HEXO Corp Reports Financial Results for the Fourth Quarter and Fiscal Year 2020

OTTAWA, Oct. 29, 2020 (GLOBE NEWSWIRE) — 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, 2020. All amounts are expressed in Canadian dollars unless otherwise noted.

“HEXO’s topline growth this quarter reflects the ongoing performance and success of our 2.0 products and the high quality of our offering which repeatedly resonates with consumers. We are commanding significant market share in Quebec and this year we made major strides by launching Truss cannabis infused beverages in Canada in addition to our initial foray into the U.S. with Molson Coors, a world-class partner,” said Sebastien St-Louis, CEO and co-founder of HEXO.

St-Louis continued, “Our business is improving quarter over quarter as we continue to focus on achieving positive Adjusted EBITDA. In the fourth quarter we also strengthened our balance sheet as we look beyond positive Adjusted EBITDA to positive EPS.”

Key Financial & Operating Highlights from Q420

  • Revenue per gram equivalent for non-beverage adult-use sales increased to $4.07 or 29% from the previous quarter,
  • Continued market expansion and first quarter of contribution from cannabis beverage products “powered by HEXO” in the fourth quarter, contributing $2.0M of net revenue
  • Net revenue of $27.1M, up 23% from the previous quarter and 76% from the same quarter in the prior year
  • Gross revenue of $36.1M, the highest in the company’s history, increasing 17% from the previous quarter and 76% from the same quarter in the prior year
  • Adjusted EBITDA of ($3.25M), representing a 21% improvement from the previous quarter; tracking towards positive Adjusted EBITDA in the first half of fiscal 2021
  • The Company maintained Gross Margin before adjustments of 42%, on sales excluding adult-use beverages, as the Company continued its strategy of providing consumers with high quality, lower priced alternatives
  • Increased cash and cash equivalents by 95% from the prior quarter. This was accomplished primarily through the Company’s financing activity in the period where net funds of $54M and $33M were raised through the May 2020 public offering and the June 2020 at-the-market offering, respectively
  • The Company’s working capital was $223M, including $184M of cash
  • Operational cash use of ($3.8M)1 for the quarter, not including financing and investing activities
  • The Company recorded write downs to inventory of $43M to align the Company with future demand and near-term production plan. The Company recorded impairments to property, plant and equipment of $46.4M, right sizing the balance sheet to align with future performance and support a pathway to positive earnings per share

1 Operational cash use was calculated as the change between the cash used in operating actives for the year ended July 31, 2020 as compared the cash used in operating activities for the 9 months ended April 30, 2020.

Financial Highlights

 For the three months ended For the twelve months ended 
Income Statement SnapshotJuly 31, 2020  April 30, 2020 July 31, 2019 July 31, 2020 July 31, 2019 
                   $ $ $                       $ $ 
Revenue from sale of goods        36,140 30,895 20,517 110,149 59,256 
Excise taxes          (9,082)(8,817)(5,122)  (29,598)(11,914)
Net revenue from sale of goods        27,058 22,078 15,395 80,551 47,342 
Ancillary revenue               87 54 29 233 199 
Gross (loss)/profit before adjustments1          8,104 8,783 5,133 26,953 21,344 
Gross (loss)/profit before fair value1 adjustments2       (36,012)7,452 (14,202)(46,421)2,009 
Gross (loss)/profit       (34,690)5,730 (16,165)(57,975)24,508 
Operating expenses       (71,509)(26,485)(46,902)(418,576)(111,482)
Loss from operations     (106,199)(20,755)(63,067)(476,551)(86,974)
Other income/(expenses and losses)      (63,333)1,699 125 (75,961)(847)
Net loss before tax    (169,532)(19,056)(62,942)(552,512)(87,821)
Tax recovery                –  18,213            6,023 18,213 
Total Net loss     (169,532)(19,056)(44,729)(446,489)(69,608)
1    Refer to the Company’s “Non-IFRS Measures” section as disclosed in the fiscal 2020 Management’s Discussion and Analysis.

Quarter 2020 Highlights

Gross revenue in Q4’20 increased 17% to $36.1M from $30.9M in Q3’20, and 76% from $20.5M in Q4’19. The primary drivers of the increase were the Company’s cannabis 2.0 products, launching cannabis vapes into the market, which is a new sales stream and contributed $1.3M to gross sales, as well as $2.4M of beverage based adult-use sales, another new revenue stream that began mid-fiscal year, and from international sales of $1.3M reflecting the Company’s purchase agreement established with an Israel based medical cannabis company.

Gross margin before fair value adjustments in Q4’20 was 30%, compared with 40% in the prior sequential quarter. While the Company’s gross margin has been trending upward in the year driven by production efficiencies, automation of packaging activities, and choice of strain cultivation, the Company’s adult use beverage launch caused an impact to margins in 4Q20 as operating and overhead costs were recognized in cost of sales without the benefit of fully scaled production and sales. As previously noted, the Company had expected to see fluctuations in gross margins related to new product introductions.  

(excluding beverages)
 Company total
For the three months ended July 31, 2020$$$$$                 $ $
Net revenue22,5755481,29165525,069       1,989 27,058
Cost of sales13,66311964222214,646        4,395 19,558
Gross profit before adjustments ($)8,91242964943310,423(2,406)7,500
Gross margin before adjustments (%)39%78%50%66%42%(121%) 28%
For the three months ended April 30, 2020 $$$$$$ $
Net revenue20,61469334021,647431 22,078
Cost of sales11,82616319812,187         1,162 13,349
Gross profit before adjustments ($)8,7885301429,460           (731)8,729
Gross margin before adjustments (%)43%76%42%44%(170%)40%

Operating expenses were $71.5M in the quarter, and loss from operations for Q420 was $106.2M. Included in Q420 operating expenses were the following items:

  • Impairments of property, plant and equipment of $46.4M
  • Loss on onerous contract of $1.8M
  • Restructuring costs of ($0.1M)

Adjusted EBITDA1

 Q4’20  Q3’20 Q2’20 Q1’20 Q4’ 19 
                   $ $ $ $ $ 
Total net loss  (169,532)(18,837)(297,867)(60,016)(44,729)
Income taxes (recovery)   (6,023)(18,213)
Finance expense (income), net 2,069 2,926 3,281 (136)(1,270)
Depreciation, included in cost of sales1,254 950 920 433 446 
Depreciation, included in operating expenses1,179 1,566 1,992 1,333 582 
Amortization, included in operating expenses249 341 1,683 1,666 1,406 
Investment (gains) losses          
Revaluation of financial instruments loss/(gain)1,433 (4,955)(2,714)(297)(543)
Share of loss from investment in joint venture1,863 1,195 1,591 1,682 1,253 
Loss/(gain) on convertible debentures86 212 413 2,627 125 
Unrealized loss on investments4,345 311 6,553 1,671 38 
Realized loss/(gain) on investments 1,217 242 (17)215 
Foreign exchange loss/(gain)1,623 (2,443)(617)46 51 
Loss on inducement of convertible debentures54,283     
Non-cash fair value adjustments          
Realized fair value amounts on inventory sold6,656 10,764 5,447 6,663 7,285 
Unrealized gain on changes in fair value of biological assets   (7,978)(6,379)(7,948)(7,051)(5,322)
Non-recurring expenses          
Restructuring costs(79)865 259 3,722  
Other non-cash items          
Share-based compensation, included in operating expenses     4,373 5,651 7,603 8,164 10,197 
Share-based compensation, included in cost of sales511 396 964 238 936 
Write-off biological assets and destruction costs   663  
Write-off of inventory2,217   2,175  
Write down of inventory to net realizable value41,899 (1,331)16,089 23,041 19,335 
Impairment loss on right-use-assets2,000  476 702  
Impairment loss on property, plant and equipment46,414 220 31,606   
Impairment of intangible assets  106,189   
Impairment of goodwill  111,877   
Recognition of onerous contract1,763  3,000   
Disposal of long-lived assets     122 3,237 497   
Adjusted EBITDA        (3,250)(4,094)(8,464)(18,704)(28,208)
1    Refer to the Company’s “Non-IFRS Measures” section as disclosed in the fiscal 2020 Management’s Discussion and Analysis.

During the three months ended July 31, 2020, the Company’s Adjusted EBITDA improved 21% from the previous quarter, coming in at ($3.25M) compared with ($4.1M) for the three months ended April 30, 2020. Increased sales of Cannabis 2.0 products, while managing SG&A levels, were primary contributors to an improvement in Adjusted EBITDA. The Company’s wholesale activity and international sales also contributed, due to having higher margins, as these streams are exempt from excise taxes.

Fiscal 2020 Year Highlights

Revenue from sale of goods increased 86% for fiscal 2020, totaling $110.1M compared to $59.3M in fiscal 2019. The Company’s net revenue from sale of goods for fiscal 2020 increased 70% to $80.6M, compared with $47.3M in the prior year.

The Company strengthened its financial position by raising net cash of $186.7M during the year ended July 31, 2020 through various public and private offerings.

Operating expenses increased to $418.6M in fiscal 2020, compared to $111.5M in the prior year. Included in fiscal 2020 are several non-cash expenses, namely $111.9M impairment of goodwill, $108.2M impairment of intangible assets, $79.4M impairment of property, plant and equipment, $4.8M of restructuring costs and $4.8M loss on an onerous contract. Not including these items, operating expenses are $110.5M, down $1.6M from the prior year, even as there was a significant increase to the scale of the Company’s operations, including a number of product launches.

Loss from operations for the fiscal year was $476.6M, compared to an operating loss of $87.0M for the prior year.

The Net loss for fiscal 2020 year was $546.5M compared to $69.6M in the prior year. Included in Net loss in fiscal 2020 are the items noted above, in addition to a $54.3M loss on the inducement of convertible debentures.

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.

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 as a result unlikely to be comparable to similar measures presented by other companies. These measures are provided as information complimentary 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 three months ended July 31, 2020, filed on SEDAR and EDGAR.

Conference Call

The Company will hold a conference call, Friday, October 30th, 2020 to discuss these results. Sebastien St-Louis, CEO, and Trent MacDonald, 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: October 30, 2020

Time: 8:30 a.m. EST

Webcast: https://event.on24.com/wcc/r/2771524/47E7001045651D265D3F12D203F6F5A4

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, Up Cannabis and Original Stash 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.govReaders 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.

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Original Source and Content: https://www.globenewswire.com/news-release/2020/10/29/2117487/0/en/HEXO-Corp-Reports-Financial-Results-for-the-Fourth-Quarter-and-Fiscal-Year-2020.html