HEXO Corp., a leading producer of high-quality cannabis products, today reported its financial results for the third quarter of the 2023 fiscal year (“Q3’23”). All currency amounts are stated in Canadian dollars unless otherwise noted.
“In the third quarter, we entered into a definitive arrangement agreement whereby Tilray will acquire all outstanding shares of HEXO,” said Charlie Bowman, President and Chief Executive Officer of HEXO. “We continue to expect the transaction will be completed by June 30, 2023.”
“HEXO recorded $21.6 million in net revenues in the third quarter, representing an 11% decline from the second quarter,” noted Julius Ivancsits, Chief Financial Officer of HEXO. “Our G&A expenses, excluding Health Canada cannabis fees1, improved by $2.6 million compared to the second quarter, while our selling, marketing, and promotion expenses were largely flat quarter over quarter. We recognized an adjusted EBITDA2 loss of $3.9 million, compared to a loss of $2.4 million in the second quarter.”
Significant Financial Results
- Total net revenues decreased 11%, or $2.6 million, quarter over quarter, and decreased 53%, or $24.0 million, compared to Q3’22.
- Excluding Health Canada cannabis fees, the Company’s general and administrative (“G&A”) expenses improved by $2.6 million, or 25%, quarter over quarter. As compared to Q3’22, G&A expenses significantly improved by $15.7 million, or 67%.
- Selling, marketing and promotion expenses (“SM&P”) were consistent quarter over quarter and improved by 48%, or $2.5 million, relative to Q3’22.
- The Company made payments of cash and non-cash consideration to Tilray Brands Inc. with a fair market value of $26.3 million to obtain the Waiver agreement.
- When taken as percentage of net sales, during the nine months ended April 30, 2023, the Company’s general, administrative, selling, marketing and promotion and research and development costs improved by 13% when compared to the same period in fiscal 2022.
- The Company’s only material cash generating unit (“CGU”) was impaired by $73.7 million.
- The Company’s loss from operations improved by $12.3 million, or 9%, relative to Q3’22.
- Operating cash flows in the three and nine months ended April 30, 2023 significantly improved by $9.6 million and $77.9 million relative to the three and nine months ended April 30, 2022, respectively.
- The Company recognized an Adjusted EBITDA loss(*) of ($3.9 million) in Q3’23, an increased loss of $1.5 million quarter over quarter. The Q3’23 Adjusted EBITDA is inclusive of the Company’s Health Canada cannabis fees of $2.5 million. Relative to Q3’22 Adjusted EBITDA was significantly improved by $14.4 million.
1 G&A (or General and Administrative) expenses net of Health Canada cannabis fees constitutes a non-IFRS measure and differs from the presentation within the Q3’23 financial statements. See the Operating Expenses table below for reconciliation to financial statement presentation.
2 Adjusted EBITDA is a non-IFRS measure with no standardized definition. See section ‘Reconciliation for Adjusted Earnings before interests, taxes, depreciation and amortization to total net loss before tax’ below for full the reconciliation to the financial statement presentation of net loss.
Net Revenue
- Q3’23 total net revenue was $21.6 million, an 11% sequential decline. The decline was, amongst other factors, driven by lower adult-use sales in Alberta, certain supply issues and delisted products in Quebec, as well as a lower sales focus in the smaller markets of Saskatchewan and Manitoba. Also, as management noted in Q2’23, $2,186 of net revenue associated with delayed shipments to Alberta (due to severe weather) in Q1’23 had been recognized upon its delivery. Partially offsetting the decline was the resurgence of wholesale and international sales in the period due to the acquisition of new clients and increased purchase orders from existing clients.
- Due to increased competition, net sales declined 53% relative to Q3’22 as a result of the HEXO brand’s decreased market share and performance in the key provincial markets of Ontario, Alberta and Québec. The Zenabis subsidiary (which was deconsolidated in Q4’22 upon loss of control), contributed $8,447 of net sales in Q3’22, which are no longer applicable to the Company.
