Neptune Reports Fiscal Second Quarter 2023 Financial Results

<br /> Neptune Reports Fiscal Second Quarter 2023 Financial Results<br />

Canada NewsWire

Fiscal Q2 2023 revenue totaled

$12 million

Sprout revenue totaled

$8.4 million

, an increase of 19% year-over-year

Reported gross profit margin was 9.2% for fiscal second quarter

Company sets goal of achieving positive Adjusted EBITDA
¹
by end of fiscal 2025

Company will host a conference call today at

4:15 p.m. (Eastern Time) Friday

, December 16, 2022, to discuss these results

LAVAL, QC

,

Dec. 16, 2022

/CNW Telbec/ – Neptune Wellness Solutions Inc. (“Neptune” or the “Company”) (NASDAQ: NEPT), a consumer-packaged goods company focused on plant-based, sustainable and purpose-driven lifestyle brands, today announced its financial and operating results for the three-month period ending

September 30, 2022

.

Neptune recorded second quarter revenue of

$12 million

driven largely by Sprout, our organic children’s food brand, which consistently shows revenue growth year-over-year and today remains a top five organic baby food brand currently outperforming the category in sales growth. In nutraceutical products, Biodroga achieved

$3.2 million

in revenue in the second quarter of fiscal 2023, a decline of 22% from the quarter ended

September 30, 2021

, primarily due to shipment timing.

Despite having mostly exited the cannabis business in the second fiscal quarter (the sale of the cannabis assets was closed on

November 9, 2022

) the Company saw only a small reduction in sales due to the strong performance of Sprout, up 19% year-over-year.

Second Quarter 2023 Financial Highlights:

Net sales for the fiscal second quarter 2023 revenue totaled

$12 million

, down from

$12.5 million

for the same period last year.
Gross profit in fiscal second quarter of

$1.1 million

compared to a gross loss of

$(1.2) million

for the same period last year.
Net loss of

$37.3 million

for second quarter compared to a net loss of

$12.1 million

in the prior comparable period in fiscal 2022.
Gross profit margin of 9.2% for fiscal second quarter compared to (9.4)% for the same period last year.

Second Quarter Events and Business Highlights:

Post quarter end,

completed the divestiture

of the cannabis assets, including the

Sherbrooke

plant and the Mood Ring and PanHash brands.
Announced

amendment and expansion of Sprout secured promissory notes

led by Morgan Stanley to expand the facility from

US$22.5 million

to a maximum of

US$37.5 million

and additional notes received of

$3.25 million

in the second quarter.
Sprout Organics distribution coverage increased to 90%.
Organic children’s food products in 27,337 doors vs 19,756 doors a year-ago, a 38% increase.
Expanded into new product categories into Up-Age meals beyond the Baby Food Aisle.

Conference Call Details:

The Company will host a conference call at

4:15 p.m. (Eastern Time) on Friday

, December 16, 2022, to discuss these results. The conference call will be webcast live and can be accessed by registering on the Events and Presentations portion of Neptune’s Investor Relations website at

www.investors.neptunewellness.com

. The webcast will be archived for approximately 90 days.

1. ADJUSTED EBITDA

Although the concept of Adjusted EBITDA is not a financial or accounting measure defined under US GAAP and it may not be comparable to other issuers, it is widely used by companies. Neptune obtains its Adjusted EBITDA measurement by adding to net loss, net finance costs (income) and depreciation and amortization, and income tax expense (recovery). Other items such as equity classified stock-based compensation, non-employee compensation related to warrants, litigation provisions, business acquisition and integration costs, signing bonuses, severances and related costs, impairment losses on non-financial assets, write-downs of non-financial assets, revaluations of derivatives, system migration, conversion and implementation, CEO directors and officers insurance, costs related to conversion from IFRS to US GAAP and other changes in fair values are also added back. The exclusion of net finance costs (income) eliminates the impact on earnings derived from non-operational activities. The exclusion of depreciation and amortization, stock-based compensation, non-employee compensation related to warrants, litigation provisions, impairment losses, write-downs revaluations of derivatives and other changes in fair values eliminates the non-cash impact, and the exclusion of acquisition costs, integration costs, signing bonuses, severance and related costs, costs related to cybersecurity and costs related to conversion from IFRS to US GAAP present the results of the on-going business. From time to time, the Company may exclude additional items if it believes doing so would result in a more effective analysis of underlying operating performance. In Q4 2022, the Company added the costs related to the conversion from IFRS to US GAAP as an adjustment to the definition of Adjusted EBITDA. Adjusting for these items does not imply they are non-recurring.

About Neptune Wellness Solutions Inc.

Headquartered in

Laval, Quebec

, Neptune is a consumer-packaged goods company with a mission to redefine health and wellness. Neptune is focused on building a portfolio of high quality, affordable consumer products in response to long-term secular trends and market demand for natural, plant-based, sustainable and purpose-driven lifestyle brands. The Company utilizes a highly flexible, cost-efficient manufacturing and supply chain infrastructure that can be scaled to quickly adapt to consumer demand and bring new products to market through its mass retail partners and e-commerce channels. For additional information, please visit:

https://neptunewellness.com/

.

Disclaimer – Safe Harbor Forward–Looking Statements

This news release contains “forward-looking information” and “forward-looking statements” (collectively, “forward-looking statements”) within the meaning of applicable securities laws. All statements, other than statements of historical fact, are forward-looking statements and are based on expectations, estimates, and projections as at the date of this news release. Any statement that involves discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”, “believes” or “intends” or variations of such words and phrases or stating that certain actions, events or results “may” or “could”, “would”, “might” or “will” be taken to occur or be achieved) are not statements of historical fact and may be forward-looking statements. In this news release, forward-looking statements include, among other things, statements with respect to the Company’s strategic review, expected cost savings, projected growth of Sprout and

Biodroga

, the success of the Company’s action plan, future increased revenues, expectations regarding expenses, cash needs, cash flow, liquidity and sources of funding, future expansion plans, initiatives and strategies of the Company, and the Company’s performance, growth initiatives, profitability, future product launches and plans and gain in market share.

These forward-looking statements are based on assumptions and estimates of management of the Company at the time such statements were made. Actual future results may differ materially as forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to materially differ from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors, among other things, include: the ability of the Company to successfully implement its strategic initiatives; implications of the COVID-19 pandemic on the Company’s operations; fluctuations in general macroeconomic conditions; fluctuations in securities markets; changing consumer habits; the ability of the Company to successfully achieve its business objectives and cost cutting plans; plans for expansion; political and social uncertainties; inability to obtain adequate insurance to cover risks and hazards; the ability of the Company to obtain financing on acceptable terms, the adequacy of our capital resources and liquidity, including but not limited to, availability of sufficient cash flow to execute our business plan (either within the expected timeframe or at all); the ability of the Company to obtain financing on acceptable terms, expectations regarding the resolution of litigation and other legal and regulatory proceedings, reviews and investigations; employee relations; and the presence of laws and regulations that may impose restrictions in the markets where the Company operates. Although the forward-looking statements contained in this news release are based upon what management of the Company believes, or believed at the time, to be reasonable assumptions, the Company cannot assure shareholders that actual results will be consistent with such forward-looking statements, as there may be other factors that cause results not to be as anticipated, estimated or intended. Readers should not place undue reliance on the forward-looking statements and information contained in this news release. The Company assumes no obligation to update the forward-looking statements of beliefs, opinions, projections, or other factors, should they change, except as required by law.

Additional information regarding these and other risks and uncertainties relating to the Company’s business are contained under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K dated

July 7, 2022

, for the year ended

March 31, 2022

.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report” or “Form 10-Q”) contains statements that are, or may be considered to be, “forward-looking statements.” Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on current beliefs, expectations or assumptions regarding the future of the business, future plans and strategies, operational results and other future conditions. All statements other than statements of historical fact included in this Form 10-Q regarding the prospects of Neptune Wellness Solutions Inc. (“Neptune”, the “Company”, “we”, “us”, or “our”) the industry or its prospects, plans, financial position or business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “plans,” “expects” or “does not expect,” “is expected,” “look forward to,” “budget,” “scheduled,” “estimates,” “forecasts,” “will continue,” “intends,” “the intent of,” “have the potential,” “anticipates,” “does not anticipate,” “believes,” “should,” “should not,” or variations of such words and phrases that indicate that certain actions, events or results “may,” “could,” “would,” “might,” or “will,” “be taken,” “occur,” or “be achieved,” or the negative of these terms or variations of them or similar terms. Furthermore, forward-looking statements may be included in various filings that the Company makes with the Securities and Exchange Commission (the “SEC”) or press releases or oral statements made by or with the approval of one of the Company’s authorized executive officers. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, it cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that predictions, forecasts, projections and other forward-looking statements will not be achieved. The Company cautions readers not to place undue reliance on these statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates and intentions expressed in such forward-looking statements. Risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, as applicable, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information and statements include, but are not limited to the risks described in Item 1A-“Risk Factors” of Part II this Form 10-Q.

Readers are cautioned not to place undue reliance on any forward-looking statements contained in this Form 10-Q, which reflect management’s opinions only as of the date hereof. Except as required by law, the Company undertakes no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures the Company makes in its reports to the SEC. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this Form 10-Q.

Risks Factors Summary

Set forth below is summary of some of the principal risks the Company faces:

our ability to successfully manage our liquidity and expenses, and continue as a going concern;
our ability to manage our supply chain effectively;
our ability to succeed at implementing cost cutting initiatives;
our ability to maintain customer relationships and demand for our products;
the impact of current and future substantial litigation, investigations and proceedings;
the overall business and economic conditions;
the potential financial opportunity of our addressable markets;
the competitive environment;
the protection of our current and future intellectual property rights;
our ability to recruit and retain the services of our key personnel;
our ability to develop commercially viable products;
our ability to pursue new business opportunities;
our ability to obtain financing on reasonable terms or at all;
our ability to integrate our acquisitions and generate synergies; and
the impact of new laws and regulations in

Canada

,

the United States

or any other jurisdiction in which we currently do or intend to do business.

PART I – FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

.

Condensed Consolidated Interim Financial Statements of

(Unaudited)

NEPTUNE WELLNESS SOLUTIONS INC.

For the three and six-month periods ended

September 30, 2022

and 2021

NEPTUNE WELLNESS SOLUTIONS INC.

Condensed Consolidated Interim Balance Sheets

(Unaudited) (in U.S. dollars)

	As at	As at
	September 30, 2022	March 31, 2022
Assets

Current assets:
Cash and cash equivalents	$1,394,603	$8,726,341
Short-term investment	17,489	19,255
Trade and other receivables	4,946,406	7,599,584
Prepaid expenses	2,876,115	3,983,427
Inventories	15,808,436	17,059,406
Assets held for sale	3,203,557	—
Total current assets	28,246,606	37,388,013

Property, plant and equipment	2,145,027	21,448,123
Operating lease right-of-use assets	2,474,370	2,295,263
Intangible assets	17,792,596	21,655,035
Goodwill	14,354,340	22,168,288
Total assets	$65,012,939	$104,954,722

Liabilities and Equity

Current liabilities:
Trade and other payables	$22,960,348	$22,700,849
Current portion of operating lease liabilities	585,536	641,698
Deferred revenues	130,464	285,004
Provisions	5,860,704	1,118,613
Liability related to warrants	2,820,025	5,570,530
Total current liabilities	32,357,077	30,316,694

Operating lease liabilities	2,343,311	2,063,421
Loans and borrowings	14,692,156	11,648,320
Other liability	24,000	88,688
Total liabilities	49,416,544	44,117,123

Shareholders’ Equity:
Share capital – without par value (8,516,894 shares issued and outstanding as of September 30, 2022; 5,560,829 shares issued and outstanding as of March 31, 2022)	321,769,905	317,051,125
Warrants	6,079,890	6,079,890
Additional paid-in capital	56,306,211	55,980,367
Accumulated other comprehensive loss	(14,307,804)	(7,814,163)
Deficit	(358,363,505)	(323,181,697)
Total equity attributable to equity holders of the Company	11,484,697	48,115,522

Non-controlling interest	4,111,698	12,722,077
Total shareholders’ equity	15,596,395	60,837,599

Commitments and contingencies
Subsequent events
Total liabilities and shareholders’ equity	$65,012,939	$104,954,722

On behalf of the Board:

/s/ Julie Philips		/s/ Michael Cammarata
Julie Philips		Michael Cammarata
Chair of the Board		President and CEO

NEPTUNE WELLNESS SOLUTIONS INC.

Condensed Consolidated Interim Statements of Loss and Comprehensive Loss

(Unaudited) (in U.S. dollars)


	Three-month periods ended		Six-month periods ended
	September 30, 2022	September 30, 2021	September 30, 2022	September 30, 2021

Revenue from sales net of excise taxes of $1,600 and $643,476 (2021 – $240,080 and $380,699)	$11,755,056	$12,309,755	$27,723,154	$22,131,395
Royalty revenues	218,731	188,593	502,920	424,660
Other revenues	13,055	20,283	32,996	41,085
Total revenues	11,986,842	12,518,631	28,259,070	22,597,140

Cost of sales other than impairment loss on inventories, net of subsidies of nil and nil (2021 – $269,210 and $931,705)	(10,878,974)	(10,681,881)	(26,965,552)	(23,082,924)
Impairment loss on inventories	—	(3,009,098)	(3,079,997)	(3,009,098)
Total Cost of sales	(10,878,974)	(13,690,979)	(30,045,549)	(26,092,022)
Gross profit (loss)	1,107,868	(1,172,348)	(1,786,479)	(3,494,882)

Research and development expenses	(207,598)	(91,110)	(422,285)	(350,776)
Selling, general and administrative expenses, net of subsidies of nil and nil (2021 – $36,306 and $100,605)	(15,907,638)	(15,447,682)	(26,461,372)	(31,462,316)
Impairment loss related to property, plant and equipment	—	(1,884,970)	—	(2,414,702)
Impairment loss on assets held for sale	(14,530,458)	—	(15,346,119)	—
Impairment loss related to goodwill	(7,570,471)	—	(7,570,471)	—
Impairment loss related to tradenames	(2,593,529)	—	(2,593,529)	—
Net gain on sale of property, plant and equipment	—	—	85,002	—
Loss from operating activities	(39,701,826)	(18,596,110)	(54,095,253)	(37,722,676)

Finance income	16	4	1,440	7,343
Finance costs	(379,007)	(458,786)	(1,295,529)	(816,902)
Loss on issuance of derivatives	—	—	(2,126,955)	—
Foreign exchange gains	4,613,545	1,501,869	6,020,830	214,482
Change in revaluation of marketable securities	—	(77,712)	—	(89,924)
Gain (loss) on revaluation of derivatives	(1,807,890)	5,528,509	7,715,810	7,461,839
	2,426,664	6,493,884	10,315,596	6,776,838
Loss before income taxes	(37,275,162)	(12,102,226)	(43,779,657)	(30,945,838)

Income tax (recovery) expense	(12,530)	154	(12,530)	(11,944)
Net loss	(37,287,692)	(12,102,072)	(43,792,187)	(30,957,782)

Other comprehensive loss
Net change in unrealized foreign currency losses on translation of net investments in foreign operations (tax effect of nil for all periods)	(3,702,162)	(2,693,068)	(6,493,641)	(716,506)
Total other comprehensive loss	(3,702,162)	(2,693,068)	(6,493,641)	(716,506)

Total comprehensive loss	$(40,989,854)	$(14,795,140)	$(50,285,828)	$(31,674,288)

Net loss attributable to:
Equity holders of the Company	$(30,897,458)	$(11,112,863)	$(35,181,808)	$(28,020,491)
Non-controlling interest	(6,390,234)	(989,209)	(8,610,379)	(2,937,291)
Net loss	$(37,287,692)	$(12,102,072)	$(43,792,187)	$(30,957,782)

Total comprehensive loss attributable to:
Equity holders of the Company	$(34,599,620)	$(13,805,931)	$(41,675,449)	$(28,736,997)
Non-controlling interest	(6,390,234)	(989,209)	(8,610,379)	(2,937,291)
Total comprehensive loss	$(40,989,854)	$(14,795,140)	$(50,285,828)	$(31,674,288)

Basic and diluted loss per share attributable to:
Equity holders of the Company	$(3.94)	$(2.33)	$(5.03)	$(5.89)
Non-controlling interest	$(0.81)	$(0.21)	$(1.23)	$(0.62)
Total loss per share	$(4.75)	$(2.54)	$(6.26)	$(6.51)

Basic and diluted weighted average number of common shares	7,842,731	4,776,381	6,996,916	4,760,620

For the three and sx-month periods ended September 30, 2022 and 2021

NEPTUNE WELLNESS SOLUTIONS INC.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited) (in U.S. dollars)

For the three and six-month periods ended

September 30, 2022

and 2021


	Six-month periods ended
	September 30, 2022	September 30, 2021

Cash flows from operating activities:
Net loss for the period	$(43,792,187)	$(30,957,782)
Adjustments:
Depreciation of property, plant and equipment	462,193	1,411,846
Non-cash lease expense	314,900	432,742
Amortization of intangible assets	952,057	1,775,889
Impairment loss on goodwill	7,570,471	—
Impairment loss on tradenames	2,593,529	—
Share-based payment	1,826,983	5,237,918
Impairment loss on inventories	3,079,997	3,009,098
Expected credit losses	133,685	1,987,134
Non-employee compensation related to warrants	—	153,650
Loss on issuance of derivatives	2,126,955	—
Net finance expense	1,294,089	809,559
Unrealized foreign exchange (gain) loss	(6,020,830)	486,852
Change in revaluation of marketable securities	—	89,924
Interest received	1,440	7,167
Interest paid	(44,784)	(391,022)
Revaluation of derivatives	(7,715,810)	(7,461,839)
Impairment loss on property, plant and equipment	—	2,414,702
Impairment loss on assets held for sale	15,346,119	—
Payment of lease liabilities	(227,107)	(145,138)
Income tax expense	12,530	11,944
Net gains from sale of property, plant and equipment	(85,002)	—
Changes in operating assets and liabilities	8,087,556	(12,426,342)
Income taxes paid	(360)	(11,944)
Net cash used in operating activities	(14,083,576)	(33,565,642)
Cash flows from investing activities:
Acquisition of property, plant and equipment	(601,743)	(524,844)
Acquisition of intangible assets	—	(436,018)
Net cash used in investing activities:	(601,743)	(960,862)
Cash flows from financing activities:
Increase in loans and borrowings, net of financing fees	3,250,000	—
Proceeds from sale of property, plant and equipment	85,002	—
Withholding taxes paid pursuant to the settlement of non-treasury RSUs	(260,034)	(978,117)
Gross proceeds from the issuance of shares and warrants through a Direct Offering	5,000,002	—
Issuance of shares and warrants costs	(465,211)	—
Proceeds from exercise of options and pre-funded warrants	65	—
Net cash provided by (used in) financing activities:	7,609,824	(978,117)
Foreign exchange loss on cash and cash equivalents	(256,243)	(13,054)
Net decrease in cash and cash equivalents	(7,331,738)	(35,517,675)
Cash and cash equivalents, beginning of period	8,726,341	59,836,889
Cash and cash equivalents as at September 30, 2022 and 2021	$1,394,603	$24,319,214

Cash and cash equivalents is comprised of:
Cash	$1,394,603	$24,319,214

NEPTUNE WELLNESS SOLUTIONS INC.

Condensed Consolidated Interim Statements of Cash Flows (continued)

(Unaudited) (in U.S. dollars)

For the three and six-month periods ended

September 30, 2022

and 2021

Supplemental cash flow disclosure:

Changes in operating assets and liabilities:

	Six-month periods ended
	September 30, 2022	September 30, 2021

Trade and other receivables	$2,519,493	$(2,749,349)
Prepaid expenses	1,107,312	(465,022)
Inventories	(1,829,027)	(1,188,778)
Trade and other payables	1,766,915	(7,067,094)
Deferred revenues	(154,540)	452,621
Provisions	4,742,091	(1,256,033)
Other liabilities	(64,688)	(152,687)
Changes in operating assets and liabilities	$8,087,556	$(12,426,342)