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Reports 4Q23 Results; Growth and Profitability Catalysts in Sight Post Inventory Correction

iPower reported 4Q23 and FY23 revenue of $23.4 million and $88.9 million, respectively, up 6% and 12% versus last year’s results. The company reported a loss per share of $0.10 for the quarter, and a loss per share of $0.40 for the year, reflecting the unusual transportation and warehousing expenses experienced as a result of last year’s supply chain disruption. Inventories declined from $30.4 million at the end of FY22 to $20.6 million, with management targeting a further reduction to about $15 million. Concurrently, the balance sheet was strengthened during the year, with net debt declining from $14.2 million at the end of FY22 to $8.1 million at the end of FY23. The company believes it will return to its previous profitability range at some point during FY24, namely 40% or better gross margins and positive EBITDA. Unlike most of its direct competitors, iPower has achieved consistent growth during the last three years. It is important to note that end-customer demand growth for iPower products has been more stable than indicated by iPower’s reported revenues because the company’s largest online market partner increased inventories of iPower products when supply disruptions were feared and has been reducing inventories back to more normal levels as the supply chain returned to normal. iPower has continued to add and grow product categories, so that hydroponics now represents slightly less than 25% of total sales. Sales of in-house products are now more than 90% of total sales. iPower’s wholesale relation with Amazon has strengthened as Amazon has been reducing and rationalizing the number of wholesale partners on its online marketplace. The company is also developing new sales channels, including offline opportunities as well as developing its business on TikTok Shop. The company now has two partners to whom it offers business solutions services, with one in home goods and one in electronics. We expect a few more partners over the next 12 months as well as a broadening of the scope of activities with existing partners. This effort will be revenue accretive for iPower without requiring meaningful additional investments. iPower has a solid balance sheet, a growing top line, and gross margins of around 40%. The stock is trading at a 0.38x current EV/Sales multiple relative to the group at 0.48x EV/Sales, despite a significantly better gross margin profile. Bottom-line profitability and continued top-line growth could be further catalysts for the company in FY24.