Hello, everyone, and welcome to today's conference call to discuss Ispire's Financial Results for the Fiscal First Quarter 2025 Ended September 30, 2024. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. We will be facilitating a question-and-answer session following the prepared remarks from the company. Joining us today are Mr. Michael Wang, the company's Co-CEO; and Mr. Jim McCormick, the company's CFO. First, Mr. Wang will brief you on the company's key highlights, and then Mr. McCormick will review the company's financial results. 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 facts 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 risks and 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 to changes in its expectation, except as may be required by law. I would now like to turn the call over to Mr. Michael Wang. Mr. Wang. Please go ahead.

Thank you, operator, and thank you all for joining us this morning. For the quarter, we generated revenues of $39.3 million. This represents a decrease of $3.5 million, or 8.2% from the same period of last year. This was partially impacted by delayed shipments as well as our careful and measured ramp-up in our global nicotine business. However, the number one driver for the decrease in revenue is due to the shift in our U.S. strategy. As we reported previously, our U.S. Hardware business is 100% from the cannabis industry. As all of you know, the key challenge facing this industry is cash flow, largely due to the Internal Revenue Code Section 280E and the general lack of banking services available to the industry. In the last two quarters, we have focused our U.S. business operation on enhancing our overall customer portfolio of high-quality accounts and strong financial stability, which we believe will ultimately lead to better bottom line for Ispire. In other words, we have focused more on the quality of customers and the quality of revenue rather than quantity. As a result, we saw decrease in U.S. revenue from the same period last year. However, we also have started seeing strong fundamentals in our U.S. operation, with notable improvements in gross margin, payment terms and account receivable management. We believe this approach of focusing on gross margin, better payment terms and better accounts receivable will lead to a more sustainable long-term financial performance. While our top line revenue saw a dip this quarter, we expect this dip to be temporarily in nature, and I'm particularly pleased to report that fiscal first quarter 2025 delivered substantial improvements in our key profitability metrics. We achieved a notable 12.1% year-over-year increase in gross profit to $7.7 million, and expanded our gross…

Thank you, Michael. I'd like to take this opportunity to summarize our key financial results for the fiscal first quarter 2025. In my comments, I will refer to the fiscal first quarter 2025 as the three months ended September 30, 2024. All comparisons are to the prior year-ended September 30, 2023, unless otherwise stated. As Michael mentioned, we achieved higher gross profit, improved margins, even with lower revenue. Overall, our total revenue for the fiscal first quarter decreased slightly to $39.3 million or by 8.2% compared to the same period last year. This revenue was driven by the following performance across our key regions. European revenues of approximately $22 million in Q1 2025 increased by $2.1 million, or 11% over the previous fiscal year. This was primarily as a result of increased sales of Ispire vaping products in the region. In North America, Q1 2025 revenues of approximately $9.7 million represented a decrease of $8.1 million, or 46% compared to the same period last year. The decline was driven by a decrease in cannabis vaping hardware sales in the U.S., as Michael mentioned previously. Asia Pacific revenues were approximately $3.9 million, a decrease of $1.2 million compared to the same period last year. For the rest of the world, revenues were $3.8 million, an increase of $3.7 million from the same period last year due to an increased level of sales in South Africa of $2.9 million. During the three months ended September 30, 2024, our gross profit was approximately $7.7 million, compared to approximately $6.8 million for the same period last year. Over this same period, our gross margin grew to 19.5% from 16%. The increase in gross profit and gross margin was primarily due to favorable changes in product mix with higher margin products being sold during the…

Thanks, Jim. As we close this quarter, I'm pleased that we have continued to make significant progress across our global business lines. While our revenue softened slightly due to the shift in U.S. strategy and the timing of shipments, we were still able to achieve major growth in our gross margin, reflecting the strength of our innovative product portfolio, our strategic focus on higher quality customer relationships, as well as the use of our state-of-the-art Malaysian facilities and efficient global operations. We also reached an important milestone in our joint venture to develop transformative age gating technology, securing a fast-tracked meeting with the FDA to discuss this critical industry initiative. We remain committed to our operational excellence and profitability as we build on the momentum from the transformative fiscal year 2024. As we move forward into the second quarter of fiscal 2025, we are confident our strategic investments and the continued innovation position us well for sustained profitable growth. I would like to thank you all again for your time today, and we look forward to sharing our continued progress in the quarters ahead. If you have any questions, please contact us through email at ir@ispiretechnology.com. Operator, this completes our prepared remarks, and we are now open to questions. Please go ahead.

[Operator Instructions] The first question today comes from Bo Pei with U.S. Tiger Securities. Please go ahead.

Hi Michael, hi Management. Thanks for taking my questions. So, my first question is about our strategic shift in the U.S. market. So, should we think about that a, I guess, the fiscal first quarter is it more like a bottom in our U.S. revenue? So, meaning it will start to recover starting in the second quarter or is it more like a longer period effect? Thank you.

So, thank you. So the U.S. cannabis-related revenue, I would say, the first quarter, meaning the last quarter reported, should bottom out. Our repositioning of the strategy really started the quarter before. So, the recent quarter financial reflected the effect of that decision. We strongly believe we have bottomed out as we have completely repositioned our U.S. strategy and shifted toward, let's just say, with our primary focus on the top-20 accounts. Certainly, we are entertaining next year, but the primary focus is the top-20 accounts. And this is going to be much assisted by the introduction of the I-80 filling machine. As I previously reported, all customers who have tested our self-sealing product line, that's the Ispire ONE line, really love the hardware because of the efficiency, the simplicity involved in filling and packing the device. However, for the last six months, we have been working on a higher capacity filling machine. The first-generation machine had only 1 needle. So, even though each device could be filled within 10 seconds, still you can only fill 1 device at a time. So, we then moved to a three-needle machine that much improved the production efficiency. And finally, we launched the 80-needle device or machine, hence the name I-80. So, with 80 needles filling 80 devices on a single tray in two minutes, you can just imagine how fast that whole process is, especially without the need of capping the device. So, after we launched it, certainly, it sped up our conversations and negotiations with several MSOs and the large accounts that had been waiting for this machine for a while. So, on one hand, prior MSO, our large accounts have accelerated their reordering. And additionally, with the new accounts signing up, we strongly believe in the coming few quarters, revenue on the U.S. side will only increase, Bo.

Thank you, Michael. That's helpful and good to hear that. And then my second question is with the shift in the strategy in the U.S., do you still expect total revenue to grow in the 2025 fiscal year? Maybe can you talk about the total revenue and also the U.S. revenue?

Yes. Our overall revenue, we are still very optimistic about the year. Even though the first quarter saw a dip, we are very, very confident that the full year result will still be very encouraging in terms of growth rate. Of course, we are striving to grow at the same pace as last year, and we are confident with that endeavor. Specifically, to the U.S., U.S. revenue, I think, given three quarters to go still in the year, we are, of course, striving to meet or exceed last fiscal year. But overall, global revenue should come more from our global nicotine initiatives, Bo.

Got it. And then for gross profit margin, I mean, total revenue actually grew a little bit sequentially from fiscal fourth quarter 2024, but gross margin declined quite a bit from 27.8% to less than 20%. Can you talk about the driver there? Is it about the U.S. strategy shift? And then how should we think about the gross profit margin going forward, or maybe just for this fiscal year?

Yes. So I will break down into two parts. On one hand, the U.S. revenue and its corresponding gross margin have continued to increase. So from that point of view, our strategy, our execution are still on track. Relative to the peak of a gross margin, like you mentioned a couple of quarters back, 19.5% seems to be lower than before. That is mainly because last quarter was the beginning of our ODM relationship with a European brand. And because this is a new customer of ours, as you can imagine, there is a great deal of initial learning involved. And picking up any large accounts with ODM relationships, there will be some inefficiency early on. And then over time, as we do more and more of the same work, efficiency certainly should increase, both from labor side as well as from supply chain price negotiation and leverage point of view. So I would say that is a key contributor to the relatively speaking, like you pointed out, a lower gross margin from the peak quarter a couple of quarters back. But relative to the same quarter last year, we still saw an increase in gross margin. That was indeed driven by the cannabis/U.S. revenue with a higher margin, Bo.

Got it. And my last question is about our accounts receivable. So now with the strategic shift in the U.S., when should we expect to see improvement in the accounts receivable line on the balance sheet related to that also the cash flow statement, when should we see some improvement in the operating cash flow activities?

Yes. This is a much bigger question that you asked. I think from -- I'll break down into two parts. I will actually answer your second part of the question first as far as the cash flow. Cash flow-wise, we are striving to turn cash flow positive by not the current quarter, by the March quarter. That, of course, is a result of not only AR improvement, but more importantly, it's by then, we strongly believe our global nicotine business will start a normal cycle and we'll get into a more normalized operation. Right now, we are still in the early phase of the global nicotine initiative. As you know, any time you attack a new market, you enter a new channel, there is rather heavy lifting before everything gets into a normal flow. So that's why we strongly believe with our strategy and execution, we'll turn cash flow positive in the March quarter. And now back to the AR side, as you saw, AR actually increased only about $4 million this recent quarter versus the quarter before. So with the total revenue of $39.5 million and AR increasing only by $4 million, it's an indication that, on one hand, our U.S. strategy is having effect. On the other hand, it's also a reflection that the team has worked diligently on a broader base in collecting AR, reinforcing the payment agreements we have with customers. So we think that progress on the AR side will continue this quarter and all the way into the next quarter as well. So from an AR point of view, I think the rapid increase has slowed and now we are hoping to get into a healthy cadence, Bo.

Thank you, Michael. That's all my questions.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Michael for any closing remarks.

Thank you. And once again, I want to thank you all for your time today. We look forward to the next call. In the meanwhile, if you have any questions, please feel free to reach out. Thanks again.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.