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Neptune Technologies and Bioressources
Inc (NASDAQ: NEPT)
Q4 2019 Earnings Call
Jun 12, 2019, 5:00 p.m. ET
Good afternoon. My name is Gabriel, and I will be
your conference operator today. At this time, I'd like to welcome
everyone to the Neptune Wellness Solutions 2019 Fourth Quarter and
Fiscal Year-End Results Conference Call. All lines have been placed
on mute to prevent any background noise. After the speakers'
remarks, there will be a question-and-answer session. (Operator
Thank you. Mr. Mario Paradis, CFO of Neptune, you
may begin your conference.
Mario Paradis -- Chief
Thank you, Gabriel. Good afternoon, everyone, and
thank you for joining us. As mentioned, the purpose of today's call
is to review our results for the fourth quarter results ended March
Joining me today is Jim Hamilton, our President
and CEO; Martin Landry, our new Chief of Corporate Development
& Strategy; and John Moretz, our Chairman of the Board. As
usual, Jim will review Neptune's operational annual highlight,
followed by myself with a discussion on quarterly financial
Before we begin, I'd like to remind you that all
amounts are in Canadian dollars, and today's remarks contain
forward-looking information that represents our expectations as of
today and, accordingly, are subject to change. We do not undertake
any obligation to update any forward-looking statements, except as
may be required by Canadian and U.S. Security laws. A number of
assumptions were made by us in preparing these forward-looking
statements, which are subject to risks. Results may differ
materially, and details on these risks and assumptions can be found
in our filing with the Canadian securities commission and with the
Securities and Exchange Commission.
Now, I'll turn the call over to you, Jim.
Jim Hamilton -- President
and Chief Executive Officer
Mario, thank you. Thank you very much, and
welcome all, and a special welcome also to Martin Landry, who is an
incredibly well-known personality in this business, and it's just
so wonderful to have his insights into the business and support.
And Mario I think you would agree everywhere we go, we kind of --
he gets referred to like a celebrity, but it's great to have Martin
on board. And we also have the pleasure of Mr. John Moretz. John,
John Moretz --
And as a special guest appearance, John of course
is our Chairman, and has been an incredible partner and supporter
of this journey we've been through the last couple of years
together to make this business so wonderfully positioned for the
future. And Mario and John and Martin are just three of the team
that have been helping drive this business. And for those who are
interested we're also going to start a profile and put a little
more personality on some of the people, it's not just me and Mario
the voices that you hear on the phone, but it's so many more, and
we'll start to profile those people. And if you're interested on
our website blog, you'll see a recent addition of Dr. Graham Wood
who has been another great addition to the team.
So today we'd like to speak to and there's a
presentation posted on our website for those who want to follow in
terms of the agenda. Take a look at some of the highlights of the
business in particular subsequent events quarter; we will look at
the fiscal year end and fourth quarter results with Mario; and then
we want to talk about some incredible news linked to some of the
recent sales contracts that we've booked and as well as outlook for
the future, and some questions and answers.
And let me if I just welcome you to look at the
Page 5, events subsequent to the quarter. I'm looking at the team
here. I can't remember in my tenure at this company that we've had
such an incredible developments in our business representing a lot
of work of late.
First and foremost, we are very happy to announce
this evening that we are going to turn on an additional 1,300
metric tons to bring it up to 1,500 metric tons extraction capacity
in our Sherbrooke plant. In addition to that, the associated value
added activities in terms of formulation and packaging, this is
just wonderful -- that is on top of two recent announcements on
commercial deals with two great companies of The Green Organic
Dutchman, TGOD, as well as Tilray bringing in an additional about
360 plus metric tons as minimum of processing of cannabis over the
next couple of years.
And let's not forget recent also announcement
that we've made is the signing of a definitive agreement of
SugarLeaf Labs hemp processor in the United States also with the
1,500 metric tons capacity. So, not only we are increasing six-fold
here in Canada to 1,500 metric tons, we'll have a combined 3,000
metric tons of processing capacity in cannabis both here in Canada
and well as the United States to support both domestic markets as
well as global markets around the world. So, it's just been an
incredible couple of months and weeks to bring these situations to
bear, and we'll talk more about them in a moment.
But before we get there, I think we should close
out the fourth quarter, Mario, and the last fiscal year, and I'd
just like to invite Mario to take us here for next few minutes on
some of the financials.
Yes. Thank you, Jim, and good afternoon, again,
everyone. I'd like to remind you that our results are in Canadian
dollars, and today's remarks may contain forward-looking
My comments today will focus on the quarterly
performance, unless otherwise indicated. I also want to remind you
that we stopped to consolidate Acasti Pharma after the third
quarter of last year. However, comparative results of operation in
the consolidated financial statements still include Acasti numbers
for the period ended March 31, 2019.
Consolidated results for the fourth quarter and
fiscal 2019 results can be found in our press release, and in
Neptune's consolidated financial statements, and related MD&A
available on SEDAR, EDGAR, and in the Investor Section of Neptune's
website. You'll find a detail of the financial results of the
quarter and for the fiscal year in the appendix of the deck.
So, let's start with our cannabis segment. During
the fourth quarter, in fact, by the end -- more at the end of the
month, March 2019, we started our commercial cannabis extraction
business for which we will operate few days in March, where we
generated CAD12,000 in revenues. As part of our operation, lab
testing and batch release increase the lead-time to market and
delayed slightly our revenue recognition from cannabis
R&D expenses related to the cannabis segment
which basically consisted of salaries and fixed costs at our
manufacturing plant in Sherbrooke including the depreciation, in
order to prepare the site and start the cannabis oil extraction
business in compliance with Canada's requirements, were CAD1.9
million compared with CAD1.5 million for the same quarter last
year. The increase of CAD0.4 million is mainly related to
additional compensation from full time employees and depreciation
of the property, plant and equipment.
During this quarter, SG&A related to the
cannabis segment totaled CAD0.4 million compared to CAD0.3 million
last year, and consisted mainly of the business development team,
which incurred traveling and representation expenses.
The non-IFRS operating loss of the cannabis
segment, before taking into consideration the non-cash stock based
comp, and the depreciation and amortization was CAD1.5 million for
the fourth quarter in comparison with an operating loss of CAD1.1
million in the same period last year.
Let's now look to the Nutraceutical segment.
Total revenue for the fourth quarter including royalties revenue
were CAD5.7 million, down by CAD1.3 million over the fourth quarter
last year. Total revenue decline is mainly due to lower sales in
the Nutrition business due to timing of orders from some customer
and also to lower royalty revenues related to lower sales from our
Our gross margin as a percentage of sales was
stable compared with the same period last year of 26%. In terms of
dollar, we generate CAD1.5 million, a CAD0.6 million decrease over
the same period last year, mainly related to lower sales and a
decrease in royalty revenues as discussed earlier.
SG&A totaled CAD1.1 million during this
quarter compared to with CAD1.3 million last year, and this
decrease is mainly due to lower marketing expenses in the quarter.
The adjusted EBITDA for the quarter was CAD0.5 million compared to
an adjusted EBITDA CAD1.2 million, and this variation is mainly
related through over sale and lower royalty revenues.
The corporate G&A for the quarter was pretty
stable in comparison with last year with CAD2.4 million. The
consolidated quarterly non-IFRS loss for the quarter is CAD2.7
million compared with a loss of CAD1.8 million, mainly related to
the nutrition performance and additional investment in the cannabis
segment in the fourth quarter.
The quarterly net loss increased significantly by
CAD7.6 million to reach CAD12.4 million in comparison with a net
loss of CAD4.8 million last year. One item impacted significantly
the net loss in the last quarter as we took a provision for
litigations for an amount of CAD7.9 million, of which CAD6 million
was settled after the quarter with financial instrument meaning no
cash was disbursed. You will find more detailed information related
to decide this item in note 11 of the consolidated financial
Turning to our liquidity at the end of March
2019, our cash position was CAD10 million and total debt was CAD2.8
million, excluding the operational credit margin. The cash level is
in line with our expectation and we are evaluating options to fund
our growth with a focus on prudence and minimizing equity dilution.
In that respect, discussions are actually taking place in order to
establish non-dilutive credit facilities as we -- and we are very
confident to have a positive conclusion soon.
So, as we mentioned, lot of times during meetings
with investors and in recent presentations, we will be EBITDA
positive for the current fiscal years, as our activities will
ramping up significantly following Health Canada amendment approval
that we hope will be coming soon. So on that Jim, I will turn the
call over to you.
Mario, thank you very much for those who are
following along with the presentation. I just referred you to Page
7, which is -- just wanted to reiterate our strategy that we're
fundamentally a B2B company, and our objective is to be the world's
leader in extraction, purification, but just not extraction and
purification, but also the formulation of value added and
differentiated cannabis products clearly based on science.
Just looking at Page 8, that's something we've
shared with you before. But I think it's really important that
people understand the demand dynamics that we see in the market
today. And let's start with the Canadian context at -- and I'm
looking at market today that's roughly about 70%, 75% of the
Canadian market is a weed. It's not based on extracts, but we think
that will change significantly with the pending legislation that
allow new product forms of future such as vape pens, topicals,
edibles, et cetera.
And when you look at some of the market research
and in, call it, more free markets, more advanced markets such as
California, the majority is based on an extract, and many people
that we've spoken to, see it not as 60%, but rather moving even
higher than that. So, we are seeing demand for extracts growing and
paralleling with pending legislation to better match markets that
are more developed.
And I think importantly, and we often forget in
our equations, in our calculations, that the demand for CBD and
hemp. And remember you don't smoke hemp. You take that as an
extract in some kind of delivery system. So, when you look at the
pending legislation in Canada, when you look at the CBD demand for
hemp-based products in Canada, and beyond, we see a very, very
robust demand profile going forward.
And so much so, in Page 9, we have approved today
at the Board in Mario and John resoundingly the expansion of our
Phase 3A, what we call it, because we are fully committed and fully
commercially booked for the capacities that we have installed in
Phase 1 and Phase 2. And our sales teams are already engaging in
discussions, in terms of filling out a Phase 3. Phase 3 will add
approximately 1,300 metric tons or 1,300,000 kilos of processing
capacity and this is a staggered approach.