HEXO Corp reports third quarter 2019 financial results 

GlobeNewswire - finance.yahoo.com Posted 3 months ago

Key highlights of third quarter of 2019 fiscal year 

  • HEXO remains on-track ramping up to $400 million net revenue in fiscal 2020 and to double net revenue in Q4 fiscal 2019 
  • Entered a syndicated credit facility with CIBC and BMO for up to $65 million available credit to fund continuing expansion and innovation initiatives. 
  • 9,804 kg of dried cannabis produced, an increase of 98% over the previous quarter  
  • 2,904 kg of gram and gram equivalents sold, an increase of 8% quarter over quarter 
  • Headcount more than doubled from 364 to 822  
  • Completed first harvests in new 1,000,000 sq. ft. expansion as HEXO continues ramping up to annual production capacity of 150,000 kg of dried cannabis 
  • Secured 60,000 kg of hemp to be supplied for CBD extraction purposes in preparation for upcoming edibles market and HEXO launch in eight American states in 2020

Subsequent to quarter end: 

  • Closing of the Newstrike Brands Ltd (“Newstrike”) acquisition on May 24, 2019, which resulted in the following:
    • Acquired all issued and outstanding common shares of Newstrike 
    • Increased footprint to approximately 1.8 million sq. ft. of production space and 638,000 sq. ft. of manufacturing and distribution space
    • Increased total estimated annual production capacity to 150,000 kg of dried cannabis, once fully operational 
  • Appointment of two experienced executives: Michael Monahan as Chief Financial Officer and Donald Courtney as Chief Operating Officer
  • Entered into a supply agreement for 200,000 kg of hemp to be supplied during fiscal 2020 for CBD extraction purposes 
  • Established HEXO USA Inc.

GATINEAU, Quebec, June 12, 2019 (GLOBE NEWSWIRE) -- HEXO Corp (TSX:HEXONYSE-A:HEXO) (the "Company") is reporting its financial results for the third quarter of the 2019 fiscal year. 

“The past five years have seen the cannabis industry landscape, and our company, evolve significantly,” said HEXO CEO and co-founder Sebastien St-Louis. “This evolution continues at a staggering pace, as HEXO ramps up production effort and significantly increases its inventory, further contributing to our capacity to meet the demand and to reach our sales and revenue targets. Our Innovation, Development and Engineering team has grown significantly ahead of the legalization of edibles and now includes 25 professionals with PhDs and extensive experience in major consumer packaged goods companies

“This quarter saw HEXO remain on-track as it continues ramping up to $400 million in revenue in fiscal 2020, including completing the first harvest in our 1 million sq. ft. Expansion and preparing to fund our ongoing expansion projects and innovation initiatives by entering a $65 million syndicated credit facility.” 

Subsequent to quarter end, HEXO bolstered its senior management team through the appointment of Michael Monahan as Chief Financial Officer and Donald Courtney as Chief Operating Officer. HEXO continues to drive value through its management team, with experience across a variety of industries, guiding and supporting the Company.

HEXO most recently announced the closing of the agreement to acquire Newstrike. The acquisition will provide HEXO Corp capacity to produce approximately 150,000 kg of high-quality cannabis annually with access to four additional production campuses. It also provides the Company diversified domestic market penetration with combined distribution agreements in eight provinces. The combined entity is estimated to realize millions in annual synergies, allowing HEXO to operate more efficiently with a continued commitment to excellence.  

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. 

Operational and Financial Highlights

KEY FINANCIAL PERFORMANCE INDICATORS

Summary of results for the three and nine months period ended April 30, 2019 and April 30, 2018:

  For the three months ended     For the nine months ended  
Income Statement Snapshot April 30, 2019
  April 30, 2018     April 30, 2019
    April 30, 2018  
     $
  $      $
    $  
Gross cannabis revenue   15,930       1,240      38,739     3,523  
Excise taxes   (2,974 )     –      (6,792 )     –  
Net revenue from sale of goods   12,956       1,240      31,947       3,523  
Ancillary revenue   61       –     170     –  
Gross margin before fair value adjustments    6,440       761      16,212       2,130  
Gross margin   21,832       2,666      40,674       5,881  
Operating expenses   24,056       5,319      64,580     13,654  
Loss from operations    (2,224 )     (2,653 )   (23,906 )   (7,773 )
Other income/(expenses)    (5,527 )     682     (979 )   (5,068 )
Net loss    (7,751 )     (1,971 )   (24,885 )   (12,841 )
         
For the three months ended    
Operational Results     April 30, 2019
  January 31, 2019
  October 31, 2018  
Avg. gross selling price of adult-use dried gram & gram equivalents $    5.29   $   5.83
  $   5.45  
Kilograms sold of adult-use dried gram & gram equivalents      2,759       2,537   952  
Avg. gross selling price of medical dried gram & gram equivalents $    9.11   $   9.15
  $   9.12  
Kilograms sold of medical dried gram & gram equivalents      145       152
  158  
                 
Total kilograms produced of dried gram equivalents     9,804       4,938
  3,550  

Q3 PERIOD HIGHLIGHTS

  • Total gross revenue in the quarter increased in excess of 11.84x to $15,930 as compared to the same quarter of fiscal 2018.
  • Gross adult-use revenue in the three months ended April 30, 2019, exceeded total revenues fiscal 2018 by $9,673 or 196%.
  • Flower and other dry products represented 84% of the quarter’s gross adult-use sales, with oil sales representing the balance of 16%.
  • New in the fiscal year are ancillary revenues associated the Company’s management agreement held with a supplier. This contributed $61 to of net revenue in the quarter.
  • The loss from operations decreased 68% quarter over quarter as a result of the increased fair market value adjustment on biological assets reflecting the increased scale of operations and additional plants onboarded due to the licensing of the 1 million sq. ft. B9 greenhouse.

OPERATIONAL HIGHLIGHTS

  • Adult-use grams and gram equivalents sold increased 9% to 2,759 kg from the previous quarter as the Company continues to deliver on its existing supply agreements.
  • During the quarter ended April 30, 2019, the Company produced approximately 9,804 kg of dried cannabis, a 98% increase from the previous quarter. This is attributable to higher yields in the 250,000 sq. ft. B6 facility as well as the first harvests of the 1 million sq. ft. B9 greenhouse also realized during the quarter.
  • The Company continues ramping up towards its 108,000 kg of annual full production capacity. Economies of scale and production efficiencies continue to be worked towards to reach this capacity.

ORGANIZATIONAL GROWTH

  • As a direct result of the increased operations and staffing requirements of the now several cultivation and production facilities, the Company experienced tremendous growth over the past quarter. In order to satisfy the needs of our 1 million sq. ft. B9 facility and 579,000 sq. ft. Centre of Excellence, along with boosting our administration, R&D and other operations our headcount rose by 120% to 822 employees as at April 30, 2019 from the previous quarter’s headcount of 374 on January 31, 2019. This represents an increase of 685 employees or x5 from the headcount as at April 30, 2018.
  • On May 24, 2019, through the Newstrike acquisition, HEXO acquired an additional 250 employee backed skilled workforce.

FACILITY EXPANSION  

  • In April 2019, we realized the first harvests of the newly completed and licensed B9 1 million sq. ft. greenhouse at the Gatineau campus. This goal was met on time and on budget. This achievement was important step as the Company continues ramping up to an annual combined with Newstrike production capacity of 150,000 kg of dried cannabis and prepares for the legalization of edibles and concentrate cannabis derivatives expected in the fall of 2019.   

FINANCIAL POSITION

  • As at April 30, 2019, the Company held cash, cash equivalents and short-term investments of $173,604 and working capital of $219,120.
  • The Company obtained a $65mm credit facility jointly held with CIBC and BMO, two of Canada’s premier financial institutions. This consists of $50mm available term credit and a $15mm revolving line of credit which will be used in part to finance the continuing expansion of the Gatineau campus as well as the leasehold improvements at the Belleville transformation centre without diluting the shareholders of HEXO.

Summary of Results

Revenue 

  Q3 ’19
  Q2 ’19
  Q1 ’19   Q4 ’18 Q3 ’18
ADULT-USE                           
Adult-use cannabis gross revenue1 $     14,607   $   14,792   $   5,194   $   – $   –
Adult-use excise taxes   (2,741 )   (2,587 )   (970 )     –     –
Adult-use cannabis net revenue     11,866       12,205       4,224       –     –
Dried grams and gram equivalents sold (kg)    2,759      2,537       952       –     –
Adult-use gross revenue/gram equivalent $   5.29   $   5.83   $   5.45   $   – $   –
Adult-use net revenue/gram equivalent $   4.30   $   4.81   $   4.44   $   – $   –
MEDICAL          
Medical cannabis revenue1 $   1,323   $   1,387   $   1,436   $   1,410 $   1,240
Medical cannabis excise taxes   (233 )   (216 )   (44 )     –     –
Medical cannabis net revenue      1,090       1,171       1,392       1,410     1,240
Dried grams and gram equivalents sold      145       152       158       152     134
Medical gross revenue/gram equivalent $   9.11   $   9.15   $   9.12   $   9.26 $   9.24
Medical net revenue/gram equivalent $   7.52   $   7.73   $   8.84   $   – $   –
           
Ancillary revenue2 $   61   $   62   $   47   $   – $   –
Total net sales $   13,017   $   13,438   $   5,663   $   1,410 $   1,240
1 Gross adult-use and medical cannabis revenues represent sales under the normal course of business and are exclusive of excise taxes.
2 Revenue outside of the primary operations of the Company.

Total net revenue in the third quarter of fiscal 2019 increased to $13,017 from $1,240 in the same period of fiscal 2018. The main contributor is the addition of adult-use sales in which the Company is realizing in its first fiscal year of legalization in Canada. Adult-use sales in the quarter accounted for 91% of total revenue. Non-cannabis ancillary sales which began in the first quarter of fiscal 2019 remained consistent at $61 from $62 in the previous quarter. This revenue is derived from a management agreement held by the Company with arms-length partners.

ADULT-USE SALES

As communicated in the previous quarter’s management discussion and analysis the current quarters adult-use gross sales stayed relatively flat totaling $14,607 in the three months ended April 30, 2019. This represents a slight decrease of 1% as compared to the prior quarter. Third quarter gross sales increased by $13,367 relative to the same period of fiscal 2018, (which included medical sales only during that period) or an increase of 1,078%. This is a result of the Company’s additional production capacity still in the ramp up stage as the new 1 million sq. ft. greenhouse realized its first harvest in April 2019.

The Company’s adult-use gross sales for the nine months period ended April 30, 2019 totaled $34,593, an increase of $31,070 as compared to the nine months period ended April 30, 2018 total sales of $3,523. The increase is due to fiscal 2018 containing medical sales only.

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