Q1 2024 Upexi Inc Earnings Call

Good day and welcome to the you Pixie, Inc. 'twenty 'twenty four fiscal first quarter earnings results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Speaker 1: Good day and welcome to the UPIXI, Inc. 2024 Fiscal First Quarter Earnings Results Conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker 1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone.

After todays presentation, there will be an opportunity to ask questions to ask a question.

Jim You May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two.

Speaker 1: To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Valter Pinto, Managing Director at KCSA Strategic Communications. Please go ahead.

Please note. This event is being recorded I would now like to turn the conference over to Valter Pinto managing director at Casey S. A strategic communications. Please go ahead.

Speaker 2: Thank you, operator. Hello and welcome everyone to the U Pepsi 2024 fiscal first quarter financial results conference call. I'm joined today by Alan Marshall, Chief Executive Officer and Andrew Nordstrom, Chief Financial Officer.

Thank you operator, Hello, and welcome everyone do you, perhaps see 2024.

<unk> first quarter financial results conference call.

I'm joined today by Alan Marshall, Chief Executive Officer, and Andrew Nordstrom, Chief Financial Officer.

Speaker 2: Before we begin, I'm going to remind everyone that statements made during today's conference call may be deemed forward-looking statements within the meaning of the safe harbor of the Private Security Litigation Reform Act of 1995. Actual results may differ materially due to a variety of risks, uncertainties, and other facts.

Before we begin I'm going to remind everyone that statements made during today's conference call maybe deemed forward looking statements within the meaning of the safe Harbor of the private Securities Litigation Reform Act of 1995.

Results may differ materially due to a variety of risks uncertainties and other factors.

Speaker 2: For a detailed discussion of some of the ongoing risks and uncertainties in the company's business, I'll refer you to the press release issued today and filed with the SEC on Form AK, as well as the company's reports filed periodically with the SEC.

For a detailed discussion some of the ongoing risks and uncertainties in the company's business I refer you to the press release issued today and filed with the SEC on form 8-K.

Well as the company's reports filed periodically with the SEC the company disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise unless otherwise required by law.

Speaker 2: The company displays any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, unless otherwise required by law.

Speaker 2: In addition, during the course of the call, we may refer to non-GAAP financial measures that are not prepared in accordance with the county principles generally accepted in the United States.

In addition, during the course of the call. We may refer to non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in the United States and they may be different from non-GAAP financial measures used by other companies a reconciliation of non-GAAP financial measures. The most directly comparable GAAP financial measures.

Speaker 2: and they may be different from non-GAAP financial measures used by other companies.

Speaker 2: The reconciliation of non-GAAP financial measures of the most directly comparable GAAP financial measures are contained in our earnings release issued this evening, unless otherwise noted. I'd now like to turn the call over to Upexis CEO Alan Marsha.

It contained in our earnings release issued this evening unless otherwise noted I would now like to turn the call over to your taxi CEO Alan Marshall.

Speaker 1: Thank you and welcome to our fiscal 2024 first quarter financial results conference call.

Thank you and welcome to our fiscal 2024 first quarter financial results Conference call.

Speaker 1: As we have navigated through a dynamic economic landscape in 2023, it is crucial to recognize the robust undercurrents that position our company for a promising future.

As we have navigated through a dynamic economic landscape in 2023. It is crucial to recognize a robust undercurrents that position our company for a promising future.

Speaker 1: There are things we can't control and those we cannot. Our share price, which as a larger shareholder I share frustration with, is a phenomenon not within our control given the broader market sense.

There are things, we can control and those we can on our share price, which is the largest shareholder I share your frustration where is.

As a phenomenon not within our control given the broader market sentiments.

Speaker 1: What we can't control is our operational core, which has never been stronger. We have successfully enhanced efficiencies across several business channels, which is a testament to our team's relentless pursuit of operational excellence and innovation.

Well, we can't control those are operational core which has never been stronger we have successfully enhanced efficiencies across several business channels, which is a testament to our team's relentless pursuit of operational excellence and innovation.

Speaker 1: The ongoing streamlining of operations is projected to significantly bolster our margins, reflecting a healthier balance sheet in upcoming quarters. Moreover, growth in key sectors has been a bright spot, demonstrating the efficacy of our strategic pivot and the resonance of our offerings in high potential markets.

The ongoing streamlining of operations is projected to significantly bolster our margins, reflecting a healthier balance sheet and upcoming quarters. Moreover growth in key sectors. That's been a bright spot demonstrating the efficacy of our strategic pivot and the residents of our offerings in high potential markets.

Speaker 1: Our revenue for fiscal Q1 of 2024 grew 140% year over year and 53.5% sequentially. During the quarter, we invested significantly in our brand which impacted our EBITDA margins in the short term. However, this is an investment in the future sales growth and EBITDA, not in our view a negative.

Our revenue for fiscal Q1 of 2024 grew 140% year over year and 53, 5% sequentially.

During the quarter, we invested significantly in our brands, which impacted our EBITDA margins in the short term. However, the investment in the future sales growth and EBITDA not in our view are negative.

Speaker 1: Our children's educational toy brand, Titan Tiles, is a great example of this return on investment. During the quarter, we invested significantly around the Disney Frozen launch and new product launches.

Children's educational toy brand tightened tile is a great example of this return on investment.

During the quarter, we invested significantly around the Disney frozen launch and new product launches.

Speaker 1: Just one month into the launch of this product on Amazon, we are at a run rate of over 115 units per day, and we have moved our rank on Amazon from 20,000 to 4,000.

Just one month into the launch of this product on Amazon, where our run rate of over 115 units per day, and we have moved our rank on Amazon from 20000 to 4000.

Speaker 1: On Friday, Titan Tiles had its largest day since launch, reaching number three in toy magnetic building sets. This is an incredible accomplishment in less than a month for any product launch on Amazon, and very promising for the future Disney launches.

On Friday tightened policy had its largest states since launch reaching number three and toy magnetic building sets. This is an incredible accomplishment in the last nine months of any product launch on Amazon.

Very promising for the future launches.

Speaker 1: Our pet products brand, Lumpy Tail, had launched its pet chews on Amazon and direct-to-consumer. This category is not only a value-add to our current nail grinder, but the chews are an item we can push on a subscription basis, building a recurring revenue model for the brand.

Our pet products brand lumpy Pal.

Launches pet choose on Amazon and direct to consumer this category is not only a value add to our current El Greiner.

But to choose or an item, we can push on a subscription basis building a recurring revenue model for the brand.

Speaker 1: We spent approximately $250,000 of advertising on his launch and other product launch initiatives.

We spent approximately $250000 of advertising on its launch another product launch initiatives.

Speaker 1: Obviously, this does not convert to immediate revenue, but is necessary to build a more diverse product line, focus on subscription, and recurring revenue opportunities for the future.

Obviously this does not convert to immediate revenue, but it is necessary to build a more diverse product line focus on subscription and recurring revenue opportunities for the future.

Speaker 1: On Vitamedica, earlier this year, we increased our ad spend to acquire and build Vitamedica subscription rates, subsequently decreasing the spend to try to increase profit.

And White America earlier this year, we increased our AD spend to acquire and build vital medical subscription rates subsequently decreasing the spend to try to increase profits, which we did in the short term. However, we realized that by doing so we actually hurt our longer term subscription growth and profits. We've concluded a larger upfront apps AD spend will be.

Speaker 1: which we did in the short term. However, we realized that by doing so, we actually hurt our longer-term subscription growth and profits. We've concluded that a larger upfront ad spend will lead to overall higher lifetime values of the product and brand, and as a result, we started to implement the strategy in fiscal Q1.

Overall higher lifetime values.

Oh, the products and brands and as a result, we started to implement this strategy in fiscal Q1.

Speaker 1: We expect growth to further accelerate for VitaMedica as we launch complementary products like acne treatments. We expect data from the acne study of this product sometime in January . Having invested a quarter of a million dollars on this study, its successful data will help to increase sales significantly in a very large, sticky, and recurring segment of the health and wellness industry.

We expect growth to further accelerate from what America has relaunched complementary products like acne treatments. We expect data from the acne study of this product sometime in January have invested a quarter of a million dollars on the study is successful data will help to increase sales significantly in a very large sticky recurring segment of it.

Health and wellness industry.

Speaker 1: The overall growth of our brands will be critical to increasing overall margins as we launch more subscription-based product lines. We anticipate this model will drive higher margins and profitability.

The overall growth of our brands will be critical to increasing overall margins as we launch more subscription based product lines. We anticipate this model will drive higher margins and profitability.

Re commerce revenue for fiscal Q1 was 76% of total revenue an increase of 187% year over year.

Speaker 1: Recommerce revenue for fiscal Q1 was 76% of total revenue, an increase of 187% year-over-year.

Signet online are high volume re Congress provider of branded OTC products increased revenue sequentially by approximately $1 5 million with gross profit margins, increasing from 44% to 48%.

Speaker 1: Signet Online, our high-volume e-commerce provider of branded OTC products, increased revenue sequentially by approximately $1.5 million, with gross profit margins increasing from 44% to 48%.

Speaker 1: This was accomplished by purchasing products in higher volume and higher volumes at lower prices and implementing certain price controls. The business positive trends is expected to continue with increased contribution to profit margins in the coming quarter.

This was accomplished by purchasing products in higher volume higher volumes at lower prices implementing certain price control. The business positive trends is expected to continue with increased contribution to profit margins in the coming quarter.

During the quarter and into the current quarter, we consolidated a sickness warehouses into our three P. L warehousing, resulting in approximately $5 million reduction in operating expense and increased efficiencies for the future.

Speaker 1: During the quarter, and into the current quarter, we consolidated a Signus warehouse into our 3PL warehousing, resulting in approximately half a million dollars reduction in operating expense and increased efficiencies for the future.

Speaker 1: The business is positive trend should continue with increased contribution margin in the coming quarter.

Our business has positive trend should continue with increased contribution margin in the coming quarters.

Speaker 1: NETI, our e-commerce provider of overstocked and discontinued merchandise for hundreds of retailers, increased revenue sequentially during the quarter by approximately 6.3 million. Average gross profit, however, declined from 17% to 10%. This is primarily related to liquidation of excess inventory and inventory management.

Many are ecommerce provider of overstocked and discontinued merchandise for hundreds of retailers increased revenues.

Sequentially during the quarter by approximately $6 3 million. However, gross average gross profit however declined from 17% to 10%. This was primary related to liquidation of excess inventory and inventory management.

Given a slow slowing trend in consumer purchasing we made a strategic decision to sell off excess excess inventories heading into an uncertain economic environment.

Speaker 1: Importantly, I wanted to highlight the cost-cutting measures we have implemented over the previous quarters that are now beginning to be reflected in our financial performance. For fiscal Q1, general and administrative expenses as a percentage of revenue decreased to 8.2% as compared to 19% for the same period in the prior year. Additionally, operating expenses as a percentage of revenue also decreased 29% as compared to 56.5% for the same period in the prior year.

Importantly, I want to highlight the cost cutting measures we have implemented over the previous quarters that are now beginning to be reflected in our financial performance for fiscal Q1 general and administrative expenses as a percentage of revenue decreased to eight 2% as compared to 19% for the same period the prior year.

Additionally, operating expenses as a percentage of revenue also decreased 29% as compared to 56, 5% for the same period in the prior year.

Speaker 1: We remain committed to our previously announced guidance of generating 100 million revenue for calendar to 2023 and more importantly, the completing our cost cutting and increasing overall profitability.

We remain committed to our previously announced guidance of generating 100 million of revenue for calendar 222023, and more importantly, the completing our cost cutting and increasing overall profitability.

Speaker 1: Lastly, before I turn the call over to Andy for details regarding our financials, I would like to take a moment to comment on our balance sheet and seller note due on October 31st. We have restructured this note and other debt, paying down a portion and extending the remainder. None of this debt will have a material impact on the future of our business.

Lastly, before I turn the call over to Andy for details regarding our financials.

I would like to take a moment to comment on our balance sheet and seller note. Due on October 31, we have restructured this note and other debt paying down a portion and extending the remainder none of this debt will have a material impact on the future of our business.

Speaker 1: Our company stands at a pivotal inflection point for growth, underscored by a clear vision and steadfast commitment to our core values.

Our company stands at a favourable inflection point for growth underscored by a clear vision steadfast commitment to our core values.

Speaker 1: These strategic advances are not in their coincidence, but the result of deliberate

These strategic advances are not mere coincidence, but the result of deliberate plan to future proof our business as Stuart said this organization, we have collectively lay down a solid groundwork for sustained profitability and innovation.

The trust placed in announced by our shareholders and customers fuels, our drive to excel and I'm confident that the initiatives. We have set in motion will materialize into tangible success.

Gather we're navigating towards the horizon rich with opportunity and I'm confident we will prove out the value of this model over the coming quarters to our stakeholders.

I will now pass this call over to your taxi CFO, Andrew North strip to discuss our final financial results in more detail Andrew.

Thank you Alan revenue increased by approximately $16 million or 144% compared to the prior year.

The company had strong growth in its branded product segment and its re commerce segment with the acquisition of netting.

Cost of revenue increased by approximately $13 2 million or 245% compared to the same periods last year. The cost of revenue increase is primarily related to the acquisition of natty their ecommerce business gross profit increased by approximately $2 9 million compared to the prior year with approximately $2 1 million at the gross profit.

Being directly related to the branded product revenue growth.

Sales and marketing expense increased by $1 1 million or 65% compared to the same period last year. The increase in sales and marketing expense was primarily related to the focus on the brands segment revenue growth and strategic marketing to maximize the return on long term recurring customer growth distribution.

Costs increased by approximately 700000 or <unk> 34 per cent compared to the same period last year. The increase in distribution cost was primarily related to the overall growth of revenue. However management has implemented several consolidation repackaging and pricing strategies to continue to reduce the overall distribution costs of all.

Our product sales.

Andrew makes that expects the implementation of the initial strategy is to be completed by March of 2024.

General and administrative expenses increased by approximately $100000 or 6% compared to the same period last year management continues to operate the company efficiently to enable sales growth without significantly increasing general and administrative expenses.

Management continues to manage its working capital through the use of its operating cash flow and its line of credit.

So I just wanted to September 30th the company made a $2 million payment on the acquisition notes payable and made arrangements to pay the remaining amount due over a 12 month period or the terms of the agreement.

This time I'd like to open up the call for any questions operator.

Yeah.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Our first question comes from Aaron Grey with Alliance Global Partners. Please go ahead.

Hi, good evening and thank you very much for the questions here.

So first question for me nice to see the growth sequentially in and the sales come in slightly above the guidance.

But in terms of the gross margin you know a couple of puts and takes there.

So I certainly can understand in terms of you know.

You know some one offs in terms of something some lower margins there, but you also seem to imply on the brand side, maybe a decision to you know.

Turned back focus a little bit more towards growth right. You made some comments on <unk> and some other branded investments as well versus some near term profitability. So I mean, he used to give like a holistic view of in terms of how you're looking at you know growth versus profitability now both in terms of the distribution side.

On the Natty Signup instance, and also then on the brand side in terms of like investing for growth versus trying to achieve near term profitability. Thank you.

Okay. Thanks Erin.

Alan Marshall I'll go over that.

Kind of a little decision on on like vitamin Attica for instance, like if we look back over the quarters.

The brand had some.

Some significant jumps quarter I don't know, if we broke it out before but.

In like the January just like November through February it was trending a little bit higher or lower on revenue and we invested.

A lot of money into the upfront costs. So for instance, if we know the lifetime values $420.

No, we're investing up to up to $1 50, or 200, and then subsequent to that sometime in March we dropped that down.

Whatever that percentage was and so it's sort of $120, which was great because March April and May for the business were.

Some of the most profitable as far as like net profitable for us as a company, but in June we saw that subscription revenue start to fall off so those clients. We had brought in it was we were losing more than we're gaining.

So what we did during the quarter, we've just started to increase and try to slowly increase those budgets.

Trying to put more people in the top of the funnel because at the end of the day.

No the vitamin a brand we want it to be a $10 million 15 million dollar brand. So so we really invest it maybe we're investing $170 instead of $120 or this quarter, but over the next couple of months, we'll start to build a funnel and have more people in our overall sales channel so in it.

It was the same but with tightened titled Azure as you're developing new project Youre, putting a lot of money to work on a dev teams a lot of just.

Just everything even launching on Amazon you were running at a at a loss for the first several days and then that starts the starts to clean itself up.

And into the weekend, we saw no significant.

Growth on on both the number of units being sold and all of that on the on the decrease in cost of revenue I mean Amazon's Oh.

A pretty weird animal.

Because you're losing money sometimes on all the sales for the first you know weeks or two months, but then as your branded revenue starts to come back around you're picking up more and more non non paid.

Recognition, so you'll you'll you'll float higher up on the on the pages. So that's really what we're working on and over and over time and over several months, it's really starting to pay off where we were lucky enough with the Disney launch it at turn really quickly here at least at least coming into black Friday, So pretty hopeful.

Well each of those initiatives.

I could go through the same thing, but that's the main thinking on it like we need to invest a little bit upfront to build the funnels get that recurring revenue going on each of those brands. So that every month, we're starting with a good base and then continue to fill the top side of that funnel.

As long as it makes overall financial sense over the lifetime of each customer.

Mhm.

Thanks, Paul I appreciate that detail there. So so then and looking at that right. So you'd previously hadn't had something.

Implied guidance and in your presentation deck in terms of profitability I know, you're reiterating your calendar sales guide paying $100 million.

Fair to say now that.

We know it's going to be more so of that more small investment and some of those brands and maybe in the near term it might not have as much as the EBITDA margins that you had previously been anticipating then in the near term.

I mean, I don't I don't think I think this one is a little bit different because we did it all without with with launches of new products. It drew down an extra and then truthfully even on our on our you know our E coronary business, where we were three or 400000 short on that and probably you know maybe we could have taken a risk I don't think this.

Is not a standard margin, where we're at now I definitely think it's going to continue to increase.

And.

I don't know if we'll get there I don't think I don't I don't think we can get up to the top end of that range until we build the funnel is a little bigger, but I can say if each of the brands growth back to where we wanted to get to that 20, 30% over the next quarter.

Quarter, two we can definitely get way closer to the top end of that range.

All of that really on top of that we're really cutting.

Significant amount of expenses like I know, we've been working on all year. It just taking it takes a long time to close warehouses negotiate all that stuff Alec consolidating.

Consolidating into Tampa here was with a big this is going to be.

Really.

Strategic move for us and as we close and I don't know.

Kind of lay out each thing. We're closing you know I don't want to employ whatever employees and everything to worry because we're gonna do is strategically but.

As we as we consolidate the other side of the business the other warehouses into either smaller strategic ones in the locations or into a single location, we still got another million and a half to $2 million. So I think I think combined with there we definitely I definitely believe that the margins coming back and I'm going to come up to that that range, we want to be in that.

Five to eight range not sure how quickly we get to the top end of that range, but I'm pretty confident we'll get to the bottom end of that range pretty quickly.

Okay, great Great to hear you you plan to return to that that margin expansion. There in terms to some of the top line initiatives right. So and at Disney One that's off to a good start just looking at some of the frozen you know reviews online and implied you know products that you mentioned and you also you know playing online.

You talked about some other product lines being launched can you speak to the timing of those additional product launches coming in how and when we might expect them.

No.

2020 for I mean, these are take a long time, yeah. I mean, it's it's a it's a long process to go through with it like it was it was actually.

I never thought we could make it four or never mind, thanks, Chris when they're my Thanksgiving to have it done.

You know from design to two approvals are manufactured in the <unk> in in store in such a short time is pretty pretty amazing So Titan team really everyone.

[laughter].

Surpassed my expectations are we are we are a design and development of of a lot of although ones, but there's not a huge issue because if you think about like even your large retailers as we try to expand the chow on on those products into in the big box if it's possible.

They're they're they're placing orders now for second half third third quarter next year or so.

Daily we would have we would be able to launch a couple of here in the first half of the year. That's the goal.

I think it's doable, but I don't have it exact timeline each one yet we really wanted to see how this launch did and how much pull the.

The partnership with Disney had and it was it was.

It was better than expected.

Okay, great yeah, thanks for the color and yet it looks like it's off to a good start there.

Wanted to ask a holistic a balance sheet question here right. So you had the cash balance about for 17 as of 930.

You mentioned you changed up the terms on the debt that was due end of October I think you paid down to when you'll pay down the remainder of the next 12 months.

You have a $6 million credit facility available and it also sounds like you know you're building up some inventory for these launches are going to have for you.

Frozen taken towers and potentially the other ones in 'twenty 'twenty four so it provide us with you know your comfort with the credit facility you know to meet the needs working capital needs and otherwise I'm just bouncing position. Thank you.

We're comfortable with all of it at this point, we will work through any problems that come up we have we have resources also where well with new interest rates.

In previous quarters.

012 percent, we are more comfortable leaving the cash in the bank and not paying down the line with interest rates now on the line somewhere over 8% like we move cash when we get it in to pay down that line as quickly as possible. So every every day of interest we don't have to pay is another day. So you may see no that line go to zero and cash go to zero.

And then you may see cash go up to two or 3 million and then we pay it back down so we're really going to try to minimize that but as far as the overall debt of the company I've said this all along.

I feel very comfortable our sellers theyre seller notes there is no no if people take a good look at the node they'll see that there is if for some reason we need to extend it it's already in there the interest rate does go up but there's no material, there's no crazy default or anything that's going to happen. So.

I feel comfortable that company is going to be able to work its way through this and even at some point restructure into a little longer term debt that gives us more time to play it more time to pay it and leave more cash available to grow the business and that without being without having to raise equity for sure.

Great. Thank you.

Last question for me just update on Blue Mill's assets.

Updates on the operations there you know plans to be able to consolidate it or anti you can provide on that thanks.

It's business, it's business as usual for us they are or where we are going to continue to use it to produce our products at a lower cost when available and we're definitely evaluating what to do with that business, it's not a drag on us it's a positive.

Non material to us really but I'm definitely not going to be anything.

Anything that dragged us down if anything it will just contribute more to us in the future.

Okay, great. Thanks, very much Dan.

Sure.

Again, if you have a question. Please press star and then one.

At this time, we are showing no more questions. This concludes our question and answer session I would like to turn the conference over to Alan Marshall for any closing remarks.

Well thank.

Thank you everybody for joining the call again.

Just really say, thank you to all our shareholders our team our investors we feel like the company is in a great spot for the future.

Obviously, we all wish it would be you know on the mortgage side being a better position, but the company from here put up a clean number here. This this quarter no no sale of assets.

So I think as we put the next couple of behind US and we continue to grow the business.

We feel really confident this thing.

We'll pay off the way you know.

Continue to grow and hopefully you know pay for everybody's patience on that and I appreciate everybody sticking with us.

And look forward to our next conference call and everybody have a great holiday Thanksgiving week and.

I appreciate the time again, thank you very much.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.