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Edited Transcript of NEPT.TO earnings conference call or presentation 16-Nov-20 9:30pm GMT

·36 min read

Q2 2021 Neptune Wellness Solutions Inc Earnings Call Laval Nov 17, 2020 (Thomson StreetEvents) -- Edited Transcript of Neptune Wellness Solutions Inc earnings conference call or presentation Monday, November 16, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Michael Cammarata Neptune Wellness Solutions Inc. - President, CEO & Director * Toni Rinow Neptune Wellness Solutions Inc. - CFO & VP ================================================================================ Conference Call Participants ================================================================================ * Aaron Thomas Grey Alliance Global Partners, Research Division - MD & Head of Consumer Research * Gerald John Pascarelli Cowen and Company, LLC, Research Division - Associate * John Chu Desjardins Securities Inc., Research Division - Analyst * John Mills ICR, LLC - Managing Partner ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by, and welcome to the Neptune Wellness Solutions Inc. Q2 Earnings Call. (Operator Instructions) I would now like to hand the conference over to your speaker today, John Mills, Investor Relations. Thank you. Please go ahead, sir. -------------------------------------------------------------------------------- John Mills, ICR, LLC - Managing Partner [2] -------------------------------------------------------------------------------- Good afternoon, everyone, and thank you for joining us. This afternoon, we issued a press release announcing our results for the second quarter of fiscal year 2021. We also issued our management's discussion and analysis and consolidated financial statements. These documents have been filed with the Canadian securities and regulatory authorities of the United States Securities Commission and are available on the company's corporate website. Before we begin, I'd like to remind you that all amounts discussed today 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 statement, except as may be required by Canadian and U.S. securities laws. A number of assumptions were made by us in preparing these forward-looking statements, which are subject to risks. Results may differ materially from what is projected, and details of these risks and assumptions can be found in our filings on SEDAR and with the Securities and Exchange Commission. Joining me on the call today, we have Michael Cammarata, our President and Chief Executive Officer; and Dr. Toni Rinow, Chief Financial Officer, to this morning, the company announced has been appointed Global Chief Operating Officer. Toni will begin providing an operating update and a review of our second quarter financials. Michael will follow with an update on our strategic path. Now I will turn the call over to Toni. Toni, please go ahead. -------------------------------------------------------------------------------- Toni Rinow, Neptune Wellness Solutions Inc. - CFO & VP [3] -------------------------------------------------------------------------------- Thank you, John, and good afternoon, everyone. Before I comment on behalf of Neptune's Board of Directors, our executive team and all of our staff, we hope and trust that you and your loved ones remain healthy during this unprecedented time, especially as cases of COVID-19 continue to surge. Neptune is pleased with our second quarter results and strong expansion of our product lines and strategic growth of our distribution channels during what has been a restructuring period over the past 3 months. We continue on the path to transform our company in order to be best positioned to meet growing consumer demand across the 3 categories we serve: the health and wellness industry, the consumer packaged goods industry and the projected $130 billion global cannabis market. To that end, it's important to note that 12 months ago, the distribution of our consumer product goods represented 0 revenue for Neptune. To date, it is responsible for 70% of our gross revenue. Our second quarter total revenue alone represents 97% of total revenues for the full fiscal year 2020. This is proof that our strategic initiatives are working. As you can see from our top line growth and channel expansion during the first 6 months of fiscal year 2021, Neptune revenue has never been better in our 20-year history as a company. In a short period of time, our newly assembled world-class executive team has executed on our shift from a B2B extraction company to a fully integrated health and wellness platform centered around a dual go-to-market approach that focuses on delivering B2B and B2C products to millions of consumers around the globe, resulting in diverse and multiple revenue streams. This approach sets Neptune apart from its competition and is yielding consistent long-term revenue opportunities. One important example that I'm delighted to announce today is that Neptune has secured at least $100 million in purchase orders. It should be noted that the purchase orders are not guaranteed, and there is no certainty that all of the orders will be completed or that they will be fulfilled in their entirety due to such things as logistics delays. Nevertheless, this is indicative of business interest that Neptune is a preferred distributor for major corporations seeking innovative and critical health and wellness products. Despite the decline in global economic activity since the outbreak of COVID-19, the successful steps Neptune has taken during this difficult economic period have increased sales, distribution and reached both the business-to-business and business-to-consumer segments in the consumer packaged groups market and set Neptune to deliver compound growth for years to come. To understand the growing momentum at Neptune, I would like to explain how our transformation has occurred and what lies ahead. There are 4 primary steps: step 1 of our investment phase. We built a portfolio of scalable brands, including Forest Remedies, Ocean Remedies, Neptune Wellness, Mood Ring and Oceano. Our goal is to revolutionize the health and wellness marketplace and meet consumer demand for the integration of cannabis into holistic health and wellness formulation, such as those from -- in Neptune's own and operated brands. But we see it as being far more than that. Today, a consumer can harness a right range of cannabinoid benefits such as this antifungal antibacterial and moisturizing properties, integrated into products from toothpaste to deodorants, hand sanitizers and to daily household usage. Beyond medicinal and recreational cannabinoids, Neptune will integrate cannabis into the CPG marketplace across a wide variety of categories. These product categories are ripe for Neptune's next step in the months to come. With the election of Joe Biden as the next President of the United States, the decriminalization of marijuana has taken a giant step forward. In our call released on November 9, 68% of Americans, a record high once marijuana legalized, with voters in Arizona, Montana, New Jersey and South Dakota approving marijuana ballot measures, the total number of states to have legalized marijuana, now sits at 15, along with the District of Colombia. This support of voters validate the American opportunity for Neptune and demonstrates the value proposition to us as an organization as a world-class leader in [this booming] sector. Accordingly, in addition to our operations at our state-of-the-art 25,000-square-foot facility in North Carolina, the organization plans to open a Florida-based office in 2021 to focus around U.S. legislation and the expectations it represents for Neptune. The second quarter was also transitional and it will continue through Q3. We made additional investments, including approximately $1.9 million in CapEx related to our Sherbrooke facility in Quebec when we transition from low-margin B2B offerings to higher-margin B2C offerings with Mood Ring, our sustainable and premium cannabis products for the Canadian market. Mood Ring uses our proprietary cold ethanol extraction process technology to create full spectrum extracts for the company's CPG products and newly implemented solventless extractions for THC concentrates. These investments included $20 million over the past 2 years related to production ramp-up and additional expenses related to the start-up of Mood Ring. While it's important to note that we will continue to make investments in the third quarter, the significant investments that require significant capital have already been made. What's more, we anticipate the launch of the Mood Ring products to begin contributing revenue. Already, we have secured a footprint for Mood Ring of at least 515 retail stores across 2 Canadian provinces from regulators with the opportunity to scale to an additional 582 retailers. This provides Mood Ring access to 80% of the Canadian market. In line with that, we anticipate Q4 revenue to accelerate at a greater speed than Q3. Step 2 was improving our cost structure to maximize our existing business, and we are beginning to realize the momentum of our strategic initiatives. We are working towards increasing efficiency and future profitability as a result of reducing our headcount by 25%. This will have a favorable impact on the fiscal 2021 process. The headcount reduction represents annualized cost reduction of over $3.5 million, with the understanding that Neptune will continue to reinvest in world-class [talent] to grow our business. The human capital enabled us to report the previously mentioned purchase orders of in excess of $100 million. Additionally, we recently succeeded in our petition to decertify the union representing employees at our facility in Sherbrooke. The benefits of this were realized immediately with increased operational key performance indicators, such as revenue per employee, with a potential of fourfold increase of efficiency in fiscal 2021. We will also retool our North Carolina facility to become a multipurpose and multi-use platform to meet large-scale consumer demand with various products in the hemp, cannabis and other health and wellness sectors. With restructuring activities and costs largely behind us, we are now poised for expansion and profitability. The outlook is indeed positive. This leads me to step 3 and the most important asset of our business innovation. Having re-architect the business to take advantage of both internal and external supply chain, making us agile and scalable across all of our divisions, we expect to make tangible progress in the third and fourth quarter through leveraging our extraction and formulation expertise to meet market demand. We believe this will establish Neptune as an industry leader and be central to securing more long-term supply agreements, more steady and predictable revenue and margin improvements on our brand offering as well as we sell alongside our other innovation offerings, including hand sanitizers, the Neptune Air, an infrared no-touch forehead thermometers and Neptune Halo, an electronic pulse oximeter to monitor heart rate and act as an oxygen saturation monitor. In all, we have now 16 SKUs that we have brought to market, 11 in hemp and cannabis and 5 in health and wellness. Our mission is to become the brand leader in cannabis and have established a KPI program to deliver new SKUs for the next 5 successive quarters. And we are not done. As we did in March to respond to consumer demand for PPE during COVID-19, we have identified a shortage in the market for sustainable sanitizing wipes. Accordingly, Neptune submitted to the FDA registration for this product and believe issuance of the code is imminent. Furthermore, Neptune has now agreements with multinational retailer such as our strategic partner Costco to stock our products. Our Neptune Wellness solution hand sanitizers, gel in 2-ounce, 24 packs made in the United States and not tested on animals is the latest offering from the innovations team. From last Friday, the product became available for sale on Amazon, as the world's largest e-commerce platform, along with 3 additional SKUs on our storefront. Additionally, Neptune has partnered with a leading CPG company to expand its distribution channel in the personal care and hygiene product lines. This agreement is expected to generate revenue in the range of USD 65 million to USD 137 million over the next 18 months. This deal will serve consumers at both wholesale and retail levels as we're now a U.S. and Canadian master distributor for this product. Because of our expertise in distribution and channel management, which is as a direct result of strategic best-in-class hires over the past 6 months, we will expand our reach into major North American retailers to create new and additional distribution opportunities for Neptune's owned and operated consumer packaged goods products. Step 4 is the execution phase. We are working on delivering on those very large purchase orders over the course of the next several quarters. We also expect to leverage these distribution agreements even further to generate further multimillion dollar purchase orders and sales. We are extremely well positioned financially to capitalize on these opportunities. At the end of the second quarter, we had $9 million in cash and cash equivalents, and we recently completed, subsequent to the end of Q2, a USD 35 million private placement for working capital. We also announced we have entered into a USD 45 million credit facility to support the fulfillment of large purchase orders. Our strategic decision to focus on the innovation of health and wellness is based on our belief that we are standing on the edge of a plant-based transformation driven largely by consumer demand. When we look at the market, our behavioral inside research has identified 2 primary wellness consumers in the cannabis market: one, millennial; and two, baby boomers. These type of first nature of these demographic is as broad as is phenomenal for our future growth as a business. We know that people are still getting used to the idea of cannabis, but overall acceptance is high across generations and other nations with recent research showing 40-plus countries are exploring a legal cannabis framework. A great example of how we are expanding into plant-based product lines is the collaboration with legend dairy animal behavior expert and conservationist, Dr. Jane Goodall, under the Forest Remedies brand. The Wonders of Africa Essential Oil Kit celebrates Dr. Goodall's remarkable passion and work. And this collection includes 4 essential oils that are all sourced from Africa to promote balance, harmony and vibrance. Inspired by her love of Africa and passion for protecting wildlife, Neptune built with the world's recognized leader International Flavor and Fragrances, this exclusive line of natural plant-based wellness products. It is what we call a partnership for change. It directly supports the legendary conservationist's efforts to create a better world for all living things. So disruptive that this product line had received earned media in leading publications such as Vogue, Grazia, Yahoo! Finance and others. Neptune is fully aligned with Dr. Goodall's approach to creating a sustainable world for generations to come where consumers want more ecological products and corporations like Neptune have a moral responsibility to minimize their environmental impact, which is why with every purchase, we donate 5% of the sales price to the Jane Goodall Institute and their mission to protect wildlife and empower local communities. Not just a duty, it's good for business, too. We know for our own research that consumers want to support companies that are taking a stand of urgent social and environmental issues. With our differentiating merchandising assortment, a comprehensive set of convenient fulfillment options, strong balance sheet and our deeply dedicated team, Neptune is well equipped to navigate the ongoing challenges of the COVID-19 pandemic and continue on the path we have created to grow profitability in the years ahead. Now I would like to walk through the results of our second quarter of fiscal 2021. The second quarter revenue was in line with our expectations and generated almost as much revenue than all of fiscal 2020. We have unlocked growth and built Neptune for a better future with strong brands and strategic investments in the growth of our company. Our dual go-to-market strategy has yielded results that prove our business model. We have shown the consumers we have compelling value proposition. We are levering both our capital investments over the last couple of years in our investment and SG&A to build out a world-class team and the support of our anticipated continued maturation. Total revenues for the 3-month period ended September 30, 2020, increased 340% to about $28.7 million compared to $6.5 million in the same period the prior year. On a sequential basis, compared to the restated first quarter of fiscal 2021, revenue increased 155%. Year-to-date, in fiscal 2021, revenues now totaled $40 million compared to $10.9 million, an increase of 267% from the same period last year. The increase from the 3-month and 6-month period ended September 30, 2020, were mainly attributable to new health and wellness products such as thermometers and hand sanitizers and cannabis-related products. Gross profit for the 3-month period ended September 30, 2020, decreased to a loss of $4.6 million compared to a profit of $9,000 in the prior year period and a profit of $3.3 million in the first quarter of fiscal 2021. The decline in gross margin is a reflection of the strategic decisions to invest in the company as we position ourselves for strong long-term growth. Neptune launched numerous new products since the beginning of fiscal 2021, causing high production ramp-up costs to temporarily reduce the gross margin of those new products. The situation is expected to stabilize over the course of the next few quarters. Net loss for the quarter ended September 30, 2020, amounted to $21.8 million compared to a net loss of $20.8 million for the quarter ended September 30, 2019, for an increase of about $1.1 million. The increase is attributable mainly to the decrease in gross margin and the increase in SG&A expenses, partly offset by the decrease by $2.4 million in net finance costs and by a $2.8 million increase in income tax recovery. Adjusted EBITDA loss was $12.9 million for the 3-month period ended September 30, 2020, compared to a loss of $4.6 million in the prior year period. The decline in adjusted EBITDA is mainly attributable to the change in net loss; the decrease in acquisition cost of $1.8 million; and stock-based compensation, $5.2 million; and excluded net finance costs, $2.4 million; and an income tax recovery, $2.8 million, partially offset by the costs related to our onetime cybersecurity incident for $2 million; the increase in non-employee compensation related to warrants, $2.5 million; and in depreciation and amortization of $0.7 million. When reconciling adjusted EBITDA to the net loss, you will see that there was $5.5 million in noncash transactions that were adjusted out of EBITDA and only $3.5 million of the adjustment, that did touch the company's liquidities, including a little less than $2 million for cybersecurity incident that was resolved by Neptune with no expected material effect on its operations going forward. Cash and cash equivalents were $9.1 million as of September 30, 2020. Subsequent to the quarter end, we completed a USD 35 million private placement for working capital and other general corporate purposes. We also recently announced we have entered into USD 45 million credit facility with Perceptive Advisors to support the fulfillment of large purchase orders placed by one of our customers. This product is being sourced by us from an overseas supplier, and we are thrilled to have the support from Perceptive, which is a recognized leader in growth capital financing to support the increasing demand for our products. We are also exploring a number of nondilutive financing options with top banking partners. I should also note that management is no longer issuing quarterly revenue guidance given the uncertainty and the timing of the sales in relation to production and transportation issues related to the pandemic situation, such as FDA requirements, lack of raw materials worldwide and global supply chain challenges. Moreover, due to the worldwide COVID-19 pandemic, supply chains have experienced many challenges, such as delays and unexpected failures in third-party manufacturers and logistics, including delays at customs or port of entry. I will now turn the call over to our Chief Executive Officer and President, Michael Cammarata, to discuss the company's strategic initiatives. -------------------------------------------------------------------------------- Michael Cammarata, Neptune Wellness Solutions Inc. - President, CEO & Director [4] -------------------------------------------------------------------------------- Thank you, Toni, and good afternoon, everyone. As we are transforming to a fully integrated health and wellness platform, we are creating and expanding brands that will change the world through state-of-the-art plant-based ingredients and will have a positive impact on our planet, people and pets. Every day, we can vote for the world we want with the products we purchase. Consumers' preferences go beyond Martha Stewart for a stock at Jane Goodall product lines, as consumers demand that brands deliver a broader impact on social and environmental issues. We will always put the consumer first in everything we do. It's not too long ago that people looked at us as only an extraction company. We are leading the transformation in record time to a company with brands in the consumer packaged goods space. This allows us to have unmatched product distribution opportunities. In Canada, we will soon have access to more than 80% of the cannabis market. In the United States, we are building, extending and collaborating on brands for some of the largest retailers and global consumer packaged goods companies. In short, Neptune has never been better. We are building a sizable head start on the competition and are one of the largest third-party cannabinoids product manufacturers. Our extraction capabilities are diverse, and we have multiple revenue streams from both our B2B and B2C businesses. We have moved closer to the consumer with our Forest Remedies, Ocean Remedies and Neptune brands as well as our newly launched Mood Ring cannabis brand, with more brands coming soon. We continue to improve our efficiencies as we move towards the new vision and optimize the bottom line. We are focused and agile and able to respond in real time, which is unique in the industry. When I joined Neptune in July 2019, we were tasked with making the transition from a B2B to a diverse and fully integrated health and wellness company focused on national plant-based and sustainable brands. To do that, we've had to identify opportunities that can be improved by cannabinoids and plant-based ingredients such as adult recreation, medical but also consumer packaged goods uses. While we still have work to do to accomplish our goals, our B2C business is growing, and we remain strong in our B2B initiatives. This dual go-to-market strategy sets Neptune apart from its competition and is yielding results, long-term revenue opportunities for the company. The time for cannabis is now. And the many uses for cannabinoids have the potential to disrupt industries and supply chains for the better. Legalization of cannabis is gaining momentum in the United States with additional states, including Arizona, Montana, New Jersey and South Dakota changing their restrictions in the recent election. We believe the legalization of cannabis has never been closer. Neptune can win in the recreational market, the medical market and the consumer packaged good uses for cannabis and cannabinoid derived from hemp and/or cannabis. As we look to the next phase of growth, Neptune is focused on innovations, the possibilities to call multiple categories and the legal markets within the United States. Its antifungal antibacterial and moisturizing properties can be used in products from toothpaste that can fight gingivitis to plant-based deodorants that can compete with clinical-strength products to hand sanitizers that are better for the skin. In the coming months, we believe cannabis will be an important part of strengthening U.S. economic recovery and raising revenues for both state and federal governments. In Canada, Neptune will bring its Mood Ring cannabis brand to more than 534 retail stores, with the opportunity to scale to an additional 582 retailers. This provides Mood Ring with access to 81% of the Canadian market. And we will soon be launching a second brand exclusively for Quebec. And recently, Neptune has launched its hand sanitizers on amazon.com in 1 liter and 2-ounce, 24 packs. Additional sizes and products will be added to the Neptune storefront in the coming weeks. Some of these products will also be available at Costco, online and in-store. You also expect to see storefronts on Amazon for our other brands coming soon. We remain focused on new product opportunities for hygiene, including sanitation wipes. We have submitted additional products to the FDA and EPA for registration and look forward to making those announcements soon. We remain committed to enhancing lifestyles of people around the world through eco-friendly and groundbreaking products. Together, we can create a more sustainable world that with every purchase makes a difference. And now I'm going to turn it over to the operator for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from the line of Aaron Grey from Alliance Global Partners. -------------------------------------------------------------------------------- Aaron Thomas Grey, Alliance Global Partners, Research Division - MD & Head of Consumer Research [2] -------------------------------------------------------------------------------- So first question for me, I just want to clarify something really quickly. I understand how you're not giving guidance going forward. But just looking back on the guidance you provided for the quarter, 28 to 32. Just given the restatement that you had last quarter, was that based off like apples-to-apples basis, would have been higher if you were still doing the gross versus net? I just want to ask a clarifying question first and how that guidance was given back then versus how you reported it now. -------------------------------------------------------------------------------- Michael Cammarata, Neptune Wellness Solutions Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- I think that would go to a -- this is Michael Cammarata. It would go to a technical accounting measure related to Canada. So Toni would be more of the expert onto that. But what we're looking for is the amount of products that -- and as you can see, with over $100 million in purchase orders, we're starting to pile a nice backlog, and we're working the teams around the clock to continue to fill orders. But some of those orders, we would clarify the profits from. And some of those orders, we would classify the revenue and the profits from. That's obviously related to technical measure related to Canada. -------------------------------------------------------------------------------- Aaron Thomas Grey, Alliance Global Partners, Research Division - MD & Head of Consumer Research [4] -------------------------------------------------------------------------------- Okay. All right. Great. And then Michael, as you continue to focus on distribution specifically within the U.S., can you talk about the strategy of right now, how you're looking to expand that distribution through the partnerships that you have with the large CPG companies that you guys have announced? And how that really is going to be -- as you look at kind of the top line opportunities and also the margin opportunities, how do you look to set up to get as much distribution as possible you know now, so you do have scale in shelf space when there is time for you to implement either the plant-based or CBD type, CPG products of your own as you kind of move forward. -------------------------------------------------------------------------------- Michael Cammarata, Neptune Wellness Solutions Inc. - President, CEO & Director [5] -------------------------------------------------------------------------------- Yes. So we are actively focusing on our position. And we took a unique approach to try and make sure that we optimize our bottom line as we're focusing really on profitability. So the distribution that we've set up was evidenced with the hand sanitizer launch. We set up a distribution pipeline that allowed us within weeks to scale at the brand. And I would also point out that our hand sanitizers, we started off with an international supply chain. And then at the request of a U.S. retailer, we actually switched it completely to be made in the U.S. And we did that within a matter of weeks and maybe a month. So our supply chain is robust, fast and can change on time, and that's something that's very unique. And also a lot of our consumer packaged goods companies that we've partnered with have also looked at us and optimized us for enhancing their supply chains. So we are in the process right now in enabling different retailers in the drug market like drugstores as well as club stores like Costco, we went up to about in that quarter, 50% of the Costco stores, and then had to regroup and then we'll be expanding hopefully, in December, the rest. And we'll also be rolling out one of our CPG partner's products starting in December. They have a shipment moved from August to December. So as we're seeing international supply chain, some of our CPG partners are more reliant on global supply chains and whether the -- with the new launches of Xbox and HP and a lot of other products happening simultaneously in this holiday season, we've seen an increased shortage of air freight availability and some cargo availability. But we are definitely domestically building the supply chain and utilizing our manufacturing capabilities to make sure that we can bring product directly to the consumer as fast as possible. At the same time, we're helping our international consumer packaged goods companies enhance their supply chain, again, to bring product quickly to the consumer. -------------------------------------------------------------------------------- Aaron Thomas Grey, Alliance Global Partners, Research Division - MD & Head of Consumer Research [6] -------------------------------------------------------------------------------- Appreciate that color. And just one more quick one for me, and then I'll jump back in the queue. So congrats on the $100 million in purchase orders. So I sort of want to understand that it's not guaranteed. And there's kind of some uncertainty on timing. But just kind of any insight you can provide in terms of like -- it looks like there were 6 clients. So in terms of the frequency and kind of how big those purchase orders might be, just as we think about how much potential lumpiness we might see in the quarters if you do get it within 1 quarter from those customers and then the next just as we look to model out the next couple of quarters? -------------------------------------------------------------------------------- Michael Cammarata, Neptune Wellness Solutions Inc. - President, CEO & Director [7] -------------------------------------------------------------------------------- Yes. So we are -- this -- the size of the orders when we started, they used to be a couple of hundred thousand dollars in purchase orders in a single order. We're now seeing orders that are in excess of $1 million to $10 million to $25 million in a single order. So there is potential for lumpiness. And that's why we want to make sure that we didn't guide specifically anything quarter-to-quarter because at the end of the quarter, depending on customs and shipping, that could affect -- it could go like we had orders from Q2 that went into Q3. And so it's a very hard as we're in this hyper growth mode to look at it, but it's actually a good spot to be in. I think we've successfully gone. I remember when I first -- when people would compare me to [extractors] on a daily basis, but I think we've definitely done really good in that peer group and exceeded. And I think now we're starting to gain momentum, especially with our cannabis brand. And then now with the opportunities in the States, as we mentioned earlier, we'll be opening up an office in the U.S. to heavily focus on making sure Neptune is in the first position and ready to take advantage of opportunities as we're planning for. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Your next question comes from the line of Gerald Pascarelli from Cowen. -------------------------------------------------------------------------------- Gerald John Pascarelli, Cowen and Company, LLC, Research Division - Associate [9] -------------------------------------------------------------------------------- So I'm going to stick on the top line as well. I fully understand that given kind of the uncertainty and timing disparities, that you're not going to guide anymore. But regarding the large distribution partnership with the CPG company, you did offer the 65 to 137. So I guess any more color you can provide on how you came up with that range, and then maybe what's embedded in the low end of the expectation versus the high end, that would be helpful. -------------------------------------------------------------------------------- Michael Cammarata, Neptune Wellness Solutions Inc. - President, CEO & Director [10] -------------------------------------------------------------------------------- Yes. So that range would work on, obviously, by that CPG partner and with our teams. We did see that they had a product change that they made that originally was going to launch in August and then ended up launching obviously the shipments in December. We feel very confident in that range and see opportunities to actually expand. But again, as far as we're [not moving] 1 product orders and $100,000 purchase orders. These are very large orders through very large customers as well. One of the unique things that we've even been able to secure is distribution across even professional opportunities like theme parks and cruise ships and obviously, the frequency of those when they start kicking in and the cruise ships start going back, every 7 days, product [dock] on their ships and theme parks almost daily. So as we're scaling up our customer distribution capabilities, not only for physical retail in the U.S., but also for the professional retail, the size of the orders are much larger than a steadied smaller group of purchase orders. So we feel very confident in the partnership with our CPG customer. They do have more overseas manufacturing utilization. Neptune has been focusing heavily on building out on its position in North America and specifically in the U.S. and Canada. So we would hopefully see in the next couple of quarters a steady flow. But again, we are in a hyper-growth mode, and we have to make sure that auditors and everybody sign off on the timing of the shipments when we receive the product after they're cleared at customs. We are seeing that it used to take a day for customs. We're seeing up to 14 days for some large shipments. -------------------------------------------------------------------------------- Gerald John Pascarelli, Cowen and Company, LLC, Research Division - Associate [11] -------------------------------------------------------------------------------- That's -- yes, go ahead, Toni, sorry. -------------------------------------------------------------------------------- Toni Rinow, Neptune Wellness Solutions Inc. - CFO & VP [12] -------------------------------------------------------------------------------- Yes, a great response, Michael. I would also add that there's opportunity for growth well beyond to that CPG company. So that's one of the components. And there is opportunity for growth in our other segments. So growth will accelerate, as has been our goal into the -- successfully into the cannabis B2C sector and also expanding further on some other products from the innovation team. So that CPG will be one of the goal segments, and it will contribute to the growth and there's opportunity beyond that. -------------------------------------------------------------------------------- Gerald John Pascarelli, Cowen and Company, LLC, Research Division - Associate [13] -------------------------------------------------------------------------------- Got it. Super helpful. My next question, Toni, this is probably for you. It's just on SG&A. Obviously, when you provided your business of your operational update, you alluded to cuts. I guess as we look forward, if you could just maybe give us a cadence on what we could expect just in terms of the SG&A line, maybe over the back half of this year and then into next year. I think that would be helpful for modeling purposes. -------------------------------------------------------------------------------- Toni Rinow, Neptune Wellness Solutions Inc. - CFO & VP [14] -------------------------------------------------------------------------------- Yes. So SG&A has been increasing somewhat and up as it relates to the talent addition on the innovation team, and that has been showing a very good success as proven by the large POs of $100 million that we have been able to secure. So investment into the team has been -- already been successful. However, I also would like to see now more revenue growth, that we have internal KPIs such as revenue per employee, and I would like to see that KPI growing over time faster and that's the projection. So if there is growth in SG&A, I need to see proportionately more growth on the revenue side in order to meet the increase in KPI targets that we have. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- (Operator Instructions) Your next question comes from the line of John Chu from Desjardins Capital Markets. -------------------------------------------------------------------------------- John Chu, Desjardins Securities Inc., Research Division - Analyst [16] -------------------------------------------------------------------------------- So just following up on that $100 million order that you announced, and I can appreciate time frame in terms of shipping, the uncertainty of customs and supply chain. But if all of that were not an issue under the circumstances, can you give us a sense of if everything was going smoothly on all of those fronts, what kind of time frame could you see? And obviously, we know it, it can spill over several quarters beyond that but can you give us a sense on ideally what that could look like? -------------------------------------------------------------------------------- Toni Rinow, Neptune Wellness Solutions Inc. - CFO & VP [17] -------------------------------------------------------------------------------- Would love to and would make me, as CFO, [at works] extremely happy if I have good visibility on getting those orders in. But John, during these times, we just have seen so many variables of things that are affecting this from raw materials, worldwide challenges, from global supply chain challenges to logistics, cargo getting on flight, sitting in ports. So it's extremely difficult to kind of get to kind of a normalized scenario especially knowing that we are in this probably for another, let's say, 2 or 3 quarters in this pandemic situation. So it's very hard to predict. But what I can say is the fact that we are now securing purchase orders in an aggregate of $100 million, and I could -- I would like to qualify that $100 million as conservative. That's really a very strong indicator for the interest into Neptune, its innovation products and also its distribution and channel management capabilities. -------------------------------------------------------------------------------- John Chu, Desjardins Securities Inc., Research Division - Analyst [18] -------------------------------------------------------------------------------- And presumably, when you say that it's not guaranteed and the orders may not actually reach that number, is it a function of just how the products are performing presumably in terms of the demand? And obviously, if it's not performing up to standards or the demand just out there then from the customers would effectively go below that number? Is it as simple as that? -------------------------------------------------------------------------------- Michael Cammarata, Neptune Wellness Solutions Inc. - President, CEO & Director [19] -------------------------------------------------------------------------------- I think that... -------------------------------------------------------------------------------- Toni Rinow, Neptune Wellness Solutions Inc. - CFO & VP [20] -------------------------------------------------------------------------------- Yes. We have -- go ahead, Michael. -------------------------------------------------------------------------------- Michael Cammarata, Neptune Wellness Solutions Inc. - President, CEO & Director [21] -------------------------------------------------------------------------------- Go ahead, Toni. -------------------------------------------------------------------------------- Toni Rinow, Neptune Wellness Solutions Inc. - CFO & VP [22] -------------------------------------------------------------------------------- We have seen a lot of fluidity in POs under these circumstances. People are desperately seeking products in the PPE space during the pandemic. So many of our customers that are thinking to personally, they tell me whatever product we can get, we have to take it into its inventory and distribute to that, they will take. So the bottleneck during these times is not at the consumer end, but it's the manufacturer end. So that provides us a lot of variables. But these $100 million purchase orders, again, I qualify them as being conservative, which tells you that I feel pretty comfortable that we can bring them [all]. And I don't -- hopefully, I don't see any issues with them. But again, these are unprecedented times, and we have seen that as the pandemic and COVID-19 surges, the economic instability is just increasing. And that would lead me -- us to think about -- or have a certain disclaimer on that. -------------------------------------------------------------------------------- John Chu, Desjardins Securities Inc., Research Division - Analyst [23] -------------------------------------------------------------------------------- Now you did say in your release that the... -------------------------------------------------------------------------------- Michael Cammarata, Neptune Wellness Solutions Inc. - President, CEO & Director [24] -------------------------------------------------------------------------------- The one thing I would add to that, too, is like we're seeing not just in the PPE, but even with the launching of Mood Ring in Canada, We actually are very fortunate to have [Alanza] as a partner in the capsules. So we're seeing demand on our capsules and our high CBD-based products. So we're seeing demand across the board on different products. And I think that, if anything, we've had to limit the -- and allocate the amount of products that we have on order in 2 different customers and retailers because we're also working with the retailers directly just on prepping and helping them build out their CBD or hemp lines as well as other product lines that we're working with them in a collaborative way in the United States. And then also like we talked about with Quebec, we're going to be launching an exclusive brand just for that territory. So we have a lot of great initiatives that are going on right now. And we have a lot of demand for the products because we've taken a unique approach. Like I would like anybody to go on Amazon and buy our 2-ounce hand sanitizer because the formulation on that 2-ounce, which is our latest state-of-the-art, is pretty amazing when you look at the performance. And then followed up by our Dr. Jane Goodall hand sanitizers and product line and in our hemp and CBD and product lines. We're definitely starting to see a heavy demand for high-quality products. And Neptune has been very fortunate not only to develop high-quality products and do it affordably, but also have a purpose with each purchase. And I think that, that's something that sets us apart. And we'll also be talking later this year about our ESG and really bringing to market all the initiatives that we do as a company internally and externally as well. So I just want to add that in. -------------------------------------------------------------------------------- John Chu, Desjardins Securities Inc., Research Division - Analyst [25] -------------------------------------------------------------------------------- Okay. Can you help me reconcile though that there is a statement in the MD&A about you're seeing lower demand for sanitizer. So is there a risk that for some of the other PPE that presumably that $100 million is focused on that at some point you're going to see more excess supply? -------------------------------------------------------------------------------- Michael Cammarata, Neptune Wellness Solutions Inc. - President, CEO & Director [26] -------------------------------------------------------------------------------- It's a variable, right? It's a variable when it comes to demand. Like there's different SKUs that have a lot higher demand and it just goes up and down. So it's not -- these orders aren't -- we released -- launched these products several months ago. So it's been an up racket but we definitely do see that in hand sanitizers, there's a change in formulation. People want products, and that's why you could go to Amazon and buy the product. You'll see the performance that we use that is almost hospital-grade and exceeding it as well as with the scent and the smells. That's something that we work really closely with IFF on. So we see an opportunity. And again, we scale with the demand. It does take a couple of weeks to ramp up and a couple of weeks to slow it down. But there's other PPE products and stuff that we're working on with the CPG partners and our other retail partners for their private labels as well. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.