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spk_0: the everyone and welcome to the neptune wellness solutions the cooperated second quarter twenty twenty two earnings call today conference conferences being recorded at this time i'd like to the conference over to japan so managing director of casey as a strategic communications
spk_1: are you operator good evening everyone thank you for joining us today with the napkin well in solutions fiscal second quarter two thousand twenty two earnings conference call with me today or michael camera president and chief executive officer and randy weaver chief financial officer as a reminder all mounts discuss today or a canadian dollars no remarks made can forward looking information representing our expectations as of today maybe subject to change this conference caucuses a non i frs measures pacific we're just a that provide investors with supplemental measure of are operating operated performance and as highlight trends in our core business the may not otherwise be apparent when rely solely on i ever us financial measures benjamin also uses adjusted ebitda and order to facilitate are pretty performs comparisons from period period prepare annual operational budgets and as as or ability to meet our capital expenditure and working capital requirements read the does not recognize defined are standardized measure on your eye for us our definition of adjusted ebitda likely that differ from that used by other companies including our peers and therefore compatibility maybe limited non i frs measures should not be considered a substitute for or in isolation for measures prepared in accordance with i for us
spk_2: investors are encouraged to read your financial statements and disclosures in their entirety and are caution that to put undue reliance on non i have for us measures review them in conjunction with that but the most comparable i for us financial measures we cannot undertake any obligation to appear before looking statements except as may be required
spk_1: by canadian and us securities laws that sanctions were made in preparing the are looking statements that your subject risks as laid out in our public filings from unseat are and edgar our knowledge to turn to call over to michael
spk_3: good evening everyone and thank you for your time today i'm excited to share a number of update with you that are part of a larger grand strategy for napkin and position the company for success so much jump right in this morning we reported our fiscal second quarter twenty twenty two result the revenue for the quarter totaled fifteen play seven million a twenty seven percent increase from t one this was or third consecutive quarter of revenue growth since making the strategic pivot to focus on branded revenue we continue to make improvements to our top line as well as i gross and operating margins are scaling efforts have gained traction we reduce it spencer's across our brand and subsidiaries during the quarter or market position and product the man was better than expected and cannabis organic food and beverage and nutraceuticals with continues us on our path to profitability before we move on to our operational highlights for the quarter i would like to provide shareholders with an update on i should dick review committee through which the board in partnership with management began evaluating the copies business plan capital deployment and long term strategic recommendations to enhance shareholder value through a thorough review of the companies near term opportunities and existing operational and financial position them management develop a comprehensive action plan focus on unlocking shareholder value to the improvement of neptune tca structure as well as to the reallocation of resources toward high growth projects pero announcement the board of directors has approved the management comprehensive action plan which we have begun implementing immediately the plan includes cost cutting initiative and reorganization of the company's operations and resources toward high growth and high margin opportunities that are estimated to generate an annual cost savings of over ten million dollars us sd these measures will provide immediate and recurring cost saving positioning napkin for profitable grow and improved cash flow going for randy weaver are newly appointed and term chief financial officer was instrumental in developing his actions deaths and well elaborate on the individual measures in the financial section shortly to that and i like to welcome randy to the napkin team i feel confident that his financial expertise will be invaluable as we execute on our action plan now turn to the operational highlights from the fiscal second quarter first let's talk about canvas during the quarter cannabis continue to be a key growth driver for us as we more than doubled our canadian store count to over one thousand from four hundred dollars in a prior quarter and as such i revenue growth has excelled did in each category across moving and pain has friends are turned toward presence marks the halfway point along a path to penetrate two thousand dollar market where we operate alberta british columbia ontario and quebec representing over eighty percent of canada's total legal market following the launch of our flower our brand in the first quarter and august of this year we achieve significant growth represented by a four point seven times increase in flower say as compared to their prior quarter as consumer demand for neptune carefully selected strange who well beyond our expectations additionally we are excited to announce the launch of i mood ring they products in the territories of ontario alberta and british columbia one v product line in ontario and to wait products in lines across a burger and british columbia our new vapours feature premium strange with five hundred and ten thread cartridges and produced sustainably with biodegradable now the pieces the product leverages our patented extraction process which produces large quantities using low amount of energy we see a significant opportunity to scale the high margin products across canada which will help us meet our one million dollar see eighty per month run rate of a market is a fast growing segment of the canadian cannabis market currently the third largest category by sales in canada according to headset data we plan to continue introducing new cannabis products in the coming quarters and additional sk use within our existing product lines to scale growth last month we were granted an extraction pan which protects the process that we have developed to yeah years of find fact research with is pam we're able to life into our processes to cannabis manufactures which would expedite the time to market and improve yields and ultimately presenting an opportunity for nothing to generate additional sources of recurrent high margin revenue for years to come furthermore we see an opportunity
spk_4: to license this technology allowing us to gain exposure to developing cannabis markets such as in the united states without the need to establish operations next let's move on a nutraceuticals we've achieved a record revenue quarter for by droga are be to be supplement subsidiary this was largely driven by continue to increase in consumer demand from
spk_3: new boosting supplements as well as the launch of i recent innovations which attracted new partners like most an industry we have seen modest supply and retail price increases for our products would have been ignored by the consumer launching innovative turnkey solution products is critical for this category as our partners rely on asked to produce exciting new product to keep consumers engaged our data demonstrate that consumers are interested in eternity delivery forms as a result we have been working on and recently launched a line of vitamins price and pumps and the u s and in canada thus far the products have been well received and expected to expand our distribution over the rest of this calendar year and internet we also are proud to have recently launched a new by drug a website and have been increasing our participation at industry event to elevate by drugs his brand awareness now would send organic food and beverages we have significantly improved our market position and financial strength in the second quarter falling one the full integration of sprout to the continued expansion in the us market three the introduction to select canadian retailers and for the improvement in the supply chain despite industry wise supply chain issues we were able to manage for film it on strong consumer demand throughout the quarter and successfully expanded into hundred of new cells leading to quarter over power plant grow as mentioned in our strategic review update we have improved supply chain efficiency and reduce overall supply chain costs which will lead to gross margin improvements and improve cashflow during the quarter we started production of the cocoa melon character relating to licensing agreement with coco malin the world's leading children's entertainment brent weeks better began distributing these products by the end of year finally well we're not yet prepared to talk about the impact of yesterday today i want to make it very clear napkin cares deeply about and is committed to integrating he has three throughout all of our business we will have more to say on this topic next quarter with that i will turn over the call to randy to discuss the financial results
spk_5: they cycle person i'm thrilled to join up to management team it's an exciting time we're completing an incredible transformation in a very short period of time becoming a diversified cbc company we look ahead we have lots of opportunities a scalar brands across high growth markets cannabis nutraceuticals food and beverage
spk_2: with truly good for you products and good for the planet products now let's get into our financial results for the quarter we can discuss the operation financial action steps as well that we've recently taken too much shareholder value our second quarter two thousand and twenty two revenue was fifteen point seven million dollars that's an increase of twenty seven percent from for the revenue of twelve point four million and a decrease of thirty eight percent compared to the year ago quarter the year over year comparisons are somewhat difficult because our business transformation the decline between years was primarily driven by reduction in cover night he related products are no longer selling as well as or transition out of our be to be extraction business in favor of the current be to see
spk_5: cannabis business those declines were partially offset by an increase in food and beverage from our sprout acquisition the quarter over quarter sales growth was mainly attributable to the expansion sprout products across north american retailers and record sales from bio droga our be to be nutraceuticals business negative gross profit during the quarter was one point five million dollars including inventory impairments a three point seven million dollars related to sugar leaf and innovation operations that comparison negative gross profit a four point seven million and a year ago period and improvement of three point two million are over sixty five percent even with the inventory of impairments as to in expenses for the quarter were seventeen point eight million dollars a decrease of six hundred thousand compared to the same period of the prior year the as to in a decrease was driven by reduction in advertising these related am i warrants and other one time expenses in the comparable period partially offset by increases and salaries and benefits marketing insurance and bad debt net loss attributable to neptune for the quarter was fourteen million dollars which declined from an hour loss of twenty two million in the prop comparable comparable prior year ago period the decrease in that loss is mainly attributable to increase gross margins a decrease in as dna and a positive revaluation of derivatives adjusted ebitda lost during the quarter was nine point five million dollars and improvement of three point five million dollars versus are adjusted ebitda loss of thirteen million dollars in the comparable year ago period the improvement in the just it even does is mainly attributable to increase gross margins due to the exit from several product lines moving on to our balance sheet we enter the quarter with thirty point eight million dollars in cash on hand we expect our cash on hand to be adequate for the foreseeable future currently we have little debt all of which is subordinated and at the same time we have assets to leverage we may seek additional financing and various forms to ensure we have the right funding structure in place to support our growth trajectory in the past we have been successful with his fundraisings we expect to be successful again however there can be no assurance that will be a case of like to now talk about additional details related to the action fan coming out of neptune strategic review is michael noted the board of directors approved in his lessons for a comprehensive action related to our strategic review our plan includes custody in this is and reorganization the company's operations and focusing our resources towards high growth and high margin opportunities for estimating annual cost savings of ten million dollars us or twelve million dollars canadian we've already begun executing the saxons immediately were prioritizing bio droga sprout foods and cannabis as a key growth drivers of our business moving forward for putting all of our resources toward their success we expect each of these to contribute positively to our results with limited additional investment let's talk about bio draw the first failed rather remains a positive contributor and cornerstone to further develop our sweet of nutraceutical products which can be sold across multiple brands after a record sales quarter in queue to we plan to strengthen our brand awareness and promote new products through industry participation in driving traffic to any website sprout is also demonstrated continued progress in the two most recent quarters every me things on track with coco melon products launched by the end of this year we will continue to increase distribution of existing spell products and introduce new product offerings for implementing several initiatives to improve sprouts margins and optimizes supply chain moving on to cannabis during our strategic review we took a hard look at the right strategic direction for this part of our business over the last year or cannabis business in canada has achieved improved efficiency been steadily increase revenues says changing to branded products we are approaching goal one million dollars per month run rate which we expect we will hit and the latter part of our fiscal year we also now expected our cannabis business would limit additional investments will begin making positive contributions during the second quarter of are coming fiscal year and will be an important part of our growth strategy we plan to continue executing new product launches like the mood ring bay products and will continue expanding our full cannabis product offerings into a for canadian territories when we operate
spk_2: we're eliminating noncore operations and reallocating the most promising projects from these groups including adult forest remedies gum is an eco table to the corporate team for further evaluation and action we've implemented immediate personal reductions to streamline our operations and ensure we have the right organizational structure for the site
spk_5: the scope of our current business replacing a temporary freeze on non essential hiring these decisions remove sc in a costs will not affect the i wrote plans finally i want to emphasize that were fully committed to continuing to build a culture of improve transparency and accountability across the entire business ensuring we are positioned for success in the long term we believe this action plan least so media and recurring cost savings as well as streamlining our focus on our high margin growth opportunities and closing as we look to the remainder of or fiscal year we remain confident delivery sequential revenue growth and expect gross margins as well as adjusted ebitda to continue to untrue
spk_2: we will share a more complete outlook for the full year and comment on next fiscal year with our next quarterly call us now turn the call back over the michael thank you randy before we open a coffee questions are like to provide a bit more color on i strategy operational mission and and our vision for the future
spk_3: dine with cannabis we are rapidly expanding across canada territories and have seen outstanding consumer interest in are far products which are experiencing strong levels of the demand we attribute the success of our flower products to the unique seasonal selections we offer carefully chosen by i canvassed in this has driven quarter over quarter growth across all hi cannabis categories and as a result we're quickly approaching i one million monthly run rate for cannabis which we still believe locker by the end of this fiscal year the next important milestone for our cannabis goodness well be the successful roll out of my mood ring vapours as a result of the strong growth of our flower products today as well as the launch of our high margin mood ring a products we now anticipate a positive contribution from cannabis by the end of next fiscal year while we continue to establish i see elves at a trusted premium cannabis brand we are also building a foundation in the muttering cbd market to live very strange and forms such as mood ring and pan has cbd oil we off a building on attraction for my other health and wellness products particularly in i nutritional supplements we're leveraging
spk_4: and the most advanced delivery systems and our patented maximal technology to offer consumers flexible products such as vitamins phrase commies soft else with increased absorption and onset compared to other products maximal the key determinant within our supplement portfolio is are a mega
spk_3: three fatty acid delivery technology that uses enzymes to mimic the national human digestive system to pre digest omega three fatty acids earlier this year in a randomized triple blind crossover controlled clinical trial maximal was proven to be three point five time it's more observant than standard fish oil in addition we have established study protocol for clinical study on mac most efficacy in advancing both cbd and p c bioavailability and onset and expect patient roman to began in the coming months the results are both of these studies well alice to further salary the marketing of maximal by making additional health benefit claims and educated or distribution partners and consumers have the benefit of our product and we see significant opportunity to license national with cbd and thc particularly in the united states turning the sprout we're focusing on our efforts on establishing sprout as a leading organic baby and toddler food brand through the introduction of new product lines notably the cocoa melon product launch scheduled for the end of the year today we'll continue to generate quarter over quarter sales growth and increasingly penetrate the north american retail chains in canada we are now available and for like metro and london drugs and so be stores as i look to a napkin was twelve months ago i am extremely proud of how quickly we have implemented the strategic shift in our business strategy to a fully integrated human package good company and are approved operational performance as a result this corner the measures we're taking as part of i comprehensive action plan will further enhance our performance in financial position an annual cost savings estimated at over ten million u s de napkin continues to be focused on creating natural plant based sustainable purpose yes driven brand with truly good for you and good for the planet products we believe there is always greener healthier better way and are committed to embedding environmental and social government and all levels of our business before i conclude today prepared remarks i would like to thank our employees for the dedication and and hardware as well as think all investors and they called it for their commitment to neptune and our long term listen to deliver all natural products that neptune and it's customers can stand behind operator you may now open the line for questions
spk_0: thank you if you'd like to ask a question please signal by pressing to our one on your telephone keypad if you are using a speakerphone please make sure your mute control turned off to allow your signal to reach our equipment again press star one to ask a question and will pause for just a moment to blow everyone an opportunity to signal and our first question will come from aaron gray with the lions global partners
spk_6: i good evening and other questions and know when he wasn't bought the team i'm so first question for me i want them to cannabis business you know you get about the quarter over quarter trains are seem to highlight sprout and bowed drug or more than cannabis but was going to some a third party data in carry seems to be a doing very well quarter over quarter so just one get some your for their contract slippery about how cannabis on you know did during the quarter and then also improves your commentary on reaching the one month ah by the end of fiscal year you know get a quarter it appears that you might already be approaching that's just wondered i did a little bit for them to that commentary and then are you know last on canvas positive contribution by to keep good for two or three just want to if i it that's a gross margin we say part of those contributions just want to quit for that thank you
spk_7: when when we talk about positive contribution to the campus business we're talking about the overall operation contributing possibly to corporate overhead
spk_5: in certain you expect have positive gross margin before that are in terms of the quarter of a quarter revenue growth ah yes though the canada's businesses is continue to increase quarter over quarter in we are approaching that million dollar a month for figure
spk_7: we don't release specific data on that boat we're getting very close and i think that's why you see as changing the the forecast for when we're gonna achieve podcast positive contributions for for the cannabis business
spk_6: okay awesome stuff so that we say for operations for for cannabis been part of his birthday even as a proxy for that
spk_7: he as a proxy for that
spk_2: and i suppose that's a fair comparison yeah say i think we we certainly look at the disease that way we're looking at absorbing all of it's overhead there in the plant and the contributed positively to the corporate overhead so he that i would be a fair comparison that ugly
spk_6: okay awesome that's great to hear and into the second question for me sick mccain cameras more kind of high level topline opportunities are you know lot of movement within the mark in terms of price and pressure some the current larger market share players in a losing share you guys have been some the games it appears kind of their pride yourself the like we talked on the passengers have the opportunities for you guys gonna gain say they're allowed people seem to be using you know pricing as a lever to gain market share so as you looking to continue to build out the flower brand or and now entering mood ring with save so i see how you are now and in the marketplace and we're seeing opportunity for marscher against thank you
spk_8: i think it's really focusing on and the quality the product and i think the seasonal selection is working really well with us because we definitely see know that consumers constantly changing the requirements and and and definitely will profile is like rents and lot of my flowers they have over twenty four percent thc with of it up the three percent or more turbans so we've been really focusing on what the consumers by and flour and also looking at that profile and that tastes so think about like crap be a crafter experience in the flowers i think it's driven a lot of the man and we actually learned a lot to my missile launches and and definitely a polling in and focusing on a i think that when it comes into the babes i think that an area because of a unique pattern that we've gone and and a lot of i experience with a facility to be able to have able to have a premium margin as well as be able to to be reacted with needed but we definitely a focusing on the trend and what the consumers by even or capsules a kind of validity you and and and him in the market is actually been over perform in and are expectations and so we definitely seen that we're we're products that it can be right number one in certain areas and so i focus is really looking at that consumer and making sure that we have the right product for them as well as being very cognizant of the adoption and harvesting the
spk_7: different territories and i think deeply going to be a huge keep key for us especially because why technology and also i focus on making sure that you know we're supporting the consumer with the their goals to like were planting trees with different purchases and supple on the line and really getting connected to the consumer what that does either
spk_6: okay great thanks very much accountable and or back to the gif
spk_0: and as question will come from gerald task around with telling company
spk_9: by this is victor more on for joke as girl and thanks for taking the question or another we're halfway through this country cute you gifts and arab news or training or can tell when delivered this quarter
spk_7: could you repeat that i didn't quite understand the question
spk_1: yeah sure so so now that we're halfway through fiscal treat you can you get some color and how revenues are trending relative to abolish delivered this quarter
spk_7: i think we talked in the remarks about sequential revenue growth and i believe that sub that's a fair comparison we explain expect to see continuing revenue games in both are que three and or cute for
spk_1: great appreciate the color and just one more question if i can or how much of that benefit didn't would rank have revenues and and you expected to become more pronounced on the back happened this year or more some to twenty three
spk_7: i it it had a positive effect on revenues and i expected to continue for the rest of his who year and and into twenty three and continuing beyond that actually
spk_9: understood critical effects
spk_0: and once again if you'd like to ask a question please press star one and will pass for just a moment and we have no further questions signal that this time i'd like concluded a conference call thank you everyone for your participation and have a great day
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