Good afternoon, everyone, and thank you for participating in today's conference call to discuss iPower's financial results for its fiscal first quarter 2023, ended September 30th, 2022 . 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, operator, and good afternoon, everyone. By now, everyone should have access to our fiscal first quarter 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 our website at meetipower.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 of 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 now turn the call over to iPower's Chairman and CEO, Lawrence Tan. Lawrence?
Thank you, Kevin, and good afternoon, everyone. Our fiscal Q1 was a strong quarter despite lingering challenges from supply chain environment. Although our gross margin dipped below 40% due to higher freight costs associated with the ordered inventory, we generated approximately 50% year-over-year revenue growth as we expanded both our hydroponics and non-hydroponics businesses. Throughout the quarter, we were able to maintain concentration on our in-house product mix, which accounted for over 90% revenue compared to around 80% in fiscal Q1 2022. We also continued to focus on diversifying our product mix with non-hydroponics household products such as shipping supplies, home fans, and chairs, accounting for over 65% of the sales during the quarter. Looking to the future of our product catalog, we will be investing more in R&D to create even higher value and higher margin products.
We believe this will allow us to better manage quantity control and ensure that our customers are consistently receiving catalog leading products. We expect to begin rolling out these new products in 2023. Heading into calendar 2023, we will continue to leverage our extensive supply network and supply chain expertise to tap any and all consumer home and garden categories that can create value for our consumer base and business. Earlier in the year, we made the strategic decision to stockpile inventory in anticipation of both residual supply chain headwinds and our planned increase in non-hydroponics product sales. This ensured that we had consistent availability of fast-moving products for our customers and channel partners. However, it did offset gross margin, as many of those products came in at higher freight rates than what we are seeing today.
We continue to have an elevated inventory position, and we expect to work down higher cost inventory over the next couple of quarters, which will improve both our cash flow and gross margin. As mentioned on our last quarterly update, we have been in the process of revamping our image to better showcase the core iPower business alongside our increasingly diverse product portfolio outside our traditional hydroponics vertical. We are launching our new website this weekend and expect our entire rebranding process to be completed soon, which will include a new logo, color scheme, and other marketing related items. This new branding is an important step in unifying iPower's various non-hydro related products and services while creating a more seamless experience for our customers as we continue to scale and grow both domestically and abroad.
Looking ahead, we expect the volatility and pricing in the supply chain to continue improving as we are already seeing meaningful decreases in overseas shipping costs, as well as lower lead time to cross the Pacific. As a result, we expect to require less inventory going forward and plan to reduce the balance over the next few quarters. Between selling through higher cost inventory, purchasing less products, and eliminating short-term warehousing need at elevated rates, we are well-positioned to improve margin and cash flow. All of that said, we will continue to be vigilant in our business and capital allocation as the macroeconomic environment evolves in fiscal 2023, and we look forward to delivering another year of strong growth and profitability.
I'll now turn the call over to our CFO, Kevin Vassily, to take you through our financial results in more details. Kevin?
Thanks, Lawrence. As Lawrence mentioned, our fiscal Q1 was another period of strong top-line growth for the company. Total revenue was up 50% to $26 million compared to $17.4 million in the year ago period, driven by increased demand for our non-hydroponic product portfolio, which includes items like commercial fans, shelving equipment, chairs, carts, etc. Gross profit in the first fiscal quarter increased 37% to $10 million, compared to $7.3 million in the year ago quarter. As a percentage of revenue, gross margin was 38.4% compared to 42.1% in the year ago quarter. The decrease in gross margin driven by a great portion of our sales coming from inventory that incurred higher freight costs earlier in the year.
Total operating expense for fiscal Q1 was $11.5 million compared to $6.0 million for the same period in fiscal 2022. As a percentage of revenue, operating expenses were 44.1% compared with 34.7% in the year ago quarter. The increase in operating expense was primarily driven by elevated warehouse costs. These costs were for temporary warehouse space. This was a result of having that higher inventory compared to the prior year period. As Lawrence mentioned, we expect to improve operating margins in the next coming quarters as we eliminate short-term warehousing, you know, for those elevated inventory levels.
Net loss in the first fiscal quarter was $4.3 million or $0.14 per share, compared to net income of $0.9 million or a $0.03 per share gain for the same period in 2022. The decrease in our bottom line was primarily driven by a $3 million goodwill impairment charge that was related to a decline in our market capitalization, as well as the aforementioned elevated warehouse and freight costs. Moving to the balance sheet, cash and cash equivalents were $4.8 million as of September 30th, 2022, compared to $1.8 million at the same time at the end of our June quarter.
Increases primarily due to purchasing less inventory as we previously added to that product stock to ensure availability early in the year. As of September 30th, total long-term debt stood at $16.1 million compared to $14.1 million at the end of June 30th, 2021. The increase was driven in part by timing as we utilized our revolver to better manage working capital. Looking ahead to the rest of fiscal 2023, you know, we plan to continue to drive solid top-line growth in the business while maintaining our approach to capital allocation and returning the business profitability. Although the macro environment continues to present challenges, you know, Lawrence may touch on this a little bit in the Q&A period. He's actually in China right now.
We've begun to see improvements in our supply chain costs. We think that these will continue into the next calendar year. This concludes our prepared remarks, and we'll open it now for questions. Operator?
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from Scott Fortune with Roth Capital Partners . You may proceed.
Yeah, good afternoon. Thanks for the questions here. Want to dig into inventory, but first, you know, can you quantify kind of the $26 million top line result here as far as the business segments and the growth of each of those segments? You know, non-hydroponics seems to be growing quicker, obviously. Kind of your thoughts for a longer-term mix from those segments. Also the segments growth margins for each business and around each of the business for the quarter and kind of going forward from that standpoint?
Sure, Scott. I'll take a few of those. First, as the breakout between our kind of hydro product line and our non-hydro product line, let's call it roughly 50% each. It was lower last year, so the non-hydro was lower last year, so that's obviously growing a little faster than the 50% clip that we reported on the aggregate basis. Lawrence, maybe you would comment on kind of margins for the different segments.
Yeah, sure. The non-hydro and the hydro business, in terms of the in-house product, gross margin, they're relatively the same. You know, we have always been seeing the non-hydro parts have been growing faster than the hydro side, which now contributes to, you know, for last quarter, over half of our total revenue. In terms of gross margin for the in-house parts, which you know, contributes the most of our sales, which is about 90% for the September quarter, they are relatively the same.
Oh, go ahead, Scott, sorry.
No, a quick follow-up on that because Lawrence, you said you have a lot of R&D for new product growth going forward. It kind of gets back to the question about the mix. How should we look at that with new products coming on board? Are the mix kind of moving forward away from the cannabis side and more on cannabis going forward here?
We'll actually be doing on both. The R&D will be put in both the hydroponics and non-hydroponics business as a way to make our products smarter and better value for our consumer. You know, we're not limited by you know, either the hydroponics or non-hydroponics business. It's basically a type of like the way we put more R&D into the existing product line or some new product line related so that we can provide a better product to the market.
And Scott, one other kind of advantage for more kind of in-house R&D is that, you know, a lot of the products that we bring to market are done or co-engineered with a partner, either a third party or directly with some of our suppliers. By bringing some of the R&D in-house, we obviously own, you know, a bit more of the, you know, IP associated with that. There is a little bit, and I'm not gonna try to quantify it too precisely, but there's a little bit of a margin bump we get because we're not paying kind of the co-engineering service fee.
It's in an attempt to keep, you know, trying to push those gross margins upward, you know, we think this is an important thing to do over the next couple of years.
Got it. Then my follow-on question, obviously, the inventory levels, it sounds like this should clear over a couple quarters. Just kinda step us through as we look at some SG&A and the costs there going forward and the key to getting back to profitability from this level. I take it that your partner Amazon did not boost holding more inventory in 1 Q, so you didn't see that boost. Just kinda step us through how inventory and the bridging back to profitability plays out on the SG&A side for you.
The biggest incremental cost associated with, you know, holding this inventory is all of the temporary warehouse space that we needed to procure to store that inventory. As such, as you might imagine, short-term lease significantly for a short-term kind of service fee is significantly more expensive than a long-term warehouse lease. You know, our challenge was, you know, over the summer, you know, somewhat still worried about the supply chain too still fairly elevated shipping times, and not wanting to, you know, miss kind of the demand window that still felt like it was gonna be there. I think, you know, the top-line results we saw this quarter kind of supported that view.
As you know, we've seen shipping costs go down or times come down, you know, we believe our ability to run the business on a lower level of inventory, meaning higher turns, you know, will return. That's one. With that, you know, the money we're spending to hold inventory in these short-term facilities, you know, will start to disappear. You know, I don't have an exact timetable 'cause it's obviously a function of sell through, but you know, it's related. As that inventory comes down, you know, we won't need to be holding it in what's, you know, very high cost storage. I think that's the way to kind of think about, you know, getting us back to a more normalized operating expense environment.
Got it. I appreciate the color, and I'll jump back in the queue.
Thanks, Scott.
Thank you. As a reminder, to ask a question, you'll need to press star one one on your telephone. Our next question comes from Michael Baker with D.A. Davidson. You may proceed.
Okay, thanks. A couple follow-ups and other questions. First, just to be clear, you're still paying the temporary warehouse space. That hasn't completely gone away. You expect it to go away in the coming quarters, but we don't know exactly when. Is that right?
That's correct.
Do we think fiscal 2023?
Do we think we won't be paying it?
Yes, at some point this year.
Through our fiscal year, yeah. I mean, you know, assuming-
In other words, will there be a quarter this year where you will be back to profitability? I guess that's the question.
Well, I don't wanna give specific guidance, but we expect that, you know, we will not have to be paying that elevated warehouse space cost at some point during this fiscal year. Yes.
Got it. Okay. The R&D, what is there an incremental cost to that? Is that like another sort of SG&A line item that's gonna pop up?
I think the way that's gonna roll out is, you know, any incremental spending initially is gonna be pretty small, so it may fall under kind of the G&A line. The way to think about it, though, is, you know, initially a bit of a one for one kind of trade out of gross margin and into an R&D line. As that scales over time, you know, we'll have a little bit of leverage on that gross margin line because we won't be, you know, again, embedding co-engineering costs in the cost of goods sold. You know, the early R&D spend, and if we decide to break it out if it's big enough, will essentially be kind of a one-to-one kind of pull out of, kind of what we're spending on cost of goods sold. If that's, hopefully that makes sense.
Yeah. I think it does. Okay. Now more, I guess, bigger picture, strategic type question. Is your customer base, which is I guess primarily Amazon, but you do have other customers. Is your customer base different for the non-hydroponic versus hydroponic products? And as part of that answer, can you update us on your customer base? Have you diversified away from Amazon at all? I know that's something you have been working on, both in terms of customers, but also geographically as well. Can you update us on your international business? That's three questions in one.
Yeah, that's good. That's a good way to ask him. Lawrence, do you wanna take that?
Yeah, sure. In terms of, like, the sales channels for United States, the hydroponics and non-hydroponics, they do not differ very much. We utilize the same channels for both business lines. In terms of a geographical area for the end consumers that, you know, who buy and uses our product, I don't have the data in front of me that shows the differences between these two segments. You know, I don't have that data in front of me right now. Now in terms of international business, you know, I think right now the European mostly have the hydroponics sales. We are working on bringing non-hydroponics sales into European. Now in terms of Canada, I think it's mostly that as well. Like, in that regard, the non-hydroponics business expansion to the rest of the world other than United States is still a little behind the hydroponics business.
Okay. Domestically, any diversification in the customer base? In other words, I know you had been sort of talking to some big box retailers and trying to diversify away from Amazon. Any update there?
Yeah. We are making slow but solid progress there. It's a work in progress.
Yeah. And Mike, you know, given that you work with a lot of those big box retailers that, you know, we are developing relationships, you know, the windows, particularly, to sell brick and mortar, you know, don't open kind of every week. You know, we are going through the process of getting to be a qualified vendor and the process of being invited in, you know, should happen hopefully over the next couple of quarters, and we'll keep you guys posted. You know, these are companies that you, I'm sure, are familiar with. I think you understand kind of the windows that we get to provide product and, you know, we're optimistic given the progress we've made so far.
Yep. Okay. Fair enough. Thank you.
Thanks, Mike.
Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Kevin Vassily for any further remarks.
Just wanted to thank everyone for dialing in today. We will be talking again to you as we complete our fiscal Q2 and hold a conference call probably sometime in early to mid-February. Thanks everyone again, and we'll talk again soon.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.