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Neptune Wellness Solutions Inc. (NEPT)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 FY2024 (quarter ended June 30, 2023) saw revenues of $10.63M with gross profit of $2.81M and net loss of $6.40M; Adjusted EBITDA loss narrowed to $7.27M from $11.35M YoY, reflecting cost actions despite lower sales .
  • Sprout Organics delivered 26% gross margin (above the company’s 22% FY24 target) and Biodroga posted 28% margins; management highlighted continued operational improvements and cost reductions .
  • Liquidity actions continued: Sprout inventory financing was expanded to $7.5M and the company closed a ~$4M equity offering in/around the period; subsequently, Neptune entered a binding term sheet with Morgan Stanley to exchange Sprout debt for equity (strategic step for Sprout) .
  • Consensus estimates from S&P Global were unavailable for NEPT; therefore, no beat/miss vs Street can be assessed for this quarter (S&P Global consensus unavailable).

What Went Well and What Went Wrong

What Went Well

  • Sprout margin execution outperformed plan: “Sprout achieved gross margins of 26% in the first quarter, ahead of our previous guidance targeting 22% for fiscal 2024” .
  • Biodroga margin strength: “Biodroga reported gross margins of 28%, reflecting effective cost management initiatives” .
  • Expense discipline and EBITDA improvement: Adjusted EBITDA loss improved to $(7.27)M vs $(11.35)M YoY; SG&A of $10.0M was up $1.0M YoY due to consulting/accounting fees for the 10-K, but EBITDA still improved materially YoY .

What Went Wrong

  • Topline decline: Revenue fell to $10.63M from $16.27M YoY, primarily due to divested cannabis revenues and nutraceutical order timing, partially offset by food & beverage .
  • Continued net losses: Net loss was $(6.40)M and basic/diluted loss per share was $(0.30), reflecting ongoing scale and financing costs .
  • Sequential revenue softness: Q1 revenue ($10.63M) declined from Q4 FY2023 ($12.15M), showing near‑term demand/seasonality and mix pressures .

Financial Results

MetricQ3 FY2023 (Dec 31, 2022)Q4 FY2023 (Mar 31, 2023)Q1 FY2024 (Jun 30, 2023)
Revenue ($USD Millions)$12.21 $12.15 $10.63
Gross Profit ($USD Millions)$1.88 $(2.60) (gross loss) $2.81
Net Income (Loss) ($USD Millions)$(0.50) $(44.51) $(6.40)
Basic/Diluted EPS ($)$0.06 $(3.74) $(0.30)
Adjusted EBITDA ($USD Millions)$(5.10) $(12.96) $(7.27)

KPIs and Segment Indicators

  • Sprout Gross Margin %: 26% (Q1 FY2024)
  • Biodroga Gross Margin %: 28% (Q1 FY2024)
  • Sprout distribution: ~29,340 U.S. doors and ~3,000 in Canada (~32,340 North America) (Q1 FY2024)
  • Sprout inventory financing facility: increased to $7.5M (Q1 FY2024)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/CommentaryChange
Sprout Gross Margin %FY202422% target Q1 delivered 26% (ahead of target); no formal change issued Maintained (performance above target)
Company Revenue/EPSFY2024N/ANo formal revenue/EPS guidance provided in Q1 PR N/A
Other financial guidance (OpEx, tax, etc.)FY2024N/ANot provided in Q1 PR N/A

Earnings Call Themes & Trends

Note: The Q1 FY2024 transcript exists via external links; our document system could not retrieve it. We triangulate themes from the Q1 press release and prior quarter filings.

TopicPrevious Mentions (Q3 FY2023, Q4 FY2023)Current Period (Q1 FY2024)Trend
Cost reduction / SG&AQ3 FY2023 SG&A down 52% YoY as CPG focus sharpened Continued operational improvements and cost reductions; Adjusted EBITDA improves YoY Improving efficiency
Sprout margin executionQ3 category outperformance; distribution expansion 26% GM, above 22% FY24 target Positive
Biodroga performanceYTD growth in prior periods 28% GM in Q1 FY2024 Stable to positive
Distribution & retail reachExpanded footprint incl. Loblaws; ~90% organic baby food footprint by FY2023 end ~32,340 total NA doors Expanding reach
Financing/liquidityA/R factoring up to $5M (Q3) Inventory financing to $7.5M; ~$4M offering closed Proactive liquidity actions
Sprout strategic structureN/ABinding term sheet to exchange Sprout debt for equity (path to independence) Strategic repositioning

Management Commentary

  • “Sprout achieved gross margins of 26% in the first quarter, ahead of our previous guidance targeting 22% for fiscal 2024.” (Company press release)
  • “Biodroga reported gross margins of 28%, reflecting effective cost management initiatives.” (Company press release)
  • Prior context from FY2023 year‑end PR: “We’re excited about the cost savings and efficiencies we’ve achieved, but we acknowledge there’s more work to be done… As we transition into fiscal 2024, we remain dedicated to further optimizing our operations and improving our financial position.” — CEO Michael Cammarata, July 17, 2023 .

Q&A Highlights

  • The Q1 FY2024 earnings call transcript is available externally but was not retrievable via our document system; see external sources for full Q&A:
    • MarketScreener transcript link (Aug 18, 2023)
    • GuruFocus transcript link
    • Earningscall.biz transcript link
  • Based on the quarter’s PR framing, themes likely included: Sprout margin progress, Biodroga margin stability, operational cost initiatives, financing facilities, and progress on Sprout capital structure. Please reference the above links for verbatim Q&A.

Estimates Context

  • S&P Global (Capital IQ) consensus for Q1 FY2024 was unavailable for NEPT; therefore, comparisons vs. Street estimates cannot be provided (consensus unavailable from S&P Global).

Key Takeaways for Investors

  • Margin execution is the bright spot: Sprout at 26% (vs 22% target) and Biodroga at 28% underpin the gross profit recovery narrative despite lower sales .
  • EBITDA trend improved YoY (loss narrowed to $(7.27)M) even as revenue declined, signaling operating discipline; watch sustainability as the company scales .
  • Liquidity remains a watch‑item; management continued to secure working capital via expanded inventory financing ($7.5M) and equity issuance (~$4M) .
  • Structural moves around Sprout (debt‑to‑equity exchange term sheet) position the asset for strategic optionality; monitor execution and any spin‑out milestones .
  • Sequential revenue softness (vs Q4) and continued net losses keep risk elevated; evidence of demand stabilization and cash runway extension would be key stock catalysts .
  • With no reliable Street consensus, stock reactions likely hinge on margin progress, liquidity updates, and clarity on Sprout’s corporate structure (consensus unavailable from S&P Global).

Appendix: Source Documents (Read in Full)

  • Q1 FY2024 8‑K 2.02 (Earnings Release) incl. financial statements and KPIs
  • Other relevant Q1 FY2024 press items: Binding Term Sheet with Morgan Stanley regarding Sprout debt exchange
  • Prior two quarters for trend analysis:
    • Q4 FY2023 8‑K (year‑end) with CEO commentary and fiscal Q4 metrics
    • Q3 FY2023 8‑K 2.02 (earnings PR) with quarterly P&L and KPIs

External transcripts (for reference only):

  • Q1 FY2024 call (Aug 18, 2023) MarketScreener
  • GuruFocus transcript
  • Earningscall.biz transcript