Ispire's Q4 2025 Earnings Call: Contradictions Emerge on Age Gating Timelines, Cannabis Revenue Pivot, and Gross Margin Outlook

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 16, 2025

Financials Results

• Revenue: $127.5M for FY2025, down from $151.9M in FY2024 (-$24.4M)
• Gross Margin: 17.8% for FY2025, compared to 19.6% in FY2024 (down 1.8 pts)

Guidance:

• Costs expected to continue declining in coming quarters as efficiencies take hold
• ODM nicotine business gaining momentum; expected to be a substantial revenue contributor
• Malaysia manufacturing scaling: 6 lines today; second facility planned for up to 80 lines; considering a third, larger site
• Q4 FY2025 marked the bottom for cannabis revenue; anticipate improvement with new products and higher-quality customers
• Age-gating component PMTA under expedited FDA review; next step likely a deficiency letter; timing uncertain
• Focus remains on selective cannabis exposure until U.S. legalization/banking access improves

Business Commentary:

* Strategic Shift to Nicotine Sector: - Ispire's revenue declined from $151.9 million to $127.5 million for fiscal year 2025, primarily due to the company's strategic pivot away from the cannabis industry. - This shift was driven by the desire to focus on the higher-value nicotine sector and diversify its product offerings to improve long-term sustainability and profitability.

• Improved Accounts Receivable Management:
• The company reported a 21% year-over-year decline in net accounts receivable and a 9.1% quarter-over-quarter reduction in gross accounts receivable.

• These improvements are attributed to the company's focus on reducing fixed costs, streamlining operations, and prioritizing partnerships with high-quality, large customers.

• Regulatory Advancements:

• Ispire has made significant progress in its PMTA activities, with the FDA accepting its component PMTA application within 4 weeks, a notable acceleration in the review process.

• The company's focus on regulatory leadership and innovation in age verification technologies, such as IKE Tech, positions it at the forefront of industry advancements.

• International ODM Business Growth:

• Ispire's international nicotine ODM business gained momentum, with over $18 million in pipeline revenue.

• This growth is supported by expanding Malaysian manufacturing capabilities and strategic investments in breakthrough technologies like G-Mesh.

• Strengthening Financial Position:

• The company achieved estimated annual expense savings of $10.2 million following significant cost optimization measures.
• These savings, combined with improved accounts receivable management and increased focus on larger, higher-quality customers, enhance Ispire's path to profitability.

Sentiment Analysis:

• Management acknowledged revenue decline tied to a deliberate pivot away from cannabis, while highlighting expense cuts (G&A down from $7.6M in Q3 to $6.7M in Q4) and improved receivables. They cited an ~$18M ODM pipeline and Malaysia capacity expansion as growth drivers, but provided no quantitative outlook and noted ongoing regulatory and market uncertainties.

Q&A:

• Question from Pablo Zuanic (Zuanic & Associates): What are the key milestones and timetable for approval of the age-gating technology?
  Response: FDA accepted the component PMTA within 4 weeks and is reviewing on an expedited basis; next step likely a deficiency letter, with timing anywhere from ~3 months to over a year.

• Question from Pablo Zuanic (Zuanic & Associates): Could other markets (e.g., EU) approve age verification before the U.S.?
  Response: Two unnamed countries may move faster than the U.S.; U.S. remains a focus, but multiple regulators are actively engaging.

• Question from Pablo Zuanic (Zuanic & Associates): How is the IP around age verification protected?
  Response: Filed patents in the U.S., EU, U.K., China; strong defensibility around device-to-backend blockchain communication and integration with approved operators.

• Question from Pablo Zuanic (Zuanic & Associates): Was the ~$22M receivables provision tied to one client or region?
  Response: It was a cumulative provision across many customers over the past two-plus years, not concentrated in a single client.

• Question from Pablo Zuanic (Zuanic & Associates): Why pivot away from cannabis despite ongoing vape hardware demand?
  Response: Cash flow challenges persist without federal legalization/banking; pivot prioritizes financial health, with potential re-entry if conditions improve.

• Question from Nicholas Anderson (ROTH Capital Partners, LLC, Research Division): How is the U.K. ODM supply agreement progressing and will there be more SKUs?
  Response: After redesigns post-U.K. disposable ban, the upgraded product launched in summer with strong early feedback; ~$18M backlog largely tied to this client, with further iterations planned.

• Question from Nicholas Anderson (ROTH Capital Partners, LLC, Research Division): Impact of tariffs and supply-chain diversification on Malaysia expansion?
  Response: Seeing increased inbound interest; Malaysia scaling from 6 lines toward 80 in a second facility, and considering a third larger site; expansion paced by regulatory approvals.

• Question from Nicholas Anderson (ROTH Capital Partners, LLC, Research Division): Is 4Q cannabis revenue a forward run-rate and would rescheduling change your stance?
  Response: Q4 was the bottom; volumes already improving with new products and higher-quality customers; rescheduling would prompt reevaluation and potentially increased investment.