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.…

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…

[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.