I'm joined by Kevin Vassily, CFO of iPower. iPower is an e-commerce company using data analytics to design, source, and market products, primarily on online channels in the US. iPower sells a wide range of products. We're going to talk extensively about the range of products that iPower sells. iPower has achieved robust growth thanks to its ability to design, procure, and market various products, responding to unmet customer needs, and to do so effectively in various e-commerce platforms. Are disclosed on their website. Kevin, welcome, and thank you for joining us. Thanks, Thierry. Thanks for having us. Great. So the range of products and services that iPower offers has expanded over the last few years. I'm wondering if you can kind of recap where we are today with the main product categories, maybe in order of magnitude for your business. Sure. Sure. I think it maybe makes sense to even start from kind of our origin. The company, when it was founded in 2011, had focused its kind of efforts around the consumer hydroponics space that got fairly popular in the kind of late 2000s and kind of right up until our IPO and kind of prior to our IPO. consumer hydroponics was roughly 70% of our kind of revenue. If you fast-forward to today, the product mix looks quite a bit different. In fact, hydroponics is not kind of the top category anymore. So I think we don't necessarily break it up into distinct categories, but I can give you a sense of the product types that make up the bulk of the revenue. And yeah, I'll do my best to do kind of in order of magnitude. After the first three or four, it becomes a lot more fragmented, but this should give some people a better idea of what we do. So our biggest category right now is in the fan space, so commercial and consumer fans. So that could be anything that you would find in a warehouse environment, a greenhouse environment, to something that a consumer would put in their living room or in a bedroom or a garage. Hydroponics would be the next largest category. That's still roughly 25% of our revenue. Shelving and kind of derivatives of shelving is our next largest product. That's in the neighborhood of, depending on a quarter, 15%-20% of revenue. And then from there, it starts to tail off a bit in terms of contribution, but we'll kind of group some of these other categories into maybe a catch-all category. One we'll call home furnishings. That could be anything from furniture, and that could be outdoor furniture or indoor furniture, kind of outdoor recreation equipment, stuff like portable grills and stoves. We have a pet line that has been around 10% of our revenues for some time. It's probably one of our more margin-friendly products. There's a lot of demand for taking care of pets in this country. And then kind of a newer category that's starting to get some momentum is in the kitchen space. And so I'd be remiss to call them appliances. Yeah, tools is maybe the best way to say it, or kitchen devices. Think things like a portable ice maker or a kind of countertop or desktop fridge or salad spinner, stuff that you would use kind of in and around your kitchen or to be involved with food or kind of preservation, etc. So those are the major categories for us right now. If we look, for example, at the kitchen category that you just mentioned, how was that developed? Was it developed internally, organically, or is it the result of an acquisition, or how is that growing? Yeah, the kitchen. In fact, all of the product categories that I mentioned were developed organically. We came not so much with an idea, but the idea was or the genesis of that idea came from kind of the work we do in looking at the data that we collect in our kind of channels and markets about product categories that we think might make sense given our development engine. And in particular, we'll talk about this, I'm sure, a little bit later, but the kitchen product lines are really well-suited for our emerging business on TikTok Shop. And so when we got approached by TikTok early last year, so early 2023, about being one of their kind of pilot vendors on this, which was essentially a silent beta. They never really called it a beta, but to be one of the early providers of product on their new e-commerce foray here in the U.S., we wanted to find products that made sense. Social commerce really does lean quite a bit towards apparel and cosmetics, and those were not necessarily things we were looking to get into. But given the suppliers we've worked with in the past and given kind of our design talents in and around kind of harder physical goods, we thought that the kind of kitchen category might make some sense for TikTok. And so that was the genesis of it. And then from there, we decided to go down the route we did with the certain SKUs that we have based on what we saw in the marketplace. Was it relatively fragmented with not a ton of differentiation between products? That's good for us because that means if we design a product with features and benefits that make sense, then we can go and capture even a small amount of share in that category and still have it be meaningful to us. Is it the kind of product that has some level of kind of impulse buy? So it's not at a price point that makes you have to, quote-unquote, "balance your budget" before pulling the trigger on a product. Yeah, something like a desktop fridge, as an example, it's not going to cost you much more than $30-$40. I think a lot of people who are on those sites can fairly easy kind of make that decision and buy on impulse. And then it was a function of us then kind of designing those features and benefits and finding a partner who would be able to make it for a price that would allow us to clear a pretty decent margin on it. If we can't do that, then there's no reason to bring the product to market. So yeah, those kitchen items were really part of the engine that I think you and I have talked about on several occasions prior. It's just the timing was good and the fit was good for us, particularly as we got approached by TikTok. So you have a team that just focuses on that. You have designers, then you have data analysts. And how does it, I mean, kitchen items seems like such a big category, but who can pull the trigger there in terms of thinking of the idea of doing the, I'm kind of wondering how much is art, how much is analysis in the process of developing something like that? Yeah, that's a good question. I would say it leans very heavily towards analysis. The design part, we have a lot of co-engineering partners in Asia that we work with. A lot of them are kind of embedded in the suppliers that we work with. And so when we have an idea, the idea will be based in data that says, "Okay, it's this size of a market, at least from our perspective. We don't see a ton of differentiation." What we've seen, though, is in the unstructured data, a certain number of kind of features and attributes that are either missing or that people don't like. How do we design something that eliminates the things that people are unhappy with but adds the things that people are asking for? Once we do that, we can go to the design and co-engineering groups that we've worked with in the past and say, "All right, can we build this and can we build this at this price?" From there, the answer is either yes or no. If we can't build it at the price that we think we can then move product and volume, we'll stop there. But yeah, a lot of this work is rooted in the kind of analytical piece. We're looking for categories where we just want to take a portion of the share by doing right by consumers. That's all in the data. The rest of it, not that the design is not important. I don't want to undersell that. A good design is not necessarily going to sell itself if it doesn't have the features and attributes we think people want, nor does it make sense from a cost standpoint. Yeah, if I said 80/20 analysis, 20 design, that's probably the right kind of ratio. How many new products you start marketing on a monthly basis? That's a good question. I don't know if I have, I don't really have that at my fingertips. I think any given year, I mean, we've had a couple of years where we've added 600+ SKUs. We're not at that pace right now, partly because of the focus that we're putting on the services business and finding partners to work with versus developing new products. But I think in a normal year, kind of on a go-forward basis, if we can have anywhere from 50-100 new SKUs, while at the same time rationalizing some of the more mature legacy SKUs, then I think we'll feel good about our activity level. And some of those SKUs also are kind of bundles, I should be clear. Sometimes we'll have a bundle as an example of, say, a fan and an extension cord as an example, or a fan and a fan that comes with some level of connectivity. And so there's an appliance you can plug the fan in that allows you to then control it from another room or from your office if you're on your way home. So there are other kind of ways for us to get kind of SKU growth. But yeah, I think we're doing 100 a year. I think we're still being active. Are there any consumable sectors that you feel you could penetrate, food or cosmetic or anything related to? Yeah, that's an interesting question too. It's kind of timely. We've actually been approached, and I think we've talked about this before, we've been approached by companies in what's called the nutraceutical category. So it's an area that we'd have some interest. It's pretty well-suited for a social commerce platform. I think the challenge is, I think there's a little bit more of a regulatory environment, and that's not really in our wheelhouse in terms of product development. So if we were going to go down that path, it would either be through partnership or through an acquisition. But that's an interesting area for us. As you know, I think I've talked to you about this before, and I don't know if we've done it on this forum, but we have a partnership with a coffee brand. We haven't announced the brand yet. For the TikTok Shop, right? On TikTok Shop, yeah. They're a regional provider of beans, and they were introduced to us by a very, very large consumer food and beverage company who had gotten wind of who we are and what we do. And that's our first services partnership in the food and beverage space. And so that's another area that we would look to kind of grow. It's more likely that we would enter into partnerships versus develop it in-house where we don't have that type of competency. That said, we certainly have the competency for merchandising, warehousing, and then providing kind of real access to channels. So I think our offering there will be appealing, but it's definitely not a category that we're going to put R&D dollars behind to try and make a niche. I think we'd be better off just finding partners like we did. Yeah. So this product design and new product development, is that something that you are offering to your service partners too, or is it something for them, it's mostly just access to the online markets? Yeah. So we're making kind of our, if you think about it as points on a value chain, anywhere where we feel like we have a real competency, we'll try to monetize that with partnerships. The easiest way in initially, though, is sales channel because we have a really good relationship with Amazon on a wholesale basis, which is not an easy partnership to kind of create from scratch. You need to have scale. You need to meet minimum requirements in terms of delivery, inventory levels, etc. And so you don't just show up and say, "Hey, I want to be a wholesale wholesaler to Amazon." They invite you based on what they see. So we do think that over time, we'll be able to offer more of the points on the value chain that we think we do well, including as early as product design and/or redesign. It's more likely to be, I think, product modification with the services partners. They're in a business already, and they're not likely to be companies that are going to broaden from what they do. So as an example, our biggest anchor services partner is in the electronic space. I wouldn't imagine they'd want to get into the pet space, as an example. And so if we do work that early on in kind of the value chain, it's likely to be product modification, taking something that they have and doing - even if it's not a major redesign - just enough of a redesign that allows them to achieve something, taking some cost out because we can introduce them to another manufacturing partner, adding an attribute, or eliminating something that is bothering people. There's a lot we can do there. We expect that over time, as our relationships continue to grow with these services partners, that they'll want us to be working on stuff like that. Again, the engine to drive those types of product modification or extension or insights is really review analysis? Yes. Yeah, absolutely. It's all the data that we collect. And we can. Comes mostly from that, from review analysis? Yeah, we can bring them into kind of our world and say, "Hey, look, here's a competitive product that seems to be doing well, and here's why we think that is. And here's the data that supports that." And with that in hand, making those recommendations come with a certain amount of substance, right? It's not us kind of winging it. Yeah. So we. It's review analysis. It's successful there. It's review analysis and review of competing products that seem to be doing well. Yep. Correct. Okay. Is the process very similar on the TikTok Shop, or? I mean, it's a different forum. It's different drivers. Is it also just review analysis, the number of likes, or? It's definitely a little different, right? There aren't really product reviews, so to speak. But you do get with—imagine a, what's called that?—an influencer who's selling a product on there. There's quite a bit of data to be collected from the comments that come in when that person is demonstrating the product and showing the product, comments like, "Oh, God, I wish it had this," or, "Oh, this looks interesting. I like this." It's not quite the same because they aren't reviews. But you do start to add kind of additional color on the kinds of things people are responding to. So while we're attempting to kind of use the same template, we're going to have to use a slightly different template based on what we can glean from that. But there's also lots of data that can be collected on at what price point did the item being sold hit the highest volume, and we'll kind of rank that. I think we're probably going to need another couple of years for it to be the kind of rich treasure trove of data that we have in our other channels. But I still think there's stuff there that can be mined that we're going to take advantage of. I'm curious about the pricing analysis. How often, if you have a product in a store, it can be, it's still kind of tedious to change the price on an ongoing basis. But obviously, if products are online, you can, I mean, do you change prices? Are things more expensive in the morning than in the evening, or how quickly do you make those adjustments? So I mean, I would say that where the pricing changes happen, in a lot of cases, are out of our hands. So because we sell wholesale to Amazon, it's up to them to set the price. Now, they're not, because we're selling wholesale to them and they're taking on inventory, they're not going for 90% margin by marking the thing up 4x because they won't be able to move it. They have got a whole analytics aspect to what they do as well. But what I would say is those decisions are out of our hands. What we can control is what we sell to Amazon and the margins that we can make on that. On TikTok, it's a little different. We are the direct-to-consumer vendor there. So we do have some—we do have some flexibility on the prices that we'll set. I think maybe the best way to say it, though, is we haven't been super dynamic with pricing decisions on that channel so far. It's still pretty narrow for us. One. Two, I think we're still in the learning phase, right? We may make a small change, but you wouldn't see anything dramatic. And at this point, there's not enough data to say, "Oh, we should price it high in the morning when people are happiest," or price it higher in the late afternoon when everyone's tired and they're not paying attention. We're trying to find those kind of sweet spots and figure out where we go forward based on what we learn. But I think we still have quite a bit of learning to do, given how nascent that platform is. We talked about TikTok. I'm wondering, obviously, there's some questions about the business in the U.S. and so on. Are you at iPower? Are you thinking of the scenarios there that are the most likely? I mean, obviously, for example, if there was a forced divestiture, the TikTok Shop would continue, and you would be incented to keep making it a success. I'm just wondering if you have what your thoughts are on that whole situation. Yeah. I mean, I don't know. I don't have any magic crystal ball on what Congress or the political forces that are at play will do. I think as long as it's a platform that I think consumers really like, one. And two, it's a platform that's being supported by TikTok from the standpoint of making it attractive to consumers to engage in commerce there, then we're going to be part of it. If it goes away, then we'll have to find another avenue. There are a lot of different kinds of channels that exist out there. I think we, at one point, had talked about Temu as one. They've approached us. We know there are other e-commerce platforms across the world. Amazon's not the only one. There's a very large one in China that comes to mind that we obviously are trying to engage. So we feel like we understand how to operate in the environments where we have some control over that. But we can't control what a politician decides is good or bad for consumers on any given day, so. No, I mean, I just wanted to bring it up because, obviously, it's in the news. It seems to me that—I mean, I just don't see it going away. I could see the ownership changing, but I don't think the business opportunity goes away. Just a couple more questions. We're getting close to our allotment. We talked about kitchen items being a new category. Do you see another—is there another big new category that's in sight for you, or right now you're working on building up with the categories you're already in? Yeah. I think it's likely to be the categories that we're in and kind of extending those. I could see us investing a bit more in the pet category. We need to find the right products for that. It's just such a big market with really healthy margins and what feels like non-cyclical demand. People spend money on their pets, and so. Right now, I'm just aware of the pads. Do you have any other products in that category? Yeah. There's toys. There's cat trees. There's scratching poles. In theory, we could get into the kind of food category that probably will come with them through a partnership. But yeah, there's just a whole lot that you can do: harnesses, leashes, sweaters. Dog apparel is shockingly a—no, maybe not shockingly. It's a big market, and people will spend more money on a sweater for their dog than they might spend on themselves. Just because I walked down the street, you'll understand that. Yeah. Yeah. And then maybe a last question. If we step back and look at the overall economy, you had supply chain challenges a few years ago. Is inflation an issue for you, consumer confidence, or are those things not keeping you up at night? Well, I mean, I think there's plenty to keep me up and keep us up at night. I don't know how inflation is affecting kind of us. It hasn't affected us much on the input costs for us, so that's good. I mean, it did at one point during the supply chain kind of challenges when the inflation in freight and shipping costs were really, really burdening our cost of goods sold. That's really come off. Those prices skyrocketed and then fell back to kind of prior levels. So quite a bit of deflation in prices there. On the consumer side, yeah, I mean, I think the way that we think about it is we tend to have products that aren't big-ticket items in a given person, family's budget. So if there's inflation, for sure, and people are thinking about their budget, that may have an impact on what they have available to spend on the kind of products that we provide to the market. But to be honest, we haven't seen a ton of impact, at least from the data that we can see. Most of the fluctuations that we've had in demand, and I think we talked about this a little bit with regard to our last quarter, the December quarter, were a function of managing inventory levels at our largest channel partner. I think every December quarter has been kind of a down quarter for us in the last five years. That's, in a lot of, at least from our perspective, it's a lot of managing of inventory and managing the balance sheet at a year-end. I don't think that's necessarily abnormal. We typically see a nice rebound in demand, probably more so than you would see in terms of overall retail sales, just because of that dynamic. And so yeah, there's not a lot of data that we see that makes us concerned about the health of the consumer right now. And so. Well, I offered you a great excuse there, and I'm kind of happy to see you're not choosing to use it, so. That's right. Well, we can't control inflation if it takes over either. So we work on the things that we can control, which is bringing well-priced products with good margins to customers and consumers who see what we offer and think the value prop is high because the price is attractive and the value is good. So as long as we keep doing that, we're optimistic that we can continue to execute. Well, great. And I mean, looking at the last three years, iPower has really delivered in that sense: steady growth over that time frame in an environment where a lot of similar companies had struggled. So that's great, Kevin. I think we're at the end of our allotted time. So I'd like to thank you. I'd like to thank our audience. We're going to have a transcript of our conversation. It'll be posted on our website at watertowerresearch.com. I read the company's forward disclosure at the beginning of the conversation. I have to remind you now that the views expressed in this fireside chat may not necessarily reflect the views of Water Tower Research and are provided for informational purposes only. This fireside chat may not be distributed or reproduced without the written consent of Water Tower Research and should not be considered research nor a recommendation. Research provides research-driven communication and investor engagement. It's not a licensed broker, broker-dealer, market maker, investment bank underwriter, or investment advisor. Additional disclaimers can be found at watertowerresearch.com. Kevin, thank you again for your time. Thank you, everyone, and have a good rest of your day. Great. Thanks, Thierry. Thank you. Bye-bye. Bye.