Q1 2021 Neptune Wellness Solutions Inc Earnings Call
And gentlemen, that's just the operator today's conference scheduled to begin momentarily until that time Airlines will again be placed on fault you for your patience.
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Ladies and gentlemen, thank you for standing by welcome to Neptune Wellness Inc.'s first quarter fiscal 2021 investor call.
This time all participants are now with the only about after the speakers presentation. There will be a question answer session asked a question. During this session I need to press star one on your telephone. Please be advised that today's conference is being recorded.
Your car any further please press star zero I know with him the corporate over to your first speaker today, Scott Van Winkle, you may begin good afternoon, everyone and thank you for joining us.
This afternoon, we issued a press release announcing our results for the first quarter fiscal year 2021.
Also we issued our management's discussion and analysis and consolidated financial statements.
These documents have been filed with the Canadian Securities.
Regulatory authorities are the U.S. curious commission and our database in the company's corporate website.
Before we begin I'd like to remind you that all amounts discussed today or in Canadian dollars.
Today's remarks contain forward looking information they represent our expectations as of today and accordingly are subject to change.
We do not undertake any obligation to update any forward looking statement.
Just maybe required by Canadian and U.S. Securities laws.
A number of assumptions remain biopsy preparing these forward looking statements, which are subject to risks.
Results may differ materially from what is projected and details on these risks and assumptions can be found in our filings on SEDAR and with the Securities and Exchange Commission.
Joining me on the call today, we have Michael camera, <unk>, our president and Chief Executive Officer, and Dr., Tony We're now Chief Financial Officer.
Michael will began providing a strategic and operational update and Tony will follow with a review or first quarter financial results now, let me turn the call over to Michael.
Michael.
Thank you Scott and good afternoon, everyone as we embark on a new fiscal year and a new chapter for Neptune Walnut I'm pleased to report that our first fiscal quarter revenue has totaled more than 21.3 million nearly quadruple in revenue year over year and more than doubling fourth quarter revenue a fiscal year 22.
Tony.
Additionally, we generate improvements in gross profit margin reflects increased volumes and efficiencies and this is core to our financial strategy.
This is a reflection of the hard work of our team members to remain agile and responsive to the changing market conditions. During the Kogut 19, pandemic and the rapid execution of our new product initiatives.
We have built in new Neptune with improvements across the platform in preparation for continued growth, which is being driven by fully operational cannabis enhanced business in Canada, and the United States.
As well as our health and wellness innovations in our turnkey solution business unit, we are starting to see momentum from our helped drive consumer brand and our hand sanitizer partnerships are laying the foundation for future opportunities moving into fiscal years 2021, or a shift from a deal would be extraction company.
To a fully integrated health and wellness platform with a strong b to C focus is well underway.
With now one PNM filed reporting involve our business units, we stay focused on integrated growth and market share while remaining agile in response to the market.
We will also ensure that our products on brands is supported by the best teams independent of the business unit.
Q1 was truly a turning point for our company.
Our focus for fiscal year 2021 is to execute against the strategy of a fully integrated health and wellness business. When I saw it accelerate growth building out our brains and innovations moving closer to the consumer and offering exceptional service to I b to B customers. We are building for the future with a focus on CPG.
A direct to consumer business model and enhancing our own IP.
Never before it has nephew had more opportunities to capitalize on proven health and wellness product categories, while leveraging extraction nutrition and cannabis expertise to take advantage of the plant based revolution, we are seeing expanding all around us.
Our product development and logistic capabilities that have been at the foundation of our turnkey solutions are now being leveraged across our organization, including multiple health and wellness product categories brain and innovations.
And our shift to a low cost infrastructure and scalable business model is setting our teams up for success.
Our consumer and have based products are selling across North America, while we expand our retail footprint and market share.
As more clarity developed around cannabis regulations and countries move towards legalization in the future.
We believe we can quickly scale, our brains to introduce additional cannabis products to complement our hemp and the central wireline.
We will not waste time waiting, but focus in the markets, where we can make an impact today, giving us a faster path to profitability and growth than our peers and cannabis.
Furthermore, our work with like minded established CPG companies well help to ensure that our natural and effective products can touch every room of the household from the time customers wake up in the morning until they go to bed at night.
Everything from two phase two deodorants to hand, Sanitizers and disinfecting wipes can be transformed by the anti fungal anti bacterial and moisturizing properties of the cannabinoids.
It is an opportunity to take cannabis beyond recreational consumption.
Cannabinoids in plant based ingredients or the future of CPG and we stand at the forefront through innovative partnerships in product development.
Our emerging consumer brands are currently being sold direct to consumer and through a retail partnership with Albertsons among others.
We will be launching with Amazon by Q3, and we are investing in E commerce as a way to stay close to the consumer.
Our Jane Goodall branded lines of essential oils in hand, Sanitizers were launched before the end of the year.
We are advancing our R&D for disinfecting wipes products with represent several billion dollar market opportunities and an area that needs new products and innovations to meet the demand.
In Canada, we recently announced approval of a sales license from health, Canada to sell cannabis products, including edibles extracts and topical products.
The authorization is an addition to I previously held processing license.
And proceeds the launch of our proprietary cannabis brands in Canada.
This will be sold under the brand name mood ring.
The authorization also complement our white label offering providing additional value for our b to b customers.
Our new hand, Sanitizers has emerged as an important products for our company since July our hand, Sanitizers have been sold and Cosco stores with initial distribution in the North East and South East United States, We have not yet found a ceiling fed demand in these regions and will began shipping to the Midwest.
The west coast in the coming months, all right hand, sanitizer is effective safe and provide a premier experience with a pleasant, saying an application feel.
It is essential oils, aloe Vera and fruit extract.
We currently offer six scented varieties.
Including Garden Mint Breslin.
On to best guess, Eucalyptus lavender in fresh lemon plus teacher.
We have planned to feature seasonal sent offerings in the future and we anticipate sustained demand for hand, sanitizers as consumers maintained a healthy habits and look for products that are affordable and do more than just fill a practical need.
The market for him Sanitizers is robust and we have seen dramatic growth. This year and we're very pleased with the consumer response, thus far and working diligently to keep up with demand.
On an operational side, our cold storage and additional operating space has been approved by health, Canada, and our Achterberg facility is now processing using cold ethanol given our production.
Hi operations products and customers a significant advantage.
At Sherbert, we are now processing and shipping product for all customers, including our recently announced new Hampshire extract customer we have positioned for strong growth in this new fiscal year.
We are continuing to build our leadership team and our sales organization to achieve the mission to redefine the health and wellness space.
And the new hires from the past year, or making an impact working alongside our existing and talented team.
In July Dr., Eric Garrett Canyon joined our team is director product development health and wellness innovation. He will be responsible for building our portfolio of products across personal and home care with a focus on sustainable sanitation white in hand, sanitizers among other innovations.
Eric joins Neptune from the Clorox company and his background as an organic chemistry will be an asset for our product innovations pipeline and our sustainable initiatives.
In addition to our strong leadership push we're also in the process of modernizing our infrastructure and team resources, including a potential new top tier global banking relationship that when finalized will give us improved access to capital on credit to further support our rapid growth. We've completed an equity financing in early July.
Both attracting new institutional investors and providing capital to support a rapid growth.
We are now quickly executing against our strategy and business plan and we are starting to see the results.
I look forward to sharing more updates as we send our efforts on our long term potential of our CPG offerings cannabis and B to C opportunities as we're moving closer to the consumer and redefining the health and wellness experience.
I'll now turn it over the Tony for a detailed review of our first quarter results.
Thank you Michael and good afternoon.
Everyone. It is my pleasure to join you today.
The first quarter was a strong order.
Using robot.
Sure.
That's.
Health and wellness color.
Related.
We also significantly improved gross margins.
And adventure.
Accelerated revenue growth.
Minimal additional capital investments.
Our borrowing.
Focus.
New product innovation.
It's driving higher margin.
Returns.
We.
Our capital investments over the last couple of years.
Oh.
And as Jim.
To build out our world class team.
As a support for our anticipated.
Now, let me walk the core.
Total revenues for the three month period ended June Thirtyth 2020 increased 390% to over 21 point Threemillion column free up to 4.4 million in the prior year.
On a sequential basis compared to the fourth quarter fiscal 2020.
Revenue increased 124%.
Our sales growth momentum has continued into the second quarter and we anticipate continued strong sequential and year over year growth during the second quarter.
We anticipate second quarter revenues between 28.
And 32 million once again up nearly fourfold from the prior year.
As Michael mentioned, we're very pleased.
Strong response to our hand sanitizer introduction.
And are working to keep up with demand with significant further distribution opportunities.
Please note that recipe enter fiscal 2021, we are not operating on integrated.
Across our entire health and wellness platform.
And that's reporting as a single operating business.
Rabobank segments.
Phase.
This change reflects the full integration.
Our strategies for driving consumer brands utilizing all.
Yes.
Having completed our major capital projects.
Average assets with higher volumes and focused on new innovations.
Yep.
Capital investments to support future growth.
Dr. Mark.
This is evident in the gross margin improvement.
We saw during the first for.
Gross profit for the three month period ended June Thirtyth, trendy trendy increase two to 3.3 million or 15% of revenue compared to losses.
This quarter and prior year.
We generated 4.4 million increased gross profit.
On the fourth quarter 20 training.
On 11.8 million incremental revenue, reflecting strong incremental margins approaching 40%.
This is a reflection of our ability to leverage our assets.
Our new innovations and we continue to expect gross margin improvements.
That's all volumes continue to expand.
Net loss for the three month period ended June Thirtyth trainee trendy amounted to 11.4 million.
I'm capture a net loss of 6.5 million for the three months period ended June Thirtyth trend you might change.
The decline in net loss.
The increases in exchange <unk> expenses.
Net finance costs.
Okay offset by increased gross profit.
Adjusted EBITDA loss.
4 million for the three months period ended June Thirtyth 2020.
Compared to a net loss of 3.6 million in the prior year period.
The improvement in adjusted EBITDA is mainly attributed to increase in gross profit.
Partially offset by an increase in as Jim.
Cash cash equivalents for 25.5 million June Thirtyth 2020, we recently completed a small secondary offering.
The incremental capital to support some good growth.
Tracking additional institutional investors and are in the process.
Additionally, non biden gets options for capital fund, our gold and working capital needs.
As I noted.
We have initiated second quarter revenue guidance of $28 million to $32 million.
Which reflect estimated year over year rose 342 or 390%.
The anticipated growth reflects continued strong growth across our health and wellness platform, including our new clubs short distribution as well as continued growth across our portfolio.
I'll now turn the call.
Right.
To open the lines for questions.
Operator.
Thank you as a reminder to ask a question. Please press star followed by the number one on your telephone keypad to withdraw your question. Please press the pound keep a pause for just a moment to compile the culinary roster.
Your first question comes from Gerald Ceccarelli from Cowen Your line is open.
Hi, Thanks, very much for taking the questions.
So congratulations on a really strong topline I was hoping that you could maybe just provide us with.
Raw to break down of what the contribution to sort of revenue number was this quarter and again not booking for exact amounts, but broadly speaking I mean did the bulk of this come from your extraction business or hand, sanitizer I know there I know there was a lot of branded products in there this quarter and just trying to get to get an idea.
Your mix looks like thank you.
Sure.
Maybe I take the question. Thank you very much a former for the question.
So.
All of the business units.
I've been doing Robert Fine.
This quarter so growth was true.
The health and wellness.
Yes.
We have products on to hand sanitizers.
In in that business unit, which are thermometers oximeters. So.
Old product family has been driving revenue for for that business unit.
Oh, that's more.
Your next have actually also done.
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Yes.
Has been.
I'm going along with existing customers and a new customer that we have announced.
In the prior quarter Oh.
Yes.
The bar.
Joel that business unit, which have actually.
Formed well beyond expectations in the quarter soldier actually all of the business units testing.
Doing rather well yes.
Oh, that's sort of border.
Thanks, Tony appreciate it I guess are stepping back for a second.
Do you.
Yes, we would colgate, obviously impacting foot traffic.
You do you see any impact if any on the quarter from from co bid or was it was it largely immune you know relative to what you reported just trying to think about.
If a normalized revenue number could have been even higher given the loss of foot traffic and a lot of the retail outlets. Thanks.
Yeah, I think during Q1 the opportunity for growth is there that we could have had additionally, with additional retail partners. Obviously, we are focused heavily on the club store building relationships and grocery.
There's a lot of other retailers that had shut downs, but as we Oh, we started going out additional footprint in Q2 and also expanded into the hand sanitizer starting in two Q2. So I think that there wasn't additional opportunity that was a little bit a in fact, it on some of that retailers.
But we were actually strategically positioned well after the pandemic because we started rolling out our drug store and grocery partners early and I was I focus initially.
Got it Super helpful. One more if I could squeeze you then I'm just on the adult use cannabis branding.
In Canada can you just talk about provides some more color on your plants and maybe a timeline to commercialization. Thanks.
Yeah. So we've actually been working on that for Awhile and we got our license recently.
We start to expect that I brand will start rolling out over the coming months and we expect that that will be priced appropriately for the market and we also be utilizing a lot of innovation instead of the brand mood ring would be our brand that we'll be launching in Canada.
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Thanks for the color I will hop back into the Q.
Your next question comes from Aaron Gray from Alliance Global Partners. Your line is open.
Hi, good evening and I'll second in terms of good to see the topline trends for the quarter first question for me is around the hand, Sanitizers greets you guys in Costco now a and the color in terms of starting off on the east coast and moving west well, let's get some additional color in terms of your plants support that growth either.
Internally or through partnership capabilities, and whether or not that's kind of what's running kind of going nationally. Initially and then also how that can help you to potentially add additional retailers are going to commercialize or hospital channel. Thank you.
Yeah. So we started rolling out on the East Coast basically moving away last we've had some good problems.
That we haven't found a ceiling yet.
So we're now going towards the Midwest and product will start showing up on the west coast shortly.
All regions, we have yet to find a ceiling when it comes to the hand, Sanitizers a and we've also been focusing on additional skews God for that retail partner. In addition, we've been working with additional retailers that are starting to open back up, especially in the home repair our art market as well.
Well I like the home depots and they are that loads of that the world.
So we'll expect to see additional retail footprint growing.
We've been very uniquely focusing on increasing capacity.
And having the highest quality product than the market and I think that that's resonated, we're seeing that products are selling out that they landed in retail stores.
So as we're working with high supply chains, and I partners like I have asked a stat has been really crucial to helping increase capacity.
That is there's really been able to allow us to grab such a large share of a market that is very important not only a for our hand sanitizer business, but also for the cannabinoids, because I think that we've done something very unique as far as taking that approach getting closer to the consumer as well as looking at areas that.
Cannabinoids in research is showing us that can improve products like I talked about a little bit earlier in toothpaste deodorant 10, sanitizes in wipes, we can actually make products safer for the consumer and it that they want more tentative supplant basin cannabinoid has a unique ingredient that allow us to get there and so we're definitely increasing.
Our footprint in hand, Sanitizers it'll be evident in Q2, and we'll continue to ramp up over the quarters.
As well as not be adding disinfecting wipes shortly.
Thanks for that color that's Super helpful. And then I forgot to a question on Canada as well just as we think is the turnkey solution White label opportunity you know on top of your own a BDC initiatives that you have you know how best to think about now chapter sales license kind of allocating the resources and time between your own products is.
Well, it's kind of bringing on potential.
White label Turnkey solution partners, a and then also in terms of.
Your route to market or can you talk about how your conversation with provinces have been evolving and whether or not you plan to use your own sales team or potentially you know utilizing third party distributor to be your own kind of brand ambassador. So any plans there would be helpful. Thanks.
Yes, so we'll be rolling out our campaign for Brandon in Canada. Shortly the Providences has been well received we focus on to identifying two areas right. We want to show off lot of our innovation capabilities that the market in Canada, I haven't really had a lot of product available and so we're going to show off some innovate.
Patients at the same time, we want to be priced appropriately could we want to not only get market share from we want to bring people that were buying on the black market into legal stores. So we wanted to make sure price myself appropriate and take advantage of the opportunities as the biomass. So I think.
We have a inhouse sales team that's been working with the Providences and really we've been doing the work for the last several months even in anticipation of our sales license to be able to move fast I think that's assuming that you're going to hear a lot, especially if you listen to our ATM, Oh tomorrow and get to see all of our staff and talk about what we're working on interim previews of new products.
That would developing.
I think that that's something that's going to be evident is that Neptune is really focusing on getting that market check go into market and really focusing on increasing our margins quarter over quarter and on revenue growth quarter over quarter, and I think that the footprint that we've had right now and the low cost infrastructure compared to a lot of the Lps, It's gonna give us that acts like if you look at.
Our improvement in our gross profit and you look at just in Q1 and then he looked at Q2 and onward, you're going to see that our burn rate at very low and then we've also been working with a and hopefully we'll have this wrapped up shortly.
But a very large when the largest banks in the world to provide us credit facility and and a lot banking odd to allow us to continue supporting our massive growth both in the U.S. and Canada.
Thanks, Ben and just one last quick one just going off what are your said at the end of that and in terms of the gross margin I'm kind of evolution, it's nice to see that pick up quarter over quarter and it sounds like there's more opportunity from your commentary right. There. So.
It's a big city, there just kind of building upscale still and also in terms of mix is there anything to think about in terms of what's going to be the main driver news going forward I'm on the revenue side going forward that might you know.
Different terms or whether or not we see more or less margin expansion. So any kind of color on how we should think about that over the near term would be helpful. Thanks.
Yeah, I think as we as we move more closer to the consumer not only we increase in our gross profit potential and and the opportunity for profit yeah. They go out just to build more efficiency. So I think we had a state of the like facility that allows us to do multiple steps in Canada and utilizing that for our own brand.
And a lot about revenue is really going to start coming from our brands and I think that that's why we really focused on that one P.M., Alan and and hybrid margin because my brain revenue and I bring that margins are gonna be definitely more evident as we grow our our.
Margin profile as we have one of the lowest cost infrastructures and extraction.
Great. Thanks, I'll jump back in the Q.
As a reminder, if you'd like to ask a question. Please press star followed by the number one. Your next question comes from John Chisholm Databank capital markets. Your line is open.
Hi, good afternoon.
Maybe I mean, so when you provided some good color on terms of the revenue breakdown, Florida quarter. So can you didn't give us a said on the guidance you provided and how that revenue mexiscan. It shifted it looks like you've got this disagreement contract that's going to start weighing it a lot more than what it had in the first quarter.
And then I'm trying to understand to what extent the has had an entire users.
And some of those.
They had a products are going to help drive a 20 to 32 million dollar guidance.
Yeah. Thank you very much.
The question John So in terms of the guidance for for this quarter and the breakdown, we're going to see instead, we are really.
Oh treating the transition into at Neptune health and wellness, a diversified innovation company, which means that and I'm going to have a good sales mix within that guidance and I can tell you about the majority of this going forward.
You didn't have to an innovation product lines, which are you know the from Amit RC Oximeters, Eddie hand, Sanitizers and some other products I've never currently are working on they will be the revenue driver.
John going forward.
We are kind of how somebody in this company with an option you know what the call option on on cannabis for cannabis Robyn years important for us, but as the ratio and it's a fraction of overall total revenues that satisfaction and I would become a smaller just because of that.
Accelerated growth out of the Neptune innovation, a product product line.
Okay, that's very helpful and so.
Michael mentioned.
Costco as one of retailers that are the companies involved with.
And then on your most recent investor deck.
I noticed that Theres also nestle Clorox and Weber Nitroshure being let's set us as Parker they'd be it a bit more color on that that there hasn't been much talked about that previously so.
Yeah. So I'll jump in I think that that's something that's very unique about Neptune and it's going to become more and more apparent that we've been working with a lot of consumer package goods companies to really look at out cannabinoids in and innovations that and our IP play a role in the household and the health and wellness. So Clorox is obviously a company that we've been working.
With it in our turnkey solutions business, and Sam and nationally and then and there's other ones that that we're working with that that will hopefully be able to talk more about shortly.
We're really focusing on cannabis not just as they don't consumption, but how it plays a role in every single product because it's really important right now and during these times that we focus on and making sure that we work with the best partners in from the consumer package goods companies as well as the retailers because we want to make sure that when it when people look at.
That too and they know that we're focusing on from everything we do from like I. If half example, fragrances flavors to the partners that were developing products with the brands that were creating with big consumer package goods companies to the brands that were creating a internally and the innovations that we focus on on the real estate that that's the most prominent and health.
Well in this space because they they cannabis is really much more than just consumption and medical it really focuses on products that haven't been chains in decades, and the consumers. The millennials Agentes I really focusing on plant based attorney lives and so we're gonna have solutions that will be available with our partnerships and and that we're working on.
Well as.
Also with our brands that we'll be bringing to the market over the next couple of quarters. So we'll get more will provide more and more color on our relationships with the consumer package goods companies shortly and how it all ties together.
Product of consumers are using on a day to day as we move closer to the consumer.
Right. Okay. That's very helpful too and then maybe just update on the U.S. operations of sugar sugar lease in terms of.
Any revenue contribution there and just how things are progressing with sad to see be side of the angle, especially was so if you're just wondering if you're talking about costco.
And maybe that's connected with Nestle clorox and whether to buy just any insight you can get there would be helpful.
Yes, so in the U.S. a there's obviously, we're we're watching very closely the regulatory environment. We've also been able to expand capacity.
Focusing on on uses for our personal care home can beauty products that were developing so I think there's a lot of innovations that will be coming out of the state that really focus on a personal care home can you I product line up as we moved from more from B to B to really doing closer to the consumer to our brands in our current at brands that were creating with some of the biggest companies in the world.
And preparation for launch that capacity and that utilization is starting to focus on that so we're kind of looking at how they they haven't cannabinoids and how they apply to their stated they products and that's definitely we're going to see that growth.
In and North Carolina, and I'd also add that in the event that depending on how election.
And regulatory bodies or change, we're ready for several different scenarios.
And so that's why we do have a huge upside and we do have a capacity in North Carolina that we'll be able to take a first movie that market based on the regulations. So there's a couple of different things that we're focusing on in North Carolina, and it's really getting the R&D and getting closer to the consumer and working with CPG companies on developing brands.
And also working with retailers because there's a lot of retailers right now that are looking at their private label business. So I think that you'll see that a lot of IP to be will go into retailers that are looking for private labels and you'll see them alongside our own brands and and even some of our CPG partner brand. So I think we're really building a great portfolio products with par.
And is that we want to be in business with that had been around for a decade or almost 100 years. So I think that we're well positioned both in the U.S. and in Canada, and we'll continue to support those businesses.
Click here to or something in the next couple of quarters with what what you've been working all the Shirley.
Right fair statement or.
Yeah, I think it'd be a lot more and more I think you'll see more and more evidences at our products are rolling out and you can see where the manufactured and what part of their supply chain that should lead to support him.
Because I think that that's something as that cannabinoid become more prevalent in personal care home can't beauty products, we wanted to be able to support those initiatives and even into cleaning like disinfecting wipes and and hand sanitizers.
Okay, great. Thank you.
Your next question comes from Doug low from Echelon wealth partners. Your line is open.
Yes, Thanks, operator, and good afternoon, all just a couple of small housekeeping things a little Tony you again, you mentioned your Mdna.
Regarding hand, Sanitizers, the boat shortages of raw materials, including ethanol nice appropriate all and we certainly seeing some macro commentary about price escalation on raw material. There one of the inside any comments on how a global supply of those raw materials might impact your supply chain, there and how.
Global pricing trends it might impact your gross margins specifically on the hand Sanitizers space and then secondly, you have a bunch of your aligns with Lonza for a while with regard to many torture you heard Jochen you.
Cannabis oil capsules, just wonder if there's any update there on on.
The logistics the putting together production line or is there any sort of talking for Angelo sure. That's it for me thing.
Yeah. Thanks.
Well when we were rolling out the products and that's why I say that margin will grow over time, because there was components of packaging a that that no the prices where a lot higher initially and we had to fight for supply and thank God. We had I. If ask it was able to help us break down some of those barriers and supported us in initial stages.
And so our cost for a certain in.
Packaging with a lot higher in turn a component, but our <unk> costs are going down as and with our volume going up somewhere in a very good situation to see on margin improved on a quarter over quarter and continually.
And and have begun in London, Obviously were commission I mean that quite a bit and it'll be working with even more looking out for our own brand and stuff that we'll be talking a little bit more about coming.
Oh, shortly so I don't want to preempt that.
But I think that the component costs and availability I think we've gotten really good supply and redundancies that we're building when it comes to launching art <unk> personal care and beauty and home care products.
And it, particularly with the hand, Sanitizers, we could see a higher cost initially and now our cost has gone down and I've volumes going out. So we're in a good spot on that.
Thanks, Mike.
This concludes the Q any session. We thank you for joining US today you can now disconnect your lines have a great day.
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