Q2 2024 Upexi Inc Earnings Call
Operator: DAY and welcome to the Upexi Inc. Fiscal Second Quarter 2024 Financial Results Conference. Please note this event is being held, Now I'd like to turn the conference over to Walter Pinto, Managing Director at KCSA Strategic Communications. Please go ahead.
Good day and welcome to the U Pack C Inc. Fiscal second quarter 2024 financial results Conference call. Please.
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.
Walter Pinto: Thank you, operator. Good evening, and welcome everyone to the Upexi fiscal second quarter 2024 financial results conference call. I'm joined today by Alan Marshall, Chief Executive Officer, and Andrew Nordstrom, Chief Financial Officer. 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 factors. For a detailed discussion of some of the ongoing risks I refer you to the press release issued this evening and filed with the SEC on Form 8K, as well as the company's reports filed periodically with the SEC.
Thank you operator, good evening and welcome everyone did your proxy fiscal second quarter 2024 financial results Conference call.
I'm joined today by Alan Marshall, Chief Executive Officer, and Andrew Nordstrom, Chief Financial Officer.
Before we begin I'm going to remind everyone that statements made during todays call maybe deemed forward looking statements within the meaning of the safe Harbor of the private Securities Litigation Reform Act of 1995.
Actual results may differ materially due to a variety of risks uncertainties and other factors.
For a detailed discussion of some of the ongoing risks and uncertainties and the company's business.
I refer you to the press release issued this evening and filed with the SEC on form 8-K, as well as the company's reports filed periodically with the SEC.
Walter Pinto: 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. 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.
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.
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.
Walter Pinto: The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is contained in our earnings release issued this evening, unless otherwise noted. I'd now like to turn the call over to Upexi CEO Alan Marshall. Thank you, Walter. Thank you.
A reconciliation of non-GAAP financial measures to 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 taxing CEO Alan Marshall.
Thank you Walter.
Alan Marshall: Welcome to our fiscal second quarter 2024 financial results. During the second half of 2023, we focused on optimizing and streamlining our operations, investing in our higher margin brand products and generating positive adjusted EBIT. The enhanced efficiencies across the business channels bolster our margins and cash flow sequentially, with my expectation that this trending will continue in the quarters to come. While revenues for the most recent fiscal second quarter decreased sequentially, the operating measures we took allowed us to increase gross profit margins to 38 percent, as compared to the prior fiscal first quarter of 31.8 percent. We also generated positive adjusted EBITDA, although revenue quarter-over-quarter was negative.
Thank you and welcome to our fiscal second quarter 2024 financial results Conference call.
During the second half of 2023, we focused on optimizing and streamlining our operations investing in our higher margin brand products and generating positive adjusted EBITDA.
The enhanced efficiencies across our business channels bolster our margins and cash flow sequentially, but my expectation that this trend will continue in the quarters to come.
While revenues for the most recent fiscal second quarter decreased sequentially. The operating measures. We took allowed us to increase gross profit margins to 38% as compared to the prior fiscal first quarter of 31, 8%.
Also generated positive adjusted EBITDA, although the revenue quarter over quarter was down.
Alan Marshall: The revenue decreased sequentially was predominantly related to the calculated decision to reduce the risk of purchasing excess inventory in our e-commerce business and investing in our higher-margin brand business. The business is navigating challenging market conditions and being carefully managed quarter over quarter to achieve higher profitability while focusing on a high-margin, recurring-revenue brand business. The e-commerce business will continue to perform, but overall, the enterprise value will be driven by the brand and its overall growth. With capital constraints, we are prioritizing investments in our brand, products, and business. It carries a higher margin profile through subscription revenue, opportunity, and capturing a higher lifetime value of the. Brand product sales during the second quarter increased 16.7% sequentially to 7.7 million as compared to the prior quarter of 6.6 million. Branded product sales of the percent of total revenue this quarter were 35.1% as compared to the prior quarter of 24%.
The revenue decrease sequentially was predominantly related to the calculated decision to reduce the risk of purchasing excess inventory in our ecommerce business and investing in our higher margin brand business.
The business is navigating challenging market conditions being carefully managed quarter over quarter to achieve higher profitability.
Yes.
On a high margin recurring revenue brand businesses.
E Commerce business will continue to perform but overall the enterprise value will be driven by the brands and their overall growth.
With capital constraints, we are prioritizing investments in our brand products businesses.
Carries a higher margin profile through subscription revenue opportunities and capturing a higher lifetime value of the consumer.
Brand product sales during the second quarter increased 16, 7% sequentially to $7 7 million as compared to prior quarter of $6 6 million.
Branded product sales as a percentage of total revenue this quarter was 35, 1% as compared to prior quarter of 24%.
Alan Marshall: This growth and increase as a percentage of sales helped drive gross margins higher. Last quarter, we discussed the decision to increase our ad spend on Vitamedica and health and wellness to acquire and build subscription rates and increase the overall lifetime value of the products and brands with consumers. During the fiscal second quarter and into our current quarter we're in, we have seen promising financial benefits from this strategy. While we have maintained our marketing budget as a percentage of revenue, to drive further growth, we still expect data from the ACME study soon. The successful data will help increase sales significantly in a very large, sticky, and recurring segment of health and wellness. We are making the same investments in our other branded products, including Titan Tiles and Lucky Tail, particularly as these brands also launch new product offerings to the market. Before I hand the call over to Andy for further details regarding our finances, I'd like to provide an update on the consolidation of our manufacturing facility. The consolidation of operations is expected to be complete and fully operational by the end of April.
This growth an increase as a percentage of sales helped drive gross margins higher sequentially.
Last quarter, we discussed the decision to increase our AD spend on by the Medica, and health and wellness to acquire and build subscription rates and increase the overall lifetime value of the products and brands with consumers during the fiscal second quarter and into our current quarter. We're in we have seen promising financial benefits on the strategy.
While we have maintained our marketing budget as a percentage of revenue subscription revenue across health and wellness grew approximately 5% month over month, the strategic investment as measured carefully every month and thus far has increased our gross margins and recurring revenue.
To drive further growth, we still expect data from the acne study soon successful data will help increase sales significantly in a very large sticky and recurring segment of health and wellness industry.
We are making the same investments in our other branded products, including Titanfall and Lucky tail particular at these brands also to launch new product offerings to the market.
Before I hand, the call over to Andy for further details regarding our financials I'd like to provide an update.
<unk> of our manufacturing facilities.
The consolidation of operations is expected to be complete and fully operational by the end of April the overall impact on cost savings expected to be.
Alan Marshall: The overall impact on cost savings is expected to be $450,000 to $550,000 per quarter, a reduction of approximately $2 million annually. Consolidation will not slow the increase for our growth initiatives as we are investing, and we anticipate this will lead to increased growth margins and overall cash flow in the coming quarter. I'd like to reiterate my confidence in our ability to drive long-term growth, innovation, and value creation. We remain committed to further expanding and enhancing our brand businesses and eCommerce segments while capitalizing on new growth opportunities and reaching higher EBITDA and cash flow positive results this year. I will now pass the call over to Upexi CFO, Andrew Norstrud, to discuss our financial results in more detail. Andrew, Thank you, Alan.
$450 to 500000.
550000 per quarter, a reduction of approximately 2 million annually and G&A expenses.
Consolidation will not slow the increase of our growth initiatives as we are investing in.
And we anticipate this will lead to increased gross margins and overall cash flow in the coming quarters.
I'd like to reiterate my confidence in our ability to drive long term growth innovation and value creation.
We remain committed to further expanding and enhancing our brand businesses.
And re commerce segments, while capitalizing on new growth opportunities and reaching higher EBITDA and cash flow positive results. This year.
I'll now pass the call over to <unk> CFO and.
<unk> tried to discuss our financial results in more detail.
Andrew.
Thank you Alan.
Andrew Nordstrom: Revenue for the fiscal second quarter of 2024 totaled $21.8 million as compared to $26.7 million for the same period in the previous year and $27.3 million for the fiscal first quarter of 2024. The decrease in revenue was primarily due to lower e-commerce revenue through both Amazon channels and OCI. Brand product sales during the quarter increased 16.7% sequentially to 7.7 million as compared to 6.6 million, led by the Health and Beauty product category.
Revenue for the fiscal second quarter of 2024 totaled $21 8 million as compared to $26 7 million for the same period in the previous year and $27 3 million for the fiscal first quarter of 2024.
The decrease in revenue was primarily due to lower re commerce revenue through both Amazon channels and wholesale.
Brand product sales during the quarter increased 16.7% sequentially to $7 7 million as compared to $6 6 million.
Led by the health and beauty product category.
Andrew Nordstrom: Management will continue to focus on the development and growth of high gross margin, brand product sales. Cost of revenue for the fiscal second quarter 2024 totaled $13.6 million, a decrease as compared to the $16.7 million for the same period in the previous year and $18.6 million for the same period in the previous year. The fiscal second quarter 2024 totaled $13.6 million, a decrease as compared to the $16.7 million for the same period in the previous year and $18.6 million for the same period, fiscal first quarter 2024. The cost of revenue decrease is primarily related to the decrease in e-commerce sales discussed above.
Management will continue to focus on the development and growth of high gross margin.
<unk> product sales.
Cost of revenue for the fiscal second quarter of 2024 totaled $13 6 million a decrease as compared to the $16 7 million for the same period in the previous year and $18 6 million for the.
The fiscal first quarter 2024, the cost of revenue decrease was primarily related to the decrease in E Commerce sales discussed about.
Andrew Nordstrom: The gross margin for the fiscal second quarter 2024 and 2023 was approximately 38% during both periods. The gross margin during the quarter increased sequentially to 38% as compared to 31.8%. Sales and marketing expense for the fiscal second quarter 2024 decreased 18% compared to the same period in the previous year and was approximately $160,000 lower than the first quarter and September 30th, 2023 on higher branded, product revenue to refine sales strategies to focus on long-term recurring sales growth through subscription revenue and sales channel expansion. Management will continue to manage the sales and marketing budget strategically for direct consumer sales channels. As the company capitalizes on opportunities to take advantage of lower costs to estimate the lifetime value of a customer, management believes that this strategy will yield significant returns in the next 12 months. Management anticipates that advertising expenses will be reduced over time as a percentage of sales in the following quarters, which will increase overall profitability. General administrative expenses for the fiscal second quarter 2024 totaled $2.3 million, a decrease of 9% as compared to $2.5 million for the same period in the previous year.
The gross margin for the fiscal second quarter of 2024, and 2023 was approximately 38% during both periods gross margin during the quarter increased sequentially to 38% as compared to 31, 8%.
Sales and marketing expense for the fiscal second quarter of 2024 decreased 18% compared to the same period in the previous year and was approximately $160000 lower than the first quarter ended September 30 of 2023 on higher branded.
Product revenue the decrease in sales and marketing expense was primarily related to managements efforts to refine sales strategy to focus on long term recurring sales growth through subscription revenue and sales channel expansion.
Management will continue to manage the sales and marketing budget strategically for direct to consumer sales channels as the company capitalizes on opportunities to take advantage of lower cost estimate of lifetime value of a customer.
Management believes that this strategy will yield significant returns for the next 12 months.
Management anticipates that advertising expense will be reduced overtime as a percentage of sales in the following quarters, which will increase overall profitability.
General and administrative expenses for the fiscal second quarter of 2024 totaled $2 3 million a decrease of 9% as compared to $2 5 million for the same period in the previous year.
Andrew Nordstrom: Management has managed its general administrative costs and will continue to implement strategies to decrease the percentage of general administrative costs as compared to total sales. Adjusted EBITDA was approximately $29,000 as compared to an adjusted EBITDA of approximately $557,000 for the same period in the previous year and $750,000 for the fiscal first quarter of 2024. The company had a net loss from continued operations for fiscal second quarter 2024 of $2.4 million as compared to net income of $2.7 million for the same period in the previous year and a net loss of $1.4 million in the first fiscal quarter 2024. As of December 31, 2023, the company had cash of $1.8 million and total stockholders' equity attributed to Upexi shareholders of approximately $25.5 million. As of February 14th, 2024, there are 20,889,384 shares of Comstock outstanding. At this time, I'd like to open up the call for questions. Operator?
Management has managed its general administrative costs and will continue to implement strategies to decrease the percentage of general and administrative costs as compared to total sales.
Adjusted EBITDA was approximately $29000 as compared to an adjusted EBITDA of approximately 557000 for the same period in the previous year and 750000 for the fiscal first quarter of 2024.
The company had net loss from continued operations for our fiscal second quarter 2024 of $2 4 million as compared to net income.
$2 7 million for the same period in the previous year and a net loss of $1 4 million in the first fiscal quarter of 2024.
As of December 31, 2023, the company had cash of $1 8 million and total stockholders' equity attributable to <unk> shareholders of approximately $25 5 million.
As of February 14th 2024, there are $20 million 889384 shares of common stock outstanding at this time I'd like to open up the call for questions operator.
Operator: Cue, Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone. Confirmation total indicates your line is in the, You may press star 2 if you would like to remove your..., for participants, may be necessary, before pressing the start button. Our first question comes from Aaron Gray with Alliance Global, with your questions. Hi, good evening.
Thank you.
Ladies and gentlemen at this time, we'll be conducting a question and answer session. If.
If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
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Our first question comes from the line of Aaron Grey with Alliance Global Partners. Please proceed with your question.
Hi, good evening and thank you for the questions here. So first question for me I just wanted to talk a little bit about the re commerce business right. So you're pointing to the softness in the quarter certain wholesale transactions not being completed.
Aaron Gray: And thank you for the questions here. So, first question for me, I just want to talk a little bit about the e-commerce business, right? So you pointed to the softness in the quarter, certain wholesale transactions not being completed. Was it more a matter of pricing? Was it some last-minute changes?
Or is it more a matter of pricing was it some last minute changes.
Alan Marshall: Because I certainly can understand and appreciate the focus on margin, but it looks like, you know, inventory did build again in the quarter. So was the pricing just where it was? It would be even like potentially a solo of a margin if it wasn't appealing to you even if it might have had some cash conversion or just any color you might have in terms of the e-commerce business during the quarter and then also the inventory. Thanks. Hey, Aaron.
I certainly can understand and appreciate the focus on margin.
But it looks like you know inventory did build again in the corner. So once the pricing just where it was.
It would be even like potentially.
Some of our margin it wasn't.
Appealing to you even if they might have had some cash conversion just any color you might have in terms of the re commerce.
Business during the quarter and then also on the inventory. Thanks.
Yeah.
Alan Marshall: You know, I think some of the timing when it comes in and when it goes out, some of it was what we talked about at the end of the last quarter, just kind of making sure. You know, one of the concerns was that whole overall gross margin dropping. So, we talked about this over the years.
Hey, Darren.
I think the some of it's timing when it comes in and when it goes out some of it was what we talked about at the end of the last quarter, just kind of making sure.
One of the concerns was that whole overall gross margin dropping so we talked about this during the year as we can buy.
Alan Marshall: We can buy any amount of inventory that's available, but are they meeting our margin profile? So I think that this quarter, we just didn't see the opportunities that would have met the margin we were looking for. And also, do capital constraints still lead to just us pushing for a higher margin on those deals? And the reinvestment in the brands is really where it's going to drive overall growth. I mean, we've talked about this over and over, we need that brand revenue with that 80% plus margin to be a bigger percentage for our business. So the reinvestments there really were to press it into that, but there's no... Issues with the business could, you know, we could do a quarter with $20-30 million in e-commerce revenue, just not what we chose to do at this point in time. Inventory did pay the bill. We did, you know; we are always buying stuff. It just sometimes doesn't get sold by the end of the quarter or shipped out, and that may or may not come, you know, be sold in this quarter and make a difference as well.
You know any amount of inventory that's available but are they meeting our margin profile. So I think that this quarter we.
We just didn't see the opportunities that would have met the margin. We're looking for and also the capital constraints still kind of lead.
Lead to just us pushing for higher margin on those deals.
And the reinvestment in the brands is really where it's going to to drive overall growth I mean, we've talked about this over and over we need that brand revenue was that 80% plus margin to be a bigger percentage of our business. So the reinvestments. There really were two precedent to that but there's no.
Issues with the with the business could we could do a quarter with 2000 $30 million in re commerce revenue, but just not what we chose to do at this point in time so.
Inventory did bill we did you know we are always buying stuff. It just sometimes it doesn't get sold by the end of the corridor shipped out.
That may or may not come.
Be sold in this quarter and make a difference as well.
Aaron Gray: Okay, I appreciate that, Kyler. The second question is, again, on recovery. So, kind of overall, are you...
Okay.
Next caller up.
Second question is on the ecommerce so kind of overall are you.
Alan Marshall: It seems, is it that the margin hurdle is higher for you guys now, or are you just, margin hurdle is the same, and you're just seeing less opportunities out there, and that's, I know we've always talked about the shift to brand, right, but, you know, you always had kind of the e-commerce business there, potentially finding, you know, synergies, you know, within, even with the brands, but I think about the e-commerce business today, and that gross margin hurdle you spoke to, is it that the hurdle's been raised, or the hurdle's the same, and it's just harder to find those opportunities out there? Because I know it can really come and go, depending on what's out there from the manufacturers, and what they're buying products from.
Is it that the the market hurdle is higher for you guys now or are you just Martin at all the same and Youre, just seeing less opportunities out there and I know you've always talked about in the shaft into brand right, but you've always had a kind of a re commerce business, there potentially finding synergies within even with the brands, but in thinking about e-commerce business today and that gross.
Martin you spoke to isn't that.
The hurdle has been raised the hurdle is the same and it's harder to find those opportunities out there. So I know what you can really come and go.
Pending on on what's out there from the manufacturers not what they are buying powerful.
Alan Marshall: I mean, we've seen good opportunities on a lot, you know, even large deals; we just have really decided to focus more on this brand business today. The margins available maybe not as much, maybe not as much as they had been throughout the prior year, but I expect that after the holidays here, we're going to see that opportunity again. Margins usually increase again whenever you want to get stuck with an overstocked inventory. But we're seeing plenty of deals. Just trying to manage the business and not lose focus on, you know, the overall value of investing in the higher, higher brands, you know, the higher, you know, gross margin businesses like a gross margin increase this quarter is just the start of what we think will be trends over the next couple quarters. Okay, great, thanks. And yeah, shifting over to Branson, so... That was up 16.7%. You said that it was led by health and beauty, which I believe. I think Andrew said that.
I mean, we've seen good opportunities on much even large deals. We just have really decided to focus more on this brand business today the.
The margins available maybe not as as.
Maybe not as much as.
It had been throughout the <unk>.
Prior year, but I expect that after the holidays here over to see that opportunity again margins usually increase again.
When everyone gets stuck with an overstocked inventory.
But we're seeing plenty of deals.
Just trying to manage to manage the business.
And not to lose focus on the overall value of investing in the higher higher brand at a higher gross margin business like a gross margin increase.
This quarter. It was just the start of what we think trends over the next couple of quarters.
Okay, great, Thanks, and yeah shifting over to brand, saying so.
And that was up 16.7% you said that it was led by health and beauty I believe I think Andrew said that so.
Aaron Gray: Was Titan Tiles also within that, and was that also a bigger driver than more of the health and beauty side? And then, as you think about growth going forward, how do you think about the split between e-commerce and brick and mortar? Because obviously, brick and mortar is going to have some of that lower margin than some of the e-commerce, but I know you've had some initiatives with Titan Tiles in terms of getting increased exposure in the brick and mortar space. Yeah, we're gonna go, we're gonna continue, we're gonna go better in all, all aspects, right? Like Titan is, is born out of, you know, first starting, you know, in DTC, or, and then really evolved into brick and mortar.
Seinfeld and also within that was that also a bigger jobs are more in the health and beauty side, and then I think about growth going forward. How do you think about split between ecommerce and brick and mortar because you know obviously, Brent Morrison have you know some of that lower margin.
And then some of the e-commerce, but I know you've had some initiatives with tightened tail when times house in terms of getting our increased exposure to brick and mortar space. Thanks.
Yeah.
Yeah. We're gonna go we're going to continue we're going to get better from all all aspects right leg tightened as borne out of you know first first starting you know in DTC or and then really evolved into brick and mortar and now we're looking to bring those Disney products back to DTC.
Alan Marshall: And now we're looking to bring those Disney products back to DTC. The margin there is great, and the opportunities are great. But, but our other brands, you know, have higher margins and are strictly, at this point, direct-to-consumer with great opportunity. We've seen, you know, I'm not sure, I guess, significant reinvestment and growth just in the first quarter. Vitamedica's Amazon's up 30, 40%, you know, since we started to reinvest just at the beginning of the quarter. So I think we're just going to continue on all channels, blending that that margin, but still, the bulk of our business is going to be direct to consumer with a much higher margin. Okay, alright, great. Thank you very much, and I'll go ahead and jump right into the queue.
The margin there is great opportunities great.
But but our other brands have higher margins.
And are strictly at this point direct to consumer with great opportunity we've seen.
I'm not sure I guess so.
Difficult reinvestment in growth just in the first quarter I think you know.
Quite a medicos Amazon's up 30, 40% since we made those started to reinvest just at the at the beginning of the quarter. So.
I think we're just going to continue on all channels blending that that margin, but still the <unk>.
<unk> of our business is going to be direct to consumer with the much higher margins.
Okay, Alright, great. Thank you very much not go and jump back into queue.
Alan Marshall: There are no further questions in the queue. I'd like to hand the call back to management for closing remarks. All right, well, I want to thank everyone for joining the call. And just to summarize, the company is in a very good position to increase overall profitability. There are several reasons.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Well I want to thank everyone for joining the call and just summarize the company has done a very good position to increase the overall profitability.
Alan Marshall: Our consolidation of operations, and the reduction of 2 million GNA. This will reduce our overall cost structure and not slow the growth of the brands or the growth of profitability. Brand revenue should continue to be a bigger percentage of overall sales. The higher gross margin businesses will push our gross margins even higher this year. And regardless of market conditions or external factors, myself and our team intend to reach those higher EBITDA and cash flow positive results in the next several quarters.
It'll reasons or consolidation of operations, a reduction of $2 million in G&A.
This will reduce our overall cost structure and not slowed the growth of the brands or the growth of the profitability.
Brand revenue should continue to be a bigger percentage of overall sales.
The higher gross margin business as opposed to will push our gross margins even higher this year.
And regardless of market conditions, or external factors and myself and our team intend to reach those higher EBITDA and cash flow positive results on the next several quarters. So.
Operator: I want to thank everyone for joining our call, and I hope everyone has a great evening. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your line, and have a wonderful day.
I want to thank everyone for joining our call and I hope everyone has a great evening.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.