Hello, everyone, and welcome to Ispire Technology Earnings Conference Call for the Fiscal Second Quarter of 2025 Ended December 31, 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. Following the company’s prepared remarks, 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 discuss the company's recent highlights, after which Mr. McCormick will review the company's second quarter 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, Phil, and thank you to everyone joining us this morning. I'm pleased to report our second quarter 2025 results and provide an update on recent highlights. We have continued to make solid progress advancing our strategy of growing internationally, as well as enhancing our financial stability. For the second quarter of fiscal 2025, we generated revenues of $41.8 million. This represents a slight increase of $100,000 or approximately 0.3% from the $41.7 million in the same period of last year. Gross margin for Q2 increased to 18.5% up from 15%, while gross profit was $7.7 million up from $6.3 million in same quarter fiscal 2024. This increase in gross margin and gross profit is largely driven by our focus on transitioning toward a better quality of customers and the better quality of revenue. Changes in product mix, as well as the contribution sales from our expansion overseas. As we have stated during recent quarters, we have made significant strides in improving our overall customer portfolio mix with higher quality accounts rather than simply quantity of accounts. Combined with a focus on payment terms and account receivables, this has translated into intense financial stability and consistent revenue, which contributed to our margin expansion in the second fiscal quarter. We have seen increased momentum across our nicotine business, which accounted for $31 million of our overall revenue in the second fiscal quarter, and is continuing to perform in line with expectations. We are pleased with ongoing progress in sales from this innovation as we expand and gain traction in new markets internationally. We are particularly excited about our progress in Africa, which has shown a solid contribution to sales. Post-quarter end, we announced the successful launch of our BrkFst nicotine product across South Africa and Nigeria. This was a significant…

Thank you, Michael. Before I review our key financial results for the fiscal second quarter 2025, please note that I will refer to the fiscal second quarter 2025 as the three months ended December 31st, 2024. All comparisons are to the prior year ended December 31st, 2023 unless otherwise stated. As Michael previously noted, we reported growth in both gross profit and gross margin. In the quarter. Our total revenue for the fiscal second quarter increased to $41.8 million, representing a slight increase of 0.3% or $0.1 million compared to $41.7 million in the same period last year. Our revenue results were driven by the following performance across our key geographic regions. In Europe, revenues of approximately $24 million in quarter two 2025 represented strong growth of $8.3 million or 53.2% versus the same period last year. Revenue from North America in quarter 2, 2025 of approximately $10.9 million was a decline of $9 million or 45.3% compared to the second quarter last fiscal year. This was driven by decreases in sales of our cannabis vaping products. This reduction is consistent with the company's effort to focus on higher quality customers in the region. Asia Pacific revenues were approximately $3.6 million, a decline of $2.4 million or 39.6% compared to the prior comparable period. Revenues from Africa were $2.7 million, an increase of $2.6 million from the same period last year, as a result of our launch in South Africa, as previously mentioned by Michael. For the second fiscal quarter ended December 31st, 2024, we recorded gross profit of approximately $7.7 million compared to approximately $6.3 million for the same period last year. Gross margins for the second quarter were 18.5% up from 15% last year. The increasing gross margin and gross profit was primarily due to changes in product…

Thanks, Jim. To close, I'm proud of the progress we achieved over the second fiscal quarter in progressing our strategic priorities with the continued momentum across multiple strategic initiatives. We grew revenue as well as margin, reflecting our successful transition to higher quality customer relationships and expanded global presence. We achieved several significant milestones this quarter, including the successful launch of BrkFst products in Africa with over 500 retail locations, securing key regulatory approvals in Malaysia, and completing a productive pre-PMTA meeting with the FDA for our innovative age-gating technology. Additionally, our newly announced $10 million stock repurchase program demonstrates our confidence in Ispire's future and our commitment to delivering shareholder value. Looking ahead, we are excited about the many transformative opportunities, particularly with IKE Tech age-gating component PMTA submission planned for April and our expanding international presence. Our strategic focus on technology innovation, regulatory compliance, and global expansion position us well to capture significant market opportunities while promoting responsible industry practices. Thank you all again for your time today and to all our investors for your continued support. We look forward to updating you further in the coming quarters. 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.

Thank you. [Operator Instructions]. Our first question comes from the line of Nick Anderson with ROTH Capital Partners. Please proceed with your question.

Good morning. Thanks for taking my question. First one for me, just on the cannabis partnerships and the pipeline. You mentioned last quarter the cannabis business has bottomed out. Just looking for color on the pipeline and where you're at in terms of monetizing there, any discussions around the I-80 technology would be helpful too. Thank you.

Nick, thank you. As far as our cannabis business, part of the reason that we repivoted about seven months ago was to gear our business more toward the MSO or large SSO type of customers. On that front, as we are known, they have more predictable future demand and much easier for us to plan around demand, versus just reacting to sporadic orders. So, on that front, we have been successful in capturing and working with and partnering with three companies already. The very first such customer was Aperage and followed by Raw Garden and Juxi. In the pipeline in the coming quarters, we are expected to close a couple of more relationships there. But even with these three accounts, certainly, predictable future demand would yield a pipeline that you are talking about. We feel these three large accounts alone can provide roughly 1/3 of our revenue in the foreseeable couple of quarters. So obviously, as we continue to getting new partnerships in place with other MSOs and SSOs, we expect these three-account percentage or weight to be reduced as we continue to onboard new customers. I hope I answered your question. Second question is regarding the I-80 filling machine. That's also integral part for repivoting last summer. The I-80, given its high capacity, obviously, is more geared towards the high-volume MSOs and SSOs. So, on that front, machine is continuing making progress in the ITSPA for partners and the customers alike. So, in addition to us providing such machine to our key accounts, we are also looking ahead to potentially partner with other machine manufacturers to make such solution available to the existing installed base. So, on that front, is, generally speaking, gaining ground and getting recognition as we originally expected. Nick?

I appreciate that color. Second one for me, just on Europe, that revenue was nicely up year-over-year. Can you dimensionalize the performance there? You have the leading open system and we've seen some regulatory momentum around restricting closed systems or limiting their use in general. Just any color on what you're seeing over in Europe would be helpful?

Yes. In Europe, obviously, the most watched market is the U.K. market. And in the U.K., as of this June, disposable vape devices would be completely banned. And as a result, the market will have just too many types of products, either a complete open system or in some cases, the so-called refillable pulp systems. So, for the last year or so, we have been positioning ourselves for this day. We designed a series of refillable pod devices in anticipation for the market and regulation change. And certainly, our open system will continue to benefit from the shift in regulation there. So, you are correct. Part of our strength in Europe is because of our positioning in the UK towards the banning of disposables. We strongly believe this trend will continue across other European countries as well. So, from that point of view, our product portfolio and offerings will be perfectly in line with what's going on as far as the regulatory landscape goes. Nick?

Great. That's it for me. I appreciate the color. I'll pass it on.

Thank you. [Operator Instructions]. Our next question comes from the line of Bo Pei with U.S. Tiger Securities. Please proceed with your question.

So, my first question is on the cash flow. So, given the company's operating cash flow is still inactive, can you just talk a little bit about the rationale behind the $10 million stop buyback program? I believe last quarter you mentioned the company should be even and have crossed operating cash flow in the March quarter. Is that still your expectation now? Thank you.

The first question regarding cash flow and regarding the stock buyback program. First of all, the stock buyback program that we planned for will cover a 24-month period. So that will give us flexibility in when to decide to execute on it. Of course, we'll do so when the stock obviously is -- stock price is favorable for repurchase. But along the way, of course, we'll report to investors, shareholders, as we make any transaction on that fund. Now, specifically regarding our cash flow, as Jim indicated, last quarter, the December quarter, for the first-time cash flow generated from operating activities turned positive. This is actually a major change and shift in our cash flow position. So, to answer your other related question, previously, we were hoping for cash flow break-even in the March quarter. We are still gearing in that direction. However, given that we just carried out some cost-saving initiatives worldwide to realign resources, where cost savings mainly came from or will come from is actually from the U.S. operation, including some head count reduction there. So, we expect this quarter, we'll have a little bit onetime expenses related to that initiative in cost reduction, mainly from the U.S. side as we shift functions to Malaysia and Hong Kong side. So, I think because of that onetime expense this quarter, as we will, for sure, continue to make progress with our cash flow this quarter. I expect the original expectation for becoming cash flow positive this quarter will likely be pushed out a little bit due to that onetime charge. Bo?

Thank you, Michael. And my second question is about regulation. So, is there any -- do you see any upcoming or existing impact on our business from the U.S. tariff? And then also related to that, do you expect any new regulation in the cannabis or new cigarette in the U.S. under the new Trump administration?

So, your first question, first, regarding the President Trump initiative of imposing more tariff on imports. Certainly, on that front, we expect tariff increase for China made products. That is, I think, widely expected. The only question is by how many percent. So, on that front, this is exactly why we, since late 2022, we started positioning our manufacturing operations more in the direction from Malaysia, really, is to get around the number 1 geopolitical risk. Number two, the uncertainty related to trade tariff against Chinese-made products. So, I think, certainly, that part will affect us to some degree, but we will certainly benefit from this relative to our competition as well. Now the other part of this executive order and general, I would say, protection of U.S. companies and the economy and consumers will come in the form of, I would say, border protection and border control. On that front, I think we, as a company, as a operator in this space will actually benefit from what's coming. What's coming is between FDA and border protection and border agency, I think in 2025 and beyond, will certainly tightening up the inspection, the documentation review process at the border. As we all know, whether it's on the cannabis side or the nicotine side, in the last many years, the market has been rather flooded with illegal products or unauthorized products. So, I think with this new change in policy that is tightening up the control at the border will actually squeeze out bad characters and bad players and making legitimate professional operations enjoy this compliance process more openly. Ultimately, that will benefit consumers, both from safety and certainty point of view. As far as cannabis, I think at this point, it's really hard for anybody to predict, given the fluid situation with the DOJ, HHS, and the FDA, and of course, DEA. So, everything is relatively in constant change right now until the dust is settled in a few months. It's really hard for anybody to predict whether we'll get cannabis legalized at the federal level during this administration. Bo?

And my last question is on the modular PMTA opportunity. Can you just talk more about this opportunity and when should we start to see revenue contributions from this?

Yes. The component of PMTA, as I stated earlier, is first such, I would say, a unique approach to PMTA approval. This is partially because in our meeting with FDA, it's apparent this technology provides a, you can say, broad-based solution to solving the flavored ECIP issue in the United States. So far, only tobacco-flavored e-cigs are getting approvals on an ongoing basis. Only a couple of menthol-flavored products got approval in the last 12 months. And that's not because that's what consumers want. Consumers, by and large, still want flavored e-cigarettes. However, given that there's no method of preventing youth access, FDA had no choice but just banning flavored devices completely. So, with this solution, once we get FDA's sign-off, by being a component of PMTA, that means we can offer such a solution to other manufacturers and brands to use such technology and control youth access for their own products. So, on that front, there are going to be, obviously, a large number of opportunities for licensing this technology to other manufacturers. So that's what the component PMTA is really geared toward for to make it a modular solution that can be added to other brands' products so that all such products will have the age-gating function built in. So not only will we use such technology for our own pod systems, as I indicated earlier that we will apply for, we will for certain license such technology to manufacturers or companies interested in such a solution. And it's hard to put a number together in terms of, say, licensing revenue per se. But I think we all know currently, the U.S. e-cigarette market is largely illicit or black market. I think I saw the recent JUUL estimate that says, illegal market is anywhere between 3 times and 7 times of the legal market. So, I think that just indicates the illegal market today is anywhere between USD30 billion and USD60 billion in the U.S. That truly represents the ultimate potential for such technology. Of course, we probably will never be able to completely eliminate the black market on that front. But just capturing a big chunk of that existing illicit market with age-gated devices will mean significant revenue for the manufacturers as well as for us as we license technology. So, I don't know if that was clear enough.

Thank you. Ladies and gentlemen, there are no other questions at this time. I'll turn the floor back to Mr. Wang for any final comments.

Okay. Thank you, operator. And thank you, everyone, for your time today. We look forward to talking to you. So, thank you. Have a great day.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.