Poised for significant growth with
extraction operations ramping up
Phase II equipment to be commissioned in coming weeks alleviating
capacity constraints in Canada
LAVAL, QC, Aug. 14, 2019 /CNW Telbec/ - Neptune Wellness
Solutions Inc. ("Neptune" or the "Corporation") (NASDAQ: NEPT)
(TSX: NEPT), today announced its financial and operating results
for the three-month period ended June 30,
2019. All amounts are in Canadian dollars except specified
otherwise.
Corporate Highlights:
- On June 7, 2019, Neptune
announced a three-year contract with Tilray Inc. for the extraction
of cannabinoids from cannabis and hemp biomass. Tilray has
committed to provide minimum biomass volumes of 125,000 kg over a
three-year period.
- On June 12, 2019, Neptune
announced a three-year contract with The Green Organic Dutchman
(TGOD) for a minimum of 230,000 kg of cannabis and hemp biomass.
Neptune will provide extraction services as well as turnkey
formulation, manufacturing and packaging solutions to TGOD covering
a range of finished products.
- On June 17, 2019, Neptune's
wholly owned subsidiary, 9354-7537 Québec Inc., received license
amendments covering additional rooms where Neptune will perform
encapsulation and cold ethanol extraction which will increase
Neptune's extraction capacity from 30,000 kg to 200,000 kg of
biomass annually.
- On July 8, 2019, Michael Cammarata, a successful entrepreneur and
innovator in the wellness industry, was appointed as Chief
Executive Officer and Member of the Board of Directors of Neptune.
Jim Hamilton stepped down from his
role as CEO and Director but remains an advisor to the Board.
- On July 18, 2019, Neptune
announced a successful private placement of US$41 million of which US$12 million has been used to fund the initial
cash consideration for the acquisition of the assets of SugarLeaf
Labs.
Michael Cammarata, CEO of Neptune
stated, "Since joining Neptune, I have been listening to key
stakeholders and evaluating the company its strategy and vision. I
have been impressed by our significant IP that can applied to the
fast-paced cannabis industry. Our extraction expertise can set us
apart as we ramp up production of both raw material and finished
products. I have recently implemented initiatives to address the
near-term operational and capacity constraints that have impacted
the growth of our cannabis extraction services, as well as put
several building blocks in place to support that growth, including
private placement funding and boosting production at the
Sherbrooke facility. We expect to
see positive impacts from these actions beginning in the second
quarter."
"We expect that our new contracts with Tilray and TGOD will
offer strong and consistent revenue over the next three years. The
health and wellness market provides a significant opportunity in
which cannabis and hemp extracts will play an important role in
fulfilling customers' needs for improved quality of life.
Neptune Wellness is well positioned to benefit from this large
global market opportunity, and we will continue to raise the bar
when it comes to transparency, quality and industry standards,"
continued Mr. Cammarata.
"Mario Paradis, VP & CFO, has
decided to leave Neptune. We are very grateful for all of Mario's
hard work during his time at the company. We have begun a search
for a new CFO and Mario will remain CFO of Neptune to help with the
transition. We are poised for strong growth and I have no doubt
we'll find the right talent to help us achieve that growth."
Financial Results
Total revenues reached $4.4
million for the three-month ended June 30, 2019, down versus last year's revenues
of $5.2 million. The majority of the
revenues during the quarter were generated in the Nutraceutical
segment. The decline in total revenues is explained by the timing
of contracts in the Nutraceutical segment. Commercial production of
cannabis extracts during the quarter was impacted by constrained
operations and extraction capacity.
Neptune reported a net loss of $6.5
million for the three-month ended June 30, 2019, an increase compared to a net loss
of $4.1 million last year.
For the three-month ended June 30,
2019, Adjusted EBITDA1 was a loss of $3.6 million compared with a loss of $2.3 million last year. The increased Adjusted
EBITDA1 loss is due to investments made to support the
growing cannabis operations.
Cash and cash equivalents were $5.4
million as of June 30, 2019.
On a pro-forma basis, including the net proceeds from the private
placement completed on July 18, and
the initial cash consideration paid to acquire SugarLeaf, Neptune's
cash and cash equivalent would have been $39
million as at June 30,
2019.
Completion of the SugarLeaf acquisition
On July 24, 2019, Neptune
announced the closing of the acquisition of the assets of
U.S.-based hemp processor SugarLeaf Labs and Forest Remedies LLC
(collectively, "SugarLeaf"). The initial consideration paid at
closing consisted of US$18 million or
US$12 million in cash and
US$6 million in common shares. By
achieving certain annual adjusted EBITDA and other performance
targets, an additional consideration of up to US$132 million would be paid over each of the
next three years as a combination of cash and shares for a maximum
aggregate purchase price of up to US$150
million, reflecting a valuation multiple below 5x
EBITDA.
The extraction capacity of SugarLeaf is expected to reach an
annual run rate of 1,500,000 kg of biomass by the end of 2019 with
opportunities to further expand capacity. The company is using a
cutting-edge cold ethanol processing technology producing
high-quality broad-spectrum extracts and refined full spectrum
extracts. SugarLeaf has established strategic and well diversified
sourcing, with multiple local and large regional hemp farmer
partners, ensuring traceability of finished product directly back
to the farms. The acquisition of SugarLeaf, combined with Neptune
creates a leading North American extraction platform with
significant capacity available to serve customers in both
Canada and the United States. The acquisition also offers
an opportunity to participate in both B2B and B2C hemp-derived CBD
markets in the United States.
Launch of Neptune Ventures
Today, Neptune Wellness also announces the creation of Neptune
Ventures, a strategic investment arm and technology incubator which
is expected to stimulate innovation and partnerships in the
cannabis and wellness industry. Neptune Ventures will support
Neptune's growth into the consumer market with investments in
Forest Remedies, SugarLeaf's
consumer brand which includes hemp-derived CBD balms and oils.
"We are excited to launch Neptune Ventures, which will allow us
to invest alongside our customers in innovative new products and
technology to offer additional value to our customers and
shareholders," said Mr. Cammarata. "Our venture arm will be an
opportunity to get us closer to our customers by developing new
intellectual property, innovations and creative solutions."
Outlook
In Canada, near-term capacity
constraints are expected to be resolved in September with the
commissioning of ethanol extraction equipment, which should
increase Neptune's capacity from current levels of 30,000 kg of
biomass to 200,000 kg of biomass processed annually. Furthermore,
Phase IIIA expansion is progressing as planned with completion
expected before the end of calendar 2019 with Health Canada
licensing expected thereafter. With the Phase IIIA expansion,
Neptune expects to have the industry's lowest extraction costs,
translating into potentially healthy margin.
In the United States, the
capacity of our SugarLeaf plant is expected to reach 1,500,000 kg
by the end of December, providing Neptune with substantial capacity
to supply our B2B customers with hemp extracts ingredients and
finished products. SugarLeaf is expected to contribute to Neptune's
revenue growth starting in the second quarter of fiscal 2020.
Our Nutraceutical division has recently seen an increase in
demand for hemp-derived CBD sourcing and formulations which could
stimulate sales in the second half of fiscal 2020.
"Once the expansion phases are complete, we expect Neptune's two
extraction facilities to have impressive earnings potential. Given
that we only recently acquired SugarLeaf and are still in the
process of integrating those operations, we estimate that, based on
a conservative capacity utilization scenario of 50%, our two
facilities could support in excess of $450
million in annual revenues. In addition, our highly
automated operations are expected to translate into low production
costs benefiting margins, which have the potential to exceed 40% at
the EBITDA level. With a focus on bringing the highest quality
products to market sustainably, we believe these developments can
help us achieve and surpass these scenarios. There can, of course,
be no assurance that the integration of SugarLeaf will be
successfully implemented, that our utilization capacity will
achieve anticipated levels, or that operational costs and margins
will benefit from these developments to the extent anticipated at
this time." concluded Mr. Cammarata.
_________________________
|
1
See "Caution Regarding Non-IFRS Financial
Measures" and "Reconciliation of Segment income (loss) from
operating activities before corporate expenses to Adjusted Segment
EBITDA and net loss to Adjusted EBITDA" which follow.
|
About Neptune Wellness Solutions Inc.
Neptune Wellness
Solutions specializes in the extraction, purification and
formulation of health and wellness products. Neptune's wholly owned
subsidiary, 9354-7537 Québec Inc., is licensed by Health Canada to
process cannabis at its 50,000-square-foot facility located in
Sherbrooke, Quebec. With the
recent acquisition of U.S.-based SugarLeaf Labs, the Company can
now source U.S. grown hemp to be extracted, purified and
transformed into finished products at its 24,000 square-foot
facility located in North
Carolina. Neptune and SugarLeaf combined bring decades of
experience in the natural products sector to the legal cannabis and
hemp industry. Leveraging its scientific and technological
expertise, the Company as a whole focuses on the development of
value-added and differentiated products for the Canadian, U.S. and
global cannabis and hemp markets. Neptune's activities also include
the development and commercialization of turnkey nutrition
solutions and patented ingredients such as MaxSimil®, and of a
variety of marine and seed oils. Its head office is located in
Laval, Quebec.
Caution Regarding Non-IFRS Financial
Measures
The Corporation uses two adjusted financial
measures, Adjusted Segment Earnings Before Interest, Taxes,
Depreciation and Amortization (Adjusted Segment EBITDA) and
Adjusted Earnings Before Interest, Taxes, Depreciation and
Amortization (Adjusted EBITDA) to assess its operating performance.
These non-IFRS financial measures are directly derived from the
Corporation's financial statements and are presented in a
consistent manner. The Corporation uses these measures for the
purposes of evaluating its historical and prospective financial
performance, as well as its performance relative to competitors.
These measures also help the Corporation to plan and forecast for
future periods as well as to make operational and strategic
decisions. The Corporation believes that providing this information
to investors, in addition to IFRS measures, allows them to see the
Corporation's results through the eyes of management, and to better
understand its historical and future financial performance.
Securities regulations require that companies caution readers
that earnings and other measures adjusted to a basis other than
IFRS do not have standardized meanings and are unlikely to be
comparable to similar measures used by other companies.
Accordingly, they should not be considered in isolation. The
Corporation uses Adjusted Segment EBITDA and Adjusted EBITDA to
measure its performance from one period to the next without the
variation caused by certain adjustments that could potentially
distort the analysis of trends in our operating performance, and
because the Corporation believes it provides meaningful information
on the Corporation's financial condition and operating results.
Neptune's method for calculating Adjusted Segment EBITDA and
Adjusted EBITDA may differ from that used by other
corporations.
Neptune obtains its Adjusted Segment EBITDA measurement by
adding depreciation and amortization and stock-based compensation
to segment income (loss) from operating activities before corporate
expenses. Neptune obtains its Adjusted EBITDA measurement by adding
to net income (loss), net finance costs and depreciation and
amortization and by subtracting income tax recovery. Other items
such as stock-based compensation, litigation provisions,
acquisition costs and severance and related costs that do not
impact core operating performance of the Corporation are also added
back as they may vary significantly from one period to another.
Adjusting for these items does not imply they are
non-recurring.
Forward-Looking Statements
Statements in this press
release that are not statements of historical or current fact
constitute "forward-looking statements" within the meaning of the
U.S. securities laws and Canadian securities laws. Such
forward-looking statements involve known and unknown risks,
uncertainties, and other unknown factors that could cause the
actual results of Neptune to be materially different from
historical results or from any future results expressed or implied
by such forward-looking statements. In addition to statements which
explicitly describe such risks and uncertainties, readers are urged
to consider statements labeled with the terms "believes," "belief,"
"expects," "intends," "projects," "anticipates," "will," "should,"
or "plans" to be uncertain and forward-looking. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this press release.
Forward-looking information in this press release includes, but is
not limited to, information or statements about our ability to
successfully develop, produce, supply, promote or generate any
revenue from the sale of any cannabis-based and hemp-based products
in the legal market.
The forward-looking statements contained in this press
release are expressly qualified in their entirety by this
cautionary statement and the "Cautionary Note Regarding
Forward-Looking Information" section contained in Neptune's latest
Annual Information Form (the "AIF"), which also forms part of
Neptune's latest annual report on Form 40-F, and which is available
on SEDAR at www.sedar.com, on EDGAR at www.sec.gov/edgar.shtml and
on the Investor section of Neptune's website at
www.neptunecorp.com. All forward-looking statements in this press
release are made as of the date of this press release. Neptune does
not undertake to update any such forward-looking statements whether
as a result of new information, future events or otherwise, except
as required by law. The forward-looking statements contained herein
are also subject generally to other risks and uncertainties that
are described from time to time in Neptune public securities
filings with the Securities and Exchange Commission and the
Canadian securities commissions. Additional information about these
assumptions and risks and uncertainties is contained in the AIF
under "Risk Factors".
Neither NASDAQ nor the Toronto Stock Exchange accepts
responsibility for the adequacy or accuracy of this
release.
Conference Call Details
Neptune will be holding a
conference call on August 14, 2019,
at 8:30 AM (EST) to discuss its first
quarter results ended June 30,
2019.
Date:
|
Wednesday, August 14,
2019
|
|
|
Time:
|
8:30 AM Eastern
Standard Time
|
|
|
Call:
|
1-888-231-8191
(Canada and U.S.)
1-647-427-7450 (International)
|
|
|
Conference
ID:
|
3696157
|
|
|
Webcast:
|
A live webcast and
presentation of the results can be accessed at:
https://neptunecorp.com/en/investors/events-and-presentations/
|
A replay of the call will be available for replay shortly after
the call's completion, until September 14,
2019. The replay can be accessed online in the Investors
section of Neptune's website under Investor Events and
Presentations. It is also under this section that you will find the
archive of the webcast, along with its accompanying
presentation.
Reconciliation of
Segment income (loss) from operating activities before corporate
expenses to Adjusted
Segment EBITDA1 and net loss to Adjusted
EBITDA1
|
(Expressed in
thousands of dollars)
|
|
Three-month period
ended June 30, 2019
|
|
Nutraceutical
|
Cannabis
|
Corporate
|
Total
|
|
$
|
$
|
$
|
$
|
Total
revenues
|
4,293
|
38
|
30
|
4,361
|
Gross
profit
|
1,349
|
(2,091)
|
30
|
(712)
|
|
|
|
|
|
R&D expenses, net
of tax credits and grants
|
(92)
|
(250)
|
|
(342)
|
SG&A
expenses
|
(1,012)
|
(349)
|
|
(1,361)
|
Segment income (loss)
from operating activities before corporate expenses
|
245
|
(2,690)
|
30
|
(2,415)
|
|
|
|
|
|
Unallocated
costs:
|
|
|
|
|
Corporate general and
administrative expenses
|
|
|
(3,969)
|
(3,969)
|
Net finance
costs
|
|
|
(119)
|
(119)
|
Income tax
recovery
|
|
|
51
|
51
|
Net loss
|
|
|
|
(6,452)
|
|
|
|
|
|
Adjusted Segment
EBITDA1 reconciliation
|
|
|
|
|
Segment income (loss)
from operating activities before corporate expenses
|
245
|
(2,690)
|
|
|
Add:
|
|
|
|
|
Depreciation and
amortization
|
168
|
794
|
|
|
Stock-based
compensation
|
117
|
273
|
|
|
Adjusted Segment
EBITDA1
|
530
|
(1,623)
|
|
|
|
|
|
|
|
Adjusted
EBITDA1 reconciliation
|
|
|
|
|
Net loss
|
|
|
|
(6,452)
|
Add
(deduct):
|
|
|
|
|
Depreciation and
amortization
|
|
|
|
1,084
|
Net finance
costs
|
|
|
|
119
|
Stock-based
compensation
|
|
|
|
857
|
Litigation
provisions
|
|
|
|
81
|
Acquisition
costs
|
|
|
|
367
|
Severance and related
costs3
|
|
|
|
412
|
Income tax
recovery
|
|
|
|
(51)
|
Adjusted
EBITDA1
|
|
|
|
(3,583)
|
|
|
|
|
|
Total
assets
|
23,449
|
51,387
|
12,517
|
87,353
|
Cash, cash
equivalents and short-term investment
|
38
|
–
|
5,337
|
5,375
|
Working
capital2
|
3,090
|
(17)
|
414
|
3,487
|
__________________________
|
1
See "Caution Regarding Non-IFRS Financial
Measures".
|
2
The working capital is presented for
information purposes only and represents a measurement of the
Corporation's short-term financial health mostly used in financial
circles. The working capital is calculated by subtracting current
liabilities from current assets. Because there is no standard
method endorsed by IFRS, the results may not be comparable to
similar measurements presented by other public
companies.
|
3
Costs related to new appointment of Chief
Executive Officer
|
Reconciliation of Segment income (loss)
from operating activities before corporate expenses to Adjusted
Segment EBITDA1 and net loss to Adjusted
EBITDA1
|
(Expressed in
thousands of dollars)
|
|
|
|
|
|
Three-month period
ended June 30, 2018
|
|
Nutraceutical
|
Cannabis
|
Corporate
|
Total
|
|
$
|
$
|
$
|
$
|
Total
revenues
|
5,168
|
–
|
|
5,168
|
Gross
profit
|
1,493
|
–
|
|
1,493
|
|
|
|
|
|
R&D expenses, net
of tax credits and grants
|
(87)
|
(1,589)
|
|
(1,676)
|
SG&A
expenses
|
(1,088)
|
(496)
|
|
(1,584)
|
Segment income (loss)
from operating activities before corporate expenses
|
318
|
(2,085)
|
|
(1,767)
|
|
|
|
|
|
Unallocated
costs:
|
|
|
|
|
Corporate general and
administrative expenses
|
|
|
(2,268)
|
(2,268)
|
Net finance
costs
|
|
|
(148)
|
(148)
|
Income tax
recovery
|
|
|
83
|
83
|
Net loss
|
|
|
|
(4,100)
|
|
|
|
|
|
Adjusted Segment
EBITDA1 reconciliation
|
|
|
|
|
Segment income (loss)
from operating activities before corporate expenses
|
318
|
(2,085)
|
|
|
Add:
|
|
|
|
|
Depreciation and
amortization
|
186
|
515
|
|
|
Stock-based
compensation
|
129
|
268
|
|
|
Adjusted Segment
EBITDA1
|
633
|
(1,302)
|
|
|
|
|
|
|
|
Adjusted
EBITDA1 reconciliation
|
|
|
|
|
Net loss
|
|
|
|
(4,100)
|
Add
(deduct):
|
|
|
|
|
Depreciation and
amortization
|
|
|
|
753
|
Net finance
costs
|
|
|
|
148
|
Stock-based
compensation
|
|
|
|
1,025
|
Income tax
recovery
|
|
|
|
(83)
|
Adjusted
EBITDA1
|
|
|
|
(2,257)
|
|
|
|
|
|
Total
assets
|
25,227
|
44,384
|
26,063
|
95,674
|
Cash, cash
equivalents and short-term investment
|
2,379
|
–
|
20,486
|
22,865
|
Working
capital2
|
3,337
|
(1,031)
|
19,645
|
21,951
|
__________________________
|
1
See "Caution Regarding Non-IFRS Financial
Measures".
|
2
The working capital is presented for
information purposes only and represents a measurement of the
Corporation's short-term financial health mostly used in financial
circles. The working capital is calculated by subtracting current
liabilities from current assets. Because there is no standard
method endorsed by IFRS, the results may not be comparable to
similar measurements presented by other public
companies.
|
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SOURCE Neptune Wellness Solutions Inc.