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HEXO Stock Falls after Weak Q1 Earnings

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Today, HEXO (HEXO) reported its earnings for the first quarter of fiscal 2020, which ended on October 31. For the quarter, the company reported net revenues of 14.5 million Canadian dollars, which missed analysts’ expectations of 15.6 million Canadian dollars. The company’s adjusted EBITDA was -24.6 million Canadian dollars—lower than analysts’ estimate of -21.4 million Canadian dollars. HEXO’s net loss was significantly higher than analysts’ expectation of 24.9 million Canadian dollars at 62.4 million Canadian dollars. The company’s stock fell due to the lower-than-expected first-quarter performance. Today, HEXO was trading over 5.1% lower at 9:45 AM ET.

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HEXO’s revenues fell

For the first quarter, HEXO’s shipped revenues were 20.2 million Canadian dollars. However, adjusting for price concessions, return provisions, and sales returns, the company’s net sales were 14.5 million Canadian dollars—a fall of 5.8% from 15.4 million Canadian dollars in the fourth quarter of fiscal 2019. The revenues fell due to the lower sales volume and selling price. However, HEXO’s revenues increased 154.4% YoY from 5.7 million Canadian dollars in the first quarter of fiscal 2019.

During the first quarter, HEXO’s sales volume fell 5% to 4,196 kilograms compared to 4,009 kilograms in the fourth quarter of 2019. The sales of HEXO’s cannabis products in Quebec, Alberta, and Ontario were 3,080 kilograms, 474 kilograms, and 518 kilograms, respectively. The others contributed the remaining 124 kilograms.

Compared to the last quarter, HEXO’s gross revenue per gram fell 8.2% to 4.35 Canadian dollars per gram. The company’s management said that provisions for returns and price adjustments caused the lower gross revenue per gram. However, introducing the premium brand Up Cannabis offset some of the declines. The brand commanded gross sales per gram of 7.03 Canadian dollars.

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HEXO’s adjusted EBITDA improved

For the first quarter, HEXO’s adjusted EBITDA was -24.6 million Canadian dollars—an improvement from a loss of 29.8 million Canadian dollars in the fourth quarter of 2019. The company’s adjusted EBITDA improved due to lower operating expenses sequentially. For the quarter, HEXO incurred an operating expense of 35.1 million Canadian dollars—a fall of 25.2% from 46.9 million Canadian dollars in the fourth quarter of fiscal 2019. The company’s operating expenses fell due to lower G&A expenses, marketing expenses, and stock-based compensation.

YoY, HEXO’s adjusted EBITDA loss increased from 10.5 million Canadian dollars in the fourth quarter of fiscal 2019. The company’s expanded production and sales increased its adjusted EBITDA losses YoY.

Cash position

By the end of the first quarter, HEXO had 75.5 million Canadian dollars of cash and cash equivalents. Canadian chartered banks gave a loan of 65 million Canadian dollars, which included 50 million Canadian dollars of a term loan and 15 million Canadian dollars of a revolving line of credit.

YTD stock performance

YTD, HEXO has lost 37.4% of its stock value as of December 13. The stock fell due to the weak performance in the fourth quarter of fiscal 2019, the withdrawal of management’s fiscal 2020 guidance, the CEO’s abrupt resignation, and analysts’ downgrade. In comparison, Aurora Cannabis (ACB), Canopy Growth (WEED), and Aphria (APHA) have fallen by 48.8%, 25.5%, and 7.5%, respectively.

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