HEXO Corp. (TSX: HEXO; NYSE: HEXO) (“HEXO” or the "Company") today
reported its financial results for the third quarter fiscal 2020
ended April 30, 2020. All amounts are expressed in Canadian dollars
unless otherwise noted.
“I’d like to take this opportunity to thank the
HEXO team who has worked tirelessly during the COVID 19 pandemic to
keep the doors open and ensure the safety of our employees and our
customers. We could not do this without you, we recognize and
appreciate your efforts. It’s thanks to your hard work that
we closed the third quarter delivering on our financial goals, even
in the face of adversity,” said Sebastien St-Louis, CEO and
co-founder of HEXO.
Operational and Financial
Highlights
| |
|
For the three months ended |
For the nine months ended |
| Income
Statement Snapshot (in millions) |
|
April 30, 2020 |
|
January 31, 2020 |
|
April 30, 2019 |
|
April 30, 2020 |
|
April 30, 2019 |
|
| |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
| Revenue from
sale of goods |
|
30.9 |
|
23.8 |
|
15.9 |
|
74.0 |
|
38.7 |
|
| Excise taxes |
|
(8.8 |
) |
(6.9 |
) |
(3.0 |
) |
(20.5 |
) |
(6.8 |
) |
| Net revenue from sale of goods |
|
22.1 |
|
17.0 |
|
13.0 |
|
53.5 |
|
32.0 |
|
| Ancillary revenue |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.2 |
|
| Gross margin before fair value adjustments |
|
8.8 |
|
5.7 |
|
6.4 |
|
18.9 |
|
16.2 |
|
| Gross margin |
|
5.7 |
|
(7.9 |
) |
21.8 |
|
(23.3 |
) |
40.7 |
|
| Operating expenses |
|
(26.8 |
) |
(281.5 |
) |
(24.1 |
) |
(347.9 |
) |
(64.6 |
) |
| Loss from operations |
|
(21.1 |
) |
(289.4 |
) |
(2.2 |
) |
(371.1 |
) |
(23.9 |
) |
| Other income/(expenses and losses) |
|
1.5 |
|
(8.8 |
) |
(5.5 |
) |
(12.8 |
) |
(1.0 |
) |
| Net loss before tax |
|
(19.5 |
) |
(298.2 |
) |
(7.8 |
) |
(384.0 |
) |
(24.9 |
) |
| Tax recovery |
|
– |
|
– |
|
– |
|
6.0 |
|
– |
|
| Total Net loss |
|
(19.5 |
) |
(298.2 |
) |
(7.8 |
) |
(377.9 |
) |
(24.9 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2020 Highlights
Gross revenue increased 30% to $30.9M from $23.8M
in Q2’20, and from $15.9M in Q3’19. Net revenue increased 30%
to $22.1M from $17.0M in Q2’20, and from $13.0M in Q3’19.
Adult-use cannabis gross revenue in Q3’20 increased
30% to $29.8M from $23.0M in Q2’20, and from $14.6M in Q3’19.
The primary driver of the increase in sales during the quarter was
the increase in sales from Original Stash. Newly launched
products such as hash and oil extract drops also contributed to
overall adult-use sales growth. Adult use sales volume in
Q3’20 increased 42% to 9,338 kg from 6,579 kg sold in
Q2’20.
|
|
Q3’20 |
|
Q2’20 |
|
Q1’20 |
|
Q4’19 |
|
Q3’19 |
|
|
Shipped Revenue (in millions) |
$ |
31.7 |
|
$ |
24.4 |
|
$ |
20.2 |
|
$ |
22.8 |
|
$ |
14.6 |
|
| Less: price concessions |
|
(1.1 |
) |
|
(0.2 |
) |
|
(1.2 |
) |
|
(2.8 |
) |
|
– |
|
| Less:
provision for sales returns |
|
(0.9 |
) |
|
(1.2 |
) |
|
(0.7 |
) |
|
(1.0 |
) |
|
– |
|
| Revenue from sale of
adult-use cannabis |
|
29.8 |
|
|
23.0 |
|
|
18.3 |
|
|
19.0 |
|
|
14.6 |
|
| Excise taxes |
|
(8.7 |
) |
|
(6.7 |
) |
|
(4.7 |
) |
|
(4.9 |
) |
|
(2.7 |
) |
|
Net revenue from sale of adult-use cannabis |
$ |
21.0 |
|
$ |
16.3 |
|
$ |
13.6 |
|
$ |
14.1 |
|
$ |
11.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin before fair value adjustments for
Q3’20 increased 7% to $8.8M or 40% of net revenue from sale of
goods, compared with $5.7M or 33% in the prior quarter. Increase in
gross margin was driven by a decreased production costs through
increased efficiencies, automation of packaging activities, and
selection of strains which resulted in decreased labour
costs. While the Company expect to see fluctuations in gross
margins over the next few quarters as new products are introduced
and the Belleville facility ramps up, this success demonstrates
that HEXO is tracking towards its goal of a 40% gross margin across
their product portfolio.
The Company incurred a write down on inventory of
$0.2M compared with $16.1M during Q2’20. HEXO has shifted
their strains to those in demand by consumers and focused on
creating 2.0 products to utilize trim. These internal production
gains mean that we have not had to access inferior 3rd party
product.
Operating expenses decreased to $26.8M compared
with $281.5M in Q2’20, and from $46.9M in Q4’19.
Included in operating expenses, are certain expenses which
management believes are expenses that are non-recurring or non-cash
and related to significant changes in market
conditions. Included in these expenses are:
- Restructuring costs – During the quarter the Company incurred
restructuring costs in the amount of $0.9M, compared with $0.3M in
Q2’20, associated to the rightsizing of operations. These
costs are not expected to continue.
- Impairments of property, plant and equipment and intangible
assets – In the prior quarter after completing a strategic review
of its cultivation capacity, the Company made the decision to list
the Niagara facility for sale. As a result of the decision to
sell, the Company undertook impairment testing of the facility, its
property, plant and equipment, and the intangible assets acquired
from Newstrike Brands Ltd. The Company determined that an
impairment loss of $138.3M was required in Q2’20, nil in
Q3’20.
- Impairment of goodwill – In the prior quarter, the Company
recorded an impairment in goodwill of $111.9M, nil in Q3’20.
- Realization of onerous contract – The Company recorded a $3.0M
realization as the result of an onerous contract which is currently
the subject of litigation in Q2’20, nil in Q3’20.
When normalized for these non-recurring or non-cash
expenses related to significant changes in market conditions, the
company reports normalized operating expenses of $25.7M compared to
$28.1M in Q2’20, and at its highest point of $46.9M in Q4’19. The
9% decrease quarter over quarter is the result of a decrease in
legal and professional fees, travel and share based compensation,
as the Company continues to reduce previous spending levels to
refocus operations on becoming adjusted EBITDA positive. The
significant reduction since its peak in Q4’19 is also due to a
reduction and refocusing of marketing related expenditures. When
normalized for other non-cash expenses the company reports
normalized operating expenses of $14.4M compared with $16.1M in
Q2’20.
|
Adjusted EBITDA (in millions) |
Q3’20 |
|
Q2’20 |
|
Q1’20 |
|
Q4’19 |
|
Q3’19 |
|
| |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
| Total net
loss |
(19.5 |
) |
(298.2 |
) |
(60.0 |
) |
(44.7 |
) |
(7.8 |
) |
| |
|
|
|
|
|
|
Income taxes (recovery) |
– |
|
– |
|
(6.0 |
) |
(18.2 |
) |
– |
|
|
Finance expense (income), net |
2.9 |
|
3.3 |
|
(0.1 |
) |
(1.3 |
) |
(1.1 |
) |
|
Depreciation, included in cost of sales |
1.0 |
|
0.9 |
|
0.4 |
|
0.4 |
|
0.3 |
|
|
Depreciation, included in operating expenses |
1.6 |
|
2.0 |
|
1.3 |
|
0.6 |
|
0.1 |
|
|
Amortization, included in operating expenses |
0.3 |
|
1.7 |
|
1.7 |
|
1.4 |
|
0.1 |
|
| |
|
|
|
|
|
| Investment (gains) losses |
|
|
|
|
|
|
Revaluation of financial instruments loss/(gain) |
(5.0 |
) |
(2.7 |
) |
(0.3 |
) |
(0.5 |
) |
1.1 |
|
|
Share of loss from investment in joint venture |
1.2 |
|
1.6 |
|
1.7 |
|
1.3 |
|
1.1 |
|
|
Unrealized loss/(gain) on convertible debentures |
0.2 |
|
0.4 |
|
2.6 |
|
0.1 |
|
4.1 |
|
|
Unrealized loss on investments |
0.3 |
|
6.6 |
|
1.7 |
|
– |
|
0.3 |
|
|
Realized loss/(gain) on investments |
1.2 |
|
0.2 |
|
– |
|
0.2 |
|
– |
|
|
Foreign exchange loss/(gain) |
(2.4 |
) |
(0.6 |
) |
– |
|
0.1 |
|
– |
|
|
|
|
|
|
|
|
| Non-cash fair value adjustments |
|
|
|
|
|
|
Realized fair value amounts on inventory sold |
9.3 |
|
5.4 |
|
6.7 |
|
7.3 |
|
4.7 |
|
|
Unrealized gain on changes in fair value of biological assets |
(6.4 |
) |
(7.9 |
) |
(7.1 |
) |
(5.3 |
) |
(20.1 |
) |
| |
|
|
|
|
|
| Non-recurring expenses |
|
|
|
|
|
|
Restructuring costs |
0.9 |
|
0.3 |
|
3.7 |
|
– |
|
– |
|
| |
|
|
|
|
|
| Other non-cash items |
|
|
|
|
|
|
Share-based compensation, included in operating expenses |
6.2 |
|
7.9 |
|
8.2 |
|
10.2 |
|
8.2 |
|
|
Share-based compensation, included in cost of sales |
0.4 |
|
1.0 |
|
0.2 |
|
0.9 |
|
0.4 |
|
|
Write-off biological assets and destruction costs |
– |
|
– |
|
0.7 |
|
– |
|
– |
|
|
Write-off of inventory |
– |
|
– |
|
2.2 |
|
– |
|
– |
|
|
Write down of inventory to net realizable value |
0.2 |
|
16.1 |
|
23.0 |
|
19.3 |
|
– |
|
|
Impairment loss on right-use-assets |
– |
|
0.5 |
|
0.7 |
|
– |
|
– |
|
|
Impairment loss on property, plant and equipment |
0.2 |
|
31.6 |
|
– |
|
– |
|
– |
|
|
Impairment of intangible assets |
– |
|
106.2 |
|
– |
|
– |
|
– |
|
|
Impairment of goodwill |
– |
|
111.9 |
|
– |
|
– |
|
– |
|
|
Recognition of onerous contract |
– |
|
3.0 |
|
– |
|
– |
|
– |
|
|
Disposal of long-lived assets |
3.2 |
|
0.5 |
|
– |
|
– |
|
– |
|
|
Adjusted EBITDA |
(4.3 |
) |
(8.5 |
) |
(18.7 |
) |
(28.2 |
) |
(8.5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
During Q3’20, the Company’s calculated adjusted
EBITDA increased to ($4.3M), compared with ($8.5M). This represents
a 50% increase. The Company remains focused on achieving positive
adjusted EBITDA in the first half of fiscal 2021, dependent on the
implication of COVID 19 on operations, store roll outs and customer
demand.
Other Developments
Entry Into US Market
On April 15th, 2020 Molson Coors and HEXO announced
the formation of joint venture to explore opportunities for
non-alcohol hemp derived CBD beverages in Colorado.
Closes $57.5M Underwritten Public Offering
On May 21, 2020 HEXO closed a $57.5M underwritten
public offering for the purchase and sale of 55,600,000 units and
8,340,000 over-allotment units. Each unit is comprised of one
common share and one-half common share purchase warrant at an
offering price of $0.90 per unit. The warrants have a five
year-term and an exercise price of $1.05 per share.
Belleville Sales LicenseOn June 1st, 2020 HEXO
announced it had obtained its Health Canada license amendment for
the sale of dried and fresh cannabis, cannabis extracts, cannabis
topicals and edible cannabis products for its cannabis
manufacturing and processing facility in Belleville, Ontario.
This license amendment also encompasses the expansion of the
licensed area to include the beverage production area dedicated to
the Truss/HEXO beverage division. This license amendment will
allow the Company to achieve greater economies of scale, expand
roll out of 2.0 products and continue on its national expansion
strategy.
Bulk Medical Product LaunchOn June 3rd, 2020 HEXO
announced the launch of a new 30 gram medical flower format for its
popular high-THC strain, Tsunami, to HEXO’s medical clients.
Covid-19 Update
In the wake of the COVID-19 pandemic, authority has
been relegated to provincial and territorial governments to
determine if the sale of cannabis will be deemed as an essential
service and under which mediums (instore and/or online) cannabis
may be sold. The various provinces have taken different approaches
but the consumer’s ability to access legal cannabis has been
maintained. As a trend, the marketplace has seen an
overall increase in the sales during the month of March due to
stockpiling, but there has also been an increase in consumer
spending on recreational activities that can be enjoyed in the
comfort of their homes.
Our company’s ability to meet the increase in
demand would not have been possible without the dedication of the
entire team at HEXO. The company has implemented rigorous
safety protocols to mitigate the potential exposure and provide as
safe a work environment as possible. Our team members have
demonstrated incredible resolve to ensure we continue to execute at
the highest levels and achieve operational excellence. We
remain vigilant and will continue to proceed with caution.
While we continue to operate during a pandemic, we
continue to be cautious about future expectations. Our plans
to achieve Adj. EBITDA positive in the first half of fiscal 2021
will depend on the growth of retail stores in our two largest
markets, Ontario and Quebec. It is difficult to determine the
timing of new licenses for new retails stores in Ontario and the
build out of additional stores in Quebec. We await additional
information from the authorities of each Province and
Territory.
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 Call
The Company will hold a conference call, Thursday,
June 11th, 2020 to discuss these results. Sebastien St-Louis, CEO,
and Stephen Burwash, CFO, will host the call starting at 8:30 a.m.
Eastern standard time. A question and answer period will follow
management’s presentation
Date: June 11th, 2020 Time: 8:30 a.m. EST Webcast:
https://event.on24.com/wcc/r/2410089/16D0AEA8BB7F57BED3418A6AAFDD9AC0
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. 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. Forward-looking statements in this
press release include but are not limited to the Company’s
statements with respect to management’s belief that certain
expenses included in operating expenses are non-recurring and
related to significant changes in market conditions and the refocus
of its operations on becoming adjusted EBITDA positive.
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.comwww.hexocorp.com
Media Relations: (819) 317-0526
media@hexo.com
HEXO (NASDAQ:HEXO)
Historical Stock Chart
From Mar 2024 to Apr 2024
HEXO (NASDAQ:HEXO)
Historical Stock Chart
From Apr 2023 to Apr 2024
