HEXO Corp. reported first quarter fiscal 2021 financial results. All amounts are expressed in Canadian dollars unless otherwise noted.
“I would like to thank the entire HEXO team for the remarkable progress made in the first quarter,” said HEXO CEO and co-founder Sebastien St-Louis. “Today’s record revenue performance reflects our commitment to providing consumers with high-quality products, at reasonable prices, for all occasions. We continue to hold the number one market share position in Quebec, while continuing to aggressively expand into other markets. HEXO is now top four in adult-use market share by net sales dollars in Canada. We have also moved into the top beverage spot through Truss, our joint venture with Molson Coors, and have reached the number one market share position for hash, which we believe will continue to be an important category for the industry.”
Key Financial & Operating Highlights from 1Q21
- Gross revenue of $41.3M, the highest in the Company’s history, increased 14% from 4Q20 and 114% from the comparative prior year period.
- Net revenue of $29.5M, up 9% from 4Q20 and 103% from the year ago period.
- Sales momentum increased across Canada, with 18% of the periods gross sales coming from Alberta, 15% from Ontario and 6% from British Columbia.
- Maintained number one market share in Quebec.
- Number one in beverages with net revenue increasing 54% versus 4Q20.
- Six straight quarters of Adjusted EBITDA loss improvement, 87% reduction from ($3.25M) in 4Q20 to ($0.42M).
- Adjusted Gross Margin of 39% on sales excluding adult-use beverages, while beverage related revenue was gross margin positive in just its second full quarter of being in market.
- At the close of Q1, the Company’s working capital was $250.3M, including $149.8M of cash.
- Operational cash use of ($6.1M) for the quarter, not including financing and investing activities.
“We made extraordinary gains toward profitability this quarter, as we continue to optimize production, persist in our war on COGS, and focus on reducing our SG&A. This was the sixth sequential quarter of Adjusted EBITDA improvement, as we march towards being Adjusted EBITDA positive. We believe the strength of our balance sheet, along with our low depreciable capital base, have put us on a path where we are looking beyond positive Adjusted EBITDA and striving towards positive EPS,” continued St-Louis. “As discussed on our fiscal year-end earnings call, we purposely took time this quarter to focus on better matching supply to forecasted demand, leading to tough decisions, such as delaying the relaunch of our UP brand until Q2. Despite this, we were able to achieve record sales and I am delighted at the progress we have made to date. UP has been successful thus far, which gives us confidence in our approach moving forward.”
| For the three months ended | |||
| Income Statement Snapshot | October 31, 2020 | July 31, 2020 | October 31, 2019 |
| $ | $ | $ | |
| Revenue from sale of goods | 41,300 | 36,140 | 19,297 |
| Excise taxes | (11,887) | (9,082) | (4,839) |
| Net revenue from sale of goods | 29,413 | 27,058 | 14,458 |
| Ancillary revenue | 55 | 87 | 41 |
| Total revenue | 29,468 | 27,145 | 14,499 |
| Cost of sales | (17,544) | (63,157) | (35,826) |
| Fair value adjustments | 6,290 | 1,322 | 388 |
| Gross profit/(loss) | 18,214 | (34,690) | (20,939) |
| Operating expenses | (20,776) | (71,509) | (39,524) |
| Loss from operations | (2,562) | (106,199) | (60,463) |
| Other expenses and losses | (1,635) | (63,333) | (5,576) |
| Net loss before tax | (4,197) | (169,532) | (66,039) |
| Income tax recovery | – | – | 6,023 |
| Total Net loss | (4,197) | (169,532) | (66,016) |
First Quarter 2021 Financial Results
Total net revenue in 1Q21 increased $2.3M to $29.4M from $27.1M in 4Q20 due primarily to 8% growth in adult-use cannabis sales and 54% growth in adult-use beverage. Total net revenue increased 103% from the comparative period of fiscal 2020. The Company strengthened its positions in several key Canadian markets outside of Quebec, while maintaining its top competitive position within Quebec.
| For the three months ended | Adult-Use (excluding beverages) |
Medical | International | Wholesale | Total non-beverage |
Adult-use beverages |
Company total | |
| October 31, 2020 | $ | $ | $ | $ | $ | $ | $ | |
| Net revenue | 24,344 | 486 | 1,125 | 401 | 26,356 | 3,057 | 29,413 | |
| Cost of sales | 15,497 | 123 | 317 | 113 | 16,050 | 3,037 | 19,087 | |
| Gross profit before adjustments ($) | 8,847 | 363 | 808 | 288 | 10,306 | 20 | 10,346 | |
| Gross margin before adjustments (%) | 36% | 75% | 72% | 72% | 39% | 1% | 35% | |
| July 31, 2020 | $ | $ | $ | $ | $ | $ | $ | |
| Net revenue | 22,575 | 548 | 1,291 | 655 | 25,069 | 1,989 | 27,058 | |
| Cost of sales | 13,663 | 119 | 642 | 222 | 14,646 | 4,395 | 19,041 | |
| Gross profit before adjustments ($) | 8,912 | 429 | 649 | 433 | 10,423 | (2,406) | 8,017 | |
| Gross margin before adjustments (%) | 39% | 78% | 50% | 66% | 42% | (121%) | 30% |
The Company’s consolidated gross margin for 1Q21 improved to 35% from 30% in 4Q20. This increase is directly attributable to an improved gross profit in adult-use beverage during the period, where Truss Beverage achieved positive gross profit in only its second quarter of being in market.
Operating expenses were $20.8M in the quarter, an improvement of $50.7M from 4Q20, as the Company continued to streamline costs across the organization, primarily in SG&A, offset by marketing costs related to product launches. Loss from operations improved to $2.6M in 1Q21 from a loss of $60.5M in 4Q20, driven by a clean balance sheet and absence of material, non-recurring charges.
The Company’s total Adjusted EBITDA improved by 87% or more than $2.8M from ($3.3M) in 4Q20 to ($0.4M) in 1Q21. Net loss improved to $4.2M from a loss of $66.0M in 4Q20, when the Company took significant write downs.
Adjusted EBITDA
| Q1’21 | Q4’20 | |
| $ | $ | |
| Total net loss | (4,197) | (169,532) |
| Income taxes (recovery) | – | – |
| Finance expense (income), net | 1,895 | 2,069 |
| Depreciation, included in cost of sales | 2,406 | 1,254 |
| Depreciation, included in operating expenses | 1,078 | 1,179 |
| Amortization, included in operating expenses | 331 | 249 |
| Investment (gains) losses | ||
| Revaluation of financial instruments loss/(gain) | (733) | 1,433 |
| Share of loss from investment in joint venture | 1,073 | 1,863 |
| Loss/(gain) on convertible debentures | – | 86 |
| Unrealized loss on investments | 587 | 4,345 |
| Realized loss/(gain) on investments | – | – |
| Foreign exchange loss/(gain) | 461 | 1,623 |
| Loss on inducement of convertible debentures | – | 54,283 |
| Non-cash fair value adjustments | ||
| Realized fair value amounts on inventory sold | 4,806 | 6,656 |
| Unrealized gain on changes in fair value of biological assets | (11,096) | (7,978) |
| Restructuring costs | 525 | (79) |
| Other non-cash items | ||
| Share-based compensation, included in operating expenses | 2,930 | 4,373 |
| Share-based compensation, included in cost of sales | 596 | 511 |
| Write-off biological assets and destruction costs | – | – |
| Write-off of inventory | – | 2,217 |
| Write (up)/down of inventory to net realizable value | (1,543) | 41,899 |
| Impairment loss on right-use-assets | 761 | 2,000 |
| Gain on exit of lease | (419) | – |
| Impairment loss on property, plant and equipment | 42 | 46,414 |
| Impairment of intangible assets | – | – |
| Impairment of goodwill | – | – |
| Recognition of onerous contract | – | 1,763 |
| Disposal of long-lived assets | 78 | 122 |
| Adjusted EBITDA | (419) | (3,250) |
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.
