Hexo Corp (TSX: HEXO) (NYSE: HEXO) released its second quarter financials this morning, in what might be referred to as a “kitchen sink” quarter given how much the company has impaired in terms of assets. Total net loss for the quarter came in at $298.2 million as a result of the cumulative write offs and impairments.
In terms of revenue, Hexo actually posted an improvement over the first quarter of 2020, posting net revenues of $17.0 million, as compared to $14.5 million in the first quarter. Adult use cannabis made up the bulk of this revenue, with net proceeds of $16.3 million via the sale of 6,579 kg of product. Net revenue per gram however decreased significantly, to $2.47 versus $3.24 in the prior quarter as a result of increased sales from the firms value line of product.
Largely, this is where the bad news begins for current Hexo shareholders.
Here’s a laundry list of the write downs and impairments taken by the company in the second quarter:
- Inventory impairment of $16.1 million, compared to an impairment of $23.0 million during the first quarter. Impairment is a result of falling cannabis prices, excess inventory, and sunk costs for package reconfiguration.
- Restructuring costs of $0.3 million connected to the “rightsizing of operations”
- Impairment of property, plant and equipment to the tune of $32.0 million related to the firms facilities acquired from Newstrike Brands which will now be posted for sale
- Impairment of intangible assets by $106.1 million related to the Newstrike Brands assets which are now up for sale.
- Impairment of goodwill to the tune of $111.8 million which is also related to the Newstrike acquisition, effectively writing off nearly the entire transaction less than a year after it closed.
- Realization of onerous contract of $3.0 million, in relation to the ongoing litigation with Medipharm Labs, a contract which has been labeled as being “bad faitth”
Also of interest for current shareholders, is that covenants related to current outstanding debt of $35.0 million with CIBC and BMO requires that the company close on at minimum $40 million in net cash proceeds from the issuance of equities by April 30, 2020. The funding can occur via an at-the-market offering, or via the sale of equity in a funding of at least $15.0 million, either of which must be announced on or before April 10, 2020.
Hexo Corp has $80.4 million in cash and cash equivalents as of January 31, 2020.
Hexo Corp last traded at $1.09 on the NYSE.
Information for this briefing was found via Sedar and Hexo Corp. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.