Upexi, Inc. (NASDAQ:UPXI) Q2 2024 Earnings Call Transcript February 14, 2024
Upexi, Inc. misses on earnings expectations. Reported EPS is $-0.1 EPS, expectations were $-0.05. UPXI isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and welcome to the Upexi Inc. Fiscal Second Quarter 2024 Financial Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Valter Pinto, Managing Director at KCSA Strategic Communications. Please go ahead.
Valter Pinto: Thank you, operator. Good evening and welcome everyone to Upexi fiscal second quarter 2024 financial results conference call. I'm joined today by Allan Marshall, Chief Executive Officer and Andrew Norstrud, Chief Financial Officer. Before we begin, I'm going to remind everyone that statements made during today's conference call may be deemed forward-looking statements within the meaning of the Safe Harbor of the Private Security Litigation Reform Act of 1995. Actual results may differ materially due to a variety of risks, uncertainties and other factors. for a detailed discussion of some of the ongoing risks and uncertainties in the company's business, I'll refer you to the press release issued this evening and filed with the SEC on form 8-K, as well as the company's reports filed periodically with the SEC.
the company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless otherwise required by law. In addition, during the course of the call, we may refer to non-GAAP financial measures that are not prepared in accordance with accounting principles generally accepted in the United States, and they may be different from non-GAAP financial measures used by other companies. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures are contained in our earnings release issued this evening, unless otherwise noted. I'd now like to turn the call over to Upexi's CEO, Allan Marshall.
Allan Marshall: Thank you, Valter. Thank you. Welcome to our fiscal second quarter 2024 financial results conference call. during the second half of 2023, we focused on optimizing and streamlining our operations, investing in our higher-margin brand products and generating positive adjusted EBITDA. The enhanced efficiencies across the business channels bolstered our margins and cash flow sequentially with my expectation that this trending will continue in the quarters to come. While revenues for the most recent fiscal second quarter decreased sequentially, the operating measures we took allowed us to increase gross profit margins to 38% as compared to the prior fiscal first quarter of 31.8%. We also generated positive adjusted EBITDA although the revenue quarter-over-quarter was down.
the revenue decreased sequentially was predominantly related to the calculated decision to reduce the risk of purchasing excess inventory in our re-commerce business and investing in our higher-margin brand business. The business is navigating challenging market conditions and being carefully managed quarter-over-quarter to achieve higher profitability while an emphasis on the high-margin recurring revenue brand businesses. the re-commerce business will continue to perform. but overall, the enterprise value will be driven by the brand and their overall growth. with capital constraints, we are prioritizing investments in our brand products businesses, which carries a higher margin profile through subscription revenue, opportunity and capturing a higher lifetime value of the consumer.
brand product sales during the second quarter increased 16.7% sequentially to $7.7 million, as compared to prior quarter of $6.6 million. branded products sales as a percentage of total revenue this quarter was 35.1% as compared to prior quarter of 24%. This growth and increase as a percentage of sales helped drive gross margins higher sequentially. Last quarter, we discussed the decision to increase our ad spend on VitaMedica and Health and Wellness to acquire and build subscription rates and increase the overall lifetime value of the products and brands with consumers. During the fiscal second quarter and into our current quarter we're in, we have seen promising financial benefits on the strategy. While we have maintained our marketing budget as a percentage of revenue, subscription revenue across health and wellness grew approximately 5% month-over-month.
A lab worker conducting a quality control check on a newly created beauty product.
The strategic investment is measured carefully every month and thus far has increased our gross margins and recurring revenue. to drive further growth, we still expect data from the acne study soon. Successful data will help increase sales significantly in a very large sticky and recurring segment of the health and wellness industry. We are making the same investments in our other branded products, including Tytan Tiles and Lucky Tail, particularly as these brands also launch new product offerings to the market. Before I hand the call over to Andy for further details regarding our financials, I'd like to provide an update on the consolidation of our manufacturing facilities. The consolidation of operations is expected to be complete and fully operational by the end of April.
The overall impact on cost savings expected to be $450,000 to $550,000 per quarter or a reduction of approximately $2 million annually in G&A expenses. Consolidation will not slow the increase for our growth initiatives as we are investing in and we anticipate this will lead to increased gross margins and overall cash flow in the coming quarters. I'd like to reiterate my confidence in our ability to drive long-term growth, innovation and value creation. We remain committed to further expanding and enhancing our brand businesses and re-commerce segments while capitalizing on new growth opportunities and reaching higher EBITDA and cash flow positive results this year. I will now pass the call over to Upexi's CFO, Andrew Norstrud to discuss our financial results in more detail.
Andrew?
Andrew Norstrud: Thank you, Allan. Revenue for the fiscal second quarter 2024 totaled $21.8 million as compared to $26.7 million for the same period in the previous year and $27.3 million for the fiscal first quarter 2024. The decrease in revenue was primarily due to lower re-commerce revenue through both Amazon channels and wholesale. brand product sales during the quarter increased 16.7% sequentially to $7.7 million as compared to $6.6 million, led by the health and beauty product categories. management will continue to focus on the development and growth of high gross margin brand product sales. Cost of revenue for the fiscal second quarter 2024 totaled $13.6 million, a decrease as compared to the $16.7 million for the same period in the previous year and $18.6 million for the fiscal first quarter 2024.
The cost of revenue decrease was primarily related to the decrease in re-commerce sales discussed above. the gross margin for the fiscal second quarter 2024 and 2023 was approximately 38% during both periods. the gross margin during the quarter increased sequentially to 38%, as compared to 31.8%. Sales and marketing expense for the fiscal second quarter 2024 decreased 18%, compared to the same period in the previous year and was approximately $160,000 lower than the first quarter ended September 30th, 2023 on higher branded product revenue. the decrease in sales and marketing expense was primarily related to management's efforts to refine sales strategies to focus on long-term recurring sales growth through subscription revenue and sales channel expansion.
Management will continue to manage the sales and marketing budget strategically for direct-to-consumer sales channels, as the company capitalizes on opportunities to take advantage of lower costs to estimate lifetime value of a customer. management believes that this strategy will yield significant returns in the next 12 months. Management anticipates its advertising expense will be reduced over time as a percentage of sales in the following quarters, which will increase overall profitability. General and administrative expenses for the fiscal second quarter 2024 totaled $2.3 million, a decrease of 9%, as compared to $2.5 million for the same period in the previous year. Management has managed its general and administrative costs and will continue to implement strategies to decrease the percentage of general and administrative costs as compared to total sales.
Adjusted EBITDA was approximately $29,000, as compared to an adjusted EBITDA of approximately $557,000 for the same period in the previous year and $750,000 for the first quarter 2024. The company had net loss from continued operations for fiscal second quarter 2024 of $2.4 million, as compared to net income of $2.7 million for the same period in the previous year, a net loss of $1.4 million in the first fiscal quarter 2024. As of December 31st, 2023, the company had cash of $1.8 million in total stockholders' equity attributable to Upexi's shareholders of approximately $25.5 million. As of February 14, 2024, there are 20,889,384 shares of common stock outstanding. At this time, I'd like to open up the call for questions. Operator?
