What’s the purpose of revenue growth if it comes at a gross loss? Neptune Wellness (TSX: NEPT) (NASDAQ: NEPT) shareholders are asking themselves that question following the reporting of the firms second quarter financials being filed this evening. While the company reported a 155% increase in revenues quarter over quarter to that of $28.7 million, it also recorded a gross loss of $4.6 million.
With gross margin at a boggling -15.9%, the company justified the loss by stating it was a “result of strategic investments to position the Company for further distribution growth.” The company saw a cost of sales of $33.2 million in exchanging for recognizing revenues of $28.7 million, resulting in a gross loss of $4.6 million.
Comparatively, financial statements on file recognize that Neptune generated $21.4 million in revenues and a gross profit of $3.3 million in the first quarter. However, the company indicated that those filings will be restated, with revenues recognizing being cut to $11.2 million and a gross profit of $3.3 million.
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Expenses were up on a quarter over quarter basis as a result of the increased revenues, with selling, general and administrative expenses climbing to $18.4 million, up from $12.9 million in the prior quarter. Research and development expenses meanwhile rose to $0.6 million from $0.4 million. Couple with financing costs and foreign exchange losses and offset by an income tax recovery of $2.8 million, the company managed to post a net loss of $21.8 million for the three month period ended September 30, 2020.
Looking to the balance sheet, Neptune Wellness saw its cash position fall dramatically over the quarter, from $25.5 million to $9.1 million, while trade and other receivables climbed from $13.4 million to $22.4 million. Inventories climbed from $11.0 million to $21.6 million, while prepaids fell from $8.6 million to $3.6 million. Total current assets overall fell only marginally, from $58.6 million to $56.7 million.
Liabilities meanwhile saw trade and other payables fall from $17.6 million to $16.2 million. Loans and borrowings were largely unchanged, staying flat at $3.2 million, while provisions climbed from $1.3 million to $1.6 million. Total current liabilities overall fell slightly from $22.9 million to $21.7 million.
Looking forward, the company announced subsequent to the financials this evening that it has secured purchase orders of over US$100 million for the Biodroga and Innovations divisions of the firms. The orders are said to come from six separate clients, with booked sales expected to ship in the next two quarters.
Neptune Wellness last traded at $1.91 on the Nasdaq.
Information for this analysis was found via Sedar and Neptune Wellness Solutions Inc. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security.
