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Cosmos Health Inc. (COSM)·Q2 2023 Earnings Summary

Executive Summary

  • Revenue declined 6.4% year over year to $12.36M, with FX headwinds and discounted nutraceutical sales reducing gross profit to $0.95M (gross margin 7.7%) .
  • Net loss improved year over year to $(0.98)M from $(1.24)M; adjusted net income turned positive to $0.16M versus a $(0.27)M loss last year, and H1 adjusted net income surpassed $3.0M, reflecting debt extinguishment gains and a bargain purchase gain from Cana .
  • Strategic M&A and network expansion were catalysts: closed Cana Laboratories (bargain purchase gain $1.63M), acquired the Bikas distribution network (~50 pharmacies; >$10M expected annual revenue), and advanced obesity R&D (CCX0722) toward trials in Q4 2023 .
  • Balance sheet quality improved: property & equipment rose to $10.69M; total equity increased to $43.67M; book value per share exceeds $4.04 per management, while H1 operating cash outflows were significant at $(12.06)M, warranting liquidity attention .

What Went Well and What Went Wrong

What Went Well

  • Adjusted profitability: Adjusted net income of $0.16M in Q2 (vs. $(0.27)M) and H1 adjusted net income above $3.0M; CEO highlighted “positive Adjusted EBITDA… and positive Adjusted Net Income” .
  • Strategic expansion: Closed Cana acquisition (EU GMP-certified manufacturer), acquired Bikas network (~50 pharmacies), and purchased CosmoFarm’s building to automate operations via ROWA robotics .
  • Capital structure progress: Debt extinguishment gains and reduced lines of credit and notes payable versus YE22 improved financing profile and equity/assets ratio (>60%) per management .

What Went Wrong

  • Gross margin compression: Gross profit fell 49% YoY; nutraceutical discounting to reduce Medihelm receivables hurt margins (gross margin 7.7% vs. 14.0% LY) .
  • OpEx inflation: Operating expenses nearly doubled YoY, driven by management compensation, bonuses, stock-based comp, and marketing, producing $(2.58)M operating loss .
  • Liquidity burn: H1 operating cash flow was $(12.06)M; cash fell to $2.23M from $20.75M YE22, reflecting supplier payments and prepayments for nutraceutical production .

Financial Results

MetricQ2 2022Q1 2023Q2 2023
Revenue ($)$13,208,504 $12,349,777 $12,363,429
Gross Profit ($)$1,845,872 $957,077 $946,834
Operating Income (Loss) ($)$(74,363) $(2,651,172) $(2,576,465)
Net Income (Loss) ($)$(1,241,256) $(459,863) $(981,530)
Diluted EPS ($)$(23.37) $(0.04) $(0.09)
MarginQ2 2022Q1 2023Q2 2023
Gross Margin %14.0% (1,845,872 ÷ 13,208,504) 7.7% (957,077 ÷ 12,349,777) 7.7% (946,834 ÷ 12,363,429)
Net Income Margin %(9.4%) (−1,241,256 ÷ 13,208,504) (3.7%) (−459,863 ÷ 12,349,777) (7.9%) (−981,530 ÷ 12,363,429)

Non-GAAP KPIs (per press release)

KPIQ2 2022Q2 2023
Adjusted EBITDA ($)$299,763 $232,044
Adjusted Net Income ($)$(270,443) $156,007
Adjusted EPS ($)$(0.35) $0.01

Geographic Revenue

CountryQ2 2022Q2 2023
Greece$13,152,257 $11,582,138
UK$40,831 $745,664
Cyprus$0 $35,333
USA$0 $294
Croatia$15,416 $0
Total$13,208,504 $12,363,429

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
All metricsFY 2023None disclosed None disclosed N/A

Note: Neither the Q2 press release nor the Q2 10-Q provided quantitative guidance ranges .

Earnings Call Themes & Trends

(No Q2 2023 call transcript was found in our document catalog; themes derived from 10-Q MD&A and press release.)

TopicPrevious Mentions (Q1 2023)Current Period (Q2 2023)Trend
FX/macro headwindsFX negatively impacted revenue and margins FX/price pressures continued; Greece revenue down; UK expanded Persistent
Nutraceutical performance/receivablesDiscounting SPL to reduce receivables hurt gross margin Continued margin pressure from discounted sales tied to Medihelm variable consideration Stabilizing efforts; margin still pressured
M&A/vertical integrationZipDoctor definitive agreement; Cana SPA signed Closed Cana (bargain gain $1.63M); acquired Bikas network; CosmoFarm building purchase Accelerating integration
R&D/obesity (CCX0722)R&D agreements; program pipeline CCX0722 phase 2 milestone; trials scheduled Q4 2023 Advancing
Balance sheet/liquidityDebt extinguishment; cash down from YE22 Cash $2.23M; H1 OCF $(12.06)M; lines of credit reduced vs YE22 Liquidity tighter; financing mix improved
Regulatory/legalOngoing minor matters; no material impact Similar disclosure; no material impact Stable

Management Commentary

  • CEO: “We delivered solid financial results in Q2 2023. Adjusted EBITDA was once again positive… and we also generated positive Adjusted Net Income… the first half of 2023 has been particularly strong… Adjusted Net Income increasing by 3550%” .
  • Strategy: Focus on “creating synergies, improving operational efficiency, pursuing vertical integration, investing in innovative R&D, expanding our brands, and strategically growing our distribution network and facilities on a global scale” .
  • Balance sheet quality: Management emphasized “stockholder equity to asset ratio in excess of 60%… book value per share exceeds $4.04” .

Q&A Highlights

  • No Q2 2023 earnings call transcript was available in our document catalog; therefore, no Q&A details or clarifications can be provided.

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 2023 EPS and revenue was unavailable during this session; estimate comparisons are omitted. If needed, we can refresh and add a comparison once S&P Global access is available.

Key Takeaways for Investors

  • Margin recovery is the key swing factor: gross margin fell to ~7.7% on discounted nutraceutical sales to manage receivables; stabilization of Medihelm variable consideration and mix shift could improve margins .
  • Non-GAAP inflection: positive adjusted net income and sustained adjusted EBITDA signal operating resilience despite GAAP margin pressure; monitor sustainability post one-time gains (debt extinguishment, bargain purchase) .
  • M&A integration is a core catalyst: Cana’s EU-GMP manufacturing and Bikas’ pharmacy network (>50 locations, >$10M expected revenue) should bolster scale and vertical integration, offering cost and distribution advantages .
  • Liquidity discipline required: H1 operating cash outflows $(12.06)M and cash $2.23M highlight working-capital intensity; watch lines of credit usage and equity financing (July 2023 raise ~$5.25M gross) for runway and dilution .
  • Geographic mix is shifting: Greece remains dominant but UK growth is notable ($746K Q2 2023); expanding e-commerce and export channels could diversify revenue and reduce FX/macro concentration risk .
  • Near-term trading: stock sensitivity likely to headlines on R&D trial initiation (CCX0722), further debt reduction, and margin updates; medium-term thesis hinges on successful integration of Cana/Bikas and nutraceutical brand scale-up .