NextPlat Corp — Q3 2023 Form 10-Q
Period: Three and nine months ended September 30, 2023; unaudited. Comparisons with 2022 are not directly like-for-like: NextPlat began consolidating Progressive Care on July 1, 2023, so 2023 results include its healthcare business only from that date, while 2022 results do not.
Business context and material change
NextPlat operates e-commerce and satellite communications businesses and, following its acquisition of control of Progressive Care, healthcare operations including pharmacies, prescription dispensing, and 340B contract services. On July 1, NextPlat and two directors collectively obtained approximately 53% of Progressive Care’s voting common stock; a voting agreement aligned the directors’ votes with NextPlat’s. The transaction changed Progressive Care from an equity-method investment to a consolidated subsidiary.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $15.29 million | $2.63 million | $21.12 million | $9.08 million |
| Gross profit | $4.58 million | $0.68 million | $6.05 million | $2.05 million |
| Gross margin | 30.0% | 25.8% | 28.6% | 22.5% |
| Operating expenses | $8.06 million | $2.84 million | $14.12 million | $6.58 million |
| Net income (loss), consolidated | $2.64 million | $(5.71) million | $(2.89) million | $(8.22) million |
| Net income (loss) attributable to NextPlat | $3.45 million | $(5.71) million | $(2.08) million | $(8.22) million |
| Basic EPS | $0.18 | $(0.60) | $(0.12) | $(0.88) |
| Operating cash flow | Not stated separately | Not stated separately | $(4.25) million | $(2.73) million |
Q3 revenue rose 481%, primarily because Progressive Care contributed approximately $12.4 million; e-commerce revenue increased 11% to $2.93 million. Nine-month e-commerce revenue decreased 3% to $8.76 million, partly reflecting nonrecurring Ukraine-related sales in 2022. Progressive Care contributed approximately $12.4 million of revenue and a net loss of approximately $1.4 million from July 1 through September 30.
Q3 reported profit included a $6.14 million noncash gain from remeasuring NextPlat’s previously held Progressive Care interest upon gaining control. Excluding that item, the company reported a loss before the gain. Nine-month results also include the gain, along with $1.44 million of equity-method losses recorded before consolidation. Operating expenses increased substantially, including stock-based compensation and acquisition-related payroll, depreciation, and amortization.
Financial position and liquidity
- At September 30, cash was $26.35 million and current assets were $43.74 million, versus $21.18 million of current assets at December 31, 2022. Reported working capital was approximately $29.1 million.
- Total liabilities were $16.66 million, including $14.69 million current liabilities. Notes payable totaled $1.64 million; the balance sheet also reports operating and finance lease liabilities.
- For the first nine months, operating activities used $4.25 million; investing activities provided $5.39 million, including $7.35 million of cash acquired with Progressive Care; financing activities provided $6.33 million, including $6.0 million from an April share offering and warrant exercises. Cash increased by $7.45 million to $26.35 million.
- Accounts receivable was $7.80 million net and inventory was $4.99 million at quarter-end. The company attributed much of the increase in these balances and in current liabilities to Progressive Care’s consolidation.
Outlook, risks and other notable items
- Management said existing cash resources and borrowing availability were sufficient to support planned operations for at least 12 months after issuance of the financial statements. No quantified revenue or earnings guidance was provided. Management expected expenses to continue increasing as operations expand.
- NextPlat is upgrading its e-commerce systems and developing a Web3 digital-asset platform; the filing gives no quantified forecast for these initiatives. Management reported record monthly transaction performance at its owned e-commerce websites during Q3.
- After quarter-end, NextPlat signed a one-year agreement to be OPKO Health Spain’s exclusive distributor in China for specified health and veterinary products through Alibaba; the agreement renews automatically unless either party gives notice.
- Concentration risks include Amazon accounting for 53% of disclosed company revenue for the first nine months, one healthcare vendor accounting for 99% of healthcare vendor purchases in Q3, and three pharmacy benefit managers representing 35%, 31%, and 16% of Progressive Care reimbursements. PBM/DIR fee estimates are described as subjective and may differ from amounts ultimately charged.
- Progressive Care acquisition purchase accounting remains provisional and may be adjusted during the measurement period. The $6.14 million remeasurement gain and fair-value estimates relied on significant unobservable inputs.
- Contingencies include litigation involving a former CFO and Progressive Care’s lawsuit against pharmacy software provider KeyCentrix. The company stated it did not expect the former CFO matter to have substantial monetary relief and did not identify litigation expected to materially adversely affect the business.
- Management reported disclosure controls were effective as of September 30, 2023 and no material change in internal control over financial reporting during the quarter. The filing reports no material changes to the risk factors in the 2022 Form 10-K.
Most important facts for investors to verify
- How much of reported earnings and EPS depends on the one-time $6.14 million remeasurement gain, and how the acquired business performs apart from that item.
- Progress on finalizing Progressive Care’s provisional purchase-price allocation and the assumptions underlying its acquired intangible assets and goodwill.
- Whether pharmacy receivables, inventory, PBM/DIR accruals, and the highly concentrated healthcare supplier relationship remain manageable as the acquired business scales.
- Cash burn and working-capital trends, particularly given $4.25 million of operating cash use in the first nine months and increased receivables and inventory.
- Share dilution and related-party governance implications of the Progressive Care warrant exercises, voting agreement, and April 2023 share issuance; NextPlat reported 18,724,596 common shares outstanding on November 8, 2023.