HEXO Corp. (TSX: HEXO; NASDAQ: HEXO) ("HEXO" or the "Company")
today reported its financial results for the fourth quarter
(“Q4’21”) and fiscal year ended July 31, 2021 ("F’21"). All amounts
are expressed in Canadian dollars unless otherwise noted.
"I am honoured and humbled to join the team as
HEXO's President & CEO," said Scott Cooper. “I look forward to
continuing to build on HEXO's strong foundation with an immediate
priority of continuing to integrate our recent acquisitions and
reviewing our financial position, with the ultimate goal of driving
growth and profitability through the commercialization of cannabis
consumer packaged goods products."
"As we review our last fiscal year, I would like
to highlight some key achievements. Last fiscal, HEXO
achieved its highest net revenue in the Company’s history, leads
the Canadian cannabis market in four categories and completed three
acquisitions, including the transformative Redecan acquisition,
propelling the Company to the number one market share position in
Canadian adult-use recreational cannabis sales," commented
Cooper.
Business Update
M&A
Key Highlights to July 31, 2021
- Closed the Zenabis acquisition on June 1, 2021, offering
diversified cultivation facilities, including a state-of-the-art
indoor grow facility in Atholville, NB.
- Zenabis contributed $6.8 million in net revenue for the two
months ended July 31, 2021.
Subsequent Events
- The Company completed the acquisitions of Redecan and 48North
Cannabis Corp. (“48North”). Through the integration progress, HEXO
is focused on ensuring that it implements the strengths of each
acquired company across the organization, identifies and resolves
any weaknesses, and obtains synergistic value for the overall
organization.
- HEXO believes these acquisitions will increase its market
share, accelerate its path to profitability, and create accretive
synergies.
Operations
Key Highlights to July 31, 2021
- Committed to ESG leadership, by offsetting 100% of its 2020
operational carbon emissions and personal emissions for all
employees1. The Company also committed to offsetting the
plastic used in its pouch packaging.
Subsequent Events
- The Company undertook a strategic reorganization, announcing
the departure of its Co-Founder and CEO, Sebastien St-Louis and the
appointment of Scott Cooper as HEXO's new President & CEO.
- Scott joins HEXO from Truss Beverage Co., a joint venture
between Molson-Coors Canada and HEXO which holds the number one
market share in cannabis infused beverages in Canada, where he held
the position of President & CEO. For a period of not more than
six months, Scott will simultaneously remain in this role.
- HEXO also announced the appointment of Valerie Malone as Chief
Commercial Officer and Guillaume Jouet as Chief People &
Culture Officer. Both executives bring significant
consumer-packaged good experience to the organization.
Canadian cannabis market
Key Highlights to July 31, 2021
- Net revenue increased 71% quarter-over-quarter and 43% from
Q4’20, marking HEXO's highest quarter of revenue to date.
- Total Q4’21 net revenue increased to $38.7 million from $22.6
million in Q3’21
- Total net revenue for FY21 grew to $123.5 million from $80.6
million in FY20.
- Increased market share in several Canadian provinces, including
Ontario, Alberta and British Colombia, and maintained a top two
market share in Quebec.
- Adult-use net revenues, exclusive of beverages, increased 28%
quarter-over-quarter.
- Cannabis beverage net revenues increased 70%
quarter-over-quarter and 161% from fiscal 2020.
Maintained leading market position relative to peers as market
share continues to diversify.
HEXO USA
Key Highlights to July 31, 2021
- On June 28, 2021, HEXO announced the closing of the acquisition
of a 50,000 sq. ft. facility in Colorado providing the Company with
the necessary infrastructure to execute on its U.S. expansion
plans. The facility is zoned for producing a full range of cannabis
products and offers a variety of operational capabilities.
Subsequent Events
- Truss CBD USA announced the expansion of Veryvell,
a line of hemp-derived CBD and adaptogen beverages, to 17
states following a successful Colorado launch in 2020. Truss CBD
USA is a joint venture by Molson Coors Beverage Company and
HEXO USA Inc, a subsidiary of HEXO poised to capture the
US cannabis infused beverage market.
Financial Update
In
000’s |
For the three months ended |
For the twelve months ended |
Income Statement Snapshot |
July 31, 2021 |
|
April 30, 2021 |
|
July 31, 2020 |
|
July 31, 2021 |
|
July 31, 2020 |
|
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
Revenue from sale of goods |
53,022 |
|
33,082 |
|
36,140 |
|
173,081 |
|
110,149 |
|
Excise taxes |
(14,365 |
) |
(10,482 |
) |
(9,082 |
) |
(49,583 |
) |
(29,598 |
) |
Net revenue from sale of goods |
38,657 |
|
22,600 |
|
27,058 |
|
123,498 |
|
80,551 |
|
Ancillary revenue |
103 |
|
60 |
|
87 |
|
271 |
|
233 |
|
Total revenue |
38,760 |
|
22,660 |
|
27,145 |
|
123,769 |
|
80,784 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit before adjustments2 |
7,988 |
|
5,006 |
|
8,104 |
|
34,175 |
|
26,953 |
|
Gross profit/(loss) before fair value adjustments |
1,499 |
|
4,379 |
|
(36,012 |
) |
29,066 |
|
(46,421 |
) |
Gross profit/(loss)2 |
3,234 |
|
8,816 |
|
(34,690 |
) |
48,798 |
|
(57,975 |
) |
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses |
(63,116 |
) |
(24,906 |
) |
(71,509 |
) |
(134,293 |
) |
(418,576 |
) |
Loss from operations |
(59,882 |
) |
(16,090 |
) |
(106,199 |
) |
(85,495 |
) |
(476,551 |
) |
Other expenses and
losses |
(9,630 |
) |
(4,621 |
) |
(63,333 |
) |
(29,664 |
) |
(75,961 |
) |
Loss and comprehensive loss before tax |
(69,512 |
) |
(20,711 |
) |
(169,532 |
) |
(115,159 |
) |
(552,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
Current and deferred tax recovery |
397 |
|
– |
|
– |
|
397 |
|
6,023 |
|
Other comprehensive
income |
1,156 |
|
3 |
|
– |
|
1,152 |
|
– |
|
Total Net loss and
comprehensive loss |
(67,959 |
) |
(20,708 |
) |
(169,532 |
) |
(113,610 |
) |
(546,489 |
) |
1 |
The Company has adjusted the presentation of gross profit before
fair value adjustments by removing inventory and biological asset
write offs and impairment losses. |
2 |
See section ‘Cost of Sales, Excise Taxes and Fair Value
Adjustments’ for reconciliation of gross profits |
Operating Expenses
In 000’s |
For the three months ended |
For the years ended |
|
July 31, 2021 |
April 30, 2021 |
|
July 31, 2020 |
|
July 31, 2021 |
July 31, 2020 |
|
$ |
$ |
|
$ |
|
$ |
$ |
Selling, general and administration1 |
19,160 |
11,178 |
|
12,436 |
|
54,543 |
52,793 |
Marketing and promotion |
3,665 |
2,452 |
|
2,375 |
|
10,348 |
12,474 |
Share-based compensation |
827 |
2,715 |
|
4,373 |
|
11,731 |
25,790 |
Research and development |
934 |
730 |
|
677 |
|
3,835 |
4,639 |
Depreciation of property, plant and equipment |
1,728 |
1,612 |
|
1,179 |
|
6,097 |
6,072 |
Amortization of intangible assets |
1,002 |
371 |
|
249 |
|
2,050 |
3,939 |
Restructuring costs |
1,562 |
336 |
|
(79 |
) |
3,283 |
4,767 |
Impairment of property, plant and equipment |
19,350 |
16 |
|
46,414 |
|
20,230 |
79,418 |
Impairment of intangible assets |
– |
– |
|
2,000 |
|
– |
108,189 |
Impairment of goodwill |
– |
– |
|
– |
|
– |
111,877 |
Realization of onerous contract |
– |
– |
|
1,763 |
|
– |
4,763 |
Disposal of long-lived assets |
– |
– |
|
122 |
|
1,294 |
3,855 |
Loss/(gain) on disposal of
property, plant and equipment |
19 |
(19 |
) |
– |
|
64 |
– |
Acquisition transaction
costs |
14,869 |
1,871 |
|
– |
|
17,174 |
– |
Health Canada Recovery
Fee’s1 |
– |
3,644 |
|
– |
|
3,644 |
– |
Total |
63,116 |
24,906 |
|
71,509 |
|
134,293 |
418,576 |
1 |
The Company has adjusted the presentation of the Selling, General
and Administrative expenses to breakdown the Health Canada Recovery
Fee’s for ease of user review and identification. This presentation
differs from that of the Company’s interim financial statement for
the year ended July 31, 2021. |
Other Matters
Gross margins
Quarter-over-quarter, the Company's total gross
margin declined to 20% from 22% in Q3’21. Net adult-use revenue
(exclusive of beverages) gross margin declined to 12% from 28% due
to; increases to sales in higher excise tax burdened markets,
decreases to average selling prices, and the crystallization of
fair value adjustments upon the business acquisition of
Zenabis.
Normalizing for the impact of the
crystallization, the Company’s total gross margin would improve to
26% in Q4’21. Strong margined international sales grew
significantly in period to net revenues of $6.8 million and a gross
margin contribution of 65%. Wholesales were also impacted by the
crystallization of fair value adjustments on the purchase price
accounting of Zenabis, normalized for this, margins would otherwise
have been 35% versus reported gross margin of (65%).
Going Concern & the Senior Secured
Convertible Note
The Company acknowledges the ongoing concern
with its senior secured convertible notes issued on May 27, 2021.
The Company has maintained a positive relationship with the holder,
with the holder having negotiated and agreed to two amendments
favorable to the Company. While there exists a risk that
significant cash outflows may be required over the next twelve
months under the terms of the Senior Secured Convertible Note, the
Company has been working with the Holder to renegotiate the terms
of the Senior Secured Convertible Note.
The Company has sufficient funding for ongoing
working capital requirements, however, current funds on hand,
combined with operational cash flows, are not sufficient to also
support funding potential cash requirements under the Senior
Secured Convertible Note, investments required to continue to
develop cultivation and distribution infrastructure, and the future
growth plans of the Company. Management is exploring several
options to secure the necessary financing, which could include the
issuance of new public or private equity or debt instruments,
supplemented with operating cash inflows from operations.
Nevertheless, there is risk that certain sources
of additional future funding will not be available to the Company
or will be available on terms which are acceptable to management.
In the meantime, Management continues to monitor and manage its
cash flow in relation to its strategic growth objectives and
working capital requirements.
Non-IFRS Measures
In this press release, reference is made to
gross profit before adjustment, profit/margin before fair value
adjustments, adjusted gross profit/margin, adjusted EBITDA, and
revenue per gram equivalent which are not measures of financial
performance under International Financial Reporting Standards
(IFRS). These metrics and measures are not recognized measures
under IFRS, do not have meanings prescribed under IFRS, and are
unlikely to be comparable to similar measures presented by other
companies. These measures are provided as information complementary
to those IFRS measures by providing a further understanding of our
operating results from the perspective of management. As such,
these measures should not be considered in isolation or in lieu of
a review of our financial information reported under IFRS.
Definitions and reconciliations for all terms above can be found in
the Company's Management's Discussion and Analysis for the fiscal
year ended July 31, 2021, filed under the Company's profile on
SEDAR at www.sedar.com and EDGAR at www.sec.gov respectively
Conference Call
The Company will hold a conference call, October
29, 2021 to discuss these results. Scott Cooper, President &
CEO, and Trent MacDonald, CFO, will host the call starting at 8:30
a.m. Eastern. Analysts' question and answer period will follow
management's presentation.
Date: October 29, 2021
Time: 8:30 a.m. ET
Webcast:
https://events.q4inc.com/attendee/987736433
For previous quarterly results and recent press
releases, see hexocorp.com.
About HEXO Corp
HEXO is an award-winning licensed producer of
innovative products for the global cannabis market. HEXO serves the
Canadian recreational market with a brand portfolio including HEXO,
Redecan, UP Cannabis, Namaste Original Stash, 48North, Trail Mix,
Bake Sale, REUP and Latitude brands, and the medical market in
Canada, Israel and Malta. The Company also serves the Colorado
market through its Powered by HEXO® strategy and Truss CBD USA, a
joint venture with Molson-Coors. With the completion of HEXO's
recent acquisitions of Redecan and 48North, HEXO is a leading
cannabis products company in Canada by recreational market share.
For more information, please visit www.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: invest@hexo.com
www.hexocorp.com
Media Relations: (819) 317-0526
media@hexo.com
1 Estimated personal emissions based on the average Canadian’s
emissions from heating and powering their homes, driving and food
consumption.
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