Neptune Wellness Solutions Inc.

Good morning and welcome to the Neptune Wellness Solutions Q1 2022 earnings call. My name is Katie and I'll be coordinating your call today. If you'd like to ask a question during the presentation, you may do so by pressing star 1 on your telephone keypad. I will now hand the call over to your host, Steve West, Vice President of Investor Relations, to begin. Steve, please go ahead.

Thank you, Operator, and good morning, everyone. With me today are Michael Camerata, President and Chief Executive Officer, and Dr. Tony Renau, Chief Financial and Global Operating Officer. As a reminder, all amounts discussed today are in Canadian dollars, and our remarks may contain forward-looking information representing our expectations as of today and may be subject to change. We do not undertake any obligation to update any forward-looking statement, except as may be required by Canadian and U.S. securities laws. Assumptions were made in preparing these forward-looking statements, which are subject to risk as laid out in our public filings found on CDAR and EDGAR. For your scheduling purposes, we are tentatively planning to release our second quarter financial results before markets open on November 11th and host our earnings call later that same morning at 10 a.m. Eastern Time. I will now turn the call over to Michael. Thank you, Steve, and good morning, everyone. This morning, we reported our first quarter results. We reported revenue of $12.4 million, which was above our pre-announced range of $10 to $12 million. Both our reported revenue and gross profit improved compared to fourth quarter, which illustrates that our transformation to deliver a diversified health and wellness CPG company is working. We expect this growth trend to continue through the rest of the year. Now, let me update you on some operational highlights from first quarter. In cannabis, we launched Moon Ring Flower into Alberta, the fourth territory where we are selling our branded cannabis products. Moon Ring Florida Citrus Cush Dried Flower is now selling in Alberta and British Columbia. During the quarter, we also introduced three additional Moon Ring products, Florida Citrus Cush Dried Flower, high THC capsules, high THC oil in British Columbia, and in Quebec, we launched our high CBD capsules and oils under the Panhass brand. While we are rapidly building our cannabis brands, we are just beginning to realize our full potential. At the end of the first quarter, Neptune's cannabis brands were sold in four main territories, representing more than 80% of Canada's total legal market. We ended the quarter with eight SKUs sold in about 400 of the approximately 2,000 stores in the four territories where we operate. Moving to nutraceuticals, we continue our expansion efforts during the quarter. We continue to undertake several ongoing clinical studies evaluating Maximal as a lipid delivery platform when combined with supplements such as CoQ10 and vitamin K2. We anticipate announcing those results in the coming weeks and expect that they will be in line with Maximal's past studies, which have shown Maximal improves bioavailability and onset. Our ability to leverage the maximal technology across virtually any vitamin or supplement makes this a very valuable asset for Neptune. Turning to organic food and beverages. As previously announced, in addition to our Walmart.com and Target U.S. store launches, we have signed an exclusive licensing agreement with Cocomelon, the number one children's entertainment show with more than 10 billion views on YouTube worldwide. Our increased retail distribution for Sprouts is already leading to stronger sales growth as anticipated and we expect its growth to continue long-term. Now, before I turn over this call to Tony for her financial discussions, I would like to discuss the strategic review we announced this morning. The number one priority of the executive team and the board of directors is to create long-term shareholder value. In that regard, the executive management team has asked the board of directors to establish a review committee to review the company's business plan, capital deployment, and long-term strategy to identify opportunities to enhance shareholder value. These alternatives are not limited in scope, and could include changes in the strategy, operations, a strategic business combination, divestiture, or a spinoff or portion of the company, or even continuing to execute the company's parent business plan. I want to provide some context on our cannabis vertical as an example. Cannabis is our largest source of cash burn and carries significant gross profit and operating profit losses due in large part to higher premiums, taxes, overheads, and cost of capital. It is also the only vertical with negative gross profit margin. That said, we reversed the trajectory of our cash burns for cannabis last year by moving up the value stream from extraction to manufacturing and selling our own branded products. Thank you. Cannabis today generates less than 10% of the revenues, but accounts for more than 20% of the total cash burn. We believe cannabis will be a great long-term business, but the board must consider if cannabis or other businesses are right for Neptune today. We are moving quickly to maximize shareholder returns and will provide any updates at the appropriate time. With that, I turn the call over to Tony to discuss our financial results.

Thank you, Michael, and good morning, everyone. Our first quarter fiscal year 2022 revenue amounted to $12.4 million, which increased 10% versus the comparable year-ago period and increased 83% versus our fourth quarter fiscal year 2021 revenue of $6.8 million. This year-over-year growth was driven by increased Sprout and B2C cannabis sales, partially offset from exiting the oil extraction business. Gross profit during the quarter was a loss of $2.9 million compared to a gross profit of $3.3 million in the comparable year-ago period. Our reported gross margin was minus 23% versus 29% in the comparable year-ago period. These declines in gross profit and gross margin were primarily due to ramping up our new cannabis brands, Mood Ring and Panache, into 80% of the Canadian market, exiting the extraction business and sprout integration. By excluding from cost of sales, depreciation and amortization expenses, various fixed and indirect costs, as well as costs related to sugar leaf, a consolidated gross profit of 13% could be derived, a positive difference of 36% when compared to the 23% gross profit loss of the quarter. Net loss attributable to Neptune for the quarter was $23 million, which declined versus a net loss of $11.4 million in the comparable year-ago period. The increase in net loss is mainly attributable to higher costs of goods sold and SG&A. Adjusted editor loss during the quarter was $15.9 million, a decline versus our adjusted of $2.5 million in the comparable year-ago period. The decline in adjusted EBITDA is mainly attributable to last year's transformation and non-recurrent higher cost of goods and certain non-recurrent SG&A costs. With regards to SG&A amounting to $20.4 million, an increase of $7.5 million comparable to the same period of this prior year. That increase is driven by non-recurrent additional legal fees and Sprout integration costs of $4.4 million and $2.4 million mainly in Sprout salaries and additional $0.8 million in insurance expense. We should note that 31% of SG&A expenses are non-cash items in the total amount of $6.1 million. Moving to our balance sheet, we ended the quarter with $48.6 million in cash on hand. The decrease in our cash position versus the fourth quarter was due to our core operating cash expenses plus the non-recurrent higher expense items. We incurred an additional $5 million to build inventory for Sprout in anticipation of our expanded and announced retail launches and an advance of approximately $4 million to Sprout for operating expenses. Going forward through the year, we expect cash burn to decelerate as revenue growth continues to accelerate and improve our margins. In addition, for fiscal year 2022, we expect quarterly reported revenue to grow throughout the fiscal year and expect gross margin to improve for the full year. However, we currently expect gross margin to be negative for that same period due to production ramp-ups for our brand portfolio in light of the anticipated revenue expansion for Neptune. I will now turn the call back to Michael.