Executive Summary

Revenue declined to $8.74M, down 27.1% year over year (from $11.99M) and down 17.7% sequentially from Q1’s $10.63M; gross profit swung to a loss of $0.57M versus $2.81M profit in Q1 .
SG&A was cut sharply to $3.84M, a 76% YoY reduction, supporting a materially smaller net loss of $5.34M versus $37.29M YoY; however, net loss worsened sequentially versus Q1’s $6.40M due to revenue declines and higher finance costs .
Adjusted EBITDA loss improved to $(3.22)M versus $(13.68)M YoY, but deteriorated versus Q1’s $(7.27)M largely because Q1 benefited from a stronger gross profit; Neptune reiterated a going concern warning and minimal cash balance, highlighting urgent funding needs .
Strategic actions: board-approved plan to spin out most of Sprout to shareholders (retain 10–15%), conversion of Sprout debt into equity (ownership ~89.5%), and prepayment of ~$2.3M senior secured notes—key catalysts alongside liquidity risk and legal provisions .

What Went Well and What Went Wrong

What Went Well

SG&A fell to $3.84M (−76% YoY), indicating meaningful cost discipline across payroll and other measures .
Debt actions reduced financing risk: senior secured notes prepaid (~$2.3M) and Sprout debt exchanged for equity, relieving Neptune’s guarantee and positioning Sprout toward independence .
Subsidiary progress: Sprout’s restructuring and spinout plan advanced, with Neptune targeting a 10–15% retained interest (“subject to conditions…no certainty”), which could simplify structure and reduce consolidated debt exposure .

What Went Wrong

Revenue contracted to $8.74M (−27% YoY; −$1.89M QoQ), driven largely by Food & Beverage softness; gross margin deteriorated with gross loss of $0.57M (vs. $2.81M profit in Q1) .
Finance costs spiked to $3.17M in the quarter (vs. $0.38M YoY), reflecting higher interest burden, factoring fees and exit fees; total loans and borrowings stood at $26.89M .
Legal risk rose: an arbitrator awarded ~$4.0M (including fees) against Neptune (PMGSL dispute), accruing 10.5% simple interest if unpaid; a $4.0M provision was recorded .

Financial Results

Headline P&L

Metric	Q2 2023 (YoY comp)	Q1 2024 (Prior Qtr)	Q2 2024 (Current)
Revenue ($USD Millions)	$11.99	$10.63	$8.74
Gross Profit ($USD Millions)	$1.11	$2.81	$(0.57)
Net Loss ($USD Millions)	$(37.29)	$(6.40)	$(5.34)
Adjusted EBITDA ($USD Millions)	$(13.68)	$(7.27)	$(3.22)
Gain (Loss) on Revaluation of Derivatives ($USD Millions)	$(1.81)	$3.62	$1.97
Finance Costs ($USD Millions)	$(0.38)	$(1.79)	$(3.17)

EPS

Metric	Q2 2023	Q1 2024	Q2 2024
Basic & Diluted EPS ($)	$(151.17)	$(0.30)	$(1.38)
Weighted Avg Shares	204,388	16,197,737	646,813

Balance Sheet & Liquidity

Metric	As of Mar 31, 2023	As of Jun 30, 2023 (Q1)	As of Sep 30, 2023 (Q2)
Cash & Cash Equivalents ($USD)	$1.99M	$1.38M	$4.75M
Working Capital ($USD)	$(17.48)M	$(21.63)M	$(26.31)M
Total Assets ($USD)	$30.93M	$30.54M	$30.09M
Loans & Borrowings ($USD)	$22.95M	$25.22M	$26.89M

Subsidiary (Sprout) Snapshot

Metric	Q2 2023	Q2 2024
Sprout Revenue ($USD)	$8.36M	$5.69M
Sprout Loss Before Tax ($USD)	$(12.81)M	$(8.91)M

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY2024	None provided	None provided	Maintained (no formal guidance)
Margins/OpEx/Tax/Segments/Dividends	FY2024	None provided	None provided	Maintained (no formal guidance)

Earnings Call Themes & Trends

Note: The Q2 2024 earnings call transcript could not be retrieved due to a document error (database inconsistency); themes reflect the press release and 10-Q MD&A.

Topic	Previous Mentions (Q4 2023 and Q1 2024)	Q2 2024 Current Period	Trend
Liquidity & Going Concern	Liquidity actions; going concern risks flagged; minimal cash; urgent funding need	“Minimal cash balance…requires funding in the very near term…may have to cease operations if unable to obtain funding”	Persistent risk; urgency heightened
Debt Restructuring	MSEC note maturity extended; inventory financing added; waiver on senior notes prepayment	Prepaid ~$2.3M senior notes; exchanged Sprout debt for equity; released Neptune guarantee	Constructive de-risking
Strategy: Sprout Spinout	Strategic review Phase II initiated	Board approved plan to spin out majority of Sprout; Neptune to retain ~10–15% (conditions apply)	Progressing
Product/Segment Performance	Q3 2023: Sprout outperformed category; Biodroga growth	Food & Beverage softness (lower Sprout revenue); Nutraceutical timing challenges; consolidated revenue fell	Mixed; near-term pressure
Legal/Regulatory	Baby food litigation context; other disputes; class action settlement planned	~$4.0M arbitration award provision (PMGSL), accrues 10.5% simple interest if unpaid	Adverse development
Supply Chain/Costs	Risks of input cost inflation; supply chain management emphasized	Continued risk disclosure in MD&A	Ongoing risk awareness

Management Commentary

“As of the date these financial statements are authorized for issuance, there is minimal cash balance. The Company requires funding in the very near term in order to continue its operations…If the Company is unable to obtain funding in the very near-term, it may have to cease operations and liquidate its assets.”
Proposed Sprout spinout: “Neptune would spin out a majority of its equity interest in Sprout to current Neptune shareholders, and Neptune would keep a retained interest of approximately 10-15%,” subject to approvals and conditions; the board may elect not to proceed depending on market/investor conditions .
Subsequent events: Sprout debt exchange completed; Neptune ownership increased to ~89.5%; Neptune’s guaranty on the Secured Promissory Note was released .
Senior notes prepaid: “prepaid in full its senior secured notes…after a payment of approximately $2.3 million” .

Q&A Highlights

The Q2 2024 earnings call transcript was unavailable due to a document retrieval error (database inconsistency). As a result, Q&A themes and any guidance clarifications from the live call could not be reviewed [11:—].

Estimates Context

Wall Street consensus from S&P Global was unavailable for NEPT (CIQ mapping error), so comparisons to consensus cannot be provided. Values retrieved from S&P Global were unavailable due to missing mapping.

Key Takeaways for Investors

Liquidity is the primary risk: working capital deficit widened to $(26.31)M; management explicitly warned of minimal cash and near-term funding needs with potential cessation if funding is not obtained .
Sequential revenue decline and gross loss indicate pressure in Food & Beverage; Sprout’s quarterly revenue fell to $5.69M (from $8.36M YoY), underscoring near-term demand and cost challenges .
Cost discipline remains evident (SG&A −76% YoY), contributing to a much smaller YoY net loss and improved Adjusted EBITDA versus prior year .
Balance sheet de-risking actions (note prepayment; Sprout debt-to-equity conversion; guaranty release) are positives, but absolute debt remains high at $26.89M, and finance costs were elevated .
Legal liabilities escalated with a ~$4.0M arbitration award provision accruing 10.5% simple interest if unpaid—another drain on liquidity .
Strategic spinout of Sprout could simplify corporate structure and potentially unlock value, but completion is uncertain and contingent on approvals and market conditions .
Near-term trading implications: high sensitivity to capital raises, debt/service developments, and spinout milestones; medium-term thesis requires stabilization of Sprout performance, sustained SG&A discipline, and resolution of legal overhangs .

Neptune Wellness Solutions Inc. (NEPT)·Q2 2024 Earnings Summary