Upexi, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2024, compared with the same periods in 2023. The filing is for the fiscal quarter ended March 31, 2024; the “2023 Q3” request metadata does not match the filing period.
Business context
Upexi owns and distributes consumer brands in health, wellness, pet, beauty, toys and other markets. It reports two segments: Branded Products and Recommerce, which includes buying and reselling products through channels such as Amazon and wholesale. The company says it is shifting away from lower-margin, return-prone electronic products and consolidating operations.
Financial results and liquidity
| Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | Nine months ended March 31, 2024 | Nine months ended March 31, 2023 |
|---|---|---|---|---|
| Revenue | $14.4 million | $21.9 million | $59.6 million | $56.3 million |
| Gross profit | $2.9 million | $7.6 million | $16.7 million | $20.7 million |
| Gross margin | 20.0% | 34.6% | 28.1% | 36.8% |
| Operating loss | $4.9 million | $2.1 million | $8.0 million | $5.9 million |
| Net loss attributable to Upexi | $4.1 million | $1.6 million | $7.9 million | $1.6 million |
- For the quarter, revenue fell 34%, principally from lower Recommerce sales in Amazon and wholesale channels. Branded Product sales increased slightly.
- For the nine months, revenue rose 6%, reflecting a full-period contribution from acquisitions; management also reported declining Recommerce sales. Gross profit and margins weakened, with inventory write-offs a significant factor.
- Inventory write-offs were $1.8 million for the nine months, including $1.7 million in the March quarter, mainly for obsolete, unsellable or returned Recommerce products.
- Cash was $498,287 at March 31, down from $4.5 million at June 30, 2023. Operating cash flow was negative $3.0 million for the nine months, including negative $2.8 million from continuing operations.
- Working capital was negative $7.4 million, versus positive $5.7 million at June 30, 2023. Current assets were $16.8 million and current liabilities $24.2 million.
- Notes payable and related-party, acquisition and convertible notes totaled $22.7 million, net of discounts, at March 31. The balance sheet also reports a $3.9 million line of credit. Interest expense was $2.6 million for the nine months; cash interest paid was $1.5 million.
- Total assets were $56.5 million and stockholders’ equity was $22.1 million. The filing reports a $1.5 million income tax benefit for the quarter and $2.7 million for the nine months.
Material changes, outlook and risks
- Management attributes weaker results to lower Recommerce sales, inventory write-offs, debt interest and costs associated with its distribution network. It says facility consolidation was completed in June 2024 and expects operational improvements to benefit fiscal 2025; no quantified earnings or revenue guidance is provided.
- Management states it expects sufficient working capital for operations over the 12 months following issuance of the statements and to meet debt obligations. This assertion should be considered alongside the low cash balance and negative working capital.
- Subsequent events: Upexi agreed to sell its Clearwater warehouse for $4.3 million, expecting approximately $1.35 million after mortgage repayment and transaction costs, with closing anticipated around July 8, 2024. It also sold VitaMedica on June 13, 2024 for $6 million, subject to adjustments, and expects about $300,000 annually for transition services. Proceeds are intended for working capital and debt or liability reduction.
- A new five-year warehouse lease began April 1, 2024 at $20,060 per month, triple net, with an entity owned by CEO Allan Marshall. The VitaMedica sale also involved the CEO as one of the buyers. These are related-party transactions.
- The company disclosed ineffective disclosure controls and material weaknesses involving segregation of duties and insufficient levels of supervision and review. Management had not remediated them as of March 31 and planned corrective steps as resources allowed.
- Management cites uncertainty over regulation of hemp-derived cannabinoids as a potential business risk. The filing reports no pending legal proceedings expected to have a material adverse effect and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the warehouse sale and VitaMedica transaction closed as expected, the final cash proceeds, and how proceeds were applied.
- Near-term liquidity, line-of-credit availability, upcoming debt maturities and the company’s ability to meet obligations given cash and working-capital levels.
- Whether Recommerce sales and gross margins stabilize, and whether inventory write-offs or returns continue.
- Progress and realized savings from facility consolidation, including the related-party lease and expected fiscal 2025 benefits.
- Remediation of the disclosed material weaknesses and the reliability of financial reporting.
- Potential dilution from outstanding options and warrants, and the governance implications of CEO-held preferred shares, which carry ten votes per share.