HEXO Corp. HEXO HEXO released its financial results for the first quarter, revealing net revenue of CA$35.8 million ($26.3 million), a decrease of 29% comparatively to CA$50.2 million in Q1 2022 and a decrease of 16% compared to CA$42.5 million net revenue in Q4 2022.
Q1 2023 Financial Highlights
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The company recorded an adjusted EBITDA loss of CA$598,000, an improvement of CA$6.9 million from the fourth quarter of FY 2022, and an improvement of CA$11 million from the first quarter of FY 2022.
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Total net loss before tax of CA$57.1 million, an improvement as compared to net losses before tax of CA$106.2 million in Q4 2022 and CA$117.4 million in Q1 2022, respectively.
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Total operating expenses were significantly reduced by 69% or CA$50.7 million quarter over quarter and 81% or CA$100 million as compared to Q1 2022.
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Gross loss was CA$17.4 million compared to a loss of CA$32 million in Q1 2022.
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Total gross margin before adjustments has been improved to 24% from 12% quarter over quarter, in part as a result of certain inefficiencies recognized in Q4 2022 due to the consolidation of operations and facility closure.
“The first quarter of 2023 has been one of incredible progress for HEXO,” stated Charlie Bowman, president and CEO of HEXO. “We’re now seeing the results of the strategic realignment we executed over the past two quarters and have successfully reset the company for long-term success. Our laser focus on tackling the balance sheet, pulling back on those unprofitable products where our strengths in premium cultivation were not being leveraged and expanding further into opportunities where we know we can win, is paying off across the business.”
On October 31, 2022, the company had cash and cash equivalents of CA$78.5 million (CA$83.2 million at July 31, 2022). Subsequent to Q1 2023 on December 5, 2022, the company’s 8% convertible debenture matured and a total of CA$40.7 million was repaid in respect of the outstanding principal and unpaid interest. Under the terms of the senior secured convertible note, the company is subject to a minimum liquidity covenant of $20 million.
There remains a risk that the company’s cost saving initiatives may not yield sufficient operating cash flow to meet its financial covenant requirements, and as such, these circumstances create material uncertainties that lend substantial doubt as to the ability of the company to meet its obligations as they come due and, accordingly, the appropriateness of the use of accounting principles applicable to a going concern.
Share Consolidation
Following shareholder approval of a consolidation of the common shares of the company on the basis of a range between two and fourteen existing pre-consolidation common shares for every one post-consolidation common share at the annual and special meeting of the shareholders of the company held on March 8, 2022, the company has filed articles of amendment implementing the consolidation on the basis of fourteen existing pre-consolidation common shares for every one post-consolidation common share.
Notice of the consolidation has been provided to the Toronto Stock Exchange and the Nasdaq Stock Market LLC. The common shares will continue to be listed on the TSX and the Nasdaq under the symbol “HEXO”, and the common shares are expected to begin trading on a post-consolidation basis on the TSX and Nasdaq on or about December 19, 2022. Following the consolidation, the new CUSIP number for the common shares is 428304406 and the new ISIN for the common shares is CA4283044069.
As a result of the consolidation, the 601 million common shares issued and outstanding prior to the consolidation have been reduced to approximately 42.93 million common shares. Each shareholder’s percentage ownership in the company and proportional voting power remains unchanged after the consolidation, except for minor changes and adjustments resulting from the treatment of any resulting fractional common shares. The company will not be issuing fractional post-consolidation common shares. Where the consolidation would otherwise result in a shareholder being entitled to a fractional common share, the number of post-consolidation common shares issued to such shareholder shall be rounded up or down to the nearest whole number of common shares. Fractional interests of 0.5 or greater will be rounded up to the nearest whole number of common shares and fractional interests of less than 0.5 will be rounded down to the nearest whole number of common shares.
Price Action
HEXO shares were trading 4.03% lower at $0.1499 per share at the time of publishing during Thursday’s pre-market session.
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