HEXO Beats on Revenue, Cuts Cash Burn as it Tries to Stay Alive

Severe weather dampened results.

HEXO Corp. (TSX: HEXO) (Nasdaq: HEXO) posted earnings that beat revenue expectations as restructuring acrobatics over the past year continues to play out for the company.

The Canadian producer reported its financial results for the first quarter ending Oct. 31.

Net revenues for the quarter were C$35.8 million, down 29% versus C$50.2 million in the same period last year, and sequentially down 16% versus C$42.5 million in the previous quarter. However, this beat Yahoo Finance’s average analysts’ estimate of C$31.48 million.

The company said that the decline was attributable in part to “the timing of revenue recognition as certain shipments failed to reach their destination due to severe weather towards the period end.” HEXO cited other challenges stemmed from that, such as shortages and trimmed purchase orders “as the company continues to implement its revised demand planning process.”

Over the quarter, the company said that it made proactive decisions to “realign” its brand’s profitable products and cull products that were no longer meeting profitability standards.

At the same time, the company has managed to stay afloat after it wrote down hundreds of millions of dollars in assets trying to clean up its balance sheet over the past year. Investors balked at the company’s stock performance, especially after it issued a reverse split and approved a 14-to-1 share consolidation yesterday.

HEXO posted a total net loss before tax of C$57.1 million, an 86% improvement versus net losses before tax of C$106.2 million in the first quarter last year and C$117.4 million sequentially. Earnings per share were for a loss of nine cents versus a loss of 46 cents in the same period last year, according to regulatory filings.

“We’re now seeing the results of the strategic realignment we executed over the past two quarters and have successfully reset the company for long-term success,” said CEO and president Charlie Bowman. “Our laser focus on tackling the balance sheet, pulling back on those unprofitable products where our strengths in premium cultivation were not being leveraged, and expanding further into opportunities where we know we can win, is paying off across the business.”

The company recorded an adjusted EBITDA loss of C$600,000, a 91% improvement versus C$6.9 million sequentially; and an improvement of $11 million from the same period last year.

Total operating expenses fell by 69% or C$50.7 million over the quarter and 81% or C$100 million since last year. Over the year, operating cash outflows have been reduced by C$27.7 million or 49%.

“Over the past six months, we’ve made favorable amendments to our debt structure and have paid off, in early December, more than C$40 million of legacy debt. We’ve reduced our general and administrative and selling, marketing and promotion expenses by C$18 million and have substantially lowered our overhead costs,” CFO Julius Ivancsits said. “We’ve increased our gross profit before fair value adjustments by approximately C$41 million over the previous quarter and have significantly decreased our inventory levels. We’ve also eliminated unprofitable sales, redeploying those resources into profitable business segments.”

Hexo ended the 2022 fiscal year with more than a billion in net losses and more than C$200 million in debt after cutting financing deals with a few of its biggest shareholders. Tilray (Nasdaq: TLRY) came to its rescue when it said that it would buy Hexo’s remaining C$193 million senior secured convertible note.

“These actions have paved the way for profitable growth and we’re now building positions of strength in those areas where HEXO excels,” Bowman said.

Other highlights from the quarter include:

  • Redesign and upgrade of the Masson grow facility.
  • New cultivation agreements, including partnerships with Entourage and Tilray.
  • The launch of a top shelf, premium brand, T 2.0, into the Canadian marketplace.

Adam Jackson

Adam Jackson writes about the cannabis industry for the Green Market Report. He previously covered the Missouri Statehouse for the Columbia Missourian and has written for the Missouri Independent. He most recently covered retail, restaurants and other consumer companies for Bloomberg Business News. You can find him on Twitter at @adam_sjackson and email him at adam.jackson@crain.com.

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