Hexo Reports $1 Billion Loss for Fiscal Year 2022

Hexo is completely out of Zenabis.

Late last night, HEXO Corp. (TSX: HEXO)(NASDAQ: HEXO) reported its financial results for the fourth quarter and fiscal year that ended July 31, 2022. Hexo reported fourth-quarter net revenue of $42.5 million, an increase of 10% compared to $38.8 million in the 2021 fourth quarter. Net revenue dropped by 7% from the third quarter.

Total quarterly revenue was $60 million, which fell sequentially from third-quarter revenue of $63 million but increased over last year’s total revenue of $53 million. The net loss for the quarter was $102 million versus last year’s net income of  $63 million.

Hexo also reported that in the fourth quarter it had inventory write offs, destruction, and adjustments to net realizable value of $43 million, which it said was due to aged out and excess stock.

Full-Year Results

Hexo reported net revenue for the full fiscal year of 2022 of $191.1 million, up from $123.8 million from the fiscal year that ended July 31, 2021. Total revenue for the fiscal year 2022 was $265 million versus the fiscal year 2021’s total revenue of $173 million. The net loss for the full year was an eye-popping $1 billion versus last year’s net loss of $115 million.

“The fourth quarter was a period of strategic realignment for HEXO,” said Charlie Bowman, President and CEO of HEXO.

At the end of July, Hexo said it had cash and cash equivalents of $83 million which management believes is enough to meet working capital and operating cash flow needs over the next 12 months. Still, Hexo remains subject to a minimum liquidity covenant of $20 million under the Convertible note payable as well as certain financial and non-financial covenants. The company said in its statement,

Furthermore, the company’s 8% convertible debenture matures in December 2022, which will require a cash repayment of $40 million.

There remains a risk that the Company’s cost saving initiatives may not yield sufficient operating cash flow to meet its financial covenant requirements, and as such, these circumstances create material uncertainties that lend substantial doubt as to the ability of the Company to meet its obligations as they come due and, accordingly, the appropriateness of the use of accounting principles applicable to a going concern.

“Re-financing of the senior secured convertible note deleverage the balance sheet and boosted cash reserves, allowing us to focus on profitable growth,” said Julius Ivancsits, Acting Chief Financial Officer of HEXO. “We are hyper-focused on cash flow, and to this end, reduced our personnel cost by $65M, divested from businesses that do not offer HEXO a competitive advantage and focused on our quality of earnings, while also optimizing our working capital. We also rationalized to upgrade our product mix.”

No More Zenabis

Hexo said it was told that, on October 31, 2022, a subsidiary of SNDL Inc. acquired certain assets and shares of the members of the Zenabis Group and Hexo said it no longer has any direct or indirect shareholdings in or corporate affiliation with the Zenabis Group.

The statement read, “Following the deconsolidation, the carrying value of assets and liabilities of Zenabis were removed from the Company’s consolidated statements of financial position. The total amount deconsolidated from HEXO’s balance sheet was $82 million, including $3.4 million of cash, $29.6 million of inventory and biological assets, $13.8 million of property, plant and equipment and assets held for sale, $55.5 million of secured debenture and ($21.0) million of other assets and liabilities, net. The Company recognized a gain on derecognition of the net assets of Zenabis in non-operating income totaling $25.0 million.”


HEXO closed the Tilray transaction, amending the terms of the Senior Secured Convertible Notes and reducing the associated liquidity and dilution pressures under the previous debt structure.

Accountant Peaces Out

On October 11, 2022, Hexo’s auditor, PricewaterhouseCoopers, notified the company of its decision, at its own initiative, to decline to stand for re-appointment as the company’s auditor following the issuance of its auditor’s report on the Company’s consolidated financial statements for the financial year ending July 31, 2022.

“With a solid foundation now in place, HEXO has moved to the second phase of our transformation – focusing on producing the core brands and products that customers want, leading in innovation and reinforcing our market share,” added Mr. Bowman. “We evolved our leadership across the organization and are benefiting from strong integration across our most successful brands. By concentrating on these products and ensuring that they do not compete against each other, we have built a loyal customer following and refined what truly sets HEXO apart from our peers.”

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor 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 Master's degree in Business Journalism from New York University.

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