NextPlat Corp — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; financial statements are unaudited. NextPlat operates e-commerce storefronts and sells satellite communications equipment and services. It is upgrading its e-commerce platform and developing a Web3 digital-assets platform; the latter remains in design and development.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $2.96 million | $2.87 million | $5.83 million | $6.45 million |
| Gross profit / margin | $844,000 / 28.5% | $567,000 / 19.8% | $1.46 million / 25.1% | $1.37 million / 21.2% |
| Operating expenses | $4.20 million | $2.10 million | $6.06 million | $3.74 million |
| Net loss | $4.34 million | $1.66 million | $5.53 million | $2.51 million |
| Basic and diluted loss per share | $0.24 | $0.18 | $0.34 | $0.27 |
- Revenue rose 3.0% year over year in Q2, but fell 9.5% for the first half. Management attributed the half-year decline mainly to lower non-recurring sales associated with the 2022 Ukraine war-related demand, partly offset by growth in recurring sales.
- Gross margin improved in both periods. Management cited stable or lower product costs, higher-margin recurring airtime revenue, and lower shipping charges.
- Operating expenses increased 100% in Q2 and 64.9% for the first half. Key factors included stock-based compensation, higher other operating costs, executive bonuses and salary increases, severance, legal and capital-raise fees, and depreciation.
- Q2 included $1.41 million of equity-method loss from Progressive Care; first-half equity-method loss was $1.44 million. Net losses widened despite improved gross profit.
- At June 30, cash was $20.61 million, current assets $24.22 million, current liabilities $1.79 million, and working capital approximately $22.4 million. Total assets were $30.91 million and stockholders’ equity $28.42 million.
- First-half operating cash outflow was $3.30 million, versus $1.89 million a year earlier. Investing cash outflow was $1.10 million, including a $1.0 million contribution to Progressive Care. Financing provided $6.15 million, mainly from a $6.0 million stock placement and $184,000 from warrant exercises. Cash increased by $1.71 million during the half.
- Debt included approximately $195,000 of Coronavirus loans outstanding ($63,000 current and $132,000 long-term); operating lease liabilities totaled approximately $772,000. The filing reports no material off-balance-sheet arrangements.
Material changes, outlook, and risks
- In April, NextPlat sold 3,428,571 shares at $1.75 per share for $6.0 million gross proceeds. Common shares outstanding increased from 14.40 million at year-end 2022 to 18.70 million at June 30, 2023. First-half stock-based compensation was approximately $2.02 million.
- Management said cash and borrowing availability were sufficient for planned operations for at least 12 months after the financial statements’ issuance. It expects expenses in major operating-cost categories to continue increasing as it expands; no specific revenue or earnings guidance was provided.
- Effective July 1, 2023, following warrant exercises and a voting agreement, NextPlat obtained control of approximately 53% of Progressive Care’s voting stock. It will change from equity-method accounting to consolidation, so future reported results and balance-sheet amounts will include Progressive Care.
- Progressive Care-related arrangements include an agreement for up to $10 million of secured convertible debentures, but NextPlat reported that it had not purchased any under that agreement as of the filing. NextPlat also loaned $250,000 to Next Borough Capital Management after quarter-end at 7% interest, due July 7, 2024.
- Key risks include early-stage expansion into evolving e-commerce and digital-asset markets, competition and changing demand, foreign-exchange exposure, and customer concentration: Amazon accounted for 49.1% of first-half revenue. Several suppliers each represented at least 10% of first-half purchases.
- A former CFO employment and termination dispute remains in litigation. The company says it has defenses and does not expect to seek substantial monetary relief. Management reported disclosure controls were effective as of June 30, 2023; no material change in internal control over financial reporting was reported during the quarter.
Important facts for investors to verify
- Whether improved gross margins can persist and translate into lower losses as operating expenses rise.
- The pace of cash use relative to management’s stated 12-month liquidity outlook, including spending on expansion and the Progressive Care investment.
- The effects of consolidating Progressive Care from July 1, 2023, including its financial results, liabilities, and the impact on NextPlat’s reported scale and performance.
- The continuing effects of share issuance, stock-based compensation, and outstanding warrants on dilution.
- Exposure to Amazon and concentrated suppliers, and the status and potential cost of the former CFO litigation.