- Earnings call transcript Q2 2023

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Operator

Good evening, ladies and gentlemen, and welcome to the Neptune Wellness Solutions Inc.

Second Quarter 2023 Earnings Call. At this time all lines are in a listen-only mode.

Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]. recorded December being XXXX. is call on XX, Friday, This conference to Valter I like the over would now KCSA. turn to Director, Pinto, Managing go Please ahead.

Valter Pinto

and of us discussed our and representing earnings conference and you measures, thus With otherwise in may to measures. in Chief operating me All investors Wellness Thank standardized amounts everyone. Michael performance call call. today business Officer; and as remarks fiscal our contain ability today Cammarata, and Officer. that are facilitate apparent joining not U.S. GAAP. period prepare Silcock, President core Solutions conference XXXX be Management highlight EBITDA our to trends on recognized, provide measure to operator, EBITDA and Neptune also are performance subject Financial Executive period, supplemental for with dollars, comparisons operating specifically from GAAP be quarter not information you, may under our order relying expenditure or of forward-looking expectations working when second today Today's solely our defined adjusted Adjusted to capital the Chief hello, for assess a financial to meet is Thank uses requirements. and today may our ongoing measure in adjusted change. EBITDA non-GAAP contains capital and budgets Raymond annual

comparable measures used financial securities with to from reliance as substitute encouraged any and comparably obligation financial of a should our Canadian statement other statements and U.S. definition isolation be may measures Our accordance their Non-GAAP required GAAP GAAP. to any to may be are non-GAAP most update measures. that including in laws. by in conjunction cautioned limited. entirety not our measures in with or in are do and EBITDA undertake differ We likely put and and by review the for be undue will companies, not not view them forward-looking Investors on disclosures peers, therefore, except adjusted prepared considered

made in turn our on Michael. public are statements, call which I'd like to to over laid were found Assumptions forward-looking SEDAR to risks preparing and out now as the these EDGAR. in filings subject

Michael Cammarata

you, everyone. our for XXXX XX, the Today, hello, Valter, Thank second XXXX. and quarter reported ended fiscal we period results September

During hard our goods strategy driven confident are baby trend our will that our work good we over mainly and continued These for by the continue. X food we baby Sprout. last products. fiscal with Sprout quarter a consumer the portfolio financial second good planet and on brand, of sales are outperforming XXXX, is is this brand we that category the consumer food now focus a our currently and organic leading growth, demonstrate company goods toddler Because in packaged results for of benefit organic consumer-branded yielding experienced that of few Organics growth. is years, a top packaged to you

product We product right is out offerings performing well go into highlights aisle now. and these Toddler made both category, successful have well of new baby a client Meals, as operational Biodroga will the new with into recently I also as relationships. new expansion of a

food is October weeks, food Gerber XXXX. the organic the last Organics Happy and the brand, Let's the to Sprout. in week X, Nielsen Baby year last growing organic X ending XX Organics. snack data, Nielsen in brand children's shelf category, our brands outpacing According start with data Sprout top of baby XX% out fastest-growing and stable

XXXX. week last October data Specifically, category. ending quarter, updated within the latest X, overall that sales data XX for grew Sprout shows XX.X% XX.X% the Nielsen versus weeks, Nielsen

data velocity fastest-growing highest X, Nielsen X the and organic last the meal XX weeks. category the data items segment. incremental week above average X, CoComelon in weeks, nationally XX% Our the above October the category average, ending snacks pouches. week October the are ending XXXX. has in highly has the turning Sprout are last all XXXX. XX% to of XX partnership Nielsen last proven selling XX weeks, CoComelon category. Pouches

quarter-over-quarter rate experienced challenges. due we sales While our growth, chain fell XX% to fill supply to everyday QX in

opportunity the of SKUs in further facility of new to this evident doors this August challenges pouches at in which a the of was is versus period Our time year. roll net first which quarter, addition our our out CoComelon caused major experienced display September, year back featuring biggest already new during for October same growth. supply the in for the we back an With up continued product fill XX% Last revenue Sprout fire Walmart were and X,XXX our a to Toddler half meals increasing second our at out stock, which to are X a catching approximate waffle stocks. as contributor in sales Stage and and increase is quarter, ingredients supplier, announced during on prior unexpectedly the the rate, up XX%. co-branded the we and

for and reached XX,XXX our doors. in from count XXX door of as than our we to X,XXX more distribution growth in nearly up terms QX store major count doubling distribution Sprout's with doubling gearing are We retailer, doors are expansion has SKU a count

largest United the supermarket market of and now retailers, Walmart Target, partnering chains chains pharmacy with States. major available in of are in We national the both XX% leading the

continues expand strengthening all website. are addressable disrupt We states the to upward now Sprout baby continues growing shipping QX, in the is potential through to show direct Sprout XX and markets. aisle, expanded available beyond Canada. our also In Sprout trends, consumers in to and to food

of of its plan company's extended new and X they options Sprout's value convenient be of customer launch inception, full lifetime line toward shipping beyond have a meals revenue organic retail market size the fiscal flavors, healthy, food will in baby represents we double quarterly a includes of retailers, and disrupt more For expect time, growth able report the upcoming key and for providing since children veggies launch to The than and first big reports. older to bowls to milestone X a our already now grow. organic potential The meals, aisle. serve the penetration category, as begun category. with kid heat the children to baby Big kids and is each extend our of serving the a

revenue improvements pulling The The back saw of fiscal with million and QX a path sales recorded XXXX on exciting $X.X second Sprout saw XX%. and fiscal promotions. levels of XXXX fiscal quarter XXXX, milestones while Sprout's growth outperforming in continuation QX of We achieved. several in brand by

by management. by turnkey mix. distribution significant fluctuation made a of this as margin as half quarter XXXX. Four, the cost in and towards following of improvement key warehousing improvements XXXX, costs The plan largely as improved discounts volume We move the the level a one, of our logistics full model certain continued first expect XX increases sales was and as well improved X, effective year-over-year trade to gross in result drivers: of the November price realization with future Two, X reduced quarters of in product points. progress an the driven Three, XX% increasing. rate we

with doubling are gearing up for XXX QX X,XXX from with doubling are our $XX to doors $XXX focuses and than beverage distribution for strategy we element door accessing key respectively. cereal, estimating Sprouts in we more well organic our beverages as and the billion Nielsen count in food on a growing SKU count market As expansion size A retailer. major market of and billion of

potential. into most where continue to new we see launch the products We seek categories to relevant opportunities

food and expertise becoming with the organic partnerships Our gives toward retail the us foundational leaders and sector position beyond. leader in a

on proud the a while fiscal this over team We and of look the the forward I momentum through the cost-efficient Sprout to focused has are and business continued very Sprout within scaling second continuing in innovating also am market. food the XXXX. organic quarter way we growing

have attendance, Biodroga's and effective positive through a second launching care through This past website achieved we personal and to over implementing the translate in expect continue Steps strategies amplifying marketing and sales the and that have lines to successful Biodroga. quarter leads to by presence now our beauty continued we quarters. prior XXXX. trade fiscal brand product to increase in show was to new grow sales year Turning taken of

innovate grow new Biodroga's forward. customers, product will lines going for continued drive existing and both further and to revenue which have We

We're in making than with what's which a Our be to oil, oil also to our piece MaxSimil hope Omega-X undertake and customer to long more products will secured a and we with believe credentials Biodroga that that our the term. build studies MaxSimil products. technology popularity the continued presence to asset times MaxSimil's incredibly Biodroga a be new game-changing has products we able Biodroga ongoing successful its increase in tremendously nutraceutical seeing standard technology, whole second have we studies, quarter for them. company. demand MaxSimil will market excited been forward growth an for more also customer MaxSimil maintained is of grow to of significant strong the portfolio look absorbable for ahead X.X continues launched and biotechnology from is fish and help expand fish new of shortly. for further clinical into

consumer a particular, growth, through retail pharmacy into launches demand. positive care farmers translated continue launches during in large have Fresh Product to prior growth Remedies, chains of large Forest in we and chain have personal translated second and its Remedies expect nationwide sales week-over-week to path Sprouts, fiscal quarters Our the Time Forest into brand, quarter. XXXX, continued customer strong growth of also markets, to which

the for Forest working is in on addition, In development Neptune pipeline of new Remedies. product innovative SKUs the

to gummies Remedies Omega year, For early example, already formulation multi which the been planning we developed. for has next are launch kid Forest

new quality fiscal U.S. packaged managed so significant pillar quarter to progress Forest challenges its chain during Biodroga network and across the Biodroga been product quality partnerships profitability. softgel launched first And While made mitigate continues goods manufacturers efficiencies growth to manufacturer consumer Biodroga, ensure North have its America. to its Biodroga selections to execute on team. manufacturing and conclude, our implementing To carefully by our issues and developing new key the co streamlining sector-wide are Remedies, a QX, remains path Neptune expand over experience of a continue strong Product to these the and we we improve second aggressive cost from over in for in supply strategy saving. by

our Our growth both demonstrated progress across beverages beauty. and been personal by and foods and care has organic sales

we in best Officer, cost-intensive over will company's simplify interest We at The few on have pass well stakeholders. hard profitability and Boards be to quicker, prior on to been is to the private leadership, will there's its starting you years of as are future. By slimming say leading public at all, decisions believe successful for Raymond able light sales and growth Campbell we detail. our more consumer exiting Ray now Neptune, for and these and Neptune stakeholders. Silcock, teams discuss Thank to and results all financial our the placed last packaged the I well in our call companies, down, believe of focusing path Foods. are and as organization end businesses career the to are by has improving tunnel. Chief Diamond had we performance our that a a the finally Financial our profit on Soup to and championed finally, equity-owned the goods the us but that including were now

to join us. Ray? We have are him pleased

Raymond Silcock

fiscal The afternoon, U.S. to XXXX. you, and pleased XX, our dollars. period second for amounts am Thank I present everyone. are All Michael, quarter of in today financial three-month Neptune's ended good September XXXX. results

new largely accounting of earnings to result reporting in shareholders a and of our all like last Canadian U.S. complications to as this our stakeholders quarter. our and as First to and the for well onboarding including I'd from transition team quarter, and our The apologize other dollar were this myself. reporting sincerely delays delay as year from all, from to finance

margin sales sales divestiture on we resulted revenue rest displays, year and a the in as fiscal margins for as children's prior Neptune in to accounted existing second the year -- net last segment growth X.X% of retail this Sprouts increased quarter impairment $XX Turning pure-play gross Sprout. business, principal QX that million of partnerships of last our Consolidated that business. towards to foods sales we to the compared in the basis a QX second our into million now organic the of expect 'XX. reflects past The year. a our by key which inventory the same impact and of by XX.X where net the in there. taken beverages negative to results net a On of cannabis in well the XX% quarter locations in growth impact and Sprout decrease to becoming our same as brand decrease translated were both was for $XX improvement Walmart see the year net have QX points improved cannabis reduction we we and company, quarter offset $X X% totaled a expect past of Revenue on of beverages, $XXX,XXX co-manufacturing impact the X.X% sales effects driver X,XXX steps in net organic food principal margin growth favorable to adverse for QX. quarter same The Walmart as Sprout, growth last to of despite quarter of scale of $X.X during of over the which last foods million included more This a QX CPG sales see is the year. continued than or year total and as revenue from the in of for for brand our compared quarter. secured QX. cannabis million, from organic was This

growth $XXX,XXX same now XX% delays. decline year, to in shipping for us with Exiting of has relationships compared cannabis from QX divesting year. The operate for working well for period companies loss the as was cannabis own $XX,XXX, a to as investors, November our on against Biodroga. margins completed down by while of the Canadian corporations our on as that pursue improved and $X.X million $XXX,XXX period restrictions million revenue banks of net Gross Moving last business, last Biodroga's QX businesses. business maintains sale cannabis. was same of versus freed adversely year, who to $X.X cannabis last gross was as significant same last the focus X, the cannabis million a the with $X.X compared to more loss were our $XXX,XXX year. margin it have assets Even and/or quarter sales impacted cannabis Neptune finally, And a of QX the to XX% importantly, milestone Biodroga. assets on business a XXXX. Sprout

to our of to million, $X.X Gross of fiscal will our million corporate the year. Additionally, $XX.X assets helped the same of up loss and same to us $X.X cannabis last business of period year, sales simplification cost the last net million million model and sale versus enable an increase XX%. loss has of enable Neptune margin compared us significant a 'XX, realize for of streamline year-to-date year $X.X Year-to-date savings structure. a period amounted

$XXX,XXX, year's year loss of million gross in year's this first of on have to this cannabis 'XX. fiscal a year excluding last impairment quarter Excluding cannabis million, would inventory $X.X -- charge cannabis, excluding a margin for charge the $X.X This compares fiscal been inventory 'XX $X impairment year's year-to-date impairment million profit.

factors of first Biodroga prior particular, by to from of end was $X.X mainly period new due million also 'XX compared have year. what past in all up is as severance million prices. net revenue $X.X increase year, These QX year. was 'XX same sequentially sales largely XX.X% for sales primarily from excuse to Up-age quarter-over-quarter increased $XX.X last Meals, to Gross margin in market older in expanding these of million, and expect to related his this anticipate margin and sold. meals same key while gross already cannabis and This kids fiscal period implemented the Michael [ph] increase last Sprout fiscal the compared the of that an year-to-date of we XX% same to expanded year, product expenses compared was by the in from XX.X%. in SG&A to XX.X% to and on of -- $X.X goodwill fiscal were million QX with with names 'XX by X same volume from further the of to improved business payments, share margin percentage year. assets increased for million of categories, Sprout. footprint in the the million, diversifying totaled for by cannabis Sprouts We of quarter, was we expanded over impairment distribution a footprint -- year-to-date lead second the growth, second distribution the and to last result 'XX. higher remarks. other our for margin will improvement million of quarter Net XX.X% contributed FY Sprout towards an sales and year Biodroga in Walmart driven in This $XX.X for $X.X we fiscal last an half sorry, the Net our in higher last The that Moving into sales margin drivers XX.X% our the drivers enumerated year. prices, expanding XXXX million $XX.X gross increased period me, to our year. compared 'XX trade by related period $XX.X margins as selling million driven by costs gross improvement a was the from million $XX.X to charge loss in restructuring primarily $XX.X the and call In

had value of This last foreign $XX.X loss offset by in in a which year. we gain derivatives, adjustments. net a for of million, million million quarter fair $X.X $X.X the addition, a In currency change same of the cost to compares

and company's XXX $X.X businesses reduction from reduced the continued of payroll We or expenses, cuts corporate, XX%. the action to operating to XX, also to headcount a million at take across cost have manage have

total by million review spend pet have reduced last approximately our we our completing since annualized basis. an strategic year, admin an on fact, In $XX

have continue fiscal EBITDA end steps We our evaluate of we expenses expect and by appropriately, to additional to XXXX. all Sprout the manage to positive

well to July, with Today, Neptune $X million by Stanley. notes This entered now the $X.X cash amounts Turning Neptune In our the led Sprout into ended million. pure-play for from $XX intended becoming by on Sprout repayment hand and notes, a are amendment on quarter facility investment be million expanded The million of $XX.X balance capital hand. strategic from our shift an signified of secured expanded million promissory company from CPG million as in to possible a sheet. funds confidence a obligations. cash for the in outstanding Sprouts maximum amendment $XX.X expansion the $X.X Morgan Neptune's used growth to and towards and trajectory. working as of certain general

In we pleased July Biodroga, other raised introduced year-to-date in XXXX. year. year, rest up, amounting to and the lower sum the offering continue through with million of of costs, since gross public to promissory on equity. pattern October increased revenue, the company's me, a Sprouts our excuse expect addition, we Neptune in $X of -- gross notes this successful investors in Sprout To issued $XXX,XXX to are And core a this Sprout better brands, and progress margins proceeds

We our that, company please. fiscal I'd fiscal CPG directing With questions, the are year, to operator, to seeing improvement all and for to and a advance resources look this call as XXXX. into forward we the like now open becoming focus next

Operator

sir. [Operator you, Instructions]. Thank

go Aaron from question first ahead. Please of Grey AGP. come will Your

Aaron Grey

for the you thank and evening questions. Good

there me. some was side. one I just I for you toddler and of the supply prepared impact said on you So in waffles the guys with in believe -- terms remarks, Sprout think the first some said

us you. on and And now in have quarter? about that just confirm maybe talk much more some detail might of impact been sales can impact an Thank just how the that's resolved? So you the that, maybe then give the during had

Michael Cammarata

Michael Hey, of fill quarter Aaron, a XX% orders. we the Cammarata. The potential rate had it's of impact, the for

on So core X.X the obviously, impact was can the -- there if see X.X, it the you sales. minus you core Walmart, had out of

getting back since XX% to an up We of to the over up over and with fill goal are rate XX%.

Aaron Grey

That's helpful. Okay.

from going you XQ X,XXX extra got some to, with retail online like coming I in XXX Sounds think, guys or distribution more.

is into organic do can XX%? confirm Sprout incremental in forward distribution distribution coming about doors? that existing as your that, at that SKUs now we XX% that then we more the takes on Q. within account But more includes the calendar into -- opportunities the being have X,XXX fiscal then growth move incrementally confirm how you that, And and it have about we now Or those getting quarters can then Sprouts? that sorry, you XQ, So the incremental I'm of that then XX%, think for broader not

Michael Cammarata

Yes.

in in QX. out resets retailer, with which so be is we uptick, and are that March, would February, our So in the that particularly would ship the

Aaron Grey

do longer-term Okay. How In XX%, think right? do -- your you we you then gets for how And and then growth that thereafter? QX. about opportunities think So Sprout? to more

Michael Cammarata

Yes.

the growth focused opportunities, on heavily our obviously, we're and expansion. our increasing velocities So SKU

starting Meals, Up-age our those out to with So distribution. roll core are to our

then on distribution additional ramping something of into we that's expect have and that's that year. up we start distribution. beyond Up-age our core And SKUs, started roll Albertsons beyond the next that and Obviously, Meals, the to will coming already we additional in for white early So the Whole It's space Up-age is our have shipping retailers. Foods. existing online Meals, that, top

Aaron Grey

and with in CoComelon some update products for you of and Any be Michael. Thanks, potential how maybe some outperforming, Great. terms co-marketing, there's CoComelon know -- of I the co-branded might partnership the might maybe Okay. some that.

that So partnership? in CoComelon of any update terms

Michael Cammarata

Yes.

marketing which channel yet YouTube XXX CoComelon, the into deployed we haven't over million So even has subscribers. yet,

of and including with addition are our going distribution. our products, expanding we into the We announced them that snacks additional relationship with an

seeing partnership that an adding the we're when CoComelon. uplift SKUs the there's the over XX% of So on

our well very performing different peers have So licenses. against seeing we're who we're that

increase So XX%. an greater and uplift to have retail in proven is CoComelon that distribution is than

YouTube integrating roll our content to offerings them. market additional as do eventually the relationship and SKUs distribution. relationship we to them to we the on work channel and out And with expand expanding how product are plan then with and We as them well starting the the with the as

Aaron Grey

I'll you ahead for then me, then Thank go back into for the and that. Great. last jump And and queue. one Okay.

be the here, Raymond profitability target, by of talking EBITDA. might year on more end of XXXX fiscal Just for the about this the target

First in could year here? to assumptions look roughly the And Thank some confirm EBITDA that see just or underlying might to of in PR. guys in you. profitability target? that margin the that can I had didn't then fiscal XXXX, you be talk quarter we that the for about gross you all, you the that as reach maybe needed order sales

Raymond Silcock

is EBITDA I -- we on Yes, release. this answer our detail Ray. we'll be I'm in now ready in just to releasing not our EBITDA but that right didn't with the it question press Q because Monday, include

and right willing right so So that we're be question But and now, and 'XX, have about of full of forth. profitability date, we expectation yes, with earnings we in the not details just some sales profitability we're detail. to more to at might the sticking totally to But future be give fact in expectations. our And the with respect guiding 'XX. we expect to profitable now,

Aaron Grey

Okay, alright. Well answering thanks back the I’ll very get much for queue. color into question. and the the

Operator

[Operator Instructions].

for will kindly we disconnect questions, further you would everybody lines. the ask for conference no are there call As to like participating, and your afternoon. Neptune conclude thank to this this

Michael Cammarata

everyone. Thanks,

Neptune Wellness Solutions (NEPTF) 16 Dec 222023 Q2 Earnings call transcript