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Upexi, Inc. (NASDAQ:UPXI) - Navigating Challenges, Prioritizing Profitability
Published on September 24, 2024 | Ticker: UPXI

Upexi, Inc. (NASDAQ:UPXI) is a multi-faceted brand owner with established brands in health, wellness, pet, beauty, and other growing markets. The company has demonstrated resilience in navigating challenging market conditions, focusing on optimizing operations, investing in higher-margin brand products, and generating positive adjusted EBITDA.

Financials

For the fiscal year ended June 30, 2023, Upexi reported annual revenue of $80,676,509, a net loss of $16,930,289, annual operating cash flow of $517,697, and annual free cash flow of -$419,867. While the company faced revenue declines during the year, it made strategic decisions to prioritize profitability over top-line growth, which has started to pay off.

In the second quarter of fiscal 2024, Upexi reported revenue of $21.8 million, a decrease from $26.7 million in the same period of the previous year and $27.3 million in the first quarter of fiscal 2024. The revenue decline was primarily due to lower re-commerce revenue through both Amazon channels and wholesale. However, the company's focus on optimizing operations and investing in higher-margin brand products has started to yield positive results.

Gross Margin Improvement

Gross margin for the fiscal second quarter of 2024 was approximately 38%, consistent with the same period in the previous year and an improvement from 31.8% in the first quarter of fiscal 2024. This sequential improvement in gross margin was driven by the company's strategic shift towards its higher-margin brand products, which accounted for 35.1% of total revenue in the second quarter, up from 24% in the prior quarter.

Management Commentary

Upexi's CEO, Allan Marshall, highlighted the company's focus on optimizing and streamlining operations, investing in higher-margin brand products, and generating positive adjusted EBITDA. "The enhanced efficiencies across the business channels bolstered the margins and cash flow sequentially, with my expectation that this trending will continue in the quarters to come," said Marshall.

The company's re-commerce business, while still contributing to revenue, has been carefully managed to maintain profitability. "The re-commerce business will continue to perform, but overall, the enterprise value will be driven by the brand and their overall growth," Marshall explained. Upexi is prioritizing investments in its brand products businesses, which carry a higher margin profile through subscription revenue and the opportunity to capture a higher lifetime value of the consumer.

Recent Developments

During the second quarter, Upexi's branded product sales increased 16.7% sequentially to $7.7 million, as compared to the prior quarter of $6.6 million. The company has seen promising financial benefits from its strategy of increasing ad spend on VitaMedica and Health and Wellness to acquire and build subscription rates, which have grown approximately 5% month-over-month. Upexi is making similar investments in its other branded products, including Tytan Tiles and Lucky Tail, as they launch new product offerings.

The company's consolidation of manufacturing facilities is expected to be complete and fully operational by the end of April, with an anticipated cost savings of $450,000 to $550,000 per quarter, or a reduction of approximately $2 million annually in G&A expenses. This consolidation will not slow the company's growth initiatives, as it continues to invest in its brand businesses.

Expense Management

Upexi's CFO, Andrew Norstrud, noted that sales and marketing expenses for the fiscal second quarter of 2024 decreased 18% compared to the same period in the previous year and were approximately $160,000 lower than the first quarter ended September 30th, 2023 on higher branded product revenue. "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," Norstrud said.

General and administrative expenses for the fiscal second quarter of 2024 totaled $2.3 million, a decrease of 9% compared to the same period in the previous year. Upexi 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.

EBITDA and Net Income

Adjusted EBITDA for the fiscal second quarter of 2024 was approximately $29,000, compared to an adjusted EBITDA of approximately $557,000 for the same period in the previous year and $750,000 for the first quarter of 2024. The company had a net loss from continued operations for the fiscal second quarter of 2024 of $2.4 million, compared to net income of $2.7 million for the same period in the previous year and a net loss of $1.4 million in the first fiscal quarter of 2024.

Liquidity

As of December 31st, 2023, Upexi had cash of $1.8 million and 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.

Outlook

Looking ahead, Upexi remains committed to further expanding and enhancing its brand businesses and re-commerce segments while capitalizing on new growth opportunities and reaching higher EBITDA and cash flow positive results this year. The company's focus on optimizing operations, investing in higher-margin brand products, and managing costs has positioned it to navigate the current market challenges and drive long-term growth and value creation.

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