HEXO Corp. (TSX: HEXO; NYSE: HEXO) (“HEXO” or the “Company”) today reported its financial results for the second quarter fiscal 2021 ended January 31, 2021 (“2Q21”). All amounts are expressed in Canadian dollars unless otherwise noted.
“I am so proud of the entire HEXO team for the role they played in helping us achieve positive adjusted EBITDA this quarter, along with our seventh consecutive quarter of adjusted EBITDA improvement,” said HEXO CEO and co-founder Sebastien St-Louis. “Our continued focus on delighting consumers has seen us increase our market share across Canada while maintaining the number one position in Quebec. We’re also very excited to have launched “powered by HEXO” CBD beverages in Colorado. Our net revenues and gross margin have continued to improve year over year, bolstered by our premium product mix with the relaunch of UP Cannabis.”
“We are especially excited about our recently announced agreement to acquire Zenabis. We believe this transaction will be accretive for our shareholders and will position HEXO for accelerated domestic and international growth. The acquisition would place HEXO solidly in the top three position among licensed producers for Canadian adult-use cannabis sales, based on the most recent interim quarterly financial statements,” continued St-Louis.
Key Financial & Operating Highlights
- Achieved positive adjusted EBITDA, along with the seventh consecutive quarter of adjusted EBITDA improvement.
- Total net revenue increased to $32.8M, up 94% from the prior year quarter (“2Q20”) and 12% from the first quarter of fiscal 2021 ended October 31, 2021 (“1Q21”).
- Non-beverage Canadian adult-use revenue increased by 72% from 2Q20
- Adult-use net revenue increased by 10.5% in 2Q21, marking the fifth consecutive quarter of growth.
- Maintained number one position for market share in Quebec while increasing adult-use net revenues in the rest of Canada to 49% of the Company’s sales composition, up from 44% in 1Q21.
- Gross revenues for the UP Cannabis brand increased to $3.2M, representing 8% of total adult-use, non-beverage gross revenue in 2Q21 vs under 1% in 1Q21 due to the successful relaunch of the UP brand in late 1Q21.
- Brand mix, including the UP Cannabis brand, boosted non-beverage adult-use gross margin to 37%, up from 36% in 1Q21.
- Maintained the number one position in the beverage category with net revenue increasing 11% over 1Q21.
- Operational cash use of ($2.9M) for the quarter, and ($8.1M) over the past three quarters combined, not including non-cash working capital items.
- Due to HEXO’s ongoing success, the Company has never qualified for the Government of Canada’s COVID-19 related emergency response programs, such as the Canada Emergency Wage Subsidy (CEWS). Conversely, several of the Company’s competitors have received tens of millions of dollars, all of which has been included in their operational cash flows
Subsequent Events
- Appointed Charles Bowman as General Manager of US Operations
- Entered into definitive arrangement agreement to acquire Zenabis Global Inc. The transaction remains subject to customary closing approvals including regulatory and shareholders approvals, as well as approval of the Plan of Arrangement by the British Columbia Supreme Court.
- Won a complete dismissal (subject to plaintiffs’ appeal right) in the federal US securities class action pending in the United States District Court for the Southern District of New York.
Second Quarter 2021 Financial Results
Total net revenue in 2Q21 increased $3.4M to $32.8M from $29.4M in 1Q21 due primarily to 11% growth in non beverage adult-use cannabis sales and 11% growth in adult-use beverage. Total net revenue increased 94% from the comparative period of fiscal 2020. The Company strengthened its positions in several key Canadian markets outside of Quebec, while maintaining its top competitive position within Quebec.
Total net revenue for the six months ended January 31, 2021 increased 98% to $62,347 compared to the same period of fiscal 2020.
The Company’s consolidated gross margin for 2Q21 remained consistent at 35% from 1Q21. The Company’s recently relaunched premium Up brand contributed $3.2M in sales during the period.
Reduction of total operating expenses by 91% in 2Q21 from 2Q20, as the Company had no material impairments in the period. SG&A, marketing and promotion and R&D expenses improved by 3% from 2Q20 as the Company has actively sought to reduce operating expenses and drive toward EPS. These expenses were reduced 23% for the six months ended January 31, 2021 as compared to the same period of fiscal 2020.
The Company met its goal of reaching positive adjusted EBITDA in 2Q21. Total adjusted EBITDA improved by 148% to $202 from ($419) in the previous quarter.
