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Hexo Stock Tanks after Reporting Its Q2 Earnings

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Today, Hexo (TSE:HEXO) reported its earnings results for the second quarter of fiscal 2020. For the quarter, the company reported revenues of 17.0 million Canadian dollars compared to analysts’ expectations of 17.2 million Canadian dollars. However, the adjusted EBITDA was -10.3 million Canadian dollars, which was better than analysts’ expectation of -15.5 million Canadian dollars. Meanwhile, the company recorded an impairment loss of 138.3 million Canadian dollars for its property, plant, and equipment and intangible assets. Hexo also marked a goodwill impairment of 111.9 million. So, the recognition of these impairments led to a fall in the company’s stock price. Hexo was trading more than 13% lower in today’s early-morning trade.

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Hexo’s revenue rises sequentially

For the second quarter, Hexo’s gross revenue was 23.8 million Canadian dollars. However, removing the excise tax of 6.9 million Canadian dollars, the company’s net revenue was 17.0 million Canadian dollars. The net revenue rose 17.2% from 15.0 million Canadian dollars in the first quarter. During the quarter, the net revenue from adult-use cannabis shipments rose by 20% to 16.3 million Canadian dollars. In the first quarter, Hexo’s adult-use cannabis shipment revenue was 13.6 million Canadian dollars.

Hexo launched Original Stash, its value brand, in Ontario and Alberta during the quarter. Along with the launch, the growth in the sales volume in Quebec drove the company’s sales. Hexo sold 6,579 kilograms of adult-use sales during the quarter compared to 4,196 kilograms in the previous quarter. Meanwhile, the net revenue per gram fell from 3.24 Canadian dollars in the first quarter to 2.47 Canadian dollars. The increase in sales of lower-priced Original Stash products lowered the company’s average selling price.

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Hexo’s adjusted EBITDA improved

Hexo reported a negative EBITDA of 10.3 million Canadian dollars during the quarter. However, the EBITDA improved from a loss of 19.4 million Canadian dollars during the first quarter. The improved gross margin and lower operating expenses boosted the company’s adjusted EBITDA.

In the second quarter, Hexo’s gross margin improved from 31% in the previous quarter to 33%. The company wrote down 16.1 million Canadian dollars of inventory during the quarter compared to 23.0 million Canadian dollars in the previous quarter. Lower inventory write-downs drove the company’s gross margins. Meanwhile, Hexo’s operating expenses, after removing special items, were 28.1 million Canadian dollars—a fall from 35.1 million Canadian dollars. The decline in the company’s marketing expenditures and headcount caused the company’s operating expenses to fall. Also, at the end of the fourth quarter, the company had cash, cash equivalents, and short-term investments of 81.4 million Canadian dollars.

Stock performance

As of March 29, Hexo had lost 26.1% of its stock value. The delay in filing its second-quarter earnings and weakness in the broader equity market led to a fall in the company’s stock price. Today’s announcements could lead to another decline in the stock price. During the same period, Aphria (NYSE:APHA), Aurora Cannabis (NYSE:ACB), and OrganiGram Holdings (NASDAQ:OGI) have all fallen by 31.4%, 47.7%, and 7.5%, respectively.

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