Executive Summary

Q1 FY2025 revenue was $39.3M (-8.2% YoY) as management prioritized higher-quality U.S. cannabis accounts and cited some delayed shipments; gross profit rose 13.2% YoY to $7.7M and gross margin expanded 350 bps to 19.5% on mix and Malaysia production benefits .
Operating expenses increased 67% YoY to $12.9M, widening net loss to ($5.6M), or ($0.10) per share; operating cash flow turned positive at $3.6M for the quarter .
Management said U.S. cannabis revenue likely bottomed in Q1 and should improve over coming quarters, targeting cash-flow positive by the March quarter (fiscal Q3 2025); no formal FY25 revenue guidance was given .
International nicotine initiatives accelerated (ANDS master distributor agreement for MENA/duty-free, I-80 high-throughput filling machine), positioning mix and margin tailwinds but creating near-term inefficiencies as a new European ODM ramps (sequential gross margin: ~27.8% in Q4 FY24 to 19.5% in Q1 FY25) .
Street comparison: Wall Street consensus from S&P Global was unavailable at time of retrieval; vs-estimate analysis cannot be provided. Estimates context and potential revisions discussed qualitatively below (S&P Global consensus unavailable).

What Went Well and What Went Wrong

What Went Well
- Gross margin expanded to 19.5% from 16.0% YoY on mix and Malaysia facility leverage; gross profit rose 13.2% YoY to $7.7M despite lower sales .
- Europe and Rest of World offset U.S. declines: Europe up ~$2.1M YoY to ~$22.0M; Rest of World up ~$3.7M to ~$3.8M (South Africa +$2.9M) .
- Positive operating cash flow of $3.6M vs ($13.1M) a year ago; management emphasizes AR discipline and improved customer quality in the U.S. .
- Quote: “We were able to deliver higher gross profit and higher gross margin with lower revenue…reflects the success of our strategic focus on high quality accounts and enhanced operational efficiency, including the improvements…through the use of our Malaysian facility.” – Michael Wang, Co-CEO .
What Went Wrong
- Revenue fell 8.2% YoY to $39.3M, driven by U.S. cannabis hardware declines (U.S. $9.7M, down $8.1M YoY) and some delayed shipments; APAC also down ~$1.2M .
- OpEx rose 67% YoY to $12.9M on marketing, higher headcount, and stock-based comp, contributing to wider net loss ($5.6M) and EPS ($0.10) .
- Sequential gross margin declined from ~27.8% in Q4 FY24 to 19.5% as a new European ODM ramp caused early inefficiencies; management expects efficiency to improve over time .
- Working capital disclosure inconsistency: press release cited $16.6M; balance sheet math and CFO remarks indicate ~$12.1M as of 9/30/24, implying a communications clean-up item .

Financial Results

Headline P&L Summary

Metric	Q1 FY2024 (3M ended 9/30/2023)	Q3 FY2024 (3M ended 3/31/2024)	Q1 FY2025 (3M ended 9/30/2024)
Revenue ($USD Millions)	$42.86	$30.02	$39.34
Gross Profit ($USD Millions)	$6.84	$6.12	$7.67
Gross Margin %	16.0%	20.4%	19.5%
Total Operating Expenses ($USD Millions)	$7.72	$11.80	$12.90
Net Loss ($USD Millions)	($1.34)	($5.95)	($5.60)
Diluted EPS ($)	($0.02)	($0.11)	($0.10)

Sequential Gross Margin Trend

Metric	Q3 FY2024	Q4 FY2024 (discussion)	Q1 FY2025
Gross Margin %	20.4%	~27.8% (analyst reference acknowledged by management)	19.5%

Note: Management attributed the sequential margin step-down in Q1 FY2025 primarily to initial inefficiencies in a new European ODM ramp; U.S. cannabis margins continued to improve .

Geographic Revenue Mix – Q1 FY2025

Region	Revenue ($USD Millions)	YoY Change ($USD Millions)	Notes
United States (North America)	~$9.7	($8.1)	U.S. cannabis hardware decline from strategy shift; focus on top 20 accounts .
Europe	~22.0	+$2.1	Higher Aspire nicotine sales .
Asia Pacific	~3.9	($1.2)	Lower regional sales YoY .
Rest of World	~3.8	+$3.7	South Africa +$2.9M .

KPIs and Balance Sheet/Cash Flow

KPI	Q1 FY2025	Q1 FY2024
Cash & Cash Equivalents	$37.7M (9/30/24)	$25.7M (9/30/23)
Working Capital	~$12.1M (CFO and balance sheet math)
Working Capital (Press Release Stated)	$16.6M (as of 9/30/24 per PR)
Accounts Receivable, net	$62.36M (9/30/24)	$59.73M (6/30/24, prior quarter comparator)
Operating Cash Flow (Quarter)	+$3.61M (3M ended 9/30/24)	($13.12M) (3M ended 9/30/23)

Discrepancy Note: The Q1 FY2025 press release stated working capital of $16.6M, while the balance sheet shows current assets of $108.5M and current liabilities of $96.4M (implying ~$12.1M), consistent with CFO commentary .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Formal Revenue/EPS Guidance	FY2025	None	None; management declined to provide formal guidance	Maintained no formal guidance
U.S. Cannabis Revenue Trajectory	2H FY2025	N/A	Q1 likely bottom; expect U.S. to increase over coming quarters as top-20 focus and I-80 adoption progress	Positive qualitative outlook
Cash Flow	Q3 FY2025 (March quarter)	Earlier breakeven timing moved; in Q4 FY2024, breakeven targeted by March 2025	“Striving to turn cash flow positive by the March quarter”	Reiterated timing
Gross Margin	FY2025	N/A	Expect continued improvement over time as European ODM efficiencies rise; U.S. cannabis margins improving	Positive qualitative outlook

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 FY2024)	Previous Mentions (Q4 FY2024)	Current Period (Q1 FY2025)	Trend
Age-gating/Blockchain PMTA	JV with Berify/Chemular; PMTAs underway; core innovation pillar	Fast-tracked FDA meeting scheduled early Nov; global applicability; aim to enable flavored products	First FDA discussion set for Nov 13; commercialization phase initiated	Increasing emphasis
Malaysia facility (supply chain)	Early shipments; margin tailwind expected	Material driver of margin expansion; potential shift to nicotine production	Cited as a driver of higher gross margin with lower revenue	Sustained positive
U.S. cannabis strategy/AR	Introduced deal desk, MSO focus; AR discipline	Reaffirmed AR/credit quality focus; larger customers; nicotine terms more favorable	Q1 likely U.S. bottom; improved margin/payment terms; AR growth slowed	Improving quality
European ODM ramp	N/A	Announced large ODM (3M units/month capacity by Sept)	Early inefficiencies pressured sequential margin; expected to normalize	Near-term headwind, medium-term tailwind
I-80 filling machine	N/A	N/A (launched in Oct)	Revolutionizes throughput (4,000 devices/hour); catalyst for MSO adoption	New catalyst
Regional trends	NA cannabis +57% YoY in Q3; nicotine +9%	Multi-region expansion incl. South Africa; MENA initiatives	Europe +$2.1M; RoW +$3.7M (SA +$2.9M); U.S. -$8.1M	Mix shifting to int’l
Regulatory/PMTA	Multiple PMTAs in process	PMTA for 4 flavors submitted; plan pod system PMTA in 2025	FDA meeting; continued PMTA work; ANDS in MENA (duty-free)	Advancing

Management Commentary

“We achieved a notable 12.1% year-over-year increase in gross profit to $7.7 million and expanded our gross margin to 19.5% from 16%…with lower revenue, which directly reflects…high quality accounts and enhanced operational efficiency, including…Malaysian facility” – Michael Wang, Co-CEO .
“The results…were in line with our internal projections…we also had a few delayed shipments which impacted our quarterly results” – Jim McCormick, CFO .
“The U.S. cannabis related revenue…first quarter…should bottom out…focus on the top 20 accounts…revenue on the U.S. side will only increase” – Michael Wang .
“Gross margin…lower than [peak] mainly because last quarter was the beginning of our ODM relationship with a European brand…inefficiency early on…over time…efficiency should increase” – Michael Wang .
“We are striving to turn cash flow positive…by the March quarter” – Michael Wang .

Q&A Highlights

U.S. strategy inflection: Management believes Q1 marked the bottom for U.S. cannabis revenue and expects sequential improvement aided by top-20 account focus and I-80 machine adoption .
Gross margin trajectory: Sequential decline from ~27.8% (Q4 FY24) to 19.5% (Q1 FY25) attributed to early ODM ramp inefficiencies; underlying U.S. margins improving and efficiency should normalize over time .
AR and cash flow: AR increased modestly QoQ and is a focus; company targets turning cash flow positive by March quarter (Q3 FY25) as global nicotine business normalizes .
Outlook and guidance: No formal FY25 guidance; management remains optimistic on growth led by global nicotine, with U.S. cannabis expected to recover from Q1 levels .

Estimates Context

S&P Global consensus for Q1 FY2025 revenue/EPS was unavailable at the time of retrieval, so we cannot present vs-consensus beats/misses. Values retrieved from S&P Global were unavailable; as such, vs-estimate comparisons are omitted (S&P Global consensus unavailable).
Potential estimate implications:
- Models may need higher OpEx run-rate in FY25 given $12.9M in Q1 and continued investment in PMTA/age-gating and commercialization .
- Revenue mix should reflect continued int’l nicotine growth (Europe/ROW) and U.S. cannabis recovery from a Q1 trough; near-term sequential gross margin could remain variable as the ODM ramp normalizes .
- Cash flow trajectory improving (OCF +$3.6M in Q1) with management targeting positive in March quarter .

Key Takeaways for Investors

Mix/efficiency led margin expansion YoY despite lower revenue; sequential volatility likely near term as the new European ODM ramp normalizes .
U.S. cannabis appears to have bottomed in Q1 with a focus on top-20 accounts and the high-throughput I-80 machine as adoption catalyst for MSOs .
International nicotine remains the growth driver (Europe strength, MENA/duty-free via ANDS), supporting diversification and potentially better payment terms versus U.S. cannabis .
OpEx elevated (marketing, stock comp, headcount); watch execution on operating leverage as revenue scales and ODM inefficiencies abate .
Balance sheet/liquidity solid; OCF turned positive; clarify working capital communications (press release vs CFO/balance sheet) .
Regulatory optionality: PMTAs and age-gating technology could be significant long-term catalysts (U.S. and EU), albeit with timing uncertainty .
Near-term trading set-up: narrative likely centers on U.S. recovery proof points, ODM gross margin normalization, and nicotine distribution wins (ANDS), all potentially stock-moving as updates arrive .

Appendix: Source Documents

Q1 FY2025 8-K (incl. Exhibit 99.1 press release and Exhibit 99.2 earnings call transcript) -.
Q1 FY2025 press release -.
Prior quarters for trend: Q4 FY2024 press release and call - -; Q3 FY2024 press release and call - -.
Relevant Q1 FY2025 period press releases: I-80 launch (Oct 2, 2024) -; ANDS MENA/duty-free master distributor (Oct 7, 2024) -.

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