NEPT - Earnings call 2 2024 | Neptune Wellness Solutions Inc.

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Operator

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

Second Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Valter Pinto, Managing Director, KCSA. Please go ahead.

Valter Pinto

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

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

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

Michael Cammarata

to XX, and everyone. fiscal appreciate XXXX call discuss September ending Thank your XXXX. participation today's you, Valter, results I Neptune's quarter in hello, second

developments. financial and today on centers operational conversation Our both

we wish foremost, evolution. strategic and to First Neptune's highlight

Our guiding company a the transformative both through phase to is deliberate. dedication strong and

of of that shareholders, best retaining strategic into its most an XX% of we conditions. majority our Sprout our stakeholders. A of Sprout Morgan subject Simultaneously, agreement move completion strategic our specific we Sprout empower to endeavor to the decisions pivotal our equity review, debt the with of made the part vital the restructuring: is strategy esteemed a operate to significant spin-out critical our Stanley shareholder its equity approval brand have of portfolio. As current interest. independently, Board's of this to unlocking a our approach full be XX% aims a to follows consent approximate redistribute Sprout's interests Neptune interest of to aspect plans to in convert potential. Neptune's to This our with continues resonate and equity. This nutraceutical Biodroga,

enhancing We costs our strategic bolstering partner supplements CPG retailers Neptune's flow. committed debt streamline financial companies role operational strengthening a to in dietary and initiative is and are to for our cash competitive anticipated spin-out and our as industry. This thereby the strength exposure, minimize the preferred

transaction. I you spin-out. of We keep the of encourage specifics will we updated importance Sprout to the finalize strategic shareholders the this understand as our

XX.X% secured required stake Inc. way XX.X%. conversion decisive consents. fortifying recognizing operation remains with both our success. only enduring strategically notes. our burdens recent proactively This more Logic, obligations journey, our in and step CCUR and strategic subject of have is position, repositioning financial positioning the also we from our the significant debt in Inc. independent our expense. Holdings, senior made fiscal for growth there Neptune is to annual equity strategic about of our turning strides in to support significantly Symbolic point, Sprout move ownership Sprout have Your both Moreover, to Neptune's enhances settled not accomplish. The and crucial but to In increasing interest This reduces entities, we a Sprout's reduces by paving prepaying for financial yet

delve first As pass I into analysis, to Nicki Sprout of Pacheco, detailed President floor will a the financial Organics. we

Billequey, Cedrick wrap then Nicki, before questions. will an insight the Following open performance; we provide Interim our Biodroga's CFO, into Gainsborg, Lisa for will and up floor

opportunities inherent to Lastly, I address want the and risks ahead.

for inherent As our are of the Stanley support planning. always, part exciting for this we parallel, more are both strategic these updates journey. exploring Stay business market and our and endeavors Neptune of Morgan bolster as of phase risks, tuned to in opportunities actively evaluating acquisitions we carry Sprout's position. In with

Nicki Pacheco

Michael. Thanks,

new Sprout accounting supply Building chain supply the over recent control. our growth quarter, addressable management During distribution strengthen Sprout our expand broaden on second SKUs further and processes continued expense made innovative the changes its and significant management chain, to market, and QX. quarters, to bolstered inventory our develop in

and achieve the significant for year million We the the over experienced of we expect to that these rest measures savings QX inventory reduce calendar of in XXXX. $X write-off of

streamlining reducing While operational life to on the and all gains made. has Sprout the be the from further seen recently further focused we've are chain on inventory already, extended and still also supply are products. we management shelf results pouch improvements as there

This management to alleviate waste aim fresh still inventory the Following reduce products conclusive pressures. across research, are help this on category. we will apply that further and also snack

sales our second on quarter, awareness. the partners with the driving continued of product with to shelf Sprout work optimize and retail to brand goal assortment During

the in are Sprout XX market placement we with considering had of when statistics targeted and focused also the acquired the on stake now of Neptune report initiatives of majority to activation. to in consumers shipping key marketing Sprout Some direct are shelf our through key states, available XXXX, in of website. These remarkable, Sprout I'm proud and coverage products all Canada XX%. Sprout Sprout included XX% just are customers especially of that market U.S. that products only

in second CoComelon popular to and lift the Target on in as snack Banana QX, organic perform X,XXX CoComelon and X,XXX States products The in XX week the Meals. pouches with Sprout Meal a is the shifting in the category. customer items, weeks had of count, national snack last impressively. particular, and while with Veggies Sprout's This products toddler through demand. I XX United Sprout's approximately The performance of CoComelon The in Sprout build #X Banana CoComelon the maintained want such doors portfolio, supermarket over has stores store distribution Meals Sprout in to significant Mart a Yes partnership, latest Sprout strategic now North performing partnership range has Butter outside categories whose PB&Yayz both of Earlier to continue United bars Canada in meals. States. In distribution sales of products such toddler expansion and Sprout's our existing XX-week nearly Up-Age chains, shows in largest was through well line doubled as and These at growth Toddler portfolio. Building with right SKU Toddler our shelves children's a Sprout are total data been well pouch year, developing Sprout reach #X snacks from with in that July, product some new addition our items we achieving in new continue the for XX-week and continued time sales innovative in nationally. as to current in bars is Walmart in through CoComelon new and highlight bar pharmacy Sprout sales in with Through stores recent as into on of XX% in recorded reached September. Sprout's its our prior our XX,XXX our baby food been the Walmart, into of baby portfolio food across XX,XXX the feature by Toddler Yes, Wafflez, with achieved the beating and continued CoComelon America. perform of category the and and In quarters, over CoComelon growing of on expansion target.com. In and additional as total and meals decision CoComelon the perform Walmart Looking unit quarter. the market average the CoComelon for the on continues and addressable partnerships and leading were Curlz including expanded the selected and popular frame. addition focused new upon WinCo items new verify versus This Target. end dollar Target, of co-branded Puffs. pouches retailers stores Peanut X the sales Sprout's and doors the unit Sprout dollar the including recent a the standouts older well line period, Nielsen into door partnership CoComelon for total Sprout doors in to has most major announced to to Save country are retail Publix. in is lines partnerships, success pouches, in pouch QX, and increases also chains Sprout in available Bars, count their that in are while the of XX.X% and that

to as investments on growth working that research demand identified our that in support categories. areas are areas We help will reallocating future high has

to this and We the we success particular products new quarters. coming have have build seen looks to forward SKUs the learnings success in product releasing most innovative further. in new lines upon where Sprout from trajectory with taken market seeking are in

detail call the our go leading business Cedrick segment brand. over BXB more turn on to nutraceuticals to into Biodroga, other I'll Next, Neptune's

Cedrick Billequey

Thank you, Nicki.

times QX. also sales mainly and a across our fish which demand in to quarters. driven while from of quarter delivered Asian stable cost-cutting chewable technology able has sales share Biodroga intended customers We've to in was Biodroga markets. for to operational for margins our the heavily products orders gained quarter, particularly fiscal Biodroga, market experienced Biodroga South of new over to strong our growth cutting second softgel achieve the last MaxSimil, replenishment have was up rebound in quarter. by strong for This capitalize strong oil, lead our Korea. picked which market consecutive were for softgel several has on-time compared Asia from continued in kids, Over streamlining second repeat customer. Margins market production stock implement on showed ensure of chewable proprietary to of shortage

supply has an of material our currently by have challenges addition, adopting subsequently addressable inventory offsetting achieve also is is chain diversify which and managed experienced which are to management revenue the price increases. market expanding growing partial executed key we total to internationally, the presence the position raw its on industry, some market prices aggressive raw potential. materials. Biodroga its material being raw measures mitigated across causing have the successfully In Biodroga

for our have South As technology. Korea with Asian established recently a mentioned, market market, MaxSimil the previously we expanded significant now as into

progressive finalizing are in well logistic We with Singapore the importation our details our products. Indian as as Taiwan also facilitate currently and discussions MaxSimil of to with partners

to in for customer for business orders over MaxSimil. I'll market growth develop contribution uptrend American to turn months, We results. This markets current and this increase Mexico the quadruple that, in with look Asian our and from to X past Lisa demand. the his MaxSimil coming for of the its quarters. And the follow Our continued customer Latin forward top saw demand further is a which increasing review coming financial line an in over to call continuing the

Lisa Gainsborg

and primarily timing the are Thank XX, you, Food decreased Neptune's X for beverage million numbers compared $X.X $X.X fiscal for ended fiscal I'm revenues for September ending quarter a in revenues the XXXX XX, GAAP. Consolidated sales comparison be of as BXB period million U.S. million, million the when everyone. X-month results to pleased totaled for nutraceutical XXXX. second period nutraceutical XXXX. the months 'XX decrease of September presenting XX, to compared September represented which 'XX, and 'XX, quarterly was decrease to million fiscal a year $X.X ended dollars to $XX net All $X.X not QX of revenue QX Cedrick, linear. to and are U.S. and in hello, financial of due

the $X.X million million The by ended from $X.X cost million reduction of of September divested consolidated decrease amounted revenues of compared addition, sales. now X-month $X.X gross period offset to a in fiscal XX, of gross of to decrease reduction for loss due profit in the QX year the to a In cannabis million 'XX, revenues XXXX, there a $X.X for was business. cannabis

of already savings As our has of key our factors to, cost the spoken management Michael the are inventory.

this. have actively place right manage and do in people ensure the and to write-offs that We to continuing experience that not we put processes we are we some prior in had quarters,

past the to Sprout's year We in costs. several have business taken our steps over manage

We QX. expect in on to see these measures full recorded savings

and and processes We tracking systems have efficient needs. also refined more understanding our are customers' ensure at more detailed forecasting accounting to

segment, leading brand, our BXB including to nutraceutical Biodroga. Moving our

throughout We of This the sales. have factors implement growth also maintained initiatives the improve the well savings Biodroga business. cost and cost behind key of we streamlining reduced continued as operational to margin have one is as

Moving year. XXXX the on million now of QX million, primarily This corporate. amounted strategic fiscal decrease to prior Consolidated benefits of to expenses $XX.X the balance $XX.X structure. due compared million sheet operating cost remain SG&A cost and continued for the to same We a to period for and is focused review our controls. improving $X.X

increased guarantor and, 'XX, with Inc. as with Sprout terms Inc. portion from million an has the for approximately positioning for a in company's payment of Neptune of improve Michael converted notes expenses, consent, full approximately $X secured Sprout Sprout removing to, spoken a we exchanged had announced successfully CCUR and August per decreasing Symbolic after third-party of principal both independent In option Sprout's trading of becoming having of exchange senior XX.X% had October, we the entity. In notes Sprout rate entities, we amount promissory bore accordance announced prepaid The into subject interest The was also fixed strategic million. of to debt Neptune's substantial $X.X XX.X%. ownership the exchange As senior Logic, equity. will Holdings, debt annum. Neptune and notes significantly secured resulting recently to the effectively Sprout in debt XX.X% Sprout the equity, in for original

loss XX, to an in public Additionally, a period change during the of adjusted EBITDA loss for $X.X million million offering the The X-month an September EBITDA loss period by ended $X.X second Neptune million. Consolidated XXXX, XX, September closed million, improvement warrants driven quarter, by of adjusted for impairment compared costs was corporate an the adjusted of to losses million. To X-month ended increased EBITDA to million $XX.X in depreciation, XXXX. of and non-employee of operational reducing focused activities and offset from a add-back savings up, loss on expenses, including reduction additional to of we SG&A the achieve $XX.X of operating comp, stock-based related $XX.X cost improvements. million, equity-classified by $X.X are expenses compensation sum $XX.X

also up remarks. improving back capital focused over now options capital. That concludes will and continuing my turn Michael. prepared to We shore position remain are call on Neptune's I to review the to

Michael Cammarata

Sprout impact Lisa. your to you, the Neptune. appreciate the you. we hand and changes Thank anticipate call proposed stakeholders' Thank now closing, I the proposal. support to forward our positively In look spin-out will to operator. over consideration of the I

Operator

[Operator the Global. Instructions] Alliance Grey comes from line Our from Aaron first of question

Aaron Grey

First at about a right? everything you're question forward. talk for on going So of looking how kind me view, holistic kind of is

So it's layman's now. kind in of terms

you side own kind to -- of Sprout and separate Biodroga, So acquisitions. to you're Neptune, then PubCo its then the looking on other spin-out and mentioned for here potential

high entities So the can there, separate level? with strategies a at you talk the potentially X about

Michael Cammarata

shareholder question. It's shifting and goal as seeing more our jump snacks growth how get opportunity, the into to be really basically optimize agile larger the really turn our looking so to other we platform enable the them CPG's expanding shifted able and Michael. opportunities. And can to strategics be with taking We're areas [ really our Sprout and companies. able hyper-focused, Sprout the in the to to brands and that that of CPG into be opportunities in and market out an current grow for Aaron. really acquire are Thanks, assets investors allowing advantage market's to looking is to we and landscape has allow I'll we're giving bases believe, down our that the some we're to we us position ] want with to take so in and that building really demand double

we've Sprout it's different globally that the brands so grow built and midsized and of footprint partner adding delivery. And huge lot the hyper-focused. then Biodroga, -- like Swansons, technologies, historically minimum. like and then they've acquired there's with are growth position lot CPG such already Nestles, of by it's use strategics the major that want partner for with because to also unlock It that opportunities actually with them XXX,XXX brands units, retailers strategically Biodroga's the in XX,XXX-unit on should have we I with strategics formulation, international those expanding can a can really a and to potentially tools with And the in and not partner to think to really as some been we customers started more out U.S., different on, buy them. And at that we've a would that the that across all the a board, looking and unique their brands those give the very that just orders so products been to minimum of we are has

really So and that able BXB into be and Biodroga prior able minimum down and enter offer we but to XX,XXX those orders. can the to the support services have being do doubled instead additional on companies, you can to having say, nutraceutical retailers to with XXX,XXX on business minimum getting hey, also hyper-focused the and that orders, products, technology and of, person, vitamins we offering

our efficient to it's able deliver to way to a dynamic very products partners. So be and

as we negative a So give we -- profitable started this opportunity Biodroga expand the want to really stat. when to Biodroga journey, had we

we've and to the profitable seeing And do also Now label. over it's request the and highly from all demand private seen retailers we're growing, the world.

but same to sheet lower that, that's give want things how our sooner, at an exiting cost get be cannabis done off opportunity And optimize of hyper really in back success, at have the the we at want do a on where to We've at best the overall how going the that expanding we and balance SG&A. we business since we're so work a for the looking the level. units drive time, can on industry, that global And structure time, can on same lot really the profitability and the we to that rolling look that we're we to are from at and mode. growth still how

Aaron Grey

I there, that color No, Michael. Great. Okay. appreciate

Sprout right? the there. about for Second growth me just talk question on So

revenue overall, sequentially I and XX% $X.X XX% It's in was the it X in million. around past average the a XX,XXX have at think Canada. But market to including prepared just $X.X when versus been remarks, in that. down XX,XXX bit said about of first the been acquired, you doors the million quarters U.S. looks before about

So in SKU the terms in how return specifics at offerings, and any to with dip to of new quarter why a we sounds like you kind product a of placement good growth? Because as it the Walmart that CoComelon mentioned lot got get some you of now well.

some color just be So appreciated. would there

Michael Cammarata

Yes.

add some can cover the lot but a add I'll bit a to stock, that the keep you and want. high, that you a very we're also, So availability have out seeing on-shelf is we've and seen we've on the if But in in little of that, we're SKUs. seen biggest Nicki, those. we in have gone thing velocities Like stocks trying of shift in of

we redundancies are We're adding in demand, Israel. of did aligning had was match with But the issues So resolving, inventory our co-manneds, small the the the the -- including production a have to co-man working we a adjusted demand. we that consumer and have and through and with our schedule. we're production we in couple that we're shifting co-manned plan consumer

and and to that We've demand able shelf lines retailers our the flying so make the cuts trying efficiently. demand So uptick of the keep snacks. to are seen to like faster we're some product from we're deliver seen more that on sure we've and minimize consumers and in off

consumer co-man production to the So we're with had our adjusting we kind couple to the deal and shift the that of the align in demand with of with. a market issues

Operator

Have be thank this We gentlemen, no Ladies questions and disconnect today. at further you. lines. for day. please call time. and ask that for Thank your lovely seems participating this a concludes to you conference you your There

Neptune Wellness Solutions (NEPTF) 15 Nov 232024 Q2 Earnings call transcript