Hexo Earnings Benefit From Beverages

HEXO Corp. (NYSE: HEXO) reported first-quarter fiscal 2021 financial results with gross revenue of $41.3 million, a sequential increase of 14% and 114% from the prior-year period first-quarter. Total net revenue increased $2.3 million to $29.4 million from the fourth quarter due mostly to an 8% growth in adult-use cannabis sales and a 54% growth in the adult-use beverage category. Total net revenue increased 103% from the fiscal first-quarter of 2020. All amounts are expressed in Canadian dollars.

Operating expenses for Hexo were trimmed to $20.8 million from $71 million in the fourth quarter as the company said it continued to streamline costs across the organization, primarily in SG&A, offset by marketing costs related to product launches. Loss from operations improved to $2.6 million in the first quarter versus a loss of $60.5 million in the fourth quarter, which the company said was driven by a clean balance sheet and absence of material, non-recurring charges.

HEXO CEO and co-founder Sebastien St-Louis said, “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.”

The company reported that its consolidated gross margin for the first quarter improved to 35% from 30% in the fourth quarter. Hexo attributed the increase 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 the market

“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.”

Debra Borchardt

Debra BorchardtDebra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Masters degree in Business Journalism from New York University.


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