HEXO Corp. (TSX:HEXO; NYSE:HEXO) (“HEXO” or the "Company") today
reported its financial results for the fourth quarter and fiscal
year ended July 31, 2019. All amounts are expressed in thousands of
Canadian dollars, unless otherwise noted and except for per gram,
kilogram amounts and their equivalents.
“We are at the end of the first year of adult use legalization
in Canada, which was an incredible year full of successes and
challenges across the industry. We’ve gone from $4.9M to
$59.3M in gross revenue in just one year. This type of revenue
growth is a testament to the Company’s resilience and capacity to
pivot in the face of uncertainty,” said Sebastien St-Louis, CEO and
co-founder of HEXO Corp. “I am confident that our multi-brand
approach, focusing on customer demand, re-evaluating our strain
mix, as well as the introduction of new products to counter the
black market, will help us increase our market share and total
revenue”.
During the fourth quarter, HEXO closed the Newstrike acquisition
on May 24, 2019, increasing its production, diversifying total
market penetration, and incorporating the UP brand to its brand
portfolio. Shortly after, the Company entered into a supply
agreement with the Alberta Gaming, Liquor and Cannabis Commission
(“AGLC”) and listed 18 additional products with the Ontario
Cannabis Store.
“Above and beyond significantly increasing our retail reach to
nine provinces, we’ve also launched Original Stash, the industry’s
first true value brand, which we believe will not only compete
directly with the illicit market but also contribute to a
significant increase in sell-through,” added St-Louis.
Financial Position
As at July 31, 2019, the Company held cash, cash
equivalents and short-term investments of $139,505. The Company has
a $65,000 credit facility with a syndicate of Canadian chartered
banks. This consists of $50,000 available term credit and a $15,000
revolving line of credit which will be used in part to finance the
continuing expansion of the Gatineau campus as well as the
leasehold improvements at the Belleville facility without diluting
the shareholders of HEXO.
Operational Update
Subsequent to the end of the year, the Company made the decision
to scale back operations in certain facilities. The Company
reduced its cost structure with the elimination of approximately
200 positions across its departments and locations.
Cultivation has been suspended at the Niagara facility, and in
200,000 sq. ft. of the Company’s Gatineau facility. The
Company determined that given the current market conditions in
Canada, additional cultivation space is not required at this
time. HEXO continues to drive improvements in yields and
processing facilities. Operations in the suspended areas can
be recommenced when required. Current annualized production
run rate is approximately 80,000 kgs of dried cannabis equivalents,
comprised of 45 to 55% dried flower, with the balance comprised of
trim, which can be used for a variety of value-added
products.
The Company continues to realign its strategy to address changes
in the market. With near-term focus on the following
priorities:
- Driving sales through new product offerings and leveraging
increased analytics for decision making
- Achieving operational excellence
- Right-sizing our operational expenses to drive towards
profitability
- Commissioning our state of the art, manufacturing facility in
Belleville
- Continuing to invest in R&D and Intellectual Property
- Future partnerships through our “Powered by HEXO” strategy
- Dedication to Corporate Social Responsibility Initiatives
Operational and Financial
Highlights |
|
|
For the three months ended |
For the twelve months ended |
Income Statement Snapshot |
July 31, 2019 |
|
July 31, 2018 |
|
July 31, 2019 |
|
July 31, 2018 |
|
|
$ |
|
$ |
|
$ |
|
$ |
|
Gross cannabis
revenue |
20,517 |
|
1,410 |
|
59,256 |
|
4,934 |
|
Excise taxes |
(5,122 |
) |
– |
|
(11,914 |
) |
– |
|
Net revenue from sale of goods |
15,395 |
|
1,410 |
|
47,342 |
|
4,934 |
|
Ancillary revenue |
29 |
|
– |
|
199 |
|
– |
|
Gross margin before fair value adjustments |
5,133 |
|
711 |
|
21,344 |
|
2,841 |
|
Gross margin |
(13,748 |
) |
519 |
|
26,925 |
|
6,400 |
|
Operating expenses |
46,902 |
|
10,713 |
|
111,482 |
|
24,367 |
|
Loss from operations |
(60,650 |
) |
(10,194 |
) |
(84,557 |
) |
(17,967 |
) |
Other income/(expenses) |
125 |
|
(315 |
) |
(847 |
) |
(5,383 |
) |
Net loss before tax recovery |
(60,525 |
) |
(10,509 |
) |
(85,404 |
) |
(23,350 |
) |
Tax recovery |
3,840 |
|
– |
|
3,840 |
|
– |
|
Total net loss |
(56,685 |
) |
(10,509 |
) |
(81,564 |
) |
(23,350 |
) |
For the three months
ended |
|
|
Operational Results |
July 31,
2019 |
April 30, 2019 |
January 31, 2019 |
October 31, 2018 |
Avg. gross selling price of adult-use dried gram & gram
equivalents ($) |
4.74 |
5.29 |
5.83 |
5.45 |
Kilograms sold of
adult-use dried gram & gram equivalents (kg) |
4,009 |
2,759 |
2,537 |
952 |
Avg. gross selling price of medical dried gram & gram
equivalents ($) |
8.34 |
9.11 |
9.15 |
9.12 |
Kilograms sold of
medical dried gram & gram equivalents (kg) |
137 |
145 |
152 |
158 |
Avg. gross selling price of wholesale gram & gram
equivalents ($) |
0.56 |
– |
– |
– |
Kilograms sold of
wholesale gram & gram equivalents (kg) |
672 |
– |
– |
– |
Total kilograms
produced of dried gram equivalents (kg) |
16,824 |
9,804 |
4,938 |
3,550 |
Revenue |
|
|
Q4’ 19 |
|
Q3 ’19 |
|
Q2 ’19 |
|
Q1 ’19 |
|
Q4 ’18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADULT-USE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adult-use cannabis gross revenue |
$ |
18,997 |
|
$ |
14,607 |
|
$ |
14,792 |
|
$ |
5,194 |
|
$ |
– |
Adult-use excise
taxes |
|
(4,937 |
) |
|
(2,741 |
) |
|
(2,587 |
) |
|
(970 |
) |
|
– |
Adult-use cannabis net revenue |
|
14,060 |
|
|
11,866 |
|
|
12,205 |
|
|
4,224 |
|
|
– |
Dried
grams and gram equivalents sold (kg) |
|
4,009 |
|
|
2,759 |
|
|
2,537 |
|
|
952 |
|
|
– |
Adult-use gross revenue/gram
equivalent |
$ |
4.74 |
|
$ |
5.29 |
|
$ |
5.83 |
|
$ |
5.45 |
|
$ |
– |
Adult-use net revenue/gram equivalent |
$ |
3.51 |
|
$ |
4.30 |
|
$ |
4.81 |
|
$ |
4.44 |
|
$ |
– |
|
|
|
|
|
|
MEDICAL |
|
|
|
|
|
Medical cannabis gross
revenue |
$ |
1,142 |
|
$ |
1,323 |
|
$ |
1,387 |
|
$ |
1,436 |
|
$ |
1,410 |
Medical
cannabis excise taxes |
|
(185 |
) |
|
(233 |
) |
|
(216 |
) |
|
(44 |
) |
|
– |
Medical cannabis net
revenue |
|
957 |
|
|
1,090 |
|
|
1,171 |
|
|
1,392 |
|
|
1,410 |
Dried
grams and gram equivalents sold (kg) |
|
137 |
|
|
145 |
|
|
152 |
|
|
158 |
|
|
152 |
Medical gross revenue/gram
equivalent |
$ |
8.34 |
|
$ |
9.11 |
|
$ |
9.15 |
|
$ |
9.12 |
|
$ |
9.26 |
Medical
net revenue/gram equivalent |
$ |
6.99 |
|
$ |
7.52 |
|
$ |
7.73 |
|
$ |
8.84 |
|
$ |
– |
|
|
|
|
|
|
WHOLESALE |
|
|
|
|
|
Wholesale cannabis gross
revenue |
$ |
378 |
|
$ |
– |
|
$ |
– |
|
$ |
– |
|
$ |
– |
Wholesale cannabis excise taxes |
|
– |
|
|
– |
|
|
– |
|
|
– |
|
|
– |
Wholesale cannabis net
revenue |
|
378 |
|
|
– |
|
|
– |
|
|
– |
|
|
– |
Dried
grams and gram equivalents sold (kg) |
|
672 |
|
|
– |
|
|
– |
|
|
– |
|
|
– |
Wholesale gross revenue/gram
equivalent2 |
$ |
0.56 |
|
$ |
– |
|
$ |
– |
|
$ |
– |
|
$ |
– |
Wholesale net revenue/gram equivalent2 |
$ |
0.56 |
|
$ |
– |
|
$ |
– |
|
$ |
– |
|
$ |
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ANCILLARY
REVENUE1 |
$ |
29 |
|
$ |
61 |
|
$ |
62 |
|
$ |
47 |
|
$ |
– |
Total net sales |
$ |
15,424 |
|
$ |
13,017 |
|
$ |
13,438 |
|
$ |
5,663 |
|
$ |
1,410 |
|
1 Revenue outside
primary operations of the company |
2 Wholesale
revenue per gram was $4.36 prior to a $3.80 return provision per
gram, resulting in a wholesale revenue per gram of $0.56. |
Fourth Quarter 2019 Highlights
Net revenue in Q4’19 increased to $15,424, compared to $13,017
in the prior quarter, and $1,410 in Q4’18. Adult-use sales in the
quarter accounted for 91% of total revenue. Adult-use gross sales
increased 30% to $18,997 in Q4’19, compared with $14,607 in the
prior quarter and nil in Q4’18. The acquisition of Newstrike
contributed $2,770, sales to the AGLC, new in Q4’19, contributed
$4,828.
Sales volume in Q4’19 increased 45% to 4,009 kg from 2,759 kg
equivalents sold in the prior quarter. The acquisition of Newstrike
contributed 396 kg, sales to the AGLC contributed 971 kg. Dried
flower and milled products represented 89% of gram equivalents sold
during the quarter, a 4% increase from the prior quarter, with oil
product sales comprising the balance of the quantity
sold.
Gross adult-use revenue per gram equivalent decreased to $4.74
in Q4’19 from $5.29 in the prior quarter, reflective of the
provision for sales returns and price adjustments recorded in the
period. The provision is reflective of a general best estimate
provision for returns and price adjustments based on the Company’s
assessment of sell-through and slow moving inventory. Based on the
assessment, the Company has estimated the possible returns on
inventory held by provinces to be in the amount of $6.7M, which
includes price adjustments as a result of a re-evaluation of HEXO’s
pricing strategy. This was partially countered by the addition of
the premium brand Up cannabis, which commands revenue of $6.80 per
gram on dried flower during the quarter. The adult-use net revenue
per gram equivalent decreased to $3.51 in Q4’19 from $4.30 in the
prior quarter, reflecting the impact of the provision above as well
as new sales in Alberta, which imposes on average a 16% higher
excise tax rate than Ontario and Quebec.
Gross margin before fair value adjustments for Q4’19 was $5,133,
or 33% of net revenue from sale of goods, compared to $6,440 and
49% in the prior quarter. Adjusted gross margin before fair value
adjustments for Q4’19 adjusting for sales provisions made to gross
revenue for management estimates of price concessions and estimated
returns based on return provisions within provincial sales
contracts, was $8,561, or 45% of adjusted net revenue from sale of
goods adjusting for the same sales provisions made to gross
revenue.
Operating expenses increased to $46,902 in the quarter, compared
to $10,713 for the comparable quarter year over year, reflecting
the significant increase to the scale of our operations.
Loss from operations for the quarter was ($60,650) compared to
($10,194) for the comparable quarter year over year. Excluding
non-cash impairment charges in Q4’19, adjusted net loss was
($43,732). The increase in net loss was primarily due to the
significant scale of operations and increased stock-based
compensation expense due to higher cannabis market value, increased
R&D expenditures and an impairment loss on inventory..
Fiscal 2019 Year Highlights
Gross revenue from sale of goods for fiscal 2019 totaled
$59,256, an increase of $54,332 as compared to $4,934 in fiscal
2018. The increase is due to the legalization of adult use products
in fiscal 2019.
Net revenue from sale of goods for fiscal 2019 increased to
$47,541, compared with $4,934 in the prior year. Adult-use sales in
the year accounted for 89% of total net revenue from sale of
goods.
Adult-use gross sales increased to $42,355 in fiscal 2019,
compared with nil in the prior year.
Operating expenses increased to $111,482 in fiscal 2019,
compared to $24,367 in the prior year. This increase reflects the
significant increase to the scale of our operations.
Loss from operations for the fiscal year was $(85,404), compared
to net loss of $(17,966) for the prior year. Excluding non-cash
impairment charges in Q4’19, adjusted net loss was $(67,639).
The increase in net loss was primarily due to the significant
increase to the scale of operations which happened during the
fiscal year.
OutlookThe Company currently estimates Q1’20
net revenue to be in the range of approximately $14,000 to $18,000
This range is reflective of a provision for returns and retroactive
adjustments required on inventory held by provinces, which is
subject to price adjustments as a result of a re-evaluation of the
Company’s pricing strategy. Furthermore, the Company is
targeting to achieve positive adjusted EBITDA in calendar 2020.
This is based on certain assumptions made by management regarding
store counts in the various provinces as well as operational
improvements and cost saving initiatives the Company is seeking to
implement.
The Company’s original revenue guidance for fiscal 2020 was
retracted due to slower then expected store roll out across Canada,
consumer demand-based product mix shifts and lower than expected
sell-through.
The management’s discussion and analysis for the period and the
accompanying financial statements and notes are available under the
Company's profile on SEDAR at www.sedar.com and on its website at
www.hexocorp.com.
Conference CallThe Company will hold a
conference call, October 29th, 2019 to discuss these results.
Sebastien St-Louis, CEO, and Stephen Burwash, CFO, will host the
call starting at 8:30 a.m. Eastern time. A question and answer
period will follow management’s presentation Date: October 29, 2019
Time: 8:30 a.m. EDT
Webcast: https://event.on24.com/wcc/r/2112048/C13DC676CE53A5FD2CEB4095D0FF4A3A
Replay information: A replay of the call will be accessible by
telephone until 11:59 a.m. EDT on November 12, 2019. Toll Free
Dial-In Number: 1-888-390-0541. Replay Password: 531469# For
previous quarterly results and recent press releases,
see hexocorp.com.
About HEXO Corp HEXO Corp is an
award-winning consumer packaged goods cannabis company that creates
and distributes innovative products to serve the global
cannabis market. Through its hub and spoke business strategy, HEXO
Corp is partnering with Fortune 500 companies, bringing its brand
value, cannabinoid isolation technology, licensed infrastructure
and regulatory expertise to established companies, leveraging their
distribution networks and capacity. As one of the largest licensed
cannabis companies in Canada, HEXO Corp operates facilities in
Ontario and Quebec. The Company is also expanding
internationally and has a foothold in Greece to establish a
Eurozone processing, production and distribution centre. The
Company serves the Canadian adult-use markets under its HEXO
Cannabis and Up Cannabis brands, and the medical
market under HEXO medical cannabis. For more information
please visit hexocorp.com.
Forward-Looking Statements This press
release contains forward-looking information and forward-looking
statements within the meaning of applicable securities laws
(“forward-looking statements”). Forward-looking statements are
based on certain expectations and assumptions and are subject to
known and unknown risks and uncertainties and other factors that
could cause actual events, results, performance and achievements to
differ materially from those anticipated in these forward-looking
statements. Forward-looking statements should
not be read as guarantees of future performance or results. A more
complete discussion of the risks and uncertainties facing the
Company appears in the Company’s Annual Information Form and other
continuous disclosure filings, which are available on SEDAR
at www.sedar.com and
EDGAR
at www.sec.gov. Readers
are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this press release.
The Company disclaims any intention or obligation, except to the
extent required by law, to update or revise any forward-looking
statements as a result of new information or future
events, or for any other reason.
Investor Relations: Jennifer Smith
1-866-438-8429 invest@HEXO.com
www.hexocorp.com
Media Relations: (819) 317-0526
media@hexo.com
HEXO (NASDAQ:HEXO)
Historical Stock Chart
From Aug 2024 to Sep 2024
HEXO (NASDAQ:HEXO)
Historical Stock Chart
From Sep 2023 to Sep 2024