Business Overview and History Eightco Holdings Inc. (NASDAQ: OCTO) is a diversified technology company providing comprehensive inventory management and financing solutions for e-commerce businesses. The company's core subsidiary, Forever 8 Fund, LLC ("Forever 8"), has carved out a unique niche by empowering online retailers to scale their operations through data-driven inventory optimization and capital deployment.
Eightco was originally incorporated on September 21, 2021, under the laws of the State of Nevada. On March 9, 2022, the company converted to a Delaware corporation pursuant to a plan of conversion entered into with its former parent, Vinco Ventures, Inc. Prior to its separation from Vinco Ventures in June 2022, Eightco operated three main businesses: a Web3 business that included the sale of BTC mining hardware, a packaging business that manufactures and sells custom packaging, and an inventory management solutions business under the Forever 8 brand.
The company underwent a significant transformation on June 29, 2022, when it separated from Vinco Ventures Inc. and became an independent, publicly traded company. In connection with the separation, Eightco entered into a Separation and Distribution Agreement and other agreements with Vinco to effect the separation and provide a framework for their relationship moving forward.
In October 2022, Eightco made a strategic acquisition of Forever 8 Fund, LLC, a Delaware limited liability company focused on purchasing inventory for e-commerce retailers. This acquisition solidified Forever 8 as the company's core Inventory Solution Business. Alongside this, Eightco has maintained its Packaging Business, which continues to manufacture and sell custom packaging for a variety of products.
Over the past few years, Eightco has faced several challenges, including the need to reduce corporate overhead, eliminate legacy business lines, and improve its financial condition. The company has taken proactive steps to address these issues, including reducing headcount and raising additional capital. Despite these challenges, Eightco remains focused on its core Inventory Solution Business and Packaging Business as it strives to drive growth and profitability.
It's worth noting that while Eightco previously operated a Web3 business that included the sale of BTC mining equipment and development of an NFT character set, the company has no intention of continuing this business line at present.
Financial Performance and Ratios For the fiscal year ended December 31, 2023, Eightco reported total revenues of $75.3 million, a significant increase from $31.8 million in the prior year. This remarkable 137% year-over-year growth was primarily driven by strong performance in the company's cell phone sales division, which accounted for a substantial portion of overall revenue. However, the company faced challenges in managing its cost structure, resulting in a net loss of $68.3 million for the year. Operating cash flow (OCF) was -$6.40 million, and free cash flow (FCF) was -$6.88 million for the fiscal year 2023.
In the most recent quarter (Q3 2024), Eightco reported revenue of $7.67 million, a decrease of 67.12% year-over-year. This decline was primarily due to a reduction in capital available for cell phone sales after repayment of outstanding convertible notes. Net income for the quarter was -$3.18 million, while OCF improved to $4.30 million and FCF to $4.42 million.
The company's current ratio, a measure of its ability to meet short-term obligations, stood at 0.35 as of September 30, 2024, indicating potential liquidity concerns. The quick ratio was 0.22, further highlighting the company's tight liquidity position. The debt-to-equity ratio, which stood at 1.59 as of the same date, suggests that Eightco is moderately leveraged, with room for further balance sheet optimization.
Eightco's gross profit margin for the nine months ended September 30, 2024, was 17.8%, reflecting the company's ability to generate healthy margins in its core inventory solutions business. However, the company's operating profit margin of -15.3% during the same period highlights the need for continued cost management and operational efficiency improvements.
As of September 30, 2024, Eightco had $2.41 million in cash and cash equivalents. The company also has various credit facilities available, including a $3.73 million line of credit and a $3.27 million line of credit from related parties.
Segment Performance Eightco operates in three main business segments: Inventory Management Solutions, Corrugated, and Web3 Business.
The Inventory Management Solutions segment, which includes Forever 8 Fund, LLC, generated $19.30 million in revenue for the nine months ended September 30, 2024, a decrease of 64.0% compared to the prior year period. This decrease was largely attributable to the company utilizing capital to repay its outstanding convertible notes payable. Cost of revenues for this segment decreased by 68.9% to $14.98 million, resulting in a gross profit of $4.32 million, a decrease of 17.1% year-over-year.
The Corrugated segment, which manufactures and sells custom packaging materials, generated $5.01 million in revenue for the nine months ended September 30, 2024, a decrease of 19.6% compared to the prior year period. Cost of revenues for this segment decreased by 16.4% to $3.62 million, resulting in a gross profit of $1.39 million, a decrease of 26.5% year-over-year.
The Web3 Business segment, which previously sold BTC mining equipment and developed an NFT character set, did not generate any revenue during the nine months ended September 30, 2024, as the company has no intention of continuing this business at present.
Geographic Performance Eightco's revenue is primarily generated in two main geographic regions. In 2023, North America accounted for $9.69 million or 40% of total revenue, while Europe contributed $14.62 million or 60% of total revenue.
Recent Developments and Outlook In 2024, Eightco made significant progress in strengthening its balance sheet and positioning the company for long-term growth. The company successfully regained compliance with Nasdaq's minimum bid price and stockholders' equity requirements, securing its continued listing on the exchange.
Furthermore, Eightco announced the cancellation of the earnout consideration related to its acquisition of Forever 8, a move that is expected to result in a $7 million improvement to the company's shareholders' equity. This strategic decision underscores Eightco's commitment to prioritizing financial stability and positioning the business for sustainable growth.
The company has made significant strides in improving its financial position, including the elimination of $5.4 million in convertible notes and a $23 million increase in shareholder equity during the first half of 2024.
Looking ahead, Eightco has provided guidance for 2024, forecasting revenues of approximately $100 million. The company's focus on expanding its product offerings within the refurbished Apple products market, as well as continued growth in its core inventory solutions business, are expected to drive this revenue target.
Risks and Challenges Despite the company's progress, Eightco faces several risks and challenges that investors should consider. The highly competitive nature of the e-commerce inventory management and financing space, coupled with the potential for market saturation, could impact the company's ability to maintain its competitive edge and grow market share.
Additionally, Eightco's reliance on a limited number of large customers, as well as its exposure to the broader macroeconomic conditions and supply chain disruptions, could pose risks to the company's financial performance and growth trajectory.
The company's past struggles with profitability and the need for ongoing cost optimization efforts also highlight the importance of disciplined operational execution and financial management to ensure long-term sustainability.
Eightco continues to face challenges in maintaining sufficient liquidity and capital resources to support its operations, which raises substantial doubt about its ability to continue as a going concern. The company's low current and quick ratios underscore the need for careful management of its short-term obligations and working capital.
Conclusion Eightco Holdings Inc. has positioned itself as a key player in the rapidly evolving e-commerce inventory management and financing space. Through its Forever 8 subsidiary, the company has developed a unique data-driven platform that empowers online retailers to scale their businesses more efficiently.
While the company has faced challenges in the past, Eightco's recent balance sheet improvements and strategic focus on revenue growth and profitability indicate a renewed commitment to delivering sustainable value for its shareholders. The elimination of convertible notes and increase in shareholder equity demonstrate the company's efforts to strengthen its financial foundation.
As the e-commerce industry continues to grow, Eightco's innovative solutions could position the company for continued success in the years ahead. However, the company must navigate the challenges of maintaining liquidity, managing costs, and driving growth in its core segments to achieve long-term success and profitability.