Good day and welcome to the Upexi, Inc. 2023 Fiscal Year End Financial Results Conference Call. Please note that today's call is being recorded. We will also be having a brief question-and-answer session. I would now like to turn the conference over to Valter Pinto, Managing Director at KCSA Strategic Communications. Please go ahead.

Thank you, operator. Good evening and welcome everyone to Upexi 2023 fiscal year end 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 Securities 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 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 this 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 that may be different from non-GAAP financial measures used by other companies. A 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, Alan Marshall.

Thank you, and welcome to our 2023 fiscal full year financial results conference call. We're extremely happy with where we ended 2023, which proved to be a difficult environment to navigate. We were able to grow despite exponential increases in interest rates and a difficult equity market for growth companies. We successfully acquired high growth and profitable businesses while divesting and monetizing assets non-core to our long term strategy. As a result, we have emerged as a high growth ecommerce and re-commerce retailer. We're not just a brand in our ecosystem driven by data and AI integrates popular brands, robust distribution channels, and first-class partnerships such as Disney that, in our opinion, is uniquely transforming the way retailers operate. This business model positions us well for continued margin expansion while providing a path to further cash flow and significant revenue growth year-over-year. Let me begin with our ecommerce brands in a non-discretionary sector of health, wellness, pet, and educational toys. VitaMetica, our health and wellness brand purchased in late 2021 has been a stable growth driver for our business since acquisition. The product line has experienced organic growth of 88% since acquisition. This is a perfect example of us executing on our business model. With VitaMetica, we successfully purchased an already growing brand, optimized its sales performance, and expanded its margin year-over-year. We expect growth to further accelerate as we launch new complementary products like acne treatment later this year. We acquired Lucky Tail in August 2022, providing us with an interest in the pet category through unique products sold via Amazon and direct-to-consumer. While the existing Lucky Tail product line continues to perform, true to our model, we recently launched a complementary product line of all-natural pet supplements. We are offering these via subscription and in bundles, delivering more value to our loyal pet owner customers. This launch is the first of many planned Lucky Tail product launches, which we expect will solidify the brand as a top source connecting pet parents with their pet care needs. In October 2022, we acquired Tytan Tiles, our popular children's educational toy brand. We initially launched Tytan in 1,900 Walmart stores and quickly outpaced our initial sales projections. We currently are available in over 3,900 Walmart stores, with several other big-box retailers currently carrying the products and pushing for even more in 2024. Growth of retail is complemented by Tytan's licensing agreement with Disney and its brands, including Frozen, Lion King, and Toy Story. We will be developing and launching new branded products under this agreement. We plan for these products to be launched on Amazon direct-to-consumer and then through Upexi's Big Box retail channels within this initial launch plan for the 2023 holiday season. You will notice commonality across each brand strategy. Each is uniquely positioned in high growth markets with an existing revenue stream, cash flow, and customer base. From an operating perspective, we have successfully incorporated synergies to manage expenses and maximize margins. And from a growth perspective, we bolt on additional distribution channels by leveraging our existing relationships to add new complementary SKU offerings to increase our API value over time. Now I'll turn to re-commerce. In April 2022, we acquired a 55% interest in Cygnet Online, a high volume re-commerce provider with 1,200 active SKUs of branded OTC products. In April, we acquired the remaining 45% in interest in Cygnet, solidifying our Upexi Amazon re-commerce strategy for the future while reducing the overall cost and structure for the business. Closing the deal early offered significant savings and the opportunity to purchase Cygnet at a discount to next year's overall anticipated costs. As part of our acquisition strategy of Tytan Tiles brand in October 2022, we acquired E-Core Technologies and NET, Inc. And in addition to selling Tytan Tiles, it is also the re-commerce provider of overstocked and discontinued merchandise for hundreds of retailers. Revenues for brands and re-commerce in 2023 was $80.7 million, an increase of 250% year-over-year compared to $23.1 million for the same period in the prior year. We remain on track for our year-end guidance and have seen strength in our business to start our first quarter of 2024. Revenues look on track to be our biggest quarter in the company's history, and we are hopeful this continues in the quarters to come. As announced, we have sold our Interactive Offers division and taken back our in-house manufacturing business due to the defaulted payments of Bloomios. The sale of IO was necessary in today's market as growth capital was not available for the investments needed to recognize the future value we saw with IO. The sale also eliminates the monthly losses and makes the overall company more profitable immediately. The defaulted Bloomios transaction was obviously disappointing, but we remain committed to continuing our manufacturing business and will push to monetize that business while utilizing the low cost of our manufacturing to drive higher margins on some of our products. The company today is on a more focused business trajectory and will continue to push for growth and profitability for the future. I will now pass the call over to Upexi's CFO, Andrew Norstrud, to discuss our financial results in more detail.

Thank you, Allan. In accordance with the rules regarding the presentation of discontinued operations, the assets, liabilities, and activities of Infusionz, along with certain manufacturing operations and Interactive Offers, have been reclassified as discontinued operations for all periods presented. The reclassification of Infusionz and related operations along with Interactive's reduced our sales by approximately $4.066 million and $21.520 million for the years 2023 and 2022 respectively, and is excluded from the following comparison of operations during the years ended June 30, 2023, and 2022. Revenue increased by $57.611 million or 250% for the fiscal year ended June 30, 2023, compared with the fiscal year ended June 30, 2022. $41.041 million or 71% of the increase was related to the acquisitions of the Lucky Tail brand and E-Core Technologies, Inc., the 2023 acquisitions, and approximately 33% or $18.848 million was related to the acquisitions of Cygnet Online, LLC and VitaMetica, the 2022 acquisitions. Compared to the prior year period, this was offset by a decline in other businesses of approximately 4%. Cost of revenue increased by $38.922 million or 475% compared to the fiscal year ended June 30, 2022. $31.144 million of this or 88% of the increase was related to the 2023 acquisitions and approximately $8.640 million or 22% was related to the 2022 acquisitions. The gross profit overall increased by $18.688 million. The gross margin declined by approximately 22% to 42% compared to 64% in the prior year, which was related to the sales from the re-commerce business versus the sales of branded products. Management expects the gross margin to improve as the branded product segment continues to grow as a percentage of the overall sales and we continue to gain economies of scale in our purchasing of products. Sales and marketing expense increased by approximately $5.259 million, or 103% compared to the same period last year. $2.396 million of this or 46% of the increase was related to the 2023 acquisitions, and fractionally $1.373 million of this increase, or 26% was related to the 2022 acquisitions. There was an increase of approximately $1.4 million or 28% related to the other businesses. The increase in sales and marketing was primarily related to the acquisitions and increased expenditures for brand and company awareness. However, management has aligned the marketing expenditures with expected growth strategies to decrease the overall percentage of sales and marketing costs. Distribution costs increased by $10.155 million or 459,000 compared to the same period last year. $1.850 million or 18% of this increase was related to the 2023 acquisitions, and approximately $7.306 million or 72% of the increase related to the 2022 acquisitions and the rest of the business. There continues to be an increase in transportation costs and third-party provider rates. Management has implemented strategies to change promotions, increase prices, and adjust packaging overall to decrease the distribution costs to sales, and is in the process of consolidating distribution centers, including closing the California facility as of July 1, 2023. General and administrative expenses increased by approximately $400,000 or 4% compared to the prior year. General and administrative expenses increased by $2.332 million from 2023 acquisitions, while the remainder of the business saw a decrease in general and administrative expenses of approximately $1.928 million. Management has actively been reducing general and administrative costs by consolidating administrative functions and capitalizing on the overall size of the company. Management will continue to implement these strategies to decrease the percentage of general and administrative expenses when compared to total sales. Other operating expenses increased by $3.9 million or 80% when compared to the same period as last year. These expenses are primarily non-cash expenses and increased based on intangible assets created with the acquisitions and continued amortization of stock compensation. $1.612 million or 41% was related to the 2023 acquisitions of acquired intangible assets and $1.616 million or 41% of the increase was related to the 2022 acquisitions and amortization of acquisition intangible assets. The remaining increase of approximately $700,000 was related to increased stock-based compensation and depreciation. Other expenses increased by approximately $11 million, which is primarily the loss recognized on the sale of the Infusionz and related assets, the reserves against the amounts owed to the company from the buyers, the impairment of Interactive Offers intangible assets, and an increase in interest expense, both on acquisition debt and the termination of the $15 million senior debt facility on October 1, 2022. Management estimates the cash paid for interest for the year ended June 30, 2024, to be approximately $1.4 million. The loss from discontinued operations of Interactive Offers was $1.729 million and $1.160 million for the years ended June 30, 2023, and 2022 respectively. The loss from discontinued operations of Infusionz and the related businesses was approximately $338,000 for the year ended June 30, 2023, and income of $4.9 million for the year ended June 30, 2022. The company had net losses of approximately $16.930 million compared to net losses of approximately $2.1 million in the prior year. The increase in net losses is primarily related to the above-mentioned items which were offset by the net loss attributed to the non-controlling interest of our consolidated subsidiaries. On June 30, 2023, the company had cash of approximately $4.4 million, working capital of $5.8 million, and availability on the line of credit of $6 million. And on September 30, 2023, the line had over $9.8 million of availability.

At this time, I'd like to open up the call for questions. One moment please while we poll for questions. Thank you. Our first question is from Aaron Grey with Alliance Global. Please proceed with your question.

Hi, good evening. And thank you for the questions tonight, guys. So first one for me is, I want to talk a little bit about the fiscal 4Q. So just based off of our model, it looks like revenue was a little bit softer in the quarter. Looks like that was deliberate because profitability improved pretty meaningfully. So can you just talk about some of the dynamics of this specifically to 4Q? And EBIT came in well above our expectations, despite the lower revenue. So was there some lower margin revenue that you bypassed? If you can kind of walk through some of the puts and takes there in the fourth quarter, that'd be appreciated? Thank you.

Hey, Aaron, it's Allan Marshall. A lot of things are changing in the market, especially with all the changes. So Amazon taking product in was much slower. Usually, we could turn product in there in a week. It's been 3, 4, 5 weeks, sometimes in some locations. So I think that's just a result of a lot of companies cutting back on what they have available — available people, available staff, making all those changes. So some of the revenue got pushed forward. The overall profitability is just, we've been really working on, as we talked about, it's on cutting costs, still going on, like we cut the California facility. We got a lot of smaller opportunities to really increase profitability here going forward. So in general, we did see a little softness in June. We didn't expect at the beginning of June, but then it really kind of picked up in July which is why we're pretty comfortable with what we projected for the next quarter.

Yeah, no, that's great too. So yeah, if I'm right, 4Q looks like you got an 8% EBITDA margin, which is tracking ahead of what you guys had for your guidance before. It sounds like you still got some more levers to pull in terms of the efficiency levers there. So that's great to hear.

Yeah, we're on track on — hopefully on track. It just takes a long time to kind of turn the ship around once you're switching from that kind of growth to value.

Yeah, definitely. So just in terms of the guidance, with the Bloomios business. So first of all, Bloomios, sounds like you're going to at least in the early days kind of continue operating the manufacturing versus potentially looking at other monetization options. So can you talk about if that's the case? And then secondly, is that part — when is that coming back into the P&L, as of what date and the contributions to fiscal year 1Q guidance that you just provided?

So I'll speak to the business part of it. I mean the business was kind of always ours. So it's really technically never — our manufacturing business that we keep in-house has always been maintained by us even through the Bloomios transaction just because of the issues we had. So I mean, now we'll look to expand into new business there and/or find value with that business, but because of just ongoing things between Bloomios and ourselves, we don't really want to talk too much about operations on that side. Like I can now — we can turn over to Andy here I believe. I believe it was some of the revenue within the quarter, but I'm not sure. Actually, actually none of it did. So partial revenue will be coming into this current Q. Hey, Andy, if you want to give exact dates that's great.

Yeah. One of the things that is difficult is that there are still vendors and some of the stuff that was just left open at the end of when we basically terminated the stuff with Bloomios. So the exact numbers and how much it will impact the first quarter of ours, which is this next quarter July through September, is still a little bit up in the air because we've got to clean up all that stuff and get all the reporting back to be done. But there will be — there will be some impact to the current quarter or the first quarter. There was nothing through June 30. But we'll have a slight amount. And if it changes our estimates any, we will let you know. But that's still kind of up in the air, just because of finishing out things that they left undone.

So just to clarify, so that $26 million, $27 million does not include any of the Bloomios revenues?

Right, doesn't include any Bloomios.

Okay, okay, great. All right, that's great to hear. Any color to provide on the quarter? I'm thinking, it usually comes out in the Q. But if you can provide it now in terms of the different revenue segments? What drove — I know it's down sequentially. So kind of what drove it between maybe some of the B2B like E-Core or Cygnet, or if it was more the VitaMetica that otherwise, kind of drove some of the sequential softness that we saw?

I don't — so I don't really want to call it sequential softness, just because we really haven't had all these businesses through that time, like we would. I think we spoke about this earlier, when people were like, well, maybe you could do 100. And we're still learning the customer, the cadence of some of these businesses we've purchased, finding ways to normalize that revenue, new product launches. So I do think a little bit was pushed out just because of the consumer. Like I said, it was really a little quiet early, like late May, early June, like after that. But then it started to pick back up again dramatically in July. So I don't know if it's softness or if it's just where the businesses we have right now run. But I mean, obviously, our goal is to normalize and kind of create more opportunities and just continue to grow that. So I kind of don't want to call it softness at this point, because I'm just not sure.

Yeah, no, it's fair enough. I mean, especially with the guidance you have for the first quarter kind of basically jumps back to what the run rate people - or at least I was expecting there. Okay, so…

There's a lot of things going on, right? Like there's a little — the consumer, the news, like it does affect behavior. Like I said, it really affected behavior after that said, meaning, and that may go really quiet. And then it seemed to all know all pass.

No, that makes sense. Starting to gear up now for the holiday, just touch into 4Q, right. So a lot of anticipation, given the initiatives that you guys have ongoing for that being a very nice quarter for you guys on the top line front. So everything tracking in terms of expectation with Disney, expanded brick and mortar and initiatives, you have to where you feel confident you might also see a nice boost from those initiatives come calendar 4Q, your fiscal 2Q?

We — through all our quarters, we've seen significant boosts in that quarter, even in the third and then more in the fourth. So there's nothing that tells us that's not the case right now. And obviously, we need it to be a little bit higher than the average to make what we're shooting for this fiscal year. So historically, we do have a lot of stuff lined up. And that's a big quarter for Tytan Tiles and other stuff. It's a consumer quarter. So I mean this is the time where consumer companies like us have to make our money. So we're hoping that it turns out as good or better than we think.

Okay, great to hear. I'll go and join back in the queue. Thanks for your time.

Thanks.

Thank you. This concludes our question-and-answer session. I would like to hand the conference back over to Alan Marshall for any closing remarks.

Thank you, everybody for joining the call today. Thank our team for working hard through this challenging year with all the changes, and great job everybody. We're looking to do even better here going forward into 2024. The company's really pushing for streamlined, more profitable, steady growth. So again, thank you everybody for joining the call and have a good evening.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.