1 and the rest of the year on our next call. Thank you.
Operator
[Operator signoff]
Duration: 37 minutes
Call participants:
Kevin Vassily -- Chief Financial Officer
Lawrence Tan -- Chief Executive Officer
Michael Baker -- D.A. Davidson -- Analyst
Scott Fortune -- ROTH Capital Partners -- Analyst
