Upexi, Inc. — Form 10-Q summary
Period: Fiscal second quarter and six months ended December 31, 2022. The unaudited filing was signed February 14, 2023. Comparisons with 2021 are significantly affected by acquisitions and the Infusionz divestiture.
Financial performance
| Metric | Three months ended Dec. 31, 2022 | Six months ended Dec. 31, 2022 |
|---|---|---|
| Revenue | $27.1 million, up 444% year over year | $38.6 million, up 336% |
| Gross profit / gross margin | $10.3 million / 38.1% | $16.4 million / 42.3% |
| Operating income (loss) | $(2.1) million | $(5.1) million |
| Net income (loss) attributable to Upexi | $2.7 million | $72,164 |
| Operating cash flow | Not separately presented for the quarter | $3.6 million from continuing operations |
Quarterly continuing-operations income was $2.9 million; the reported result also reflects a $292,907 loss from discontinued operations and a non-controlling-interest adjustment. Six-month continuing-operations income was $177,000, while discontinued operations lost $338,000. The quarter’s positive earnings included a $7.6 million gain on the Infusionz and related asset sale; interest expense was $1.8 million for the quarter and $2.2 million for the six-month period.
Cash was $4.5 million at December 31, down from $7.1 million at June 30. Working capital was $7.0 million, down from $11.5 million. Total notes payable were $26.5 million, including $2.1 million current and $24.4 million long-term, compared with approximately $14.3 million at June 30. Total assets were $76.6 million and stockholders’ equity was $36.7 million. The company reported no material off-balance-sheet arrangements.
Changes and business developments
- Revenue growth was primarily acquisition-driven. The acquired businesses reported $24.7 million of the quarter’s revenue and $34.7 million of the six-month revenue; these amounts are not a measure of organic growth.
- Upexi acquired LuckyTail in August 2022 and E-Core in October 2022, and included Cygnet, acquired in April 2022, in current-period results. E-Core contributed from October 21, so it was included for only part of the period.
- Upexi sold Infusionz and certain manufacturing operations in October 2022, classifying them as discontinued operations. Sale consideration included $5.5 million cash and securities; the company recorded an $8.5 million reserve against Bloomios-related instruments.
- Higher sales and marketing, distribution, amortization and share-based compensation costs accompanied the expanded business. Management said it expects to reduce advertising expense in following quarters and aims to improve gross margin and operating cost ratios.
Liquidity, outlook and risks
Management stated it expected available working capital to fund operations and meet debt obligations for the 12 months after issuance of the financial statements. No quantified revenue or earnings guidance was provided. Management described potential organic growth in acquired businesses and operational efficiencies as priorities, while noting that the current period is not directly comparable with the prior year.
Debt includes E-Core acquisition notes, including $5.75 million due October 2023, a $1.05 million Cygnet note due April 2023, a $3.5 million convertible note, and a related-party loan to the CEO. The company repaid and terminated its June 2022 senior convertible financing in October 2022. Note maturities, repayment capacity and any conversion or adjustment terms warrant attention.
Disclosure controls were deemed ineffective due to material weaknesses in segregation of duties and levels of supervision and review; management said these had not been remediated and planned steps by fiscal year-end 2023, as resources allow. The filing also says the company had not filed a required amendment to a November 2022 Form 8-K concerning an acquired significant subsidiary’s audited financial statements, and anticipated filing it by February 28, 2023. The cover page marks “No” for having filed all required Exchange Act reports during the preceding 12 months.
Other disclosed risks include uncertainty in regulation of hemp-derived cannabinoids and possible impacts of COVID-related disruption. The company reported no pending legal proceeding expected to have a material adverse effect. It furnished no numerical guidance.
Most important facts for investors to verify
- Whether the required Form 8-K amendment was filed and whether the company is current in its SEC reporting obligations.
- Whether the $8.5 million Bloomios reserve adequately reflects collectability and valuation risk for the sale consideration, including debt and preferred securities.
- Near-term debt maturities, cash needs and the basis for management’s 12-month liquidity assertion, given lower cash and working capital and increased notes payable.
- How much revenue and profitability are organic versus acquired, and whether management’s expected advertising, margin and distribution-cost improvements materialize.
- Progress remediating the disclosed material weaknesses and whether internal-control deficiencies create heightened reporting risk.