Hexo Revenues Up, But Gives Sobering Debt Warning

HEXO Corp. (NASDAQ: HEXO) reported its financial results for the fourth quarter and fiscal year ending July 31, 2021. While Hexo made great strides in increasing its revenues and cutting its expenses and losses, the company still gave a sobering warning about upcoming convertible debt. Total revenue in the fourth quarter rose to C$53 million over last year’s C$36 million for the same time period. Total net losses for the quarter were trimmed to C$67 million from last year’s C$169 million for the same time period. Total expenses were also trimmed to C$63 million from last year’s C$71 million for the same quarter. All amounts are expressed in Canadian dollars unless otherwise noted.

Full-year Results

Total revenue for the fiscal year 2021 grew to C$173 million over the fiscal year 2020’s total revenue of C$110 million. Net losses for the year also dropped dramatically to C$113 million from 2020’s net losses of C$546 million. Total expenses for 2021 fell to C$134 million from 2020’s C$418 million.

HEXO’s President & CEO Scott Cooper said, “As we review our last fiscal year, I would like to highlight some key achievements. Last fiscal, HEXO achieved its highest net revenue in the Company’s history, leads the Canadian cannabis market in four categories and completed three acquisitions, including the transformative Redecan acquisition, propelling the Company to the number one market share position in Canadian adult-use recreational cannabis sales.”

Convertible Debt Downer

Despite the improvements that Hexo has made, management gave investors a reality check warning about its senior secured convertible notes issued on May 27, 2021.  In a statement, Hexo said, “While there exists a risk that significant cash outflows may be required over the next twelve months under the terms of the Senior Secured Convertible Note, the company has been working with the Holder to renegotiate the terms of the Senior Secured Convertible Note.” Hexo said that it has maintained a positive relationship with the holder and was able to get two amendments that will be favorable to the company.

Unfortunately, Hexo also stated that while it enough money for ongoing working capital requirements, the current funds on hand, combined with operational cash flows,won’t be enough for the cash requirements under the Senior Secured Convertible Note, plus the investments required to continue to develop cultivation and distribution infrastructure, and the future growth plans of the company. Management said it is exploring several options to secure the necessary financing, which could include the issuance of new public or private equity or debt instruments, supplemented with operating cash inflows from operations.

Management Changes

This is the first earnings report under the new CEO Scott Cooper. Hexo announced the departure of its Co-Founder and CEO, Sebastien St-Louis. Scott joins Hexo from Truss Beverage Co., a joint venture between Molson-Coors Canada and Hexo which holds the number one market share in cannabis infused beverages in Canada, where he held the position of President & CEO. For a period of not more than six months, Scott will simultaneously remain in this role.

Hexo also announced the appointment of Valerie Malone as Chief Commercial Officer and Guillaume Jouet as Chief People & Culture Officer. Both executives bring significant consumer-packaged good experience to the organization.

Quarter Highlights

The company listed the following highlights for the quarter in its earnings statement:

  • Net revenue increased 71% quarter-over-quarter and 43% from Q4’20, marking HEXO’s highest quarter of revenue to date.
  • Total Q4’21 net revenue increased to $38.7 million from $22.6 million in Q3’21
  • Total net revenue for FY21 grew to $123.5 million from $80.6 million in FY20.
  • Increased market share in several Canadian provinces, including Ontario, Alberta and British Colombia, and maintained a top two market share in Quebec.
  • Adult-use net revenues, exclusive of beverages, increased 28% quarter-over-quarter.
  • Cannabis beverage net revenues increased 70% quarter-over-quarter and 161% from fiscal 2020.

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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