HEXO Reports Decline In Revenue, Rising Expenses

HEXO Corp. (TSX: HEXO)(NYSE: HEXO)  reported its financial results for the first quarter fiscal 2020 ended October 31, 2019, in Canadian dollars. The company reported that the net revenue in the first quarter decreased sequentially to $14.5 million versus $15.4 million in the fourth quarter of 2019. The revenue increased over $5.7 million reported in the first quarter of 2019.

The net loss for the quarter was an eye-popping $62.4 million. The company attributed the increase in loss to “The larger magnitude of the company’s operations, the expanding scale production and sales in the period, and an impairment loss.” Operating expenses increased from $22 million in the first quarter of 2019 to $35.1 million for the first quarter of 2020.

The stock was falling over 8% on the news of the losses and was lately trading at $2.08, down from its 52-week high of $8.40.

“We have done some pretty heavy lifting on our operations, as we work towards profitability in 2020. The choices that we have made and implemented have already led to a 25% reduction in our operating expenses,” said Sebastien St-Louis, CEO, and co-founder of HEXO Corp. “Cost control combined with our multi-brand approach, an updated strain mix, as well as the introduction of new products, will help us increase our market share and total revenue, leading us towards great results in 2020. I am more confident than ever in our ability to continue down this path and to pivot with more speed and assertiveness should market conditions evolve again.”

The company noted that adult-use sales volume during the quarter increased 5% to 4,196 kg from 4,009 kg equivalents sold in the prior quarter. Gross adult-use revenue per gram equivalent decreased to $4.35 in Q1’20 from $4.74 in Q4’19, reflective of the provision for sales returns and price adjustments recorded in the quarter. “The provision is reflective of a general best estimate provision for returns and price adjustments based on the Company’s assessment of sell-through and slow-moving inventory. This was partially countered by the addition of the premium brand Up cannabis, which commands revenue of $7.03 per gram on dried flower during the quarter. The adult-use net revenue per gram equivalent decreased to $3.24 in Q1’20 from $3.51 in Q4’19, reflecting the impact of the provision above.”

Block B Issues

Hexo disclosed on November 15, 2019, that there was a licensing issue in Block B of its Niagara facility, inventory from Block B was quarantined and held back from sales. The inventory was kept on the books and although destruction was a possible outcome, Hexo has said it has reassessed any risks related to such inventory and concluded that it is cleared for sale and will not be subject to destruction. Block B is now fully Licensed by Health Canada.

 

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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