NextPlat Corp — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2022; filed November 14, 2022. Financial statements are unaudited. NextPlat sells satellite communications equipment and services through online storefronts and is developing broader e-commerce and digital-asset initiatives.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $2.63 million | $2.25 million | $9.08 million | $5.67 million |
| Gross profit | $679,000 | $493,000 | $2.05 million | $1.47 million |
| Gross margin | 25.8% | 21.9% | 22.5% | 26.0% |
| Operating expenses | $2.84 million | $2.73 million | $6.58 million | $4.56 million |
| Net loss | $5.71 million | $2.31 million | $8.22 million | $4.57 million |
| Basic and diluted loss per share | $(0.60) | $(0.37) | $(0.88) | $(1.40) |
- Revenue increased 16.9% in Q3 and 60.2% in the nine-month period. Management cited new product lines, increased inventory and additional e-commerce storefronts; Q3 sales were also affected by disruption related to sanctions on Russia.
- Quarterly gross margin improved, reflecting higher-margin airtime sales. Nine-month margin declined amid higher inventory and freight costs, more distributor sales at lower percentage margins, and discounted sales to charities for use in Ukraine.
- Operating expenses rose 4.2% in Q3 and 44.4% year to date. Year-to-date increases included stock compensation, payroll, variable selling costs, insurance, and depreciation and amortization.
- Net loss includes a $3.45 million equity-method loss from Progressive Care, in which NextPlat invested in September. Excluding that affiliate loss, the reported loss before tax and affiliate results was $2.26 million for Q3 and $4.76 million year to date.
Cash, liquidity and capital
- At September 30, cash was $12.47 million, total assets $20.54 million, and working capital $13.38 million. Cash was down $4.80 million from year-end 2021.
- Cash used in operations was $2.73 million for the nine months. Investing used $7.47 million, including the $7.00 million Progressive Care investment; financing provided $5.53 million, primarily from the January stock offering.
- Total liabilities were $2.34 million, including $213,708 of coronavirus-loan debt and $863,294 of operating lease liabilities. Lease liabilities increased substantially with the new Florida headquarters lease.
- Common shares outstanding rose from 7.05 million at December 31, 2021 to 9.65 million at September 30, 2022. The January private placement generated $7.01 million net proceeds.
- Management stated that available cash and borrowing capacity were sufficient to support planned operations for at least 12 months after issuance of the financial statements. The company reported an accumulated deficit of $30.21 million.
Material changes, outlook and risks
- Progressive Care investment: NextPlat paid $6 million for preferred-stock units and warrants and contributed $1 million toward purchasing convertible debt and related shares. It reported a 33.28% economic and voting interest and significant influence, but not control. The investment’s September 30 carrying value was about $3.55 million after recognizing its share of Progressive Care’s losses; the filing cites an approximate market value of $11.7 million.
- Amazon represented 59.2% of Q3 revenue and 52.3% of nine-month revenue, down from 64.8% and 64.0%, respectively, in the comparable 2021 periods. Europe accounted for 77.3% of nine-month revenue. Supplier purchases were also concentrated among several vendors.
- Management expects expenses to continue increasing as the company expands but gave no quantified revenue, earnings or margin guidance. The planned NextPlat Digital/Web3 platform was still in design and development; management emphasized uncertainty around securities, payments, AML/KYC and other regulatory requirements.
- Management cited COVID-related supply-chain and demand uncertainty, inflation, labor constraints, foreign-exchange exposure and geopolitical disruption. It said the ultimate impact and recovery timing remained uncertain.
- Controls: Management reported internal controls over financial reporting were not effective as of September 30, 2022, citing significant deficiencies in the internal audit function and segregation of accounting duties. Management described remediation steps but cautioned that material misstatements might not be prevented or detected timely.
- Legal and governance: The Seifert employment dispute remained in litigation; his OSHA complaint was withdrawn and the matter closed. After quarter-end, CEO Charles Fernandez was elected Progressive Care CEO, and NextPlat announced CFO and other executive role changes. NextPlat executives also serve on Progressive Care’s board, creating potential related-party and oversight matters to monitor.
Important facts for investors to verify
- Progressive Care’s operating performance, valuation, investment accounting and the basis for the sizable equity-method loss.
- Whether operating cash burn, planned expansion spending and rising expenses remain consistent with management’s 12-month liquidity assessment.
- Gross-margin recovery and sales dependence on Amazon, Europe and key suppliers.
- Remediation and independent oversight of the reported internal-control deficiencies.
- Progress on NextPlat Digital, required regulatory permissions and compliance costs, and any changes to the company’s plans.
- Potential effects of stock awards, warrants, executive compensation and interlocking NextPlat–Progressive Care management and board relationships.