HEXO Corp announces positive adjusted EBITDA and 94% increase in net revenue from prior year

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OTTAWA, March 18, 2021 (GLOBE NEWSWIRE) — 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.


For the three months ended




For the six months ended





Income Statement Snapshot


January 31,



2021



October 31,

2020
January 31,

2020

January 31,

2021



January 31,

2020




$



$ $
$



$
Revenue from sale of goods
45,678
41,300 23,817
86,977
43,114
Excise taxes
(12,851

)
(11,887 ) (6,861 )
(24,738

)
(11,699 )
Net revenue from sale of goods
32,827
29,413 16,956
62,239
31,415
Ancillary revenue
53
55 51
108
92
Total revenue
32,880
29,468 17,007
62,347
31,507

Gross profit before adjustments
11,688
10,381 5,676
22,067
10,114
Gross profit/(loss) before fair value adjustments
11,314
11,924 (10,413 )
23,236
(31,854 )
Gross profit/(loss)
18,584
18,214 (7,912 )
36,796
(28,966 )



Operating expenses
(25,501

)
(20,776 ) (281,506 )
(46,280

)
(321,030 )
Loss from operations
(6,917

)
(2,562 ) (289,418 )
(9,484

)
(349,996 )
Other expenses and losses
(13,922

)
(1,635 ) (8,749 )
(15,553

)
(14,325 )
Net loss before tax
(20,839

)
(4,197 ) (298,167 )
(25,037

)
(364,321 )
Tax recovery



6,023
Total Net loss
(20,839

)
(4,197 ) (298,167 )
(25,037

)
(358,298 )


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.



For the three months ended

Adult-Use

(excluding

beverages)
Medical International Wholesale
Total



non-beverage

Adult-use



beverage

Company

total


January 31, 2021

$ $ $ $
$

$

$
Net revenue 26,904 422 2,000 109
29,435

3,392

32,827
Cost of sales 17,010 143 577 44
17,774

3,418

21,192
Gross profit before adjustments ($) 9,894 279 1,423 65
11,661

(26)

11,635
Gross margin before adjustments (%) 37% 66% 71% 60%
40%

(1%)

35%


October 31, 2020

$ $ $ $
$

$

$
Net revenue 24,344 486 1,125 401
26,356

3,057

29,413
Cost of sales 15,497 123 317 113
16,050

3,037

19,087
Gross profit before adjustments ($) 8,847 363 808 288
10,306

20

10,326
Gross margin before adjustments (%) 36% 75% 72% 72%
39%

1%

35%








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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.


Adjusted EBITDA


Q2’21

Q1’21

$

$

Total net loss

(20,839

)

(4,197

)
Finance expense (income), net 2,472 1,895
Depreciation, included in cost of sales 2,385 2,406
Depreciation, included in operating expenses 1,679 1,078
Amortization, included in operating expenses 342 331

EBITDA

(13,961

)

1,513
Investment (gains) losses 13,135 1,388
Non-cash fair value adjustments (7,270 ) (6,290 )
Non-recurring expenses 1,296 525
Other non-cash items 7,002 2,445

Adjusted EBITDA

202

(419

)

The management’s discussion and analysis for the period and the accompanying financial statements and notes are available under the Company’s profile on SEDAR at



www.sedar.com



and on its website at



www.hexocorp.com



.


Non-IFRS Measures

In this press release, reference is made to gross profit before adjustment, profit/margin before fair value adjustments, adjusted gross profit/margin, adjusted EBITDA, and revenue per gram equivalent which are not measures of financial performance under International Financial Reporting Standards (IFRS). These metrics and measures are not recognized measures under IFRS, do not have meanings prescribed under IFRS and are as a result unlikely to be comparable to similar measures presented by other companies. These measures are provided as information complementary to those IFRS measures by providing a further understanding of our operating results from the perspective of management. As such, these measures should not be considered in isolation or in lieu of a review of our financial information reported under IFRS. Definitions and reconciliations for all terms above can be found in the Company’s Management’s Discussion and Analysis for the three and six months ended January 31, 2021, filed on SEDAR and EDGAR.


Conference Call

The Company will hold a conference call, March 18th, 2020 to discuss these results. Sebastien St-Louis, CEO, and Trent MacDonald, CFO, will host the call starting at 8:30 a.m. Eastern. Analysts’ question and answer period will follow management’s presentation.

Date: March 18, 2021

Time: 8:30 a.m. EST

Webcast:



https://event.on24.com/wcc/r/2948058/C229CDF2D3B1E49A664CAA0768E4F4B2


For previous quarterly results and recent press releases, see



hexocorp.com



.


About HEXO Corp

HEXO Corp is an award-winning consumer packaged goods cannabis company that creates and distributes innovative products to serve the global cannabis market. The Company serves the Canadian adult-use markets under its HEXO Cannabis, Up Cannabis and Original Stash brands, and the medical market under HEXO medical cannabis. For more information please visit



hexocorp.com



.


Forward-Looking Statements

This press release contains forward-looking information and forward-looking statements within the meaning of applicable securities laws (“forward-looking statements”). Forward-looking statements are based on certain expectations and assumptions and are subject to known and unknown risks and uncertainties and other factors that could cause actual events, results, performance and achievements to differ materially from those anticipated in these forward-looking statements. Forward-looking statements should not be read as guarantees of future performance or results. Forward-looking statements in this press release include but are not limited to the Company’s statements with respect to management’s belief that certain expenses included in operating expenses are non-recurring and related to significant changes in market conditions and the refocus of its operations on becoming Adjusted EBITDA positive.

A more complete discussion of the risks and uncertainties facing the Company appears in the Company’s Annual Information Form and other continuous disclosure filings, which are available on SEDAR at



www.sedar.com



and EDGAR at



www.sec.gov



.


Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company disclaims any intention or obligation, except to the extent required by law, to update or revise any forward-looking statements as a result of new information or future events, or for any other reason.


Investor Relations:





[email protected]







www.hexocorp.com



Media Relations:


(819) 317-0526




[email protected]




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