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Neptune Technologies (NEPT) Q4 2021 Earnings Call Transcript | The Motley Fool

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Neptune Technologies (NASDAQ:NEPT)
Q4 2021 Earnings Call
Jul 15, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the Neptune Wellness Q4 Conference Call. [Operator instructions] This call is being recorded on Thursday, July 15, 2021. I would now like to turn the conference over to Steve West. Please go ahead.

Steve WestInvestor Relations

Thank you, operator, and good afternoon, everyone. With me this afternoon are Michael Cammarata, president and chief executive officer; and Toni Rinow, chief financial and global operating officer. As a reminder, all amounts discussed today are in Canadian dollars, and our remarks may contain forward-looking information representing our expectations as of today and may be 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. Assumptions were made in preparing these forward-looking statements, which are subject to risks as laid out in our public filings found on SEDAR and EDGAR. Before turning the call over to Michael, I would just like to say I’m excited to officially be part of the Neptune team, and I look forward to meeting all our analysts and investors soon. With that, I will now turn the call over to Michael.

Michael CammarataChief Executive Officer & Director

Thank you, Steve, and good afternoon, everyone. Before I begin my prepared remarks, I want to officially introduce Steve as our new vice president of investor relations. Many of you already know him from his time as a Wall Street restaurant analyst and investor relationship officer at Panera Bread, DICK’S Sporting Good and more, and recently, Acreage Holdings, a leading MSO in the U.S. cannabis industry.

I’m excited to welcome Steve to the Neptune family to lead our investor relationship program. The global pandemic has contributed to a challenging year for everyone, both personally and professionally. At Neptune, I’m proud we met those challenges head on, transforming a 22-year-old company from a low-margin, slow-growth B2B extraction company to a diversified health and wellness consumer packaged goods company, focused on delivering positive change across our four verticals: cannabis, nutraceuticals, organic food and beverage, beauty and personal care. We took a multipronged approach to prepare our businesses for sustainable growth and margin expansion with the goal of creating a long-term shareholder value.

We exited our extraction business in both Canada and the U.S., streamlining our operations and moving up the value chain to create higher-margin branded cannabis products, which are now selling in about 65% of the legal Canadian market. We’ve established new strategic partnerships, rebranded and acquired assets with the goal to develop strong, lasting brands across our four verticals. We brought together a world-class team with proven track records of scaling brands to the full potential. We are building on decades of experience in nutraceutical innovation and extraction, and leveraging our supply chain to produce widely accessible better-for-you consumer packaged goods.

Through our products and values, we have created an innovative consumer packaged goods company. We aspire to be carbon neutral and eventually carbon negative with the highest social and environmental standards at the core of everything we do. Today, Neptune is pioneering the innovation of plant-based consumer product goods with cannabinoids and other core super ingredients that go far beyond adult and medical use and are central to our everyday lives and wellbeing. We will continue to organically grow our existing brands by creating new innovative products and leveraging our strategic partnerships to expand our distribution and drive higher margin sales.

At the same time, we will continue to explore strategic M&A opportunities that align with our long-term goals. Quite simply, our vision is to become a leading health and wellness consumer packaged goods company with a unique portfolio of all natural, plant-based, carbon-neutral, and eventually, carbon-negative lifestyle brand, driven by a single purpose to transform the everyday for a healthier tomorrow our suite of good for you, good for the planet consumer brands across multiple verticals are prepared to tap into large markets across the globe. Now, before I turn over the call to Toni for her financial review, I want to update you on a few of our business verticals. In our cannabis vertical, we have successfully launched our PanHash and Mood Ring brands.

PanHash was developed to reflect our Quebec roots and heritage. We recently launched our high CBD oil and CBD capsule products there, leveraging our extraction experience. While still very early, the initial consumer response in terms of sales and feedback has been very encouraging. Our other cannabis brand, Mood Ring, is currently sold in British Columbia and Ontario with plans to begin consumer sales in Alberta this summer.

As with PanHash, our initial products leveraged our extraction experience, both in THC and CBD oils and capsules, followed by our legacy hash product. After the quarter ended, we introduced three additional Mood Ring products in British Columbia, including our first-ever branded flower product, Florida Citrus Kush, bringing our total Mood Ring and product assortment to six SKUs. Today, we are just scratching the service of our full potential. We are selling to consumers in markets representing about 65% of Canada’s total legal market.

And once we launch into Alberta this summer, we will be selling our products into about 85% of the total legal market. Today, our products are sold in about 400 of approximately 1,900 existing and licensed stores we have access to. So, we have high expectations to continue ramping our cannabis business through the addition of new stores, as well as new products and form factors. Moving to nutraceuticals, we are focused on expanding this division through Biodroga, our leading nutraceutical company with patented technologies like MaxSimil, our exclusive Omega-3 delivery technology.

During the quarter, using our MaxSimil technology, we have developed and supplied two new supplements to our customers. These included CoQ10-enhanced fish oil supplement, as well as a CBD-enhanced fish oil supplement, both of which will be marketed and licensed through Biodroga’s customer base. Additionally, we have extended our product line and partnerships with the largest privately held vitamin catalog retailer in the U.S. by launching three new soft gel products.

As we continue to leverage our MaxSimil technology across new supplements and territories this quarter, we even reached an important milestone with the publication of our first ever clinical study in the Journal of Nutrition by Oxford University Press which showed superior efficacy of MaxSimil versus other fish oil supplements in Omega-3 absorption. Furthermore, we are undergoing a second study that compares the efficacy and bioavailability of MaxSimil when combined with CoQ10 against other fish oils and supplements. We have several other ongoing studies to evaluate the impact of MaxSimil as an oil carrier when combined with vitamins, K2, curcumin or even THC and CBD. We believe this groundbreaking research will help to support the long-term growth.

Looking forward, our nutraceutical growth strategy is focused on the expansion of our supply chain and manufacturing base, which should lead to lowering production costs, higher gross profit margins and increased return on invested capital. While we’re not yet in a position to discuss further details on our growth plans, our nutraceutical group is working around the clock and around the globe to drive profitable new growth. Turning to our newest vertical, organic food and beverage. Towards the end of the fiscal year, we acquired a controlling interest in Sprout.

Sprout is an organic plant-based baby food and toddler snack company. The acquisition supports our diversification and also our vision to become a leading plant forward health and wellness consumer packaged goods company. We acquired Sprout with the intent to rapidly grow sales by leveraging our strong global distribution network, and we have already done that by expanding Sprout’s baby food into Target across the United States and expansion to walmart.com. This was all achieved within just a few months.

After the quarter ended, we also announced the exclusive licensing agreement with CoComelon, the dominant No. 1 children’s entertainment show with more than 10 billion views on YouTube alone worldwide. CoComelon is consistently ranked in the Top 10 of all genres on Netflix. Securing an exclusive license agreement with the world’s No.

1 kid’s entertainment show was a no-brainer with more than 110 million subscribers on YouTube. We are targeting parents across North America to associate CoComelon with Sprout and have purchased our organic nutritious foods for their children. We believe the future for Sprout is very bright. While we have made significant progress on the distribution and marketing front, there is still much more to come.

Summing up our progress throughout this transition, we have exited slow-growth cannabis extraction business to move upstream in the value chain. The launch of our two cannabis brands, Mood Ring and PanHash, have exceeded our expectations, and we are preparing to scale and take market share. We have made significant progress with our Sprout acquisition through retail expansion and strong partnerships, with more to come. Our MaxSimil technology is being leveraged across our new supplements with supporting clinical studies to establish claims where possible.

I am proud to say we are fully transformed from a B2B cannabis and hemp extractor to a full scale, disruptive and diversified consumer packaged goods company with an open run rate of growth opportunities across the globe. I will now turn over the call to Toni to discuss our financial results.

Toni RinowChief Financial Officer

Thank you, Michael, and good afternoon, everyone. Today, we reported fourth quarter and fiscal year-end 2021 results. Our fourth-quarter reported revenue was $6.8 million, which decreased about 29% versus the $9.5 million reported in the fourth quarter of fiscal 2020, but increased approximately 104% versus our third-quarter reported revenue of $3.3 million. This year-over-year decline was primarily due to the transformation to a more diversified consumer packaged goods company, including our new branded cannabis launch in Canada.

This was partially offset by the consolidation of our Sprout acquisition. For the fiscal year 2021, we reported $46.8 million in revenue, which was an approximate 58% increase versus our fiscal 2020 reported revenue of $29.6 million. This increase was driven by significant growth in our B2C business and by the addition of the food and beverages verticals, partially offset by exiting lower-growth businesses through our recent transformation process. Gross profit loss during the fourth quarter was $24.8 million compared to a gross profit loss of $1.1 million in the comparable year ago period.

As for fiscal year 2021, the gross profit loss amounts to $36.2 million compared to $1.8 million the previous year. Gross profit declined primarily due to our innovations vertical and ramping new cannabis brands. Net loss for the fourth quarter was $60.3 million, which declined versus the net loss of $39.2 million for the comparable year ago period. Net loss amounted to $168.6 million for the fiscal year compared to $60.9 million the previous year.

The increase in net loss is attributable mainly to lower revenues and the decrease in positive changes in fair value and revaluation combined with prior cost of goods sold and SG&A expenses, partly offset by the decrease in impairment losses on assets. Adjusted EBITDA loss during the fourth quarter were $38 million, which represents an increase from the adjusted EBITDA loss of $5.8 million in the prior year period. The decline in adjusted EBITDA is mainly attributable to the transformation to a diversified CPG company, as Michael previously discussed. Moving to our balance sheet.

We ended the year with approximately $75.2 million in cash on hand. The increase in our cash position versus the third quarter was due to the CAD 69.9 million in gross proceeds we raised in an equity offering during the quarter. Our cash position, access to capital and the overall strength of our balance sheet continue to be a strength for the company, and we do not anticipate a need to raise additional capital for this year. Before turning the call back over to Michael for his concluding remarks, I wanted to discuss our outlook for fiscal 2022.

While we do not provide forward guidance, I do want to offer some color to help in your modeling efforts. Thinking about revenues, I want to touch on two items. First, as discussed, we exited extraction in Canada and the U.S., which were significant revenue sources in fiscal 2021. While we replaced those businesses with the launch of our branded cannabis products business in Canada, we started from scratch, so it will take time to realize meaningful revenue from our branded cannabis products.

That said, we are ramping quickly ahead of expectations and expect to achieve a run rate of about $1 million per month in the latter part of the fiscal year. Second, the global market for personal protective equipment, or PPE, slowed significantly in the latter part of last year as global supply very quickly exceeded demand. As a result, we do not expect to fulfill the previously announced purchase order associated with PPE. Additionally, the purchase orders associated with an exclusive U.S.

distribution agreement, while still viable, will be much smaller in magnitude and delay in timing due to their PPE nature. For fiscal 2022, given the first quarter is over, we preannounced our initial expectations for the first quarter revenue to be in the range of 10 to 12 million. We provided this early outlook due to the delay in the disclosure of our fourth-quarter earnings and do not plan to do pre-announcements again. While this 10 to 12 million revenue range represents a year-over-year decline, it does represent a continued significant acceleration versus our fourth-quarter revenue and we believe validates the transformation we recently went through.

While we took a short-term hit to revenues and profitability, we fully expect the long-term growth will lead to significantly improved shareholder returns. And finally, for fiscal 2022, we expect quarterly reported revenues to continue accelerating sequentially throughout the year. Now, let me briefly touch on gross margin. IFRS accounting rules require all manufacturing associated and corporate support to be included in cost of goods, which has a significant negative impact to gross margin.

In line with our peers and to provide transparency on what we believe to be a better reflection of our true economic gross margin, beginning with our first quarterly financials, we will introduce a non-IFRS gross margin, which we refer to as contribution margin. This contribution motion will be in addition to the required IFRS gross margin reporting and excludes manufacturing-related corporate and support expenses, such as noncash depreciation and amortization expense. For fiscal 2022, we generally expect reported gross margin to improve as we lap the company transformation efforts, scale our new branded product launches in cannabis and expand distribution in organic food and beverages. I will now turn the call back to Michael for his concluding remarks.

Michael?

Michael CammarataChief Executive Officer & Director

Thank you, Toni. Before opening the call for questions, I would like to recap some of our recent transformations, which we are very proud of, and I’ve heard from some of you that we have changed the direction and the strategy of the company several times over the past year. While I understand that sentiment, our vision to be a leading health and wellness company remains the same today as it did more than 20 years ago. Ultimately, our goal is to drive significant top line growth and improve margins and returns.

What did change is the how we achieve those financial goals. Just as the world changes around us, our board and management team were faced with the decision to rapidly evolve or likely endure a bleak long-term outlook. While all of us faced an unprecedented global pandemic, Neptune with its exposure to global supply chains networks, was significantly impacted, arguably more so than most given our size. To offer some insights, global supply chains were disrupted by the global pandemic more than in any time in history since World War II.

Additionally, the reality set in that cannabis extraction was a race to the bottom. It was clear that Neptune could not generate long-term shareholder value while focused on slow-growth, low-margin businesses. So we exited the extraction businesses, both in Canada and in the United States, and focused instead on moving up the value chain to higher-margin, higher-growth products under Neptune’s proprietary brands. In conjunction with our upstream move in cannabis, we also felt it was critical to diversify our business.

We moved to fill short-term voids caused by global supply chain disruption to quickly manufacture and sell personal protective equipment or PPE, which also helped in the fight against the spread of COVID-19. While the move helped us in our transition, the global supply chain of PPE quickly caught up and quickly suppressed the demand for this business. So we continue to diversify, moving into organic foods and beverages, which led us our strategic acquisition of Sprout Foods. We rapidly expanded the distribution into global retailers such as Target and walmart.com with more to come and we also executed on a groundbreaking exclusive licensing agreement with the world’s largest children’s entertainment show, which we believe will lead to significant parent-influenced purchases over time.

Looking forward, the transition period is largely complete. I believe we have gotten through the worst part and can see a brighter future ahead, driven by our core business segment, including cannabis, nutraceuticals, organic food and beverage. These three business units will continue to contribute to the growth of our revenue this year and beyond. We remain cautiously optimistic for future opportunities from our innovations team, which can prove to be much chunkier and less predictable than the other three.

Neptune’s top line growth will be fueled by innovating brands in high-growth verticals like cannabis and organic foods and beverages, which should also lead to higher margins and returns. Our growth can be distilled into two key pillars. First, driving significant top line growth and leverage fixed costs. Secondly, complementing our organic growth strategy with acquisitions and partnerships such as the recent Sprout acquisition and the CoComelon licensing agreement.

We expect the main growth pillars will lead to improved margins and profitability and ultimately outsized shareholder returns over the long term. I could not be more optimistic about Neptune’s future as we have built a modern consumer package good company that’s a force for good in the world. Finally, I would like to thank our Neptune associates for their amazing work to rapidly transition the company into a diversified health and wellness consumer packaged goods company with multiple runways for growth for the foreseeable future. Operator, you may now open the line for questions.

Questions & Answers:

Operator

[Operator instructions] And your first question comes from Aaron Grey from Alliance Global Partners. Aaron, please go ahead.

Aaron GreyAlliance Global Partners — Analyst

Hi. Good evening and thank you for the questions. So first question for me. I want to ask a kind of high-level one as we look forward to fiscal year 2022 as our recent expectations with the per store is kind of no longer looking to be included within the forward expectations.

How do we think about kind of force ranking kind of those growth drivers. You gave some good color stations for Canadian, you now have Sprout as well. So when we think about the revenues kind of going forward in the next couple of quarters, how do you think about the growth opportunities and which will be the most meaningful contribution? And maybe if you could give some color in terms of what’s been driving the acceleration in the $10 million to $12 million you expect for fiscal year quarter one in 2022 would be helpful.

Michael CammarataChief Executive Officer & Director

I’ll take a stab at that and then Toni can fill in the rest. I think obviously, Sprout is going to be a big contributor in Q1 and moving forward. I think that Biodroga nutraceuticals will be supporting that and then followed by our cannabis business as our brands are increasing their distribution and especially now that we’re tapping into flower and some high-volume SKUs. But I’ll let Toni give more color to that.

Toni RinowChief Financial Officer

Thank you, Michael. And thanks, Aaron, for the question. So yes, we currently do not provide revenue or earnings on a business vertical basis, neither for the full fiscal year 2022. But we provided it for Q1 to give you an understanding of the growth and where we are going.

Those three core businesses that Michael mentioned are all on a growth trajectory. And the Sprout revenue was announced in the press release when we did the announcement earlier in February. So it gives you a good idea for the annual run rate.

Aaron GreyAlliance Global Partners — Analyst

Great. That’s helpful. So I’d love to ask a little bit deeper in terms of the Canadian opportunity in adult use. So you mentioned going into flower now, adding on some more SKUs.

There’s been a lot of conversation in terms of the difficulty in terms of getting new SKUs listed in Canada. You guys have gotten some good initial traction, going to be 85% total sales within the products that you have. But can you talk about the success you have or some things you’re doing to make sure you can get those SKUs listed in some of these provinces to get on shelf in front of the consumer.

Michael CammarataChief Executive Officer & Director

I’ll add a little bit of color to that and then Toni can pick up. I think that how we approach the cannabis market, specifically in Canada, is very unique. We had a lot of data to look through. And what we saw with the consumer is that they weren’t looking for the same strand all year round, that they were really like seasonal purchasers, and they are looking to have different variations, especially in the flower side of the business.

So we adopted an approach that’s kind of like a treasure hunt program where you can get certain strains that are available for limited amount of times. And we have some very great product developers and one who won over 40 awards globally for his strain development. And we’re approaching that. And right now, you see our first flower SKU is rolling out, but there’ll be more in different territories and more different strains.

But also, how we looked at the edibles and how we look at the digestible market and how we can be different. And that’s an area that I kind of talked a little bit about in my opening remarks, specifically with MaxSimil that we’re exploring more and should have some more clinical data available to really give us a very good edge and the consumer a better experience because as people are starting to enter the digestible market and new consumers and adult consumption, they want to experience that they can — we heard feedback that they want to experience within two minutes instead of waiting 30 minutes and they want to have a lower potency, but a higher effect for a shorter period of time. So when we’re looking at our development and R&D and what we’ve been researching and especially specifically for our brands that we have in Canada, we want to come out with unique formats and unique SKUs. It wasn’t about how many SKUs and how many SKUs we can put on shelf.

It’s about the ones that we felt could have the biggest impact with the consumer and their usage. So we have a very strategic plan on how we’re rolling out in Canada, and we’ve seen some great success, especially in our capsules in certain markets. We’ve seen already competitors starting to trying to adjust their pricing and adjust our offerings. And so, we’re starting to take a good chunk in the beginning, but — and we’re just starting to roll out.

So we definitely are really excited about the cannabis business. We have a different approach when it comes to flowers. We have some strategic value that — especially because of our background in extraction when it comes to potentially vapes and other formats that we’ll be entering to the markets later on that I think will give us the edge. And the feedback that we’ve gotten from the provinces and territories have been really good.

And I think we’ve made a good choice by focusing on four right off the bat, and really getting on the ground with the consumer and making sure that we’re listening to the consumer and coming out with offerings that are unique but also address the problems that the consumers are having. So I think that we have a very good competitive edge. And I think the strategy that we’re going to be deploying and already started deploying is something that’s a little bit unique into the market and really connects with the consumer. And Toni can add additional color.

Toni RinowChief Financial Officer

Thanks, Michael. So yes, for us, it’s now all about ramping up and gaining market share, and we are progressing constantly. And we launched in the Quebec market. The SQDC took all of the products that we proposed to them.

So we have developed eight proprietary SKUs and they took them all. So really, it’s all about gaining market share now in Canada and in other provinces.

Aaron GreyAlliance Global Partners — Analyst

OK. Great. That’s really helpful color, Michael and Toni. Just one last one, if I could squeeze it in then.

So just on gross profits then. So it looks like there was some write-downs that impacted the gross profit number that you reported today. But just would like to get some comment, Toni, when do you think that might be inflect positive gross profit going forward. You talked about some greater margin product success we saw going forward.

So do you have any expectation? I know you don’t usually give guidance on gross margin specifically, but just like what you might believe that might inflect positive gross margins going forward?

Toni RinowChief Financial Officer

Sure. Yes, we are not giving guidance on gross margins or other financials at this point in time. But as I said in my prepared remarks, we expect sequential revenue growth throughout the year. So we will certainly get leverage on our fixed costs.

And we also believe that gross margins will improve year over year due to leveraging fixed costs and growth in sales. And I think this could — will be able to be seen over year-over-year growth.

Aaron GreyAlliance Global Partners — Analyst

OK, great. Thank you. I’ll jump back in queue.

Operator

Your next question comes from Gerald Pascarelli from Cowen. Please go ahead.

Gerald PascarelliCowen and Company — Analyst

Thanks very much. Good evening. Thanks for taking the questions. Just I guess I wanted to go back to one of Aaron’s previous questions and just revisit it in a different way.

The 1Q guide, 10 to 12, nice sequential acceleration, around 60% at the midpoint. I guess I was just a little surprised to hear that cannabis is not really going to be a contributor to that. And I’m trying to bridge the commentary in the prepared remarks with being in 65% of the Canadian market getting to 85% by summer. And I’m sorry if I missed it, but I do think that this provides a source of upside if cannabis is not going to be included in the sequential acceleration, at least over the near term that we’re seeing.

So can you just talk about, I guess, when you expect these cannabis-specific revenues to come in and hit the P&L in a more meaningful way?

Michael CammarataChief Executive Officer & Director

Yes, I’ll give some color on that and then Toni can jump in. So right now, we have access to 65% of the market. We’re in 400 out of 1,900 stores, and we’re continuing to roll out. So cannabis will continue to grow.

Obviously, there’s a little bit of a lag in the sales reporting because we report from POS data, so it lags behind the shipment when it comes to revenue recognition. But the — as we get in the summer, we’ll be up to 85% of the market, which will increase the amount of stores that we can get access to, which also increases the amount of stores we’re selling in and the overall volume. So yes, there is upside — tremendous upside in our cannabis business. And we’re really big believers into it.

And this is also before we even rolled out fully vapes and flowers. So we only have six SKUs in the current rollout, and we’re obviously going to be expanding a lot more in targeted areas. And I can have, Toni, if there’s any other color.

Toni RinowChief Financial Officer

Yes. Absolutely ramping up rolling out and accelerating the cannabis business pretty much from quarter to quarter. It’s all about inventory buildup. Whatever we produce at Neptune, we can sell into the different provinces.

So it’s just about rolling it out. In terms of revenue recognition, these are new products for Neptune. So based on revenue recognition and inventory buildup at the different provinces, we can recognize revenue at the point in time that the provinces are guaranteeing for us that product is not being shipped back, so it’s a final sale. So this will — it’s why revenue recognition will be two quarters — two to three quarters behind the shipments for the fiscal year 2022.

Back to you.

Gerald PascarelliCowen and Company — Analyst

That’s helpful color. With margins, maybe with the magnitude of, call it, the declines in margin expected to improve, in line with the quarter-over-quarter revenue growth that you’re expecting. As we look down the P&L, is there opportunity to cut costs, maybe if it’s on the SG&A line, anything that you can do there operationally to offset what is going to be a temporarily depressed — what seems like a temporarily depressed gross margin, at least over the near term?

Toni RinowChief Financial Officer

Yes. So we have — again, we have not given guidance on either gross, operating and/or EBITDA levels for this year. But as you can imagine, with the growth of revenue and that we’re giving you some color on with Q1, you can now see that we are starting to leverage on fixed costs and with the ramping up of the cannabis. And also, the Sprout sale, and Michael mentioned the CoComelon.

So we expect revenue growth in all our verticals. So this will certainly lead to gross margin improvement for the full year over the last year. But we have not — we are not giving guidance on other more detailed financial data.

Michael CammarataChief Executive Officer & Director

And we’ve also been optimizing the P&L as we — because there’s a lot of cost that is inherent with the extraction business that hasn’t fully rolled off. So as those do, we are definitely focusing on optimizing the P&L and focusing on the areas of growth that we want to be in moving forward.

Gerald PascarelliCowen and Company — Analyst

Got it. That’s helpful color. Thanks, Michael. Thanks, Toni.

I’ll get back in the queue.

Operator

[Operator instructions] Your next question comes from John Chu from Desjardins. John, please go ahead.

John ChuDesjardins Capital Markets — Analyst

Good afternoon. So my first question is just on the health and wellness side, and specifically referring back to some purchase orders and agreements that were announced over the last six months or so. There was one that was announced back in November, and that was listed as a conservative USD 100 million order — new purchase order. And there was also one that was in the $65 million to $137 million range, which was with Unilever.

And then a third agreement that was what we assumed was a subsidiary of Kraft Heinz. So were all those related to PPE, COVID-related protective equipment? And if not, can you just give us an update on the status of where those stand? And if any — I mean I know there was no minimum order to touch with any of those. But can you just give us an idea of what might we expect from those?

Toni RinowChief Financial Officer

Yes, sure. So with regards to the announcement of the purchase orders, these were over 100 million. These were mainly for nitrile gloves. There was some global inventory available, but prices were raising so fast that we couldn’t literally make this a profitable endeavor for Neptune.

So we have been sourcing around more than 200 suppliers around the world, and we couldn’t fulfill these POs. So we have a sourcing challenge and a logistics challenge. And for the moment, we don’t believe that we can fulfill those POs on the PPE side.

John ChuDesjardins Capital Markets — Analyst

Right. But the other announcements regarding what we thought was with Unilever and then Kraft Heinz, was there anything — any updates on that? Is there anything, potential revenue coming from any of those?

Michael CammarataChief Executive Officer & Director

Yes. So the Unilever one has definitely adapted because they did have some products that are heavily into the PPE side. So the Unilever one is definitely something that we’re believing in long term. We’re not really focusing on Kraft Heinz.

We’re focusing on Unilever’s relationship. But regarding like anything that wasn’t — we had to look at it from a point of view of what we’re focusing on to drive the biggest return to shareholders and our balance sheet. And so, we wanted to stay out of things that had too much of dynamic ups and downs and that we couldn’t deliver profitably or had risks of agent versus principal revenue recognitions.

John ChuDesjardins Capital Markets — Analyst

OK. And then regarding the $1 million in monthly cannabis revenue run rate that you expect to hit later this year, can you just talk about, is that just based on the six SKUs that you have now? Or is there an assumption that you need to have more SKUs being introduced to actually reach that number? What’s behind that $million per month run rate, I guess?

Michael CammarataChief Executive Officer & Director

It’s definitely starting out with the six SKUs and expanding, but Toni can go into more detail on that.

Toni RinowChief Financial Officer

Yes. Yes. And we wanted to give you some color on the cannabis revenue. So of course, we want to increase and grow this business much more aggressively than that, but we want to be conservative.

And this will include all the SKUs. So all the SKUs in Quebec, which has a separate portfolio from the SKUs in the rest of the provinces.

John ChuDesjardins Capital Markets — Analyst

OK. And then I guess for — last question on the Sprout. So it looks like you had $28 million in annualized revenue that they had realized. And so, presumably, that’s $7 million a quarter, but I guess you’re getting 50% of that.

So that’s how we feel looking at the contribution for the upcoming first quarter and then going forward? Is that how you’re recognizing the revenue on the P&L?

Toni RinowChief Financial Officer

No, no. These are fully consolidated. So Neptune acquired a controlling position within Sprout. So the way we are consolidating full revenue of Sprout into the Neptune financial statement.

And the portion of ownership that belongs to other equity owners at Sprout can be seen in other comprehensive income on the OCI line in both the P&L and the balance sheet.

John ChuDesjardins Capital Markets — Analyst

OK. All right. That’s it for me. Thank you.

Operator

[Operator signoff]

Duration: 40 minutes

Call participants:

Steve WestInvestor Relations

Michael CammarataChief Executive Officer & Director

Toni RinowChief Financial Officer

Aaron GreyAlliance Global Partners — Analyst

Gerald PascarelliCowen and Company — Analyst

John ChuDesjardins Capital Markets — Analyst

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