Upexi Q3 2023 Earnings Call Transcript

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May 15, 2023

There are 5 speakers on the call.

Operator

Good day, and welcome to the Upexi Inc. 2023 Fiscal Third Quarter Financial Results Conference Call. All participants will be in listen only mode. On your telephone keypad. After today's presentation, there will be an opportunity to ask questions.

Operator

Please note this event is being recorded. I would now like to turn the conference over to Walter Pinto, Managing Director at KCSA Strategic Communications. Please go ahead.

Speaker 1

Thank you, operator. Good evening and welcome everyone to the UpaXY 20 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 Securities Litigation Reform Act of 1995 and 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 in the company's business, I'll refer you to the press release issued this evening and filed with the SEC on Form 8 ks as 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 1

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 that may be different from non GAAP financial measures used by other companies. The 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 to Uphaxi's CEO, Alan Marshall.

Speaker 2

Thank you, and Welcome to our 2023 fiscal 3rd quarter financial results conference call. Revenue for the quarter was $24,200,000 an increase of 4 47 percent year over year as compared to $4,400,000 for the same period in the prior year. Revenue growth was predominantly driven by strong sales across our health and wellness brands. Vitamedica, children's educational toy brand Titan Tiles Our pet category Lucky Tale brand Lucky Tale, Ecore and Signet continue to perform and remain poised to drive growth across our liquidation business segment. Gross profit during the quarter totaled $9,600,000 an increase of 52% year over year, yielding approximately 40% margins.

Speaker 2

Our business continues to expand and as the organic growth of our core brands drives up George, calendar year 2023 projections of $100,000,000 in sales. With $24,000,000 in revenue this quarter and taking into account the natural seasonality We see calendar Q4 to calendar Q1. We remain confident in our ability to meet or exceed this goal. Additionally, our focus on cost cuts improved efficiencies and optimization has allowed us to achieve $671,000 in positive adjusted EBITDA, A substantial improvement over $877,000 negative adjusted EBITDA for the same period last year. We anticipate adjusted EBITDA to grow for the remainder of the calendar, trending towards our target of 8% to 12% margin at the end of calendar 2023.

Speaker 2

We see both continued organic top line growth and additional benefits from our cost cutting and efficiencies efforts to support this trend without taking into account further M and A. During and subsequent to the fiscal 3rd quarter, we have made significant progress across each of our brands and operationally. A diverse business mix of non discretionary health, wellness and pet product and liquidation in wholesale. Direct to consumer and Amazon gives us a well rounded revenue stream that provides opportunity in most economic environments. Highlighting some of our high performing brands, Vitamedica, our health and wellness brand, was purchased in late 2021 and have seen 88% organic growth since the acquisition.

Speaker 2

Vitamax revenues for the Q3 were $1,960,000 as compared to $1,160,000 for the same period in 2022, an approximately 800 or 69 percent improvement. In 2022, it had a growth rate of 50%, and we look forward to additional growth with the launch of new complementary products like acne treatments later in 2023. This is a perfect example of execution of our model. With With Vitametica, we have successfully taken an already growing brand in a key non discretionary vertical, optimized their sales through our performance and expanded margins year over year. Lucky Tail, our pet category brand with both Amazon and direct to consumer platforms, saw 50% organic growth in 2022.

Speaker 2

Lucky Tail revenues for the fiscal Q3 were $1,360,000 We anticipate additional growth in 2023 That led the pack with 100 percent organic growth in 2022 and we expect 50% plus organic growth in 2023 with the launch of 4 new products. Titan Tile's revenue for the fiscal Q3 was $1,250,000 as compared to $165,000 for the same period in 2022, an approximate 6 56% improvement. The milestones for Titan Tile's January Walmart launch in 1900 stores. Additional order was placed in February due to accelerated sales to double that order. Full 3911 Walmart store launched for the second half of twenty twenty three as a result of the launch success.

Speaker 2

Subsequently, we announced the Disney licensing agreement for top tier franchises. We will be developing and launching new branded products under this agreement. The products will be launched on Amazon, direct to consumer and into Upexi's big box retail channels with initial launch planned for 2023 holiday season. In April, we announced an agreement to acquire the remaining 45% interest And Signet Online, 1 year ahead of schedule. The deal solidifies our Upexi Amazon reseller strategy for the future, Reducing the overall structure for the cost and structure for the business.

Speaker 2

Closing the deal early offers significant G and A savings and the opportunity to purchase Signet at a discount to next year's overall anticipated costs. Regarding M and A, we continue to be in a buyer's market. Internally, we don't feel any urgency to do M and A. Therefore, we continue to be strategic and patient in our strategy. We have a very specific mandate in terms of Industry verticals, growth rates, profitability and structure that we will hold firm on.

Speaker 2

We continue to focus on high growth recession resistant cash flowing businesses that are accretive to our future. The profile of the non binding letter of intent to acquire wellness and nutrition brand we signed in April falls within that category. The brand has generated trailing 12 month revenues of $15,000,000 and positive EBITDA. The acquisition falls We see tremendous cost synergies and value in high margin Data rich brands in our non discretionary product category. Lastly, before I turn the call over to Andy, Our teams remain keenly focused on growth, management of costs and efficiencies to maximize margins.

Speaker 2

We were able to achieve higher adjusted EBITDA Our lower revenue base this quarter as compared to last sequential quarter by implementing Aggressive cost savings and growth in our high margin brands. Calendar 2023 is off to a tremendous start and incremental improvement should continue With very strong growth potential for the second half of the year, each of our brands have significant opportunity to perform to outperform our expectations with Disney for Titan Tiles, new product categories for Lucky Tail and new product launches for Vitamanico. I will now pass the call over to Upexi's CFO, Andrew Norstrud, to discuss our financial results in more detail.

Speaker 3

Andrew? Thank you, Alan. In accordance with the rules regarding the presentation of discontinued operations, the assets, liabilities and activities of infusions and certain manufacturing operations have been reclassified as discontinued operations for all periods presented. The 3 months ended March 31, 2023 include 3 acquisitions completed after March 31, 2022. These acquisitions were Signet Online LLC, our Amazon aggregation business Lucky Tail, our initial brand in the pet industry with products and sales channels, both domestically and internationally and our most recent one, Ecore, our product distribution business, which also includes Titan Tiles, a children's toy brand.

Speaker 3

These acquisitions coupled with the elimination of the discontinued operations from the sale of infusions Revenue for the 3 months ended March 31, 2023 totaled $24,200,000 an increase of 4 47 percent as compared to $4,400,000 for the same period the prior year. The revenue growth was primarily the result of these three acquisitions and the offset of the sale of Infusions. Management believes that there is a significant opportunity in the next 12 months for organic growth within the newly acquired businesses and will focus the acquisition targets on the business that will enhance our current products or allow the business to accelerate growth. Cost of revenue during the quarter totaled $14,600,000 compared to $1,100,000 for the same period the prior year. The cost of revenue growth was primarily related to the acquisition of 3 companies and the offset with the sale of infusions.

Speaker 3

Gross profit for the quarter was $9,600,000 an increase of 190% as compared to $3,300,000 for the same period the prior year. Management will seek to improve the gross profit and overall gross margin in the next 12 months as we are able to leverage a significant increase in our purchasing requirements and continue to consolidate operations. Sales and marketing expense were approximately $3,500,000 an increase of $2,400,000 or 2 20 percent compared to the same period last year. The increase in sales and marketing expense is primarily related to the acquisitions. However, management has aligned the marketing expenditures with our expected Quarterly growth strategy to decrease the overall percentage of sales and marketing cost sales.

Speaker 3

We anticipate our advertising expense will continue to fluctuate in the following quarters as we fully implement our overall brand marketing strategy. Distribution costs were $3,500,000 an increase of $2,000,000 or 3 26 percent compared to the same period last year. The increase in distribution cost is primarily related to the 3 acquisitions offset by the sale of Infusions and the classification of these expenses as part of discontinued operations. In addition, there continue to be increases in transportation costs and third party provider rates, which management has implemented a strategy to change promotions, increase prices and adjust packaging to decrease the overall percentage of distribution costs to sales. General and administrative expenses were $2,500,000 an increase of $900,000 or 46 percent with the same period last year.

Speaker 3

We'll continue to implement strategies to decrease the percentage of G and A costs compared to the total sales. The company had a loss from continued operations of $2,100,000 for the 3 months ended March 31, 2023 compared to A net loss of $200,000 for the same period in the prior year. As of March 31, 2023, the company had cash of approximately $1,200,000 a line of credit with $4,900,000 available and stockholders' equity attributable to Upexi stockholders of $36,700,000 On May 12, 2023, the company announced a registered direct offering of common stock to for gross proceeds of approximately $7,000,000 before deducting placement, agent fees and other offering expenses. The closing of the offering is expected to occur on or about May 16, subject to customary closing conditions.

Speaker 2

At this

Speaker 3

time, I'd like to open up the call for any questions. Operator?

Operator

We will now begin the question and answer session. The first question comes from Aaron Grey with Alliance Global Partners. Please go ahead.

Speaker 4

Good evening and thank you for the questions. Nice to see the EBITDA improvement sequentially despite the seasonally lower quarter. So just on that on the EBITDA margin, as we look for the remainder of the year, you're looking for EBITDA margin improvement to continue Based off your guys slide deck, but you do caution somewhat on various marketing spend. You kind of mentioned it within your prepared remarks, Andrew. So I I want to get some color.

Speaker 4

As we look at it today, how do you think about potentially pulling that lever on marketing to drive top line growth versus letting it drop down to the bottom line

Speaker 2

Andrew, do you want me to grab that or you?

Speaker 3

Yes. You can go ahead or I can either way.

Speaker 2

Go ahead, I'll comment on it as well. Go ahead.

Speaker 3

Yes. I mean, basically, when When they're looking at the marketing, they're looking at the cost per acquisition of the customer. And so what you saw in the Q2 ending December was that The marketing department decided to take advantage of some things and spend a little bit extra money and we've got we saw some very good results of that in this quarter and will continue. So There are times that management and the marketing department is going to decide to spend that it has an opportunity to Capitalize on that cost per customer acquired and we spend more in the beginning, which causes that to take up the EBITDA to the bottom line. That's basically what I'm letting you know is that it's not going to be a perfect situation where it's always going to be an EBITDA growth because they decide to spend more in 1 quarter than the other.

Speaker 2

It's kind of Aaron, just to follow-up, it's kind of how we made higher EBITDA this quarter on a lower base. Last quarter, we talked about how we spend extra money going into the end of the year. It did drive sales, but it takes a little longer for that The back end of that to pay off. So for us, we really look at it as success in this quarter And we'll drive that knowing that $3,000,000 more of sales in another quarter could drive a significant More margin to us. So we're right at that point where everything we have the opportunity to let everything flow above this number and maybe even a little bit lower To increase that margin throughout the year.

Speaker 4

No, appreciate that detail. That's helpful. And then second, just dive into one segment with The Titan Towers, nice to see for Walmart launch coming in and you got Disney on there as well. How do you look at potential additional partnerships for the remainder of the year. And are there anything we should think about in terms of like inventory as you look to bring on and get ready for full Walmart or the Disney inventory as well?

Speaker 2

Thanks. Yes. Inventory has been a really been a hindrance in this Quarter and still continues to be. We're on our call today, we talked about just being sold out. We're really low volumes.

Speaker 2

Amazon's sold out. We never I guess we never really intended to see this amount of success as quickly, But it's being cured. Everything is being shipped. We're resting all the shipments. So we should see incremental improvements, both currently what's going on now and then even Especially into the second half of the year, we'll be more prudent on ordering additional inventory, especially for a launch With Disney and those opportunities, so and I believe that we're launching all 4 new products coming sometime midsummer as well.

Speaker 2

So we won't let it happen again, but it's a good problem to have to be Demand to outsource, but obviously we'd like to be selling it all right now.

Speaker 4

Yes, certainly high quality problem, but want to get remedied. So glad to hear that you got that comment. Last question for me and then I'll jump back in the queue. You got some M and A that you announced. You talked about potential other M and A.

Speaker 4

This new one was wellness you had done Titans and Toys in December. Just as you look at the M and A pipeline, what type of business lines About kind of going forward between the more discretionary and staples and how do you think about now the bar for M and A as you're looking to absorb some of the recent acquisitions that you've done and versus maybe doing too much and trying to integrate the ones you've already accomplished versus adding new ones to the plate? Thanks.

Speaker 2

I think the bar would be pretty high for us right now to add another acquisition. We've got I mean, just for Disney launch to be as big as an acquisition and all of the things we have going across really each of our brands, We talked about Titan, but each of the brands has initiatives that could be super accretive to us. Our pet brand is going to be launching our pet supplement brand. We're launching new products into that category, designing the whole new platform to increase sales, same across Vitametic entering new categories. Really, we've become the leader in certain categories Now we're starting to spread that out.

Speaker 2

So I think just to sum it up, the bar would be very high right now. We've got a lot to do here and a lot of We're going to try to really put the pedal down on until the end of the year.

Speaker 4

Okay, great. Makes sense. Thanks for the color. I'll jump back in the queue.

Operator

The next question comes from John McCullough with Paulson Investments. Please go ahead.

Speaker 3

Thanks. Hi, Andy. Hey, Alan, how are you doing? Congratulations.

Speaker 2

Great, Alan.

Speaker 3

A question for you, kind of related to the First question is, now that you're getting more and more data, how is your ability to manage it and even use AI perhaps to keep costs low, but still be able to manage and enhance

Speaker 2

John, while a lot of people are kind of Reducing headcount and stuff, we've added a couple of key employees this quarter, really looking at All of those opportunities, putting together even a more robust team. Like I said, our problem right now is selling all the products, not selling all the products we have, but Trying to get enough product to sell and entering each new categories. So data is becoming more and more important. We are integrating a new ERP In this quarter, which is obviously a lot of work and very cumbersome for our team, but each of the steps we're taking right now is really The opportunities that we currently have. So that's why our projections seem to progress and go up for EBITDA and revenue throughout It takes a little time to do those things, but we're making great progress.

Speaker 2

And I think Now throughout the year and especially by the time we get to the end of the year leaving and going into next year, we should be set for even stronger

Operator

This concludes our question and answer session. I would like to turn the conference back over to Alan Marshall for any closing remarks.

Speaker 2

Thanks, operator. Upexi continues to execute our strategy and our growth continues to meet or exceed our expectations. We have multiple opportunities across our brands and business that should help drive overall growth in 2023 and even into 2024. I want to take a minute to thank our team. Our team deserves a lot of credit for all the work and effort that has gone into the current success and for all the initiatives they have Coming to drive our future growth.

Speaker 2

I want to summarize everything by thanking our investors and thanking everyone for joining the call. We look forward to more calls in the future and really appreciate everyone's time. So have a great evening and everyone at UPEXI, thank you.

Operator

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

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