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Saturday, Jul 2, 2022
Mugglehead Magazine
Alternative investment news based in Vancouver, B.C.

Business

Hexo’s sales spike 31% with $117M loss after steep impairments in Q1

The company is also making a number of new changes to its top management

Hexo's sales spike 31% with $117M loss after steep impairments in Q1
Photo via Hexo

One of Canada’s largest pot firms — Hexo Corp. (TSX: HEXO) (Nasdaq: HEXO) — is starting its fiscal year with a rocky start, while announcing cinematically titled plans to lumber towards cash flow positivity.

On Tuesday, the company released the results for the three months ended Oct. 31, with topline revenue climbing 31 per cent to $69.5 million, from $53 million in the previous quarter.

But Hexo also reported a net loss of $117 million, which the firm chalked up to hefty impairment charges on assets and its investment in Truss totalling $50.7 million, as well as costs of $24.4 million related to three major acquisitions this year.

Read more: Hexo reaches new highs this quarter, yearly sales up 57%

Relatedly, the company said it’s setting off on “The Path Forward” — a strategic plan “to strengthen its balance sheet and accelerate its transformation to become a cash flow positive company within the next four quarters.”

It also announced a series of changes to its executive leadership.

Jackie Fletcher is being appointed VP of science and technology, to “leverage the deep expertise and bench strength from the Redecan acquisition.” Previously, Fletcher was head of science at Redecan for three years.

Trent MacDonald is stepping down from his role as CFO, but will continue until March 11, 2022, as Hexo finds a replacement.

The firm is also appointing John Bell as board chair. Bell was formerly a member and chair of the board at Canopy Growth Corp. (TSX: WEED) (Nasdaq: GCG) for six years until 2020, and is currently chairman of Stack Capital, Pure Jamaican Limited and a board member of Cure Pharmaceutical.

Michael Munzar is stepping down as chair, effective immediately.

In October, the firm fired its co-founder and longtime CEO Sebastien St-Louis, while announcing the resignation of then-COO Donald Courtenay, “as the company completes a strategic reorganization.”

Read more: Hexo co-founder and CEO exits after rocky ride

Read more: Hexo to shutter 3 production sites in early 2022

During the quarter, Hexo closed its acquisitions of Redecan and 48North, which the firm said contributed net revenues of $13.5 million and $1.1 million respectively during the two months ended Oct. 31.

And the company gave a cheery prediction for the months to come, forecasting positive cash flow within the next four quarters based on incremental cash flow of $37.5 million in fiscal 2022 and $135 million in 2023.

“We are taking immediate steps through our new strategic plan, The Path Forward, to strengthen our capital position, improve operations, accelerate organic growth and complete our transformation to be cash flow positive from operations within the next four quarters,” recently appointed president and CEO Scott Cooper said in a statement.

“Having visited all our core sites, and in meeting with our employees and customers, I am more confident than ever in Hexo’s future and our ability to accelerate the creation of short and long-term value for shareholders.”

The plan involves reducing production costs, simplifying the organizational structure, more disciplined pricing and aligning cultivation planning with demand.

In November, Hexo said it was shuttering three production facilities early next year, impacting 155 employees.

Citing Hifyre data, the firm says it remains the top producer in Canada by market share.

Company stock fell 10 per cent Tuesday to around US$0.87 on the Nasdaq.

 

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